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):
- 1st 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.”
- 2nd 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:
“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.
