In remarks yesterday that a USTR press release referred to as a "major speech," U.S. Trade Rep. Katherine Tai offered a detailed explanation and defense of the Biden administration's trade policy. There were a number of points I disagreed with, but instead of going line by line as I sometimes do, I'm going to talk about how her speech triggered some thoughts for me on how U.S. trade policy could move forward some time in the future (not necessarily soon, but some day!).
Here's one thing Tai said in the speech:
Today, labor leaders, CEOs, foreign leaders, and the President’s National Security Advisor all agree: our global supply chains, which have been created to maximize short-term efficiency and minimize costs, need to be redesigned for resilience.
Because resilient supply chains are vital for greater national and economic security.
By this, we mean production that can more easily and quickly adapt to and recover from crises and disruptions. It means having more options that run through different regions.
For me, Tai's statements here raise questions about how domestic politics interacts with international relations and what the international trade regime is for.
It's easy to talk about trade policy a certain way when you are focusing only on your own economy. "Resilience" and "economic security" indicate a desire for more domestic production (although some of the people pushing for these things would accept more production in friendly countries as well as domestic production), and there's a certain domestic audience that likes the sound of that. (Of course, sometimes the reality is different than the rhetoric. The recent baby formula crisis is a good example of how excluding most imports and having a domestic oligopoly leaves you in a fragile position rather than a resilient one.)
But where things get difficult is when you add foreign governments to the equation. What if these governments start worrying about "resilience" and "economic security" too? What if they decide to use domestic content requirements that keep U.S. products out? What if they ratchet up their subsidies and put U.S. producers at a disadvantage? What if they take actions that restrict U.S. agriculture exports, or digital services exports, or aircraft exports? If they do, U.S. producers are going to be harmed, and these producers will press the U.S. government to take action.
And that, I think/hope, may be what gets U.S. trade policy back on track. By "on track," I mean that over the years, the international trade regime has mainly been about establishing a mutually agreed set of constraints on protectionism. Recently, under Trump and then Biden, it seems like the U.S. has been trying to reconfigure the balance so as to allow more U.S. protectionism. And at times I've wondered if some of the Trump and Biden administration folks and their allies think protectionism is just good policy all around, and they would even want more of it outside the U.S.
But then you see what happens when other governments impose trade barriers (even non-protectionist ones) of their own: The U.S. pushes back. This suggests that those arguing for "resilience" and "economic security" may not be as wedded to these concepts as they sometimes sound, in the sense that they don't see "resilience" and "economic security" as the main principles on which the international system should be based. Rather, to a great extent, their actions represent the traditional trade policy approach of responding to demands from domestic interest groups to help them compete with foreign producers, in both domestic and foreign markets. This means trying to close the domestic market while pushing to open foreign markets.
With this in mind, I think U.S. trade policy is likely to end up where it has always been: Trying to achieve an international balance of protectionism that everyone can live with. The U.S. can try to influence that balance through unilateral measures, but that approach does not have a good track record. Where we inevitably end up instead is with a set of international rules -- including bilateral, regional, and multilateral trade agreements -- to govern things.
Within those rules, there are questions about the substantive scope of the obligations and the role of dispute settlement. There's plenty of room for argument about both of these elements, and governments just need to find a middle ground.
Specific groups may get upset with the system periodically, and that seems like where we are now in the U.S. But the alternatives have all been tried and there isn't anything better out there. In my view, then, we will eventually end up with minor tweaks to the existing system, but most of it will still be intact. I'm not sure how long it will take us to get there, but Tai's speech -- although I'm pretty sure it was not her intent! -- made me think it is inevitable.
