When Efficiency Is Not Good Enough

Last week, Ambassador Katherine Tai from the Office of the U.S. Trade Representative was in the lion’s den, or, more accurately, the lion’s bar, as she visited the World Economic Forum’s annual gathering in Davos. Leaving aside the question of how much taxpayers’ money was spent on what is essentially a weeklong party with some speeches thrown in, Ambassador Tai deserves credit for braving the establishment and making remarks that were decidedly not preaching to the choir.

Basically, she argued against efficiency, saying that companies’ search for it has led to a race to the bottom economically as businesses look for the highest quality at the lowest price with the most favorable delivery terms. She acknowledged the prosperity this has brought the world but argued that the collateral damage has been excessive profits for large multinational corporations and lost jobs and low wages for workers here in the United States.

She has said this before, many times. The new element is the link to efficiency and the assertion that efficiency turns out not to the greatest thing since sliced bread. From one perspective, this is healthy because it recognizes that there are costs to her policy. Simply put, efficiency saves money. If you want to have less of it, we will all pay more. Goods and services will cost more because companies will be paying their workers more and providing better benefits, and they will be importing from countries that maintain similar high standards. Promoting more domestic manufacturing has turned out to mean massive government subsidies, which the people eventually pay for in taxes. She is betting that the benefits of her policy outweigh the costs.

If her approach succeeds in reversing the growing inequality in our country and in others, it will be a good thing, and her acknowledgement that doing so is not cost-free is a welcome dose of realism in the trade policy debate that was lacking earlier in this administration.

It also capitalizes on companies’ growing reassessment of the political and economic risks of operating globally, particularly in China. Companies’ motivations are not the same as Ambassador Tai’s—they’re mostly interested in supply chain security and resilience rather than their workers’ welfare—but opening the door to supply chain restructuring provides an opportunity to try to convince them to build the government’s priorities into their planning as well.

Still, there are at least two issues she did not discuss that deserve consideration. The first is the distinctive U.S. focus of her remarks. The main losers of traditional trade policy are U.S. workers. Lip service is granted to exploited workers in other countries, notably Mexico, but the Biden administration’s trade policy is clearly designed to create jobs and growth here in the United States at the expense of other countries. You need go no farther than listen to EU officials talk about the Inflation Reduction Act. Even efforts to raise wages in other countries, like Mexico, are designed to make them less competitive with our workers.

Ambassador Tai and others in the administration fail to note the impressive impact past trade policy has had on the rest of the world. Ed Gresser, in the Progressive Policy Institute’s Trade Fact of the Week last week, notes that the number of extremely poor people in the world has declined by two-thirds since 1990. In that year the World Bank estimated that nearly 2 billion people out of 5.3 billion were living on less than $2.15 per day (the Bank’s definition of extreme poverty). Last year, tentative estimates were that the number below that line was 655 million out of a total world population of 8 billion. From any perspective, that is an extraordinary accomplishment, and there is no question globalization had a lot to do with it.

Did that occur at the expense of some American jobs? Undoubtedly, but a rich country focusing primarily on the welfare of its own relatively well-off citizens smacks of the same exclusivity that Ambassador Tai is attacking. Focusing on the domestic costs of globalization rather than its impressive benefits over more than 30 years is a classic case of letting the perfect be the enemy of the good.

The second issue is the administration’s failure to recognize the opportunities it is missing. And here I return to a common theme: trade agreements create benefits; they don’t distribute them. If you think workers are not getting their fair share—which I agree with—then raise the minimum wage, require companies to offer a broader range of benefits, tax the rich, and have a better safety net for the unemployed. Not entering into trade agreements that enhance market access is to miss opportunities to grow our economy. With 95 percent of the world’s consumers outside our borders, if we want to grow, we have to trade. Even if we succeed in bringing manufacturing back to the United States, who is going to buy the new stuff we are making? In an economy with a declining birth rate and a paralyzed immigration policy, it’s not going to be just us. Import substitution is not a viable policy.

Having a trade agenda that opens new markets and creates more benefits does not mean abandoning the quest for equity and inclusivity. It means multitasking, which is something GenXers and Millennials are supposed to be good at. Trade is an opportunity to prove it.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.