Yesterday, Farah Stockman of the NY Times editorial board published an op-ed on the World Trade Organization entitled “The W.T.O. Is Having a Midlife Crisis.” The WTO is only 25 years old, so I’m not sure “midlife crisis” is accurate, but what really concerns me is the various errors and mischaracterizations throughout the piece. I thought it was worth offering some corrections. Here goes.

The first issue I have is that the piece seems to suggest that “the WTO” itself has a great deal of power. For example, the piece states: “When the W.T.O. was created in 1995 to write the rule book for international trade” (emphasis added); or “The W.T.O. wasn’t just powerful. It was ambitious”; or “People began to complain that the W.T.O. just wasn’t up to the task of regulating the world economy” (emphasis added). I’m not sure what the author had in mind exactly, but these statements could be taken to mean that the WTO’s Director-General, or the 625 staff who work in the WTO Secretariat (which I did many years ago), have much more power than they actually do (it’s worth noting that 625 is a pretty small number of employees compared to, say, the World Bank). In reality, virtually all the power over WTO rules is in the hands of the governments who are members of the WTO. Thus, generally speaking, it’s misleading to say “the WTO” did this or did that. The key decisions are made collectively by governments: Governments write the rules, and governments complain when they think other governments are not complying with the rules. And it is certainly not the case that “the WTO” is tasked with “regulating the world economy.” Again, it’s the governments who are in charge here. (The one exception to all this is rulings by WTO dispute settlement bodies, which are discussed a bit below, but keep in mind that these rulings cannot actually force governments to comply. The most they can do is provide authorization for the complaining government to withdraw some of its own trade “concessions,” in order to rebalance the overall trade negotiating bargain and provide an incentive to comply.)

There are also problems in the piece related to mythology about 1990s capitalism. In the 1990s, the piece states, “The United States, the world’s sole superpower, embraced an almost messianic belief in the ability of unfettered capitalism to improve lives around the world.” It is certainly true that many people were pretty high on capitalism in the 1990s, given the experiences with socialism around the world, but capitalism was hardly “unfettered” and the U.S. government was certainly not “messianic” about it at this time. Debates about deregulation and privatization have a real impact, and at times various governments move back and forth on the continuum a bit, in one direction or the other. But regardless of any marginal successes we on the free market side have had, we have never come close to making capitalism “unfettered.” There are plenty of fetters still in place. And the U.S. government was always pretty practical in its approach, advocating for and using subsidies and trade restrictions in areas where it wanted to impose them.

The piece also makes a common error by attributing rules to the WTO that it doesn’t have: “Americans pushed more than 100 nations to join together to create a strong international body to remove barriers to international trade and protect investors” (emphasis added). I’ve been as critical of international rules on protections for foreign investors as anyone, but the WTO, unlike many other trade agreements, does not have such rules. And just to be clear, on trade barriers in general, WTO rules expressly allows governments to maintain plenty of tariffs, subsidies, and product regulations. We are not talking about anything close to total free trade or a single world market here.

Then there are mistakes about how the rules have been applied in WTO disputes, such as this statement: “The W.T.O. has ordered countries to gut programs that encouraged renewable energy and laws that protected workers from unfair foreign competition, as if international commerce were more important than climate change and workers’ rights.”

When the WTO dispute settlement system has heard complaints that particular renewable energy programs violate WTO obligations, it has offered very narrow rulings, not a “gutting.” The violation was not because WTO rules prohibit governments from encouraging renewable energy – they most certainly can and do! Rather, it was because these programs discriminated against foreign companies in favor of domestic companies. There’s a pretty strong argument that an approach using nationality-based discrimination is actually bad for renewable energy, because it makes the industry less efficient and the energy more expensive (both at home and in foreign countries, if they copy the approach). And just to be clear, the “unfair foreign competition” at issue in WTO disputes does not directly address workers’ rights. Rather, it is about the so-called “trade remedies” — anti-dumping, countervailing duties, and safeguards. These laws protect domestic industries from foreign competition, but do not involve labor protections.

Also on WTO disputes, the piece says this: “The W.T.O.’s decision-making looked even more questionable after the body turned a blind eye to China’s bad behavior. Its judges ruled against government subsidies for locally produced solar panels in the United States and India, on the grounds that they were unfair to foreign producers. But a smorgasbord of subsidies in China were deemed no problem at all.” To be clear, the rulings on solar panel subsidies did not say you can’t subsidize solar panels; they just said that you can’t offer the subsidies in a way that discriminates against foreign producers. And the subsidies provided by China were not “deemed no problem at all.” Rather, the ruling was that the way the U.S. Department of Commerce calculated the subsidies was in violation of WTO rules. (It’s worth noting here that when governments have brought WTO complaints against China directly, they have been fairly successful.)

Along the same lines, the piece argues as follows: “The world has a historic opportunity to change the direction of international trade rules and carve out more space for countries to experiment with solutions to climate change and income inequality. Countries around the world could use economic stimulus funding to make strategic investments in green energy with subsidies. That’s what Mr. Biden’s Build Back Better plan is all about. But so much of the plan — from subsidies for green energy infrastructure to strong “Buy American” provisions — risks running afoul of W.T.O. rules.”

