In his first bilateral visit with a foreign leader, President Joe Biden had a virtual sit-down with Canada’s Prime Minister Justin Trudeau. The stakes were high, not least because Biden cancelled the permit for the Canadian-backed Keystone XL pipeline on his first day in office, forcing Prime Minister Justin Trudeau to delicately balance his country’s economic interests and the need to rebuild a fractured relationship with the United States.

Surprisingly, scant attention was paid during the meeting to the bilateral trade relationship and repairing damage suffered during the Trump years. Of particular note, Biden did nothing to address concerns over his executive order strengthening “Buy American” requirements for government procurement contracts, from which Canada has sought a waiver. The unwillingness to accede to this request was a missed opportunity that risks prolonging simmering tensions between the two countries.

Buy America requirements for procurement contracts have been around since 1933. Deeming the current state of affairs under these requirements insufficient for his own version of economic nationalism, the Biden administration has stiffened both them and the rules around how waivers are granted. Among these measures are a new means of measuring domestic content, an increased threshold for domestic content requirements for end products and construction materials, and increased price preferences for domestic products (essentially, the amount of money the government is willing to pay a domestic firm beyond the price offered by a foreign competitor).

Canada is no stranger to navigating such U.S. protectionism. In 2010, when Biden was Vice President, the country secured a waiver to Buy America rules implemented as part of President Barack Obama’s economic recovery plan. It’s unclear whether this time will be different. When asked about a waiver for the United States’ third-largest trading partner, White House Press Secretary Jen Psaki only offered that “no changes are anticipated” and “we’re still evaluating the application of that and how it will apply.”

Ottawa will certainly be interested to learn about the outcome of that evaluation. In 2015, the U.S. government awarded roughly 47,000 contracts worth $12.1 billion to foreign firms. Of that, Canadian firms received nearly 2,900 contracts worth $623.6 million—approximately 5 percent of the total. Although the amount is relatively modest, the stakes for Canadian firms could be raised if, as is widely expected, the Biden administration pushes forward with an infrastructure spending binge, where Canadian companies could certainly play a role.

If Canada is unable to secure a waiver, its options will be limited. While the North American Free Trade Agreement required that Canada, Mexico, and the United States provide non-discriminatory, “national treatment” to suppliers of goods and services from each other in many public sector procurement contracts, the agreement’s successor—the United States-Canada-Mexico Agreement (USMCA)—removed Canada from this chapter. In other words, a formerly competitive procurement market that treated Canadian and Mexican companies the same as American ones—thus ensuring the best cost and quality for American taxpayers—has been upended. Canada therefore does not have the option of pursuing a dispute under the USMCA.

Ottawa’s lone means of recourse is filing a dispute at the World Trade Organization, since both Canada and the United States are parties to the Government Procurement Agreement (GPA). But such a move could risk the goodwill established by the recent Biden-Trudeau meeting and encourage Biden to revisit the GPA and perhaps lessen U.S. commitments—a move he has already signaled a desire for. Furthermore, the WTO route will provide no quick resolution to matters with years of litigation a virtual certainty. Even worse, dispute settlement at the WTO has not been functioning since the Trump administration blocked the appointment of new members to the Appellate Body (the WTO’s appeals mechanism). Any appeal filed there would effectively be made “into the void.” In practical terms, it’s not an option.

While Trudeau was all smiles at the official briefing, and did much to reiterate the importance of the Canada‑U.S. relationship, his “merci, mon ami” may have been premature. Yes, the two sides laid out a comprehensive roadmap for cooperation covering a variety of areas—but there were no clear deliverables. No concrete steps were taken by Biden to signal that the United States actually had turned the page. Niceties aside, what matters is policy, and right now the White House has done little to assuage one of its closest allies—and likely the rest of the world as well—that its approach on trade will be different.

Politico reports that President Biden will sign an executive order today to review the global supply chains for medical goods and other “key industries,” in order “to determine whether U.S. firms in these sectors are relying too much on foreign suppliers, particularly those in China.” As I explain in a new Pandemics and Policy paper (coincidentally) out today, the federal government should not embrace economic nationalism to “fix” global supply chains that wobbled during the pandemic because–

• The nation’s overall productive capacity and its medical goods industries are generally healthy, and domestic industries and their supply chains adapted during the pandemic to meet extraordinary demand. This is particularly the case for pharmaceutical supply chains, which proved — according to the U.S. International Trade Commission’s thorough review in December — remarkably “resilient.”

