At an event last week, U.S. Trade Rep. Katherine Tai was asked the following question:
How would you respond to allies' concerns that trade policy is now more focused on standards rather than market access?
Here was Tai's response:
So to translate this, for those of you who are not familiar with trade lingo, everything that we do is about access to markets, access to our markets, our access to other markets. In fact, I had a conversation with one of our new ambassadors, who comes from the business role and has been a CEO of some very big companies. And I was describing to her what we were doing in the IPEF. And I said, well, but you know, we've designed the IPEF not to address market access, and I really try not to slip into trade lingo because I think that is very confusing. And so she stopped me and she said, but everything you've just described is about access to markets. And I said, No, no, that's right. That's right. When I say market access in trade language, that's tariff liberalization.
And so you know, this is an important point to me. The IPEF is designed not to include tariff liberalization, and I'm not embarrassed by that, I'm not on the defensive about it. This is a feature and not a bug.
Let me explain a little bit more. In a speech that I gave last week at the Roosevelt Institute, I did say, we have not sworn off market liberalisation and tariff reduction. But importantly, the way we have done it in the past has been in service of a theory of the case around globalization, peace and prosperity, that I think that we have discovered the limits to. And that theory of the case has been that the more you trade with each other, the more liberalization you can bring, the more trade that there is necessarily, the more peace and prosperity you will have. One of the things that we have seen is, with respect to the more prosperity, yes, I think that if you look at the past several decades, the overall pie has grown. But who has access to that pie? I think that the growing inequality concerns in many of our economies goes to the point that, we've got to rethink the way that we grow this pie.
The other aspect of this is, the assumption that countries that trade with each other do not go to war with each other. Nothing could be clearer than Russia's invasion of Ukraine, that that was not a market based, economically rational decision. And that even countries that trade together -- and this has probably always been the case, go back to World War I and further -- even countries that rely on each other for their prosperity are at some points motivated to ignore all of that and nevertheless to go to war. Russia's invasion, Vladimir Putin's decision to invade Ukraine, shrank the pie for Russia, shrank the pie for Ukraine. And I think that not being a business economist like the rest of you, I feel pretty confident in saying that that decision is shrinking the pie for everyone.
So in this context, I think that, you know, what we're trying to rethink is, how do you do tariff liberalization and tariff reduction and market liberalization in service of a greater good, that tariff reduction and market liberalization are not goals in and of themselves? How can you do this to serve the goal of resiliency, sustainability, and more inclusiveness in the prosperity that you're creating? And until we come up with that formula, we're not going to do the thing that I feel very strongly has brought us to the point where we are right now. Again, in terms of responsible policymaking, in terms of focusing on building confidence, I think you need to have a proper diagnosis of what's going on right now in order to have a chance, in order to have the credibility of building something that is going to be stronger, better, more durable, and more fair.
And I think that there are also examples of those who are doubling down on the earlier formula, who I think are running into the challenge of not seeing success, from not evolving and adapting, not taking the lessons that are very painful right now. And truly, I think that, if in this very painful period that we're still in, if we cannot learn the lessons, then I think that we really undermine the ability to build that confidence to demonstrate that what we are building towards, what we have adapted to, is going to withstand the kinds of shocks that we have just experienced.
Let me make a couple points here.
First, as I've said before, I think the term "market access" is problematic in trade discussions because it means different things to different people. But there's probably no ridding the trade dictionary of it at this point, so we're stuck with it and just need to explain what we mean when we use it. To me, it covers both tariff liberalization and rules on domestic regulation, including regulations that act as trade barriers even though they are not protectionist. But it's probably best to specify in each case what you have in mind, which Tai does above.
Second, with regard to standards and their connection to access to markets, this has been a priority of trade negotiations for at least 50 years, and we can even find it playing an important role back in the 1930s League of Nations economic discussions. At this point, with all that has happened already with standards in trade agreements, I'd be surprised if there were any big "market access" breakthroughs coming in the IPEF or elsewhere, but I'd have to see the language that comes out of those talks before I say anything definitive. I'm guessing they will focus their efforts on digital standards, but it's hard to see much progress on regulatory coordination in that area until everyone figures out their preferred domestic standards (which could take a while!).
Third, with regard to trade and peace, I don't think anyone is saying that trade will, always and everywhere, bring peace between countries who trade. However, there are circumstances where the right trade arrangement can almost certainly make a big contribution to peaceful relations. For example, European economic integration after WWII was, I think everyone will agree, a big success in this regard. Does that mean adopting the euro in 1999 was the right policy? Or that the EU should have expanded to the East? The answers to these technical questions are never simple. Nevertheless, generally speaking, I think it's fair to say that trade between countries usually contributes to better relations, whereas closing yourself off to trade with countries usually leads to worse relations. That seems like such an obvious thing to say that everyone will probably agree with me, but people can contest this in the comments if they want to. (I think it's also worth noting here that trade by itself cannot bring peace. The focus of any effort towards peaceful international relations should be on constructing a sensible foreign policy.)
Finally, on trade and inequality/prosperity, there is clearly a push going on right now to call into question the current status quo of the global trading system, a system which reflects a particular mix of liberalization and protectionism. The concern of the people doing this pushing seems to be that we moved too far towards liberalization, and while that might have increased overall prosperity, it also led to increased inequality. But given how protectionist measures shift financial resources from society as a whole to specific companies and industries, I'm not sure I see how a move towards more protectionism will reduce inequality.
