Here's an exchange between Rep. Darin LaHood (R-IL) and Ambassador Katherine Tai at a House Ways and Means Committee hearing (2:10:46 of the video) on Friday, March 24:
Rep. LaHood:
Ambassador Tai, great to have you here and thanks for being with us. As you know, Ambassador Tai, trade policy is incredibly important to me and my district and my constituents. I represent a heavy agricultural district and a manufacturing district whose jobs and economic successes rely on market access around the world and opportunities to send our great American products all across the globe. Knowing that, I don't think it should be a surprise to anyone here that I've been incredibly frustrated that another year has passed without kind of a proactive substantive policy on trade and progress on enforceable trade agreements from the Biden administration.
I know you, Ambassador Tai, were in the Senate yesterday, or maybe the day before, before the Senate Finance Committee, and I know there was frustration over there. There was a Politico article yesterday that said, "Ambassador Tai plays defense as Senate rips into trade agenda." In that article, it says Senators on both sides of the aisle criticized Ambassador Tai for not initiating trade agreements with foreign partners, opting instead for frameworks that lack the same market access provisions and enforcement mechanisms as traditional pacts. And you know, we've talked about this a little bit before Ambassador Tai, but as we sit here today, two years into this job, we don't have an FTA with the UK. We don't have a free trade agreement with Kenya. We don't have an FTA with Taiwan. We have no request to Congress for TPA. We continually allow China to take advantage of our IP at the WTO, and we have this issue with allowing Europe to set the playing field on digital to the disadvantage of US businesses and workers.
So those are just a few things that I think express my collective frustration and others, and as a member of the trade subcommittee, and I'm also a member of the new Select Committee on China, which has raised awareness in a bipartisan way that what we see every day in the Indo Pacific region is the growing threats of China. And considering that, having really an insufficient trade engagement in that region, I believe is unacceptable. And I know you mentioned IPEF, and as I look at IPEF today, I believe the framework is actually getting weaker. Just take the digital pillar as an example. USTR has chosen to engage in a framework that lacks tangible policy and avoids Congressional consultation or approval. And I'm open to hearing your views on that. And I worry that we are not countering or providing a strong enough alternative to the growing pressure of non-market economies. Instead of increasing US leadership in the Indo Pacific region, countering China's influence and leaning in on opportunities like digital trade to set global rules and standards that would put countries like China at a disadvantage, we are missing an opportunity to use trade as an offensive tool.
And so I mentioned those things again, as we look at every conversation as part of the Select Committee on China, when we talk to our like-minded allies in the Indo Pacific region, whether it's Japan, whether it's South Korea, whether it's Australia, is they're craving our leadership economically. And I just, I guess, express my frustration and my concerns about two years in and we've not made any progress on these things. So with that, I'd love to hear your your specific ideas or comments on IPEF, and whether it [provides] real economic and substantive alternatives to China's pressure in the Indo Pacific region.
Here was (part of) Tai's response:
It's good to see you, Mr. LaHood. And let me let me say a couple things before I get to your specific question on IPEF. I hear your frustrations. And I think that in your frustrations, I'd like to make two points.
One is, you are seeing a key part of our trade agenda, which is that it is not the traditional trade agenda. And that is out of a recognition that a lot of the challenges that we are facing today, whether it is supply chain challenges, whether it is the challenges that we are facing from non-market economy practices, like those from the PRC, to Russia's invasion of Ukraine, that a lot of these have roots in a traditional trade approach that have brought us to where we are today.
So yes, we are not pursuing traditional fully liberalizing trade agreements, because we see those as part of the problem that we are trying to correct for. So your frustrations are affirming that yes, we are not pursuing the traditional trade agenda.
But what I would like to point out to you, and I'd be delighted to spend more time with you as well, is to have you see those things that we are doing that we are putting forward a trade agenda to try to correct for exactly some of those challenges that you have highlighted, especially with respect to non-market economic policies and practices that have really made the playing field extremely tilted, and that we're going to have to adapt to respond to for as long as those practices are there.
I have a couple thoughts here in reaction.