• Past U.S. government attempts to re‐​shore “essential” supply chains have proven costly and unsuccessful, while those implemented during the current pandemic have produced significant distortions (e.g., a ventilator glut), public embarrassment, and subsidies to politically-connected companies that are at best tangentially-related to COVID-19.

• Global integration and economic openness can bolster U.S. resiliency by increasing economic growth, mitigating the impact of domestic shocks, and maximizing flexibility. As we have seen during the pandemic with respect to trucks and semiconductors, moreover, re-nationalizing supply chains can actually amplify manufacturers’ pain when economic shocks (pandemics, natural disasters, etc.) are within U.S. borders.

• There are numerous market‐​oriented policies that would generally benefit the U.S. economy while also supporting the industrial base and national resiliency, including: unilateral trade and investment liberalization; entering new economic agreements with U.S. allies, particularly those that specialize in medical goods; eliminating nationalist restrictions on government stockpiles and opposing any new ones; expanding high‐​skilled immigration; and eliminating “never needed” regulations that were suspended during the pandemic to boost domestic production, investment, and adjustment.

Fortunately, Politico quotes a senior Biden administration official as saying that “[r]esilient supply chains are not the same thing as all products being made in America. That’s not our intention here.” Let’s certainly hope not, as the facts above argue strongly against using protectionism and subsidies to “renationalize” allegedly vulnerable global supply chains.

More broadly, the White House’s medical supply chain review should resist the temptation to proposes “fixes” to supply chain problems that — due to previous government interventions and the independent efforts of numerous American companies and foreign multinationals to expand domestic operations, enter the U.S. medical goods market, or adjust their supply chains in response to the pandemic — might no longer exist. Indeed, by the time U.S. policymakers decide to intervene further in the market, it will look much different than the one on which they based their decision and will likely change again by the time any government‐​supported production comes online.

A common medical principle therefore applies to White House’s own medical supply chain review: “First, do no harm.”

(You can read the entire paper here.)

The next ministerial conference of the World Trade Organization, scheduled for June in Nur-Sultan, Kazakhstan, may be the last chance for the WTO to reclaim its central role in the multilateral trading system. With all too few successes in the 21^st century about which to boast, WTO members must prove anew there that they can negotiate new rules and put them into effect. To improve their prospects for success in Kazakhstan, they must agree now on the issues most likely to have chances to generate consensus by June and pursue negotiations on those issues immediately.

In the countdown to Kazakhstan, five issues seem most ripe for negotiating success. Those issues, as I argue in a new paper titled “Reviving the WTO: Five Priorities for Liberalization“released today by the Cato Institute, are free trade in medical goods, free trade in environmental goods, new disciplines on fisheries subsidies, investment facilitation, and digital trade. These should be considered the five first pieces of WTO reform.

First, the COVID-19 pandemic has made clear the interdependence of countries for medicines and medical supplies, revealing the wisdom of a free trade agreement in medical goods. Even before the pandemic struck, the average bound tariff on medical products for all WTO members was 26 percent, with some tariffs as high as 65 percent. The intense pressures of the pandemic resulted in the imposition of new trade restrictions; at least 75 national governments imposed restricted on exports of medicines and medical supplies.

A new WTO agreement should aim to eliminate all tariffs on imports and all export restrictions on drugs and other medical goods. In addition, WTO members should agree to promote transparency in all national measures taken to fight the virus; end price-inflating “buy local” requirements for medical goods; eliminate unnecessary regulatory and administrative barriers that hinder medical trade; and adopt international standards to help ensure the safety and quality of imported medical goods.

Second, after nearly two decades of negotiations, WTO members must finally reach an agreement to end tariffs on environmental goods. This would free up trade in a sector that accounts for about $1 trillion in global trade annually and encourage the proliferation of climate-friendly and other new technologies worldwide.

The main hold-up here has been the inability of the negotiating countries to agree on a list of “environmental goods.” Some interest groups have proffered proposed lists that contained virtually everything, including (literally) the kitchen sink. China, the European Union, and the United States have squabbled over whether bicycles are environmental goods.

There is time between now and June to resolve these disputes and agree on a final list. There is need also to make certain that this final list will be a “living” list to which new environmental goods can be added as they are invented in the years to come.

