Speaking at an event hosted by the Technical University of Munich last week, U.S. Trade Representative Katherine Tai was asked a question about trade and the environment that prompted a broad response which touched on a number of important trade issues. Here was the exchange:
Question:
This has to do with the bipartisan support for US trade, and the rising problems of protectionism and export controls that we're seeing in various parts of the world, perhaps because of COVID and the war in Ukraine, even pressures to move more in the direction of protectionism. The question is, how can we assure that climate change doesn't become a pretext for even further protectionism? The title of your talk was economics versus the environment, and here I think the question is, how do we integrate environment and trade?
Tai:
This is certainly a provocative question, posed in a thought provocative way. Let me first engage on some of the premises baked into the question, and then let me come to your specific question and point on economics and environmental objectives.
So I am very, very careful, and generally, I do not use the term protectionism. The reason why is, I think that the way we talk about trade also needs to evolve, and the way we think about trade. For many, many years, I think in the post World War II era, we have thought about trade as something that needs to be liberalized maximally. And the premise to this is that the more that we trade with each other the more peace and prosperity will result. And in fact I do think that this is largely the premise that underlies the WTO and the multilateral trading system, as it has existed for the past many, many years. And I think that there was every reason to believe during those decades that we were right, that all we needed to do was just to trade a lot, trade more, and trade freely, in as unfettered a way as possible. And the more of these connections were generated, the more we would rely on each other, and the better off we would all be. That this was the path to a better, more secure world.
I think a number of things have happened, just say in the past five to seven, let's say even 10 years, that cause me to wonder whether this vision for globalization leading us to a better, more secure world has run its course, and if we don't need a course correction, to move us towards and take lessons from these past years, to move us towards a sense of more security, and more optimism and hope.
So a couple of the disruptions that I'd like to highlight. In 2016, for example, the first disruption will be a backlash against this version of globalization that we've started to see. One happened with respect to the European Union in 2016. In the United Kingdom, we saw the Brexit referendum vote that was very surprising to many people, including those of us in the United States watching the vote. I think that we expected, watching the polls, that it would be close, but I don't know that we expected that that referendum would succeed. And that has led to the multi year process for Brexit, which I know has been really affecting of the entire European Union. The process of losing one of the members, a little bit like a divorce, which here from London, and when I visit Brussels, I know actually continues to go on. Not all the issues are settled and the European Union and the United Kingdom continue to have to negotiate some parts of what it means for Brexit to happen.
Of course, in the United States in 2016, we also had a very consequential vote, and that was the election of President Donald Trump. Now, I work in trade policy, so I'm only going to address the implications of President Trump's election through American trade policy. But as all of us have seen, over the course of the Trump administration in those four years, President Trump took a very very different approach to trade. And in fact his trade policies were a hallmark of his campaign and his political brand. And that America First energy is something that we are also extremely mindful of in the Biden administration and having gone through those four years, in terms of being a lesson that we feel we need to learn from. We cannot just go back to the world in 2015 and pretend like these things didn't happen. We feel strongly that we have to take history as it's happened and we have to adapt.
The ... second set of disruptions around COVID, the pandemic and our supply chain disruptions. And the third set are more recent, and Russia's invasion of Ukraine, which according to our earlier theory about more trade leads to more peace and prosperity is something that simply should not have happened. One WTO member, on this basis, on this theory, should never have been incentivized to aggressively act out and invade another WTO Member.
But here we are, in a version of this globalized world, where I think we've got to think about things differently, and therefore, this "free trade equals good, protectionism equals bad" dichotomy is one that I think we need to revisit. So you know, on export controls, I think you have to examine the objectives of the policies we're talking about. Export controls are about controls on technology, it is a national security tool.
Let me move this over into the use of economic policy to advance environmental goals. The way our global economic system has been structured, based on the premises I just talked about, has allowed for the free flow of capital across borders to chase the lowest cost and what that has rewarded, the incentives of the system, are to reward lax environmental protections, and frankly, lax worker protections. Protecting and having high standards for workers and the environment mean higher costs, but they're critical to resilience and sustainability. So in this era that we're in, in refashioning globalization to a globalization 2.0, what we really need to think through is how can we adapt the rules of trade to incentivize firm behavior to take into account more than just efficiency, but to promote and reward decisions that are made to pursue sustainability for our people and for our planet.