Putting aside the merits of these policies, when you look closely at WTO rules and their exceptions, it is clear that there is plenty of space “to experiment with solutions to climate change and income inequality.” Where governments get in trouble is when they add protectionist elements to their experimenting. For example, if you want to offer subsidies to consumers to buy an electric car, you will not be in violation of WTO rules. On the other hand, if you offer the subsidies to consumers who buy domestically-produced electric cars only, you will probably be in violation. But that finding of violation may actually be useful if your goal is to convince people to buy electric cars, because it means more choices and lower prices for electric car consumers. Adding protectionism to environmental regulations can make these regulations less effective for achieving their objective.

Finally, the piece also throws in this assertion, although it’s not clear how it fits with an op-ed on the WTO: “Investment banks pushed for financial deregulation around the world, rolling back laws like Glass-Steagall, which kept Wall Street from recklessly gambling away pension funds.” It may be true that investment banks pushed for this, but I’m not sure what that has to do with the WTO. Financial deregulation came about through domestic political efforts, rather than in response to any rules governments negotiated at the WTO.

It’s not necessarily worth a takedown of every piece that gets things wrong, but this one was in the NY Times and therefore I thought some clarifications might be in order. There are plenty of good criticisms to make of the WTO, and I and others make them all the time (e.g., WTO dispute settlement is too slow to be effective, something that the piece notes briefly, but which gets lost amidst all the errors). This piece was a missed opportunity in that regard.

In a sign of their increasing frustration with global efforts to ensure that all people everywhere will have access to COVID-19 vaccines, a number of developing countries have asked other members of the World Trade Organization to join with them in a sweeping waiver of the intellectual property rights relating to those vaccines. Their request raises anew the recurring debate within the WTO over the right balance between the protection of intellectual property rights and access in poorer countries to urgently needed medicines.

The proposed waiver brings back bad memories for all in the WTO of the long and contentious dispute between developed and developing countries over the compulsory licensing of HIV/AIDS drugs nearly two decades ago. And it does so at a time when the very last thing the WTO needs amidst an existential crisis is yet another acrimonious debate over perceived trade obstacles to public health.

As discussed in my new Cato Free Trade Bulletin (published today), India and South Africa have asked the members of the WTO to waive protections in WTO rules for patents, copyrights, industrial designs, and undisclosed information (trade secrets) in relation to the “prevention, containment or treatment of COVID-19…until widespread vaccination is in place globally, and the majority of the world’s population has developed immunity….”

They and other developing countries want to give all WTO members the complete freedom to refuse to grant or enforce patents and other intellectual property rights relating to COVID-19 vaccines, drugs, diagnostics, and other technologies for the duration of the pandemic.

So far, the members of the WTO have failed to muster the required consensus to move forward with the proposed waiver. The European Union, the United States, and other developed countries have opposed the waiver request. They say there is no evidence to prove that intellectual property rights are a genuine barrier to access to COVID-19 related medicines and technologies.

The pharmaceutical industry agrees with these developed countries, pointing to the role of IP rights as incentives to innovations such as new medicines. Civil society activists disagree, saying that the anticipated COVID-19 vaccines should be treated as global public goods. Usually, such concerns in developing countries are addressed through compulsory licensing, which authorizes local manufacturers to make patented products or use patented processes even though they do not have the permission of the patent holders. Drug makers do not like compulsory licensing, but the option of compulsory licensing is part of the bargain that has been struck by WTO members in balancing IP rights against public access to essential medicines.

What is missing from the waiver request is a clear explanation by those who seek the waiver of why they believe the right to compulsory licensing they already possess under WTO IP rules will prove insufficient to ensuring access to COVID-19 vaccines.

In their waiver request, India and South Africa stated that “many countries especially developing countries may face institutional and legal difficulties when using flexibilities available” under the existing WTO rules. They also said that a “particular concern for countries with insufficient or no manufacturing capacity” is that the rule that allows countries that produce generic medicines under compulsory license to export all of those generic medicines to least-developed countries that lack their own manufacturing capabilities will lead to a “lengthy and cumbersome process….”

But India and South Africa did not offer any further explanation or provide any evidence to support these general assertions.

Before such a sweeping waiver of IP rights is taken up, it should first be demonstrated that the option of compulsory licensing and other flexibilities under the current trade rules will not suffice. At this point, the developed countries that have opposed the waiver are correct. There is no evidence of the need for such a waiver.

For this reason, at this point, the proposed waiver is unnecessary. Action by the WTO should be contemplated only if, and when, the current flexibilities in WTO rules prove to be inadequate. Should that happen, any such action should be no broader than necessary to meet the urgent global medical need.

This waiver proposal exists only because of legitimate concerns by developing countries that multilateral endeavors to make certain that all people everywhere have early access to the upcoming COVID-19 vaccines are proceeding at a slow pace and with uncertain success. The answer to these real concerns is, however, not another impassioned and prolonged multilateral impasse inside the WTO. It is instead a redoubling of cooperative international efforts to reach solutions in those efforts outside the WTO.

The right balance in the WTO trade rules on intellectual property is a balance that provides all countries with sufficient flexibility to protect intellectual property rights while also promoting access to life-saving medicines. For COVID-19 medicines, there is no proof at this time that this right balance does not currently exist. Maintaining this balance must remain the aim of the WTO, and it must be the aim of every endeavor of multilateral cooperation in the fight to end this pandemic.

