The recent Trade Talks podcast with former USTR General Counsel Stephen Vaughn was very informative. Soumaya and Chad have been kind enough to put together a transcript of the episode. There's a lot to talk about in there. I'm going to kick things off with one part that interested me:
Chad P. Bown 44:04
I want to try to see if I can put my finger on how we disagree. As economists, we think of trade as being win-win. And yes, I can impose tariffs on you; and I can make myself slightly better off because of those tariffs. But the problem is, you can do the same thing to me; and we're both then worse off by doing this to each other; and we can both be made better off if we cooperate with each other, and we're more open. But it's going to involve both of us restraining what it is that we do; both of us giving up a little bit of sovereignty. And we can do that; and we will both be made better off. But that is a view of the world that I think economists have that maybe not everybody does share.
Stephen Vaughn 44:44
So I think I think again, I think you're conflating what policy outcomes you want with the process to get those outcomes. I would argue that from 1946 to 1994, the United States had very robust debates over trade. And the United States had uncertainty in its trade policy; and United States made adjustments to its trade policy; and there were elections fought over trade policy; and there were candidates who took responsibility for trade policy. And the result was a GATT system that flourished and grew; and that ultimately led to a booming economy in the United States and in Europe, and in East Asia; and that led to exactly the type of policy outcomes that you want. After 1994, we decided to take this out of the hands of the voters and out of the hands of elected officials. And we chose to sort of seal it up in this kind of cage, whereby policymakers wouldn't be able to touch it, and it would sort of run of its own accord. And the result is the rise of China, slowing economies in the West, dislike of globalization, the rise of populism, Brexit, and lots of other things that are actually tearing against the type of policy outcomes that you want. I believe that to get to have market efficient outcomes, you have to let the political process work and give it a chance. Otherwise, I just don't think you're ever going to get there. And so I think that your process is undercutting your policy outcomes. And I would urge you to kind of give the system more of a chance. And, you know, we're all taught in America, that you have your policy outcomes, but all that has to play out in our constitutional process. And I think that's correct. I mean, whatever you want to have happen, you're going to be more likely to get it and make it stick if it's something that the voters really believe in and really support.
Let's dig into this. To start with, Vaughn said that he "would argue that from 1946 to 1994, the United States had very robust debates over trade." Depending on what he means exactly, I'm pretty skeptical of that claim. As I recall it from the history books, trade policy and trade negotiations during this time were mostly done by technocrats, with far less public debate than we see today. The issues were pretty narrow, and for a couple decades were not that controversial. By the 1980s they had become a bigger deal, as trade with Japan, Taiwan and others picked up, but they still didn't get the attention from civil society that would come later. Elections were not, in fact, "fought over trade policy" at this time, or at least not to the degree they are now.
By the 1990s, of course, trade was getting more attention. Ross Perot and Pat Buchanan got a bit of traction with this issue; there was the Battle in Seattle; and more recently, Congressional passage of trade agreements has become a political slog. In contrast to the post-WWII period, then, voters today have more awareness of trade policy and weigh in on it more actively.
Vaughn then says this: "After 1994, we decided to take this out of the hands of the voters and out of the hands of elected officials. And we chose to sort of seal it up in this kind of cage, whereby policymakers wouldn't be able to touch it, and it would sort of run of its own accord." (Earlier, he said something similar: "in terms of who makes the trade policy, it has to be made by US elected officials, because they're the only ones who are really responsible to the voters and it really is their job to sort out like what kind of a country we want to be and how trade policy is going to fit into that.") But going back to my previous point, I would say that the opposite is true: With emerging awareness about the implications of the broader trade agreements that were being developed, after 1994 trade was put in the hands of voters like never before. There was an increasing role for U.S. policymakers, as we saw frequent battles over exactly what policies should be promoted by trade agreements. Trade policy was no longer just about technocrats negotiating tariffs. Now it was about policy experts in a wide range of fields weighing in on what they thought trade agreements should do (e.g. extensive copyright protections vs. fair use), with civil society and business groups participating actively.
When he says "seal it up in this kind of cage, whereby policymakers wouldn't be able to touch it, and it would sort of run of its own accord," I think maybe he is referring to automatic adoption of dispute settlement reports and the creation of the Appellate Body. But the Appellate Body is not the European Court of Justice of the U.S. Supreme Court, and there is a great deal of flexibility in implementation of WTO dispute settlement rulings. Policymakers have a lot of discretion about how they respond to dispute settlement rulings, and they have certainly felt free to exercise that discretion in a number of cases.
He then says, "the result is the rise of China, slowing economies in the West, dislike of globalization, the rise of populism, Brexit." Here are some quick responses: I would say that China was going to rise regardless of any of this; Western economies were going to slow regardless of any of this; globalization is actually fairly popular; there's a rise in talk about populism, but what we call populism is mostly just charismatic elites trying to dress up the policies they supported anyway as something for "the people"; and Brexit is a crazy, unique thing that can't be replicated. I can elaborate on each of those points, but will wait for another blog post.
And finally, he says this: "I believe that to get to have market efficient outcomes, you have to let the political process work and give it a chance. Otherwise, I just don't think you're ever going to get there. And so I think that your process is undercutting your policy outcomes. And I would urge you to kind of give the system more of a chance. And, you know, we're all taught in America, that you have your policy outcomes, but all that has to play out in our constitutional process." On this issue, I'm going to expand a bit on a point I made above. I think people often exaggerate the impact of trade agreements on domestic policymaking. In response to a dispute settlement ruling against you, you can change your measure, accept retaliation, or reach some other settlement to achieve rebalancing. Thus, they interfere with our constitutional process and policy choices only to a very limited degree. We can still do whatever we want, including amend or withdraw from trade agreements. Now, sometimes we constrain ourselves mildly so that others will similarly constrain themselves mildly. But ultimately, we can adopt the policies we want. (If you need a demonstration of that point, just take a look at the various trade measures the Trump administration has taken.) There is plenty of policy space/sovereignty under trade agreements, and U.S. voters and policymakers have control over trade policy. Along these lines, there was an earlier exchange that is worth mentioning:
Soumaya Keynes 5:14
If you accept that Americans should have flexibility, do you accept that other governments should have flexibility too? Here I'm thinking of the Chinese state.
Stephen Vaughn 5:22
Yes, I do accept that other countries are going to have flexibility. In fact, I think the reality of the situation is that other countries have flexibility, and they do act. And I think we have been too constrained in how we respond to that. So, we have been trying for a very long time to get Europe to accept our beef hormones, which they promised to do when they joined the WTO. It's clear they're not going to do that. We have been trying to get China to make a lot of changes to their trade policy. They may or may not do that. So, I think other countries are setting out their own trade policies and I think the Americans have to do the same.
But when you look at various defensive cases the United States has lost, it is clear that we have invoked that flexibility too. Some people seem worried that the current system is too intrusive on domestic policymaking and politics, but in my view the current balance is just about right.