The third among priorities for the Kazakhstan Ministerial Conference is an agreement to curb subsidies of the world’s fisheries, which could go a long way to stem the crisis of overfishing. Fisheries subsidies total $35.4 billion worldwide. Mostly, these subsidies go to large fishing companies and not to small and artisanal fishers. They enable large fleets to range farther into the global commons of the high seas and shrink the threatened fish stocks there. A WTO agreement that reduced and eventually eliminated these subsidies could do much to preserve the global fishing industry while also making fishing more sustainable. The Pew Charitable Trusts have calculated that the total capacity of the world’s fishing fleets—in part driven by these huge fisheries subsidies—is 250 percent of the level that would bring in the maximum sustainable fish catch worldwide.

WTO members have been negotiating for nearly twenty years on this issue, while subsidies have continued to worsen the problem of dangerously declining global fish stocks.

Fourth on the list of priorities for Kazakhstan is an agreement on investment facilitation. Because of the pandemic, global foreign direct investment is projected to plunge 40 percent this year. To recover from the pandemic, more FDI will be required. As a counterpart to the existing WTO agreement that facilitates trade, an investment facilitation agreement could improve national procedures where they impede FDI.

As WTO members have already established, an investment agreement could “improve the transparency and predictability of investment measures; streamline and speed up administrative procedures and requirements; and enhance international cooperation, information sharing, the exchange of best practices, and relations with relevant stakeholders, including dispute prevention.”

Finally, WTO members should aim to reach an agreement on digital trade. The most significant new dimension of international trade in the twenty-first century is that so much of it is now digital. Yet there are no WTO rules written specifically for digital trade. WTO members have been trying to write such rules since 1998, but—apart from a temporary moratorium on the application of customs duties on electronic transactions, which has been renewed annually—they have little to show for it.

The complexity and controversial nature of issues such as data privacy and data localization are such that it will not be possible to resolve them by June. But it is possible to agree by then on a legal framework for digital trade and on rules on some basic elements of digital trade (such as, for example, acceptance of electronic signatures). That would be something on which to build in further negotiations.

As hard as it will be to achieve consensus on these five WTO reforms, these are the five reforms that seem the ripest for resolution by June in Kazakhstan. Success in reaching an agreement there on all five would do much to end the existential crisis of the WTO. Failure to reach agreement on any of them would prolong and worsen that crisis, with unforeseeable but undoubtedly unfortunate consequences for all WTO members.

There is still time, though not much, to avoid that unwelcome fate.

The global semiconductor shortage roiling the U.S. automotive industry has become the latest pandemic-induced supply chain disruption embraced by economic nationalists to justify their preferred trade and industrial policies — policies that would renationalize global supply chains and supposedly improve America’s economic “resilience” during future emergencies. President Biden is also reportedly considering an executive action to address the issue. Leaving aside the fact that the auto industry’s semiconductor problems are in large part “self-inflicted” (and not shared by better-planning car companies), or that North American producers are among the least-affected automakers in the world, or that automotive companies primarily need low-margin commodity chips made by older equipment (not the bleeding-edge chips/​equipment that the U.S. military needs or that the federal government wants to subsidize), the nationalist argument suffers from a fundamentally flawed premise that I detail in a new policy analysis. In particular, there is ample evidence that, while re-shoring supply chains might insulate U.S. producers and consumers from external shocks like foreign wars or natural disasters, those same policies can actually make the U.S. economy less resilient — especially when the shock is domestic.

And this very flaw just revealed itself in the case of semiconductors:

Severe weather conditions hitting much of the U.S. have caused some semiconductor companies to idle production capacity, threatening to exacerbate a chip shortage that has already prompted car makers to curtail output at some plants.

South Korea’s Samsung Electronics Co. , one of the world’s biggest chip makers, operates two factories in Austin, Texas, and was asked by local authorities to shut those down on Tuesday, said a company spokeswoman. Samsung expects to resume production as soon as possible and, the spokeswoman said, was waiting for electricity provider Austin Energy to advise when the chip maker’s operations could start up again.…

Dutch chip company NXP Semiconductors NV said Wednesday that it had to scale back work at two facilities in Austin. “Affected customers are being notified directly by NXP of the potential for supply disruptions,” the company said. NXP makes chips for the automotive industry. Automotive sales comprised $1.19 billion of the company’s fourth-quarter revenue, roughly half of the overall figure.…

Other large customers of Austin Energy have also shut down because of the storm, according to a statement from a consortium of those customers. Germany-based Infineon Technologies AG , a car-chip supplier, has manufacturing facilities there that Citi analysts say mainly produce memory chips critical for automotive and industrial markets that accounted for about 5% of the company’s revenue last year. Infineon said it shut down its Austin plant on Tuesday after authorities said power supply would be interrupted.