For more than a decade now, Chinese production and processing of “rare earth” minerals — critical inputs in many high-tech products — has raised concerns among U.S. policymakers about the economic and national security risks arising from potential American “dependence” on China for these goods. Though the specific minerals at issue change from year-to-year, the concerns remain the same, as do domestic producers’ use of the “China Threat” to seek financial and other support from the federal government. Today, the mineral is cobalt, Chinese control of which, according to a new Politico piece, is a testament to “China’s state-directed industrial policy” and an indictment of “America’s laissez-faire approach” — “sparking a debate over whether Washington needs to intervene to encourage more mining at home” through subsidies or, as my colleague Dan Ikenson wrote in October, protectionism.

There’s little doubt that Chinese companies are major global players for rare earth minerals mining and processing. With respect to cobalt, Politico explains that Chinese companies’ influence stems from longstanding investments in the Democratic Republic of Congo, which the U.S. Geological Survey estimates has the world’s largest cobalt mine production and reserves. But does this situation really, pace Politico (and many folks in Washington), show the efficacy of Chinese industrial policy, the weaknesses of the United States’ “laissez-faire” approach, or even a major risk that necessitates federal subsidies or tariffs to encourage domestic rare earths production?

(Spoiler: no, no, and no.)

First, it’s essential to understand some of the factors that created the current global cobalt market. Most importantly, the lack of domestic cobalt mining operations is due in large part to stringent state and federal regulations, not government inaction. Ikenson again:

[D]omestic production became less viable because U.S. production costs were relatively high, and the regulatory costs of U.S. mining and refining operations were increasing. Extraction and processing of rare earths requires techniques considered especially taxing on the environment and have been subject to fairly tight regulations in the United States and in most other developed countries.

These regulatory burdens are, as Dan stated, a big reason why developed countries have left a lot of cobalt production to places like the DRC, even though the aforementioned USGS survey shows that the United States and other countries have substantial cobalt resources (some of which would be produced as a byproduct of other metals).

On the other hand, this is not merely a “developed country” problem. According to one report, for example, it takes five times as long to permit a rare earths mine in the United States as it does in Canada or Australia. And the history of Australian-owned Jervois Mining’s Idaho operations, which Politico notes will be the only U.S. mine to primarily produce cobalt when it opens in 2022, shows that it (1) is located on National Forest lands (and thus requires approval from not only the Environmental Protection Agency but also the U.S. Forest Service); (2) first received EPA permitting approval in 2009 but is still working its way through the state regulatory process; and (3) would require further permitting should it expand into downstream cobalt refining.

Still, the fact remains that the DRC is a major global cobalt player. So why, then, aren’t more responsible U.S. and other multinational corporations in the DRC to mine cobalt and other critical minerals? Well, as I wrote a few months ago, they were… until the United States government unwisely began cracking down on certain “conflict minerals” from the DRC back in 2010:

Shortly after the [Dodd-Frank] law entered into force, reports emerged that, instead of complying with the new regulations, global corporations simply abandoned the DRC – and its poor miners and small‐​scale purchasers – entirely. This effective embargo on the region not only devastated it further, but it actually benefited “some of the very [DRC warlords] it was meant to single out,” allowed less‐​scrupulous Chinese manufacturers to move in, and undermined civil society groups working to end horrific violence and poverty in the DRC.

Some non-Chinese companies eventually came back to the DRC, but, as noted in a recent Wall Street Journal piece, Chinese miners still have substantial cost and access advantages over their foreign competitors because they’re not bound by Dodd-Frank. Thus, much of China’s mining advantage in the DRC is of the U.S. government’s own making.

Then there are the tariffs inhibiting other cobalt imports. In particular, the USGS notes that, while certain cobalt products (as well as imports from free trade agreement partners like Canada or Australia) may be imported into the United States duty-free, several other types of cobalt are subject to tariffs of up to 4.4% — surely not prohibitive but still making higher-cost, developed-country imports (e.g., from non-FTA partners Norway, Japan, the EU or South Korea) less competitive as compared to their cheaper, dirtier competition.

In this light, the current cobalt story becomes less about U.S. government neglect and more about its own misguided attention.

Second, it’s important to consider the actual risks to U.S. manufacturers and national security if China ever did decide to cut off cobalt supplies to the rest of the world. In this regard, past Chinese efforts to restrict rare earth exports are instructive. As Ikenson notes, China began imposing such restrictions in 2010, thus threatening global supply, causing prices to spike, and leading several governments to challenge the measures at the World Trade Organization. However, as the Wall Street Journal explained in 2015 (when China finally eliminated the restrictions after losing at the WTO), markets responded to the Chinese threat almost immediately:

The [policy] shift comes after Beijing lost a dispute at the World Trade Organization in 2013. But the policy also proved to be of little value for Beijing as many countries found other sources for the materials known as rare earths, which are widely used in high-technology industries such as smartphones and missile systems.

