A group of scholars (including Rob Howse of this blog) has a new proposal for how to manage U.S.-China trade relations better. I may comment on the broader proposal at some point (and Rob may blog about it himself), but in the meantime, as I sometimes like to do, I'm going to pick out an obscure issue from the proposal and talk about it a bit.
The proposal divides up the domestic policies governments might address through trade agreements into four "buckets." The first two buckets are most relevant to my point, so I'll just quote those:
In today's interdependent global economy, a broad assortment of divergent domestic policies (including policies that have not historically been regulated through WTO rules) can trigger calls to "rebalance" the structure of cross-border market access and trade barriers between countries. One approach to "rebalancing" is to escalate pressures for convergence. Our alternative to this approach is to assume that divergence will not necessarily disappear in the near future. We propose a framework that builds on that assumption and promotes, to the greatest extent possible, the benefits of international trade.
To operationalize our approach, we distinguish four categories ("Buckets") of policies.
Bucket 1 (The "Prohibited" Bucket): In this Bucket, Country A's actions or policies are likely to create significant distortions in global markets and can be presumed to entail global economic losses. It is appropriate that international norms prohibit actions or policies in this Bucket. "Beggar thy neighbor" policies1 are canonical examples that fall under this Bucket. For example, country A may impose export or import restrictions with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness. Or country A may engage in discriminatory data policies that promote predatory pricing or rent extraction by national digital companies on foreign markets.
1 Beggar-thy-neighbor policies are defined as ''policies that seek to increase domestic economic welfare at the expense of other countries' welfare" (Princeton Encyclopedia of the World Economy, emphasis added). Unlike other domestic policies that may entail negative repercussions across the border, they create domestic gains only to the extent that other nations lose. Further, they are globally negative-sum, because they create market inefficiencies (e.g., non-competitive conduct). Our proposed Bucket 1 would contain policies that are adopted with this express beggar-thy-neighbor purpose in mind. Our proposed Bucket 2 would contain policies that may have beggar-thy-neighbor effects but where those effects are not the first-order motivation for the policy
Bucket 2 (The "Bilateral Discussions and Adjustments" Bucket): In this Bucket, Country A's policies cause harm to country B without necessarily taking on a beggar-thy-neighbor character or entailing global economic losses. We put in this Bucket those policies for which a mutually beneficial bargain can be worked out between the two nations that entails the removal of the policies in question. This will typically occur when Country B's perceived losses from the policy exceed the perceived gains to Country A from sticking with the policies. For example, Country A may engage in industrial policies that Country B's producers consider unfair and harmful; Country B may prevail on Country A to remove or scale back these policies by offering an alternative economic benefit (e.g., a reduction of Country B's countervailing tariffs).
I'm particularly interested in one of the explanations they give of a "Beggar-thy-neighbor" policy: "country A may impose export or import restrictions with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness." If I understand correctly what they are saying, this explanation reflects the "protectionism" vs. "terms of trade manipulation" debate that I've blogged about before.
What I'm trying to sort out is what exactly they have in mind with this explanation, in particular what kinds of measures would be covered. For instance, the United States famously has a truck tariff of 25%. My question is, in the view of the authors, was that tariff imposed "with the express purpose of reaping monopoly pricing gains on world markets undermining other countries' competitiveness"? I wouldn't have thought so. Instead, I would have thought the purpose was to give U.S. producers an advantage over foreign competitors in the U.S. market, and therefore achieve oligopoly profits in that market, with little thought given to any impact on world markets. But do the authors think the "express purpose" was to "reap[] monopoly pricing gains on world markets undermining other countries' competitiveness"? If so, what is the basis for that conclusion? And if the truck tariff is not an example of a measure imposed with this purpose, what is a real world example of such a measure?