As I explain in my paper, openness to global trade and investment can mitigate domestic shocks like the current winter storms by providing alternative sources of supply during an emergency and helping the nation recover thereafter. Such policies also tend to strengthen the domestic economy more broadly and make armed conflicts less likely. Of course, no strategy will produce perfect outcomes at all times — particularly when a surprise global pandemic causes both supply and demand to go haywire almost everywhere. But it’s nevertheless essential for policymakers to understand that attempts to forcibly renationalize supply chains in the name of “resiliency” carry their own risks and could end up making the U.S. economy less, not more, secure in both the short run and long.

And the semiconductor shutdown in Texas provides the latest proof.

Bloomberg reports that American steelmakers are imperiling President Biden’s goal of boosting the U.S. manufacturing sector and might, in fact, cause more industrial offshoring:

Producers that shut furnaces in response to falling demand during the early stages of the coronavirus are still operating plants at well below pre-pandemic levels, even as recovering economies and tight supplies drive prices higher. The benchmark price for American steel is at an all-time high.

Companies including Cleveland-Cliffs Inc. and U.S. Steel Corp. have kept blast furnaces idled on expectations that prices are likely to recede at some point, which would squeeze margins and potentially force expensive shutdowns again at those furnaces. While that tack bodes well for steelmaker profits, customers in industries from automobiles to appliances to machinery say they can’t get enough metal, and may need turn to overseas suppliers.

“That’s just blowing a giant hole in the idea of reshoring, where if you want to support U.S. manufacturing you need to have competitively priced inputs,” Josh Spoores, the principal steel analyst at CRU Group, said in a telephone interview. “It’s primarily steel and energy, and if either of those is out of whack and it’s not competitive where it is elsewhere, you’ll see manufacturing move to lower-cost areas.”

As the article notes, U.S. manufacturers struggling to get enough steel would in normal times turn to foreign suppliers, but there’s one big, expensive impediment to doing so today: President Trump’s 25% “national security” tariffs on most imported steel, which remain in force and make imports artificially expensive for U.S. consumers (including some steelmakers that import semi-finished slabs). As a result of these tariffs, favored U.S. steel companies can extract extra profits from downstream manufacturers by continuing to restrict output and charging obscenely high prices (now almost as high as the tariff- and transportation-adjusted price for imported steel). And their executives are quite open about this profit-taking strategy:

Lourenco Goncalves, the chief executive officer of Cleveland-Cliffs, has told investors that he will focus on a quality over volume approach. The Ohio-based company bought AK Steel Holdings Corp. and ArcelorMittal USA assets in 2020.

“Under my watch, Cliffs had never been and will never be tempted by the stupidity of volume for volume’s sake,” Goncalves said on a call with analysts in October. “We will continue to manage our business in the most quality-focused and cost-efficient ways, always reaching for real value and return on invested capital.”…

“The demand is not pre-Covid levels, but it’s just more than what we have in production today,” said Dan DeMare, a regional sales manager for Heidtman Steel, a service-center customer of U.S. Steel. “The steelmakers are going to make a load of money, but the stress it puts on the market is insane.”

Restricted domestic steel production, of course, also means few (if any) additional steel jobs.

As I explained in a new paper, President Trump’s tariffs helped cause the U.S. manufacturing sector’s decade-long upswing to stall out in 2019, and repealing them — which President Biden could do with a stroke of a pen — would accelerate the sector’s post-pandemic recovery. Repeal would also help achieve Biden’s own economic and foreign policy goals, while correcting one of Trump’s most baseless invocations of “national security.” Unfortunately, the Biden administration seems in no rush to change course and may, in fact, be copying Trump’s economic nationalist playbook. It’s a frustrating case of politics and bad economics trumping (no pun intended) common sense — at least so far.

But, hey, at least some U.S. steelmakers are making a “load of money.”