Contemporaneous reporting backs this up: in the United States, for example, China’s export restrictions led Japan’s Sumitomo and others to invest heavily in a mothballed rare earths mine in California. That investment didn’t work out, but it and more fruitful endeavors caused rare earth mineral prices to collapse long before China officially terminated its export restrictions in 2015:

At this stage, global cobalt demand is not projected to outstrip supply until 2023, and prices today show little concern over a future supply disruption. Nevertheless, the risk alone — due to U.S.-China tensions, continued problems in the DRC, or other factors — is already leading to predictable market responses. In particular, private investors are pursuing non-Chinese cobalt projects (the aforementioned Jervois outfit just raised A$45 million, for example), and manufacturers like Tesla and IBM — as well as academic researchers — are already starting to develop alternatives cobalt-based lithium-ion batteries for electric vehicles and other uses. The USGS also notes that the U.S. government has already stockpiled several hundred metric tons of cobalt in case of military emergency, and that private companies have their own substantial inventories.

Third, various government data indicate that domestic production and importation of cobalt-related goods is not as dependent on China (or the DRC) as claimed. Although certain cobalt-related supply chains (e.g. batteries) may run through China, the USGS report shows that the United States imports cobalt from varied sources and has several domestic cobalt producers (not including the aforementioned Idaho mine that will come online in 2022):

Import data from the U.S. International Trade Commission for 2019, moreover, show that neither China nor the DRC is a major cobalt supplier to the United States — a position instead held by mainly U.S. allies:

More detailed USITC import data show that China was the largest 2019 import source for only one of the ten types of cobalt monitored by the USGS (Cobalt chlorides, HTSUS 2827.39.60).

This perspective, of course, hasn’t stopped U.S. companies from running to the government for help. But instead of implementing subsidies or tariffs or “industrial policy,” the federal government should reassess its own trade and regulatory policies — especially those that discourage domestic investment or imports, or give Chinese companies a competitive advantage — and consider the market’s likely moves in response to any future Chinese malfeasance, including the moves already underway. 

Otherwise, the government could end up trying to solve a problem of its own making and to mitigate a future risk that doesn’t actually exist.

China’s Export Control Law went into effect today. Ostensibly meant to bolster Chinese national security, the choice to enact it at this particular moment was likely spurred by a desire to provide Beijing with the legal ground to retaliate against export restrictions put in place by the Trump administration targeting China. Given such motivations, the new law could have a significant impact on bilateral trade and investment flows.

One of the most immediate results of the law, which features vague language and broad provisions, will be to increase the compliance burden on U.S. companies. But its impact could also prove much more sweeping. As some observers in China have pointed out, the law could enable Beijing to impose new restrictions on rare earth exports, either as retaliation against U.S. export restrictions or negotiating leverage. Beyond its immediate harm to U.S. supply chains, such a move would further roil the bilateral relationship and further fuel calls for decoupling the two economies.

China’s law could also motivate other countries to take similar measures. Japan, for example, recently imposed export controls on three key semiconductor materials to South Korea, citing concerns such materials could be used for military purposes. Unsurprisingly, South Korea views the decision as politically motivated. Although international adjudication could help limit the abuse of export controls, the crippled state of the World Trade Organization’s dispute settlement body means that such measures could prove ripe for abuse. This could disrupt international trade at a moment the global economy can least afford it.

The TikTok Deal

Beyond its abstract and theoretical consequences, the law could quickly and concretely impact the lives of U.S. citizens. Chinese company ByteDance, parent company of the wildly popular social media app TikTok that claims usage by 100 million Americans, was requested by President Trump to divest its U.S. operation by November 12 (later extended to December 4). At the center of this issue is TikTok’s algorithms, which industry analysts say are the “secret sauce” to the company’s success.

TikTok’s algorithms, however, appear to fall into two categories under China’s export control law: (1) personalized information push service technology based on data analysis, and (2) artificial intelligence interactive interface technology. ByteDance already submitted an application for an export license pursuant to China’s export control rules, but it is unclear when Beijing will announce its decision. In the meantime, to avoid running afoul of Chinese laws ByteDance and Oracle negotiated a deal under which Oracle will be ByteDance’s technology partner and assume management of TikTok’s U.S. user data but will not receive the algorithms from ByteDance.

However, this effort to comply with China’s new export restrictions may result in the Trump administration’s rejection of the deal, with Treasury Secretary Steven Mnuchin insisting that “All of the code will have to be in the United States. Oracle will be responsible for rebuilding the code, sanitizing the code.” If the divestiture effort fails, millions of U.S. TikTok users could lose access to the application.

The Ambiguous Export Control Law

China traditionally has implemented export controls through regulations, and its effort to craft a comprehensive Export Control Law did not begin until 2017. A final text was approved in October. Despite the years-long process, some key parts of the law are still vague, which creates some uncertainties and challenges for the business community as it navigates these new rules.

This lack of clarity begins with the law’s key stated objective. Although the text declares the law’s goal as the protection of “national security and interests,” it does not provide further elaboration and the exact scope is unknown. Relatedly, the law authorizes agencies to take reciprocal measures if “any country or region abuses export control measures to endanger the national security and interests” of China. Again, under what circumstance this provision will be invoked is unclear.

In addition, the law provides for the establishment of a list of controlled items, which has not been published. This list is likely to include items already found on existing lists subject to China’s export control regime. However, the law also has a catch-all provision, which allows export restrictions to be placed on items not currently on the controlled lists. This provision allows the authority to subject ad hoc items to export controls without going through an additional regulatory process first, adding another layer of uncertainty for the trade community.