First, let me start off with the nitpicky, as I often do. Tai said "a lot of the challenges that we are facing today, whether it is supply chain challenges, whether it is the challenges that we are facing from non-market economy practices, like those from the PRC, to Russia's invasion of Ukraine, ... have roots in a traditional trade approach that have brought us to where we are today." When I first read this, I was puzzled by how the prior U.S. trade approach could have led to Russia's invasion of Ukraine. But then I remembered that Tai has brought up Russia before, stating the point about Russia in a different way:
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.
And also this:
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.
As I understand it, she was saying in these previous quotes that Russia joining the WTO did not prevent war. My reaction to that point was that expecting WTO accession to prevent any and all war between WTO Members is more than can be hoped for from the WTO, although as a general matter I do think good trade relations reduces the risk of war.
Second, I'm not sure how many "traditional fully liberalizing trade agreements" the U.S. has entered into. NAFTA/USMCA comes the closest to being "fully liberalizing," I think, but even that had exceptions from the basic anti-protectionism goals (e.g., there were some TRQs, anti-dumping duties were still allowed and used regularly, and USMCA tightened rules of origin for autos), and it also has non-liberalizing provisions such as strong IP protection, labor rights, etc. Turning to the WTO, there is still so much more liberalizing to do that I think it's hard to characterize it as a "fully liberalizing" trade agreement. But regardless of whether too much "defensive" liberalization caused problems in the U.S. economy, what I see from U.S. trade policy over the past couple decades is that U.S. "offensive" demands for trade liberalization from our trading partners kept falling as a priority. Instead of a focus on liberalization, other policies -- IP protection, ISDS, labor rights, and the environment, among others -- were elevated to become major emphases in U.S. trade negotiations. We can only ask for so much, and if we are asking for these things, it means we are asking for less liberalization (or as LaHood put it, "market access around the world and opportunities to send our great American products all across the globe"). What this leaves me wondering is, how would things have gone if the U.S. had focused its demands on getting our trading partners to liberalize more? What kinds of new economic opportunities would we have had for U.S. producers if high tariffs and protectionist regulations by foreign governments had been more of a priority? And what impact would it have had on the attitudes of U.S. politicians towards trade if a wider range of U.S. businesses were significant exporters?
And third, with regard to non-market economic policies and practices, focusing on China's policies and practices, I think it would be useful to examine the options here as to what could have been done then and what could be done now.
As to what could have been done then, it's certainly true that the U.S. could have decided not to support China's WTO accession. But I'm not sure that would have put import-competing U.S. producers in much better of a position, for several (admittedly speculative) reasons: 1) China's economic rise started long before WTO accession was completed and would likely have continued even without WTO accession; 2) other countries would likely have signed bilateral or regional trade deals with China if China had not been admitted into the WTO; and 3) the biggest impact of China not joining the WTO is that its economy would have been much more closed to foreign products and services. I can easily imagine that if the U.S. had blocked China from joining the WTO, there would have been widespread criticism today about how that decision caused major disruptions to the U.S. economy as there was no effective way to combat Chinese non-market policies and practices.
As to what could be done now, based on the evidence I've seen, my sense is that when it comes to China in particular, but more broadly as well, unilateral measures such as AD/CVD or Section 301 aren't going to induce many changes to a government's non-market policies and practices. (If someone has evidence to the contrary, I'd love to see it). Why don't these work? A big factor is that trading partners look at these as protectionist measures that do not reflect a good faith pursuit of a change to their practices, with U.S. industries just looking for new reasons to keep their foreign competitors out of the market.
So on this issue, I'm not sure that anything the Biden administration is doing -- continuing the Section 301 tariffs and traditional AD/CVD practices, but also talking with allies about things like a possible global steel and aluminum deal or anything related to the IPEF -- will have much of an impact on China's non-market policies and practices. If someone thinks they will, feel free to walk me through how that has worked or would work, but I'm skeptical.
By contrast, what I think would work best on China's non-market policies and practices is a series of WTO complaints (assuming that the WTO dispute settlement system is restored), relying on the many and varied WTO obligations that address non-market practices. The U.S. (and others, but my understanding is that it was mainly the U.S.) negotiated some broad and unique obligations that apply to China. I think it's worth trying to enforce them. Will that change every problematic Chinese policy or practice? Definitely not. But even where it does not, it can lead to a multilateral endorsement of rebalancing that will avoid damaging trade wars and perhaps lay the foundation for long-term changes in certain Chinese policies and practices.