If you’re the type of person who spends hours in the grocery store reading every label, then you may have noticed that some items in the meat department bear a label that tells you where the animal you’re about to consume was born, raised, and harvested. The way things work now, retailers and producers can choose to provide this additional information to consumers who are curious about these things. But in a not so distant past, there was legislation that required such information to appear on packaging, which in turn required producers to gather information about where each bit of meat originated. In a bit of a flash from that past, one of the chief supporters of what is called mandatory “country of origin labelling” (COOL) recently made remarks about how he regretted not being able implement COOL across the board. And he’s about to get a second shot at it.

Tom Vilsack was Secretary of Agriculture during the Obama administration, and he is reprising the role under President Biden. While the Biden team has recycled some personnel from the Obama years, the choice of Vilsack for agriculture has led to some serious déjà vu among trade experts who follow regulatory barriers to trade. That’s because one of the big trade issues that Vilsack oversaw was the implementation of new rules for mandatory country of origin labelling for beef and pork products, a requirement in the 2008 Farm Bill. After Canada and Mexico brought the issue before the World Trade Organization (WTO)— and after years of litigation— these measures were repealed.

At his nomination hearing before the Senate Agriculture Committee, the topic of COOL came up again, with farm state senators pressing him about whether these measures could be revived. Instead of pushing back against these demands, Secretary Vilsack told the committee that “If there is a way to get it to be WTO-compliant, I would be more than happy to work with you and I look forward to that.” The last time this all happened, Vilsack took an active approach to implementation that made the COOL regulations more protectionist. Doing the same thing again would be a mistake.

The Origins of Cool

In thinking about how COOL works in theory and in practice, it may be helpful to first give a little background. While some proponents frame COOL as only being about providing consumers with information, in reality it was intertwined with complaints from American industry that Canadian and Mexican beef were being traded “unfairly.”

The first COOL legislation was put forward by Rep. Helen Chenoweth-Hage (R‑ID) on April 17, 1997, when she introduced the Imported Meat Labelling Act of 1997. This measure would have amended the Federal Meat Inspection Act to require labelling of meat products with the country of origin, specifically to indicate where an animal was raised before slaughter. A similar bill was introduced by Sen. Tim Johnson (D‑SD) on the same day; he argued that the reason for country-of-origin labelling was the lower quality meat found in imported products. These bills did not advance beyond the committee stage. Rep. Chenoweth-Hage and Sen. Johnson reintroduced their bills again two years later, and additional bills were put forward by Sen. Tom Daschle (D‑SD) and Sen. Conrad Burns (R‑MT). Sen. Burns stated that his “bill will protect the consumer as well as the agricultural industry, which has had to face severe competition from foreign countries in recent years,” singling out Canada and Mexico.

It was around this time that the Ranchers-Cattlemen Action Legal Foundation (R‑CALF) was founded for the purpose of filing antidumping and countervailing duty cases on behalf of the U.S. cattle industry. On October 1, 1998, R‑CALF initiated two antidumping cases against live cattle from Canada and Mexico, and a subsidies case against live cattle from Canada. In January 1999, the International Trade Commission (ITC) made a preliminary affirmative injury determination with respect to imports of live cattle from Canada; however, it reached a negative determination for the antidumping investigation on Mexico, which ended that case. The ITC made a negative final injury determination with respect to Canada, stating that “significantly increasing volume of subject imports are not imminent, and that material injury will not occur in the absence of an antidumping duty order.” This effectively ended R‑CALF’s petition. In response, however, the group did not give up their fight against imports, but instead turned their attention to Congress, focusing on their push for a mandatory country-of-origin labelling rule.

Back in Congress, legislators were still expressing their worries about foreign competition. In a September 2000 hearing, Rep. Chenoweth-Hage stated that “One of the concerns of the northern-tiered States…is that there is a lot of cattle coming in in sealed trucks across the Canadian border to our border States, Idaho being one, the Dakotas, Montana, Washington, and then of course, it filters down and distorts the American market.”

Several attempts were made prior to the 2008 Farm Bill to institute mandatory country-of-origin labelling for certain muscle cuts of meat, including beef, lamb, pork, and farm-raised fish. However, legislation on labelling was delayed until September 2008, due to disagreements in Congress over whether labelling should be voluntary or mandatory. The original 2008 Farm Bill did not include country of origin labelling provisions; they were later added by the House Committee on Agriculture, and the Senate Agriculture Committee.

With the legislation in place, on August 1, 2008 the Agricultural Marketing Service (AMS) of the U.S. Department of Agriculture announced that an interim rule on mandatory COOL would take effect on September 30, 2008; a final rule was published on January 15, 2009, which would take effect on March 16, 2009.