The extra-territorial jurisdiction of the law is similarly murky. The current law restricts re-exports of Chinese goods and technology, but it does not define “re-exports.” An earlier draft stipulates that foreign products that contain a certain percentage of China-origin controlled items will also be subject to the law. However, this language has been taken out in the final text. As a result, the law’s extra-territorial impact will not be known until Beijing enforces it.

How the Chinese Export Control Law will be carried out remains to be seen. At a first glance, it gives China another powerful legal tool in the trade war with the United States. As bilateral relations further deteriorate, we may see the law become a prominent feature of the trade landscape.

Perhaps the Jones Act’s most damaging provision is its requirement that vessels engaged in domestic commerce be constructed in U.S. shipyards. By forcing Americans to buy ships that cost four to five times as much as those built abroad, the restriction exerts downward pressure on the size of the U.S. fleet. Compounding matters, the requirement has proved ruinous to the U.S. commercial shipbuilding industry, which has become almost wholly dependent on a captive domestic market whose size continues to dwindle.

To appreciate the market’s decline, consider that in 1996 the chairman of the Shipbuilders Council of America lamented in testimony before Congress that U.S. shipyards—effectively shut out of the international market given their sky-high prices—were “fighting over a lousy five or six Jones Act ships that might be built every year.” Last year, meanwhile, a Congressional Research Service report noted that annual production of such vessels had slipped to a mere two or three. And now a new government study suggests that production is likely to decline even further.

Last month the Government Accountability Office (GAO) released a report examining the effects of Congress’s December 2015 decision to repeal the ban on exports of U.S. oil. Among its findings was a decreased demand for U.S.-built Jones Act tanker ships. Freed from the export ban, U.S. producers have increasingly opted to sell their crude on the international market rather than to U.S. refiners—a domestic shipment requiring expensive transport on Jones Act vessels. Those refiners, meanwhile, replaced the domestic oil they had previously purchased with imported crude able to take advantage of much cheaper international shipping.

As the GAO report notes, crude exports from the Gulf Coast increased by over 200 percent from 2016 to 2017, Jones Act shipments from the Gulf Coast to the East Coast declined by 57 percent in 2016, and oil imports bound for the East Coast that same year increased by 35 percent. This increased use of cheap international shipping and reduced demand for Jones Act vessels has significant implications for U.S. shipbuilding:

Four of the seven shipping industry stakeholders we interviewed said that the decline in demand for the use of Jones Act tankers and barges to transport crude oil has primarily affected the shipbuilding sector…One industry representative we interviewed explained that approximately 80 percent of the Jones Act fleet was built between 2007 and 2016, and since such vessels have a lifespan of approximately 30 years, it is unlikely that there will be a need to build new tankers in this decade given the decrease in demand.

Tankers account for nearly 60 percent—57 of 97—oceangoing ships in the Jones Act fleet. If the appetite for such vessels has been sated for the foreseeable future—and there is every indication it has, with no tankers delivered since 2017 and none currently under construction—that places a severe dent in demand for new Jones Act ships. Among non-tanker Jones Act ships, there are currently three such vessels scheduled for delivery through 2021. But after that, the order book for Jones Act ships is empty. Even when orders eventually are placed, it will take several years for the ships to be delivered (two of the three Jones Act ships still awaiting delivery were ordered in August 2017, for example, while the third was ordered in August 2016).

In other words, it is a virtual certainty that there will be entire years in this decade in which zero Jones Act ships are delivered. And for those years ships are delivered, their numbers are sure to prove anemic given the lack of need for new tankers.

The shipbuilding industry may have once complained about a “lousy” five or six Jones Act ships constructed per year, but such times will likely be regarded—if they aren’t already—as the good old days. The Jones Act’s requirement forcing the domestic construction of ships serves as a considerable deterrent to the purchase of new vessels while utterly failing to foster a vigorous commercial shipbuilding industry. This is costly protectionism in service of nothing.

It is commonly said that “personnel is policy,” which can make it worthwhile to look in depth at the views of key people appointed by a president.

The Council of Economic Advisers (CEA) is an agency within the Executive Office of the President that advises the President on economic policy. This post looks at the trade policy views of the three people Biden has just announced for the CEA: Cecilia Rouse (Chair), Heather Boushey and Jared Bernstein. (Of the three, Bernstein has had by far the most to say on trade policy.)

Based on the quotes we offer below, none of them seem to have Trump’s deeply ingrained protectionist views (e.g. none declare themselves to be “a tariff man”, or woman as the case may be), but they all have varying degrees of skepticism about trade liberalization and trade agreements.

Cecilia Rouse:

From a 2019 profile of her:

“There is a lot of research responding to this administration’s posture. Our profession has a lot of support for globalization and open markets, and this administration’s posture is almost that that’s not true. I think we needed to stop and say: ‘Well yes, with open trade there are winners and losers.’ I think it’s opened the profession to realize that the losers are really losing, and we need to take care of them and take on more nuanced models of international trade as a result.’”

Back in 2012, she was surveyed by the University of Chicago’s Initiative on Global Markets. She was posed two trade-related statements and was asked to state whether she agreed or not, and with what “confidence level” (out of 10):

• 1^st Statement: “Freer trade improves productive efficiency and offers consumers better choices, and in the long run these gains are much larger than any effects on employment.”
  • She responded that she agreed with this statement, with a confidence level of 6. She commented: “I agree with the statement as worded. There could be other, less desirable, impacts as well.”
• 2^nd Statement: “On average, citizens of the U.S. have been better off with the North American Free Trade Agreement than they would have been if the trade rules for the U.S., Canada and Mexico prior to NAFTA had remained in place.”
  • She responded that she agreed with this statement, with a confidence level of 6. She commented: “Such is the result of much of the empirical literature.”