Here are a few thoughts in response.
First, it's interesting that Tai is skeptical of the term protectionism, because later she talks about export controls as being a national security tool, which I take as a statement that they are not, in fact, protectionism. I feel like there may be some confusion and differences of opinion out there about what exactly protectionism means. Is it just about the effect of the measure, or is it also about the intent? Some people seem to take it as referring to any measure that has a negative impact on trade, regardless of the intent, and I can see how there would be a problem with the term if used that way. But I prefer a usage that includes intent as well, and it may be the case that under this definition, Tai would be OK with the term. (Next time I have the opportunity at one of her events, I'll try to put this question to her!) For me, the main purpose of the trading system is to adopt mutually agreed constraints on protectionism, by which I mean measures whose primary objective is to give domestic producers an advantage over their foreign competitors for commercial reasons. If, on the other hand, protectionism is not the target here, then I'm a little lost about what the trade regime is supposed to be doing. There are various possibilities, but I have doubts that any of them could provide the basis for a stable trading system.
Second, there may be a handful of people out there who believe that trade liberalization should be "liberalized maximally," but for the most part they have been kept far from the levers of power over the past few decades. During that time, U.S. trade policy has maintained a careful balance of liberalization and protectionism, with plenty of protectionism still allowed. We do have something referred to as "free trade agreements," but we have never been close to having free trade. In addition, a lot of the maximizing we have done under trade agreements is about intellectual property, which some people -- and I am sympathetic to this view -- believe is more akin to protectionism.
On trade and peace, I don't think anyone believes that trade can prevent all war, but I also think it's clear that trade can and does reduce the possibility for war. This can be difficult to prove empirically, but it's hard to imagine that it's not true to some extent. So, while having both Russia and Ukraine in the WTO won't prevent Russia from invading Ukraine, there are plenty of countries whose relationships have improved greatly due to closer economic ties (Western Europe is perhaps the best example of this).
As to the impact of the 2016 votes, I'll focus on the election of Trump. It is true that Trump used a lot of protectionist rhetoric during his campaign, which most presidential candidates do, of course, but his rhetoric was even more extreme than that of others. After all the protectionist talk, however, he lost the 2016 popular vote handily, 48% to 45.9%, to an extremely unpopular candidate, so I'm not sure the lesson we should draw is that protectionism is popular. And of course, he famously used other rhetoric during that campaign, and it's hard to say which one played a bigger role in him either getting the votes that he did or in losing the popular vote. My instinct is -- and public polling seems to show -- that trade doesn't play a big role in people's presidential choices, but it's hard to prove this definitively. Now, we do have the electoral college, so Trump became president despite losing the popular vote, which gave him the opportunity to implement protectionist policies for 4 years, after which he lost the popular vote even more handily, 51.3% to 46.8% (while also continuing to use that other rhetoric). Again, it's hard to know what role the protectionism played in his losing these votes, but the results call into question the potency of protectionism as a successful electoral strategy. (For what it's worth, I think there is a version of trade liberalization that can still work politically in the U.S., and my prediction is that the U.S. will eventually get back on board with trade liberalization after it falls behind the rest of the world far enough).
Finally, as to environmental goals, if we take these objectives seriously, and I don't think we often do in U.S. policymaking, there shouldn't be much of a conflict between trade and the environment. If you ratchet up domestic environmental standards and apply those standards equally to imported and domestic goods, it is unlikely that you will violate trade rules. (There are a couple obligations and dispute settlement decisions that call that principle into question, but even at their strongest, trade rules can't force countries to change course. See, e.g., EC - Hormones). And while the "race to the bottom" theory is popular in certain circles, I'm not sure the evidence supports it. To me, the issue of lax environmental standards is mostly about domestic politics. The United States (and other countries) could adopt taxes and regulations that promote a cleaner environment, but politicians have had a hard time making that happen. I don't know whether the problem is more on the political leadership side or on the voter side, but regardless, trade rules are not playing much of a role here. And of course, one way trade rules could play a role in a positive sense is through an agreement to lower tariffs on environmental goods, which would be a nice win-win for both trade and the environment. However, there is strong opposition from corporations/labor unions who don't want a broad win for everyone on either issue because of the losses they think they will suffer, which makes it hard to get this done.