The 2009 Final Rule established origin labelling rules for meat based on the following five categories:

(1) Category A muscle cuts (U.S. country of origin);

(2) Category B muscle cuts (multiple countries of origin);

(3) Category C muscle cuts (imported for immediate slaughter);

(4) Category D muscle cuts (foreign country of origin); and

(5) Category E (ground meat).

To qualify for category A, the animal must have been born, raised, and slaughtered in the United States; in contrast, category D is for products where no part of the production process has occurred in the United States, and it is therefore wholly of foreign origin. The other categories require labelling to specify that the meat is a product of the United States and Country X (and Country Y, if applicable). Through these requirements, the measure required tracking every point in the production process. In this regard, the amended 2013 Final Rule required categories B and C to specifically identify the production steps that occurred in each country, namely, where the product was born, raised, and slaughtered.

The trade problem with the measure was not the labelling requirement per se. Rather, it was that the structure of the measure gives certain meat processors an incentive to use only a single national source of products, so as to avoid the cost of segregating products by nationality. Canada and Mexico were therefore worried that the measure would lead to decisions by meat processors to stop using meat and cattle of Canadian or Mexican origin. In fact, Canada had raised this issue repeatedly at the WTO’s technical barriers to trade (TBT) committee, arguing that “the United States had yet to provide evidence that the mandatory COOL program would benefit consumers as a retail labelling program. On the contrary, domestic support for the program did not appear to be consumer-driven, but rather, producer-driven.”

The Vilsack Letter

The United States was pressed by Canada and Mexico (and a few other countries) to clarify the COOL rules that were going to go into effect, to ensure that they would not be implemented in a protectionist way. In addition to bilateral discussions, the issue was discussed at the WTO’s TBT committee for 6 years. However, these discussions did not resolve things, and in December 2008, Canada and Mexico each made separate requests for consultations, thus starting litigation. But, because there was a change in administration with the election of President Obama, Canada and Mexico agreed to hold off on pushing the dispute forward until they could discuss the issue with the new administration.

It was reported that Mexico was waiting “until it has a greater understanding of the direction the Obama administration is taking on the issue” before moving forward with litigation. Discussions during consultations resulted in a lot of back and forth between the parties that led to an agreement on some modifications to the rule and, ultimately, the suspension of consultations pending the impact of the modifications to the Final Rule. There was some hope that the issue could be resolved without litigation.

But the Obama administration’s view of the measure soon became clear. A crucial component of implementing the COOL regulation was the so-called “Vilsack letter,” written by, you guessed it, the Secretary of Agriculture, Tom Vilsack. The letter recommends that “processors should voluntarily include information about what production step occurred in each country when multiple countries appear on the label,” which went beyond the obligations contained in the 2009 Final Rule (AMS), where the production step is not explicitly mentioned in the label and the commingling flexibilities provide leeway for interchanging the order in which the countries are listed. Thus, under the letter, labels might read, “Born and Raised in Country X and Slaughtered in Country Y.” The letter essentially asked industry to apply more stringent rules on COOL.

The letter was a turning point in the litigation proceedings that were put on hold by Canada and Mexico. In the March 2009 meeting of the TBT committee, the representative of Canada remarked that the changes put forward in the Vilsack letter “would increase production costs all along the beef and pork value chains, with no obvious benefits, and would unravel years of progress made in creating an efficient, integrated and competitive market.” Mexico also commented that “confusion remained” with regard to how the rule would be implemented because the Vilsack rule was more trade restrictive than the Final Rule. The Vilsack letter, and reaction to it, solidified the response to escalate the dispute further. Canada no longer felt bound by its pledge to hold off on formal litigation.

The reason the Vlisack Letter was such a problem was that it undercut the flexibilities that were included in the 2009 Final Rule. While the U.S. argued that the Vilsack letter was just a voluntary suggestion, the language of the letter contained a thinly veiled threat that the U.S. Department of Agriculture would closely monitor industry compliance to determine if “additional rulemaking may be necessary to provide consumers with adequate information.” That was enough for Canada and Mexico to go ahead with their WTO dispute, and ultimately, to win it.

Can COOL Be WTO-Compliant?