Heather Boushey

From a 2018 article she co-authored:

“In general, economic studies that find positive overall effects for trade argue that the “winners” must compensate the “losers.” Otherwise, trade expansion will likely lead to greater inequality as some communities face employment and earnings decline due to heightened competition from abroad. Such compensation can include helping workers move to where the jobs are, develop new skills, or giving them money to bide them time to search for another job.”

“Yet programs like the federal Trade Adjustment Assistance are woefully inadequate to the task. For every $1,000 increase in import competition from China between 1990 and 2007, this program increased by a paltry 23 cents per person. That’s not enough to offset the drag caused by new trade or revitalize communities or restore dignity to those out of work.”

And from a 2017 article:

“Hyper-globalization has generated enormous gains in global wealth and lowered consumer prices. The past generation has seen large reductions in global poverty, especially in China, which now has a middle class.”

“Yet, as is widely known and discussed, millions of middle-class Americans were left behind as the world’s economy grew. Contrary to what economists’ models assumed would happen, communities that have bore the brunt of the costs of offshoring have not been made whole. The United States is not alone in this trend. Many developed economies have seen only those at the top benefit from economic growth.”

Jared Bernstein

As noted, Bernstein is by far the most prolific of the three in writing about trade policy. There is more out there than what we offer in this post, and you can find it on the web if you are interested. We break it down by issue.

General Thoughts on Trade Policy

His general takes on trade offer some assurance that he is not instinctively anti-trade, but he does have some misgivings:

“What I think is most important about [USMCA] is that it debunks the myth that progressive Democrats are anti-trade protectionists.”

Also this:

“[Trade] is a net plus, increasing supply chains, jobs and commerce, while lowering prices. But it also comes at a great cost for those workers and communities in wealthy countries like ours who face increased competition from lower-wage countries.”

And this:

“globalization cannot nor should not be stopped. Done right, it delivers great benefits to advanced countries through the increased supply of goods, and it helps improve the living standards of workers in developing countries through profits made from trade with wealthier nations.”

“political and economic elites have arrogantly explained to people who believe they and their communities have been hurt by trade that they simply fail to appreciate the benefits of globalization.”

This:

“Global trade volumes-imports plus exports-have grown from 25 percent of global GDP in the mid-1960s to 60 percent today. In the United States, that same metric has grown from 10 percent to 30 percent (with imports a larger share than exports over almost that whole time; i.e., we’ve run trade deficits). We view that expansion as potentially positive, as it is through expanded trade that we seek new markets for U.S. products, expand the supply of goods and services, and provide emerging countries with opportunities to grow by trading with wealthy countries.”

This:

“while expanded trade is a net positive for both us and our trading partners, there are people, places, and industries that have been hurt by the trade liberalization that has taken place since the 1980s.”

This:

“The way to compete with China on trade is neither sweeping tariffs nor the administration’s futile insistence that China change its fundamental economic model. It’s to enhance our own international competitiveness and provide real help to the people and places left behind by globalization.”

And finally this:

“Since Bill Clinton, the theory of the case among the Democratic Party’s elite has been the more globalization, the better — with mostly a deaf ear turned to the people and places most badly affected.”

“The following is a rough guide for a progressive trade policy, one that aims to preserve the benefits of global trade flows while ensuring that those gains flow more equitably to working people both here and abroad. Targeted, not sweeping tariffs; an understanding of what trade deficits mean and what they don’t; export-oriented industrial policies; trade deals representing a very different group of stakeholders; a laser focus on those left behind — these are some of the foundational ideas that any Democratic trade policy should champion.”

Trade Deficits

Bernstein is concerned about trade deficits, but in a more nuanced way than some of the trade deficit hawks out there, who see every bilateral trade deficit as evidence that the United States is somehow “losing” at trade. Here are a few things he has said on the issue:

First up:

“The real problem, as I’ll explain, is the persistent and economically large trade deficits that the United States has run with our trading partners since the mid-1970s, which at this point have little to do with trade deals”

And also this:

“Trump correctly argued that the target of his administration’s trade policy would be the U.S. trade deficit, which has been a significant drag on growth and manufacturing jobs, particularly in the 2000s, when our trade deficit with China sharply grew.”

And this:

“To start, it’s not inherently a problem for a country to have a trade deficit. For example, a fast-growing economy pulls in more imports as it expands, which pushes a country’s international trade account toward deficit.”

“The goal of trade policy should thus be to push back on U.S. trade deficits without distorting current trade flows. Large tariffs like the ones Trump has proposed won’t work, nor will preventing offshoring one company at a time, as he did with some of the jobs that the air-conditioning company Carrier was going to shift to Mexico. There are better ways to improve the U.S.’s trade balance—most importantly, the government could take steps to prevent America’s trading partners from manipulating their currencies to make their exports to the U.S. cheaper and the U.S.’s exports to them more expensive.”

And this:

“One reason for the trade war is that Trump views the trade deficit as a scorecard, and he believes tariffs will reduce our $500 billion deficit with China (that’s over 2 percent of gross domestic product; our China goods deficit was $540 billion last year, offset by a $40 billion surplus in services). That might be right, but he’s just playing trade-balance-whack-a-mole, as importers shift to other suppliers. For various reasons (stronger U.S. growth boosting the dollar, both of which increase net imports), the U.S. trade deficit is likely to grow over the next year. And in terms of its economic impacts, it’s the total trade deficit that matters, not the balance with individual countries.”

Tariffs

He offers a dose of realism on Trump’s tariffs:

“Despite the president’s repeated falsehoods that China pays the tariffs, the fact is they are borne by us, not them (they’re paid first by importing firms who then try to pass the costs to consumers). Evidence shows that the tariffs are bumping up the prices of targeted goods and hurting both those who use imported parts to make things here and exporters facing retaliatory Chinese tariffs (i.e., U.S. farmers). That said, current conditions show that these disruptions are not yet of a magnitude to throw our economy off course.”

Trade agreements

He sees the value in trade deals, but worries about regulatory capture:

“[Trade deals] provide necessary rules of the road by which countries deal with trade logistics, barriers, cross-border investments and conflicts, and, in this sense, they can smooth the path of globalization in useful ways. But they can also be captured by partisan or corporate interests and thereby used to channel the benefits of trade to a favored group. This has certainly been the case in the United States, and it is why many of us who are committed globalists opposed the TPP.”

IP/ISDS

He is a skeptic on two aspects of trade deals on which some of us in the Cato trade policy center are also skeptical:

“Lori Wallach and I have sharply critiqued many of the non-tariff components of trade deals — things like intellectual property rights, investor settlement mechanisms and extended pharmaceutical patents.”

More here:

“The next most important improvements [in USMCA] are two policies that were cut as part of the deal. The first was NAFTA’s biased Investor-State Dispute Settlement regime, a process for settling investor disputes that undermined sovereign public-interest policies while incentivizing outsourcing. Also eliminated were extended patent protections pushed by American pharmaceutical corporations and congressional Republicans.”

And here:

“To the extent that IP rights holders seek more protection, they should do so through separate agreements that don’t condition trade rights on extending potentially monopolistic conditions.”

“The way to accomplish this is by taking ISDS out of future trade agreements and insisting that investors privately insure themselves against investment losses.”

Labor/​environment

He wants to ratchet up labor/​environmental rules in trade agreements:

“the sequencing must be flipped: Any benefits to partners in terms of market access must be preceded by confirmation that labor and environmental rights are enforced. That means that countries we enter trade agreements with must offer sustained evidence that conditions on the ground have improved, and that we withdraw trade benefits when there’s evidence of backsliding.”

More here

“The most important improvement [in USMCA] — the one for which workers’ advocates fought for hardest — is the facility-specific labor enforcement measures, because without those, the improved labor standards mean nothing. For the first time in any trade agreement, tariffs and fines can be imposed against specific products produced in facilities that are determined to deny workers collective-bargaining rights. If there are repeated violations, goods can be blocked at the border.”

Currency

“Currency manipulation” is a big deal for him:

“we need to give our trading and financial institutions, meaning Congress, the Treasury and the Federal Reserve, the ability to push back on currency manipulation, wherever it occurs.”

Also this:

“Large tariffs like the ones Trump has proposed won’t work, nor will preventing offshoring one company at a time, as he did with some of the jobs that the air-conditioning company Carrier was going to shift to Mexico. There are better ways to improve the U.S.’s trade balance—most importantly, the government could take steps to prevent America’s trading partners from manipulating their currencies to make their exports to the U.S. cheaper and the U.S.’s exports to them more expensive.”

Trump

He is not a fan of Trump’s approach to trade policy:

“But his administration has not done nearly enough to ameliorate the problems they’ve raised, and their escalating trade war is likely to do more harm than good to American production, prices, investment, growth, and employment. The Trump administration is not helping those hurt by trade, and these latest actions are likely to hurt those helped by it.”

“Regarding the subject of today’s hearing, based on evidence of the number of jobs by industry and area exposed to China’s retaliatory tariffs, I argue that the trade war will hurt farmers and rural communities.”

“One has to look no further than Canada—it is implausible that Canada poses a security risk to the U.S.— to recognize that President Trump is abusing that privilege and, in so doing, is in clear violation of the spirit of the law and the intentions of the framers.”

Also this:

“Democrats must link Mr. Trump’s trade agenda to his racism and xenophobia. They should emphasize that in Mr. Trump’s worldview, every import is an insult to him, and every trading partner is a villain trying to rip us off.”

***********************

It’s difficult to sum all this up neatly. It seems likely that Rouse, Boushey, and Bernstein would be less aggressive and protectionist on trade than Trump has been, although that is probably true of just about anyone in a Biden administration, given how aggressive and protectionist Trump is.

Perhaps the focus of these economists will be on helping those who they believe have been hurt by trade through the use of domestic policy, rather than on using tariffs as a general purpose tool. At the same time, Bernstein does seem pretty aggressive in some trade areas, and it’s hard to say how exactly that will play out in a Biden administration. For example, there has been plenty of movement against currency manipulation already (e.g. changes to policy that allow the Commerce Department to take action against currency manipulation as part of countervailing duty investigations).