The fact that COOL was found to be in violation of the United States’ obligations at the WTO has not stopped calls to bring it back. Prior to the issue being brought up in Secretary Vilsack’s most recent confirmation hearing, the idea was floated again by U.S. industry groups, including R‑CALF, during the renegotiation of the North American Free Trade Agreement. While those efforts failed, it has not stopped them from continuing to push for mandatory COOL rules. Secretary Vilsack seemed to suggest that he is willing to explore the idea again, and to see if COOL can be made WTO-compliant. But can it be?

Before getting into that, we must point out that having mandatory rules on COOL is unnecessary. Take our example of perusing the meat aisle—there are plenty of retailers or producers that choose to provide this information on a voluntary basis, and that’s completely fine. That retailer or producer has decided, on its own, that their consumers would like to have that information. But everybody doesn’t want that information, or in fact, needs it in deciding what to pick up at the supermarket.

But, if Congress wants to go down this road again, and take Vilsack along for the ride, COOL will need to made flexible enough so that it doesn’t have a protectionist impact. The simple answer as to how to do that is to have a more flexible labelling requirement that still provides consumers with country of origin information, while allowing meatpackers to avoid the costs of segregating all their meat by country of origin. For example, taking the case of meatpackers who only use cattle that could be classified as either U.S. or Canadian at some stage of production, you could have a label that said “Product of U.S. and/​or Canada,” without identifying the particular country or stages of production any further. That would let meatpackers commingle from different countries of origin as much as they wanted.

This approach to COOL for these kinds of products would narrow down the country of origin for consumers, and the products in question could be distinguished from products where the retailer knew the products were of exclusively U.S. origin (and therefore could be labelled as “Product of the USA”). Consumers could determine which beef is 100% a product of the U.S., and meatpackers could avoid the costs of segregation and still use a label that conveys a good amount of information on origin. And if it turns out “Product of U.S. and/​or Canada” makes consumers reluctant to buy the meat (that seems unlikely for most consumers), the meatpackers can think about whether to change their approach to production and sourcing.

So yes, there is a way to make COOL compliant with WTO rules, but Secretary Vilsack and Congress will have to take a very different approach than what they’ve tried in the past. Now, this may not produce the result they’re seeking, if, in fact, the outcome they are more concerned with is protecting U.S. industry instead of informing U.S. consumers. We will have to wait and see if COOL becomes a hot trade issue again, and if it does, let’s hope it’s doesn’t bring on déjà vu.

The New York Times yesterday provided an in-depth look at the Biden White House’s plans to “transform the economy” through “dramatic interventions to revive U.S. manufacturing” — heavy on economic nationalism, industrial planning, and manufacturing jobs. If that approach sounds familiar, it should: it’s essentially the same gameplan that Biden’s predecessor used, with the only major difference being Biden’s emphasis on “green” industries like wind turbines, as compared to Trump’s love of steel and other heavy industry.

Both presidents, however, seem to share a soft spot for the automotive industry and U.S. autoworkers. Trump sought to boost automotive jobs through both tariff threats (on dubious “national security” grounds) and restrictive “rules of origin” provisions in his NAFTA replacement, the USMCA. Biden is reportedly looking to boost those same jobs through increased domestic production of electric vehicles and “critical parts like batteries.” According to the Times, Biden’s team was strongly influenced in this regard by a 2018 United Automobile Workers (UAW) report advocating “huge” government “investments” (subsidies) in the U.S. auto industry, and arguing that “advanced vehicle technology should be treated as a strategic sector to be protected and built in the U.S.” Judging from this report and various Biden administration statements to the Times, Biden’s plans appear to be a cut-and-paste job from the Trump era, with a little green tinting.

As I discussed in a new Cato policy analysis, however, economic nationalism — tariffs, subsidies, “Buy American” restrictions, and the like — is a shoddy way to “revive” the U.S. manufacturing sector and in fact often weakens it. Even if you assume we need a large U.S. industrial base, moreover, global and historical data from before the trade wars and pandemic show little need for any “revival” at all: typical measures of “deindustrialization” (jobs and manufacturing’s share of U.S. GDP) say little about the sector’s health, while the things that do matter — output, value-added, foreign direct investment, R&D and capital expenditures, and financial performance — are looking fine, especially in the industries that matter most for national security.