Would that be enough for Bernstein, or will he push for something more? We are still only at the “reading the tea leaves” stage of the Biden administration, and we will have to wait on the details in this and other areas of trade policy.

President Trump’s trade policy has been defined by protectionism, cronyism, and mean-spiritedness. President Biden’s will be more polite.

On substance, geopolitics and domestic politics are sure to crowd out economic considerations in shaping U.S. trade policy. The best we can hope for is that Biden’s team will be resolute and more competent managing an increasingly adversarial relationship with China—a priority which will shape all major U.S. trade policy decisions for years to come.

Of course, President Biden will be advised to restore some semblance of trade normalcy. But let’s not forget just how dysfunctional normalcy was before America-first economic nationalism took center stage and made normal look idyllic. Going back to that old dysfunction, when congressional Democrats and their patrons largely opposed and congressional Republicans and their patrons largely supported trade agreements wouldn’t be ideal. But it would be preferable to the current dysfunction, where both parties favor Buy American provisions, supply chain repatriation, tariffs, industrial policy, and trade agreements that prioritize enforcement over liberalization.

To be sure, Biden won’t be returning us to the halcyon days of trade liberalization. Frankly, those days are long gone. U.S. trade liberalization has been mostly “all talk, no action” for more than a quarter century now. The Uruguay Round of multilateral trade talks ended in 1994, establishing the World Trade Organization in 1995. That was the pinnacle of a half-century of trade liberalization. Since then efforts to go deeper and wider—the Doha Round under the auspices of the WTO, various plurilateral negotiations within the WTO, the Transatlantic Trade and Investment Partnership with the European Union, the Trans-Pacific Partnership with 11 other countries, and other initiatives—have failed at one stage of the process or another.

During the presidency of George W. Bush, there was a flurry of negotiating activity in the short span of 2003–2006, which produced bilateral trade agreements with 17 mostly small countries. Nearly every one of those deals passed Congress on sharply partisan lines. But last year we witnessed the return of trade bipartisanship in Washington. The United States-Mexico-Canada Agreement attracted broad support from both parties, but for illiberal reasons, including the promise of less regional trade.

At the very least, trade policy watchers hope Biden will undo some of Trump’s mischief. Among the actions Biden may take are rescinding the steel and aluminum tariffs imposed on imports from most countries under Section 232 of the Trade Expansion Act of 1962; revoking at least some of the tariffs imposed on imports from China under Section 301 of the Trade Act of 1974; initiating the process of rejoining the TPP (now called the Comprehensive and Progressive Trans-Pacific Partnership), from which Trump withdrew the United States just days after his inauguration; and reaffirming U.S. commitments to multilateralism and the WTO.

But each of these moves, which have obvious economic and diplomatic upsides, would be difficult politically for Biden—at least in the short-term. Both sets of tariffs have created domestic constituencies in the Rust Belt, which are committed to their continuation. Rhetorically, for decades, Democratic politicians have championed Rust Belt concerns—real and imagined—about trade: “unfair” trade, global steel overcapacity, the “decline” of manufacturing, Chinese malfeasance, trade deficits, outsourcing, and so on.

Then along came Trump, who commandeered the Democratic Party playbook on trade, making good on promises unkept by Democrats in the past. Biden, who campaigned as the “tougher-on-China” candidate, promising to expand Buy American provisions and to compel supply chain repatriation, and emphasizing his blue-collar, Scranton roots is going to find it very difficult to rescind any of Trump’s tariffs anytime soon. The Rust Belt flipped for Biden and, indeed, the continued blueness of Pennsylvania, Ohio, Wisconsin, and Michigan cannot be taken for granted.

Meanwhile, in case anyone has forgotten, President Obama struggled mightily to get merely a smidgeon of Democratic congressional support for the TPP. Rejoining the TPP is integral to whatever strategy emerges over the coming months for U.S. reengagement in Asia as a counterweight to China. The Biden team knows that. They just need to figure out how to sell to Democrats a deeply unpopular trade agreement as a geopolitical imperative. Obama tried and failed with this approach in 2016, but the state of affairs with China wasn’t quite as dire then as it is now. Biden may succeed here, but probably not in 2021.

Objectionable tactics aside, the Trump administration’s efforts to draw attention to various WTO shortcomings have succeeded. Unfortunately, the Trump team offered nothing to help fix those problems and instead exacerbated them by kneecapping the Appellate Body, failing to engage in reform efforts, and refusing to endorse the (otherwise) consensus candidate for the open director general position.

Biden could remove some of those impediments quickly—and may very well do that—but the bigger, looming question is whether and how the United States and China can coexist within the WTO. Both have demonstrated preferences for ignoring the WTO rules when it suits their aims, and for both countries, the goal of security and achieving or maintaining technological supremacy, which will undoubtedly encourage continued WTO rule violations, will take priority. This bodes ill for the future of the WTO, and any substantive WTO initiatives taken by the Biden administration will probably have to be consistent with the objectives of a comprehensive China policy that will soon emerge from the administration.

The bottom line is that Biden’s trade policy is likely to be a component of a broader geopolitical strategy. Trade agreements, refraining from protectionism, and abiding by the rules of international trade are still in the cards, as long as they align with the objectives of national security and technological preeminence, and domestic politics permit.