This includes the U.S. automotive industry, which — despite two recessions — enjoyed significant increases in real (inflation-adjusted) value-added and gross output between 1997 and 2018:

A detailed breakdown of the industry’s output over this period also shows a dynamic sector that responds to market forces — for example, U.S. consumers’ growing preference for trucks and SUVs over cars — while total output continued to climb:

The American automotive sector has also been a top target for foreign direct investment (FDI). According to the U.S. government’s Select USA program–

Since Honda opened its first U.S. plant in 1982, almost every major European, Japanese, and Korean automaker has produced vehicles and invested more than $75 billion in the United States. The U.S. affiliates of majority foreign-owned automotive companies directly support more than 400,000 U.S. jobs. Additionally, many automakers have U.S.-based engine and transmission plants, and conduct R&D, design, and testing in the United States. Total foreign direct investment in the U.S. automotive industry reached $114.6 billion in 2018.

Meanwhile, the industry’s financial performance and capital expenditures have also been healthy:

Industry group the Auto Alliance further estimates that automakers invest around $19 billion per year in research and development (R&D) in the United States, accounting for about one-sixth of global automotive R&D spending. According to recent Wall Street Journal analysis, industry investment is today concentrated in electric vehicles due to heightened consumer demand, and it has attracted a flood of additional private capital — foreign and domestic — to expand the supply chain for batteries and related materials in the United States. In particular, U.S. battery-making capacity is expected to increase more than sixfold by 2030, from 60 to 383 gigawatt hours of annualized production, and investors are lining up to establish U.S. battery materials (anodes, cathodes, and raw materials like lithium) facilities to support that production. Again, consumers are driving (no pun intended) the trend: “[m]oving more battery production to the U.S. will help car companies and their suppliers bring down costs, a step that is important for consumers to adopt electric vehicles more widely.” By contrast, the Journal notes that “[t]here are risks if consumer demand doesn’t materialize as expected. An attempt to expand U.S. battery production—mostly through government funding under then-President Barack Obama —stumbled early last decade when car companies failed to see demand for electric vehicles materialize as anticipated.”

Lessons abound.

Of course, the U.S. automotive industry utilizes imports to remain globally competitive, and automakers have offshored some vehicle production — especially small cars — to Mexico and other countries. However, these same companies also export significant volumes of cars, trucks, and SUVs to the rest of the world: in 2018, for example, “the United States exported 1.8 million new light vehicles and 131,200 medium and heavy trucks (valued at over $60 billion) to more than 200 markets around the world, with additional exports of automotive parts valued at $88.5 billion.”

And it is this very global integration that makes Trump/​Biden economic nationalism so counterproductive for the auto industry. As President Trump’s tariffs taught us, protectionism here tends to spark protectionism abroad against imports of American-made goods. This retaliation, combined with higher input costs due to Trump’s tariffs, ended up costing U.S. automotive jobs, which since the Great Recession had been a positive outlier:

Indeed, a 2019 analysis from the New York Federal Reserve found that about one-third of all U.S. manufacturing job growth between 2010 and 2017 in was in the automotive sector — a trend that the chart above shows continued through 2018 when Trump’s trade wars began — and primarily located in America’s “auto alley,” stretching from Michigan to Alabama (inclusive of the Carolinas and Georgia):

Many of these jobs are in non-union, foreign-owned plants in the “right to work” states of Alabama, Georgia, Kentucky, South Carolina, and Tennessee, as well as in more union-friendly states like Ohio. According to the Detroit News in 2019, for example, “the Detroit Three automakers are an island of UAW production surrounded by foreign transplants that now make up 48% of U.S. vehicle production… up from just 17% in 2000. Non-union employment rose from 15% of the industry at the century’s turn to 39% in 2013.” The article adds that average production worker salaries at Honda’s Maryville, Ohio plant are $80,000 per year (plus benefits) — a “pattern of high-paying, non-union employment [that] has been repeated across the country in transplants from Toyota Motor Corp. in Kentucky to BMW AG in South Carolina to Kia in Georgia to Volkswagen AG in Tennessee.” Hourly wages are a little lower than UAW jobs, but flexibility in foreign automakers’ non-union labor contracts — which can, unlike UAW contracts, be benchmarked to local manufacturing norms — has given non-“Big Three” automakers a significant cost advantage that has supercharged their domestic competitiveness and enabled them to gobble up market share. As one economist put it, “[s]ince the bankruptcy, GM has made itself a 21st-century company talking publicly about competitive wages and closing plants to remain profitable. But the UAW and their political supporters are still using rhetoric right out of 1979. It’s not clear that they understand that the game has changed.”

Maybe the old game, not the U.S. automotive sector, is what the Biden administration is really trying to “revive”?