U.S. Trade Rep. Katherine Tai spoke at an event at the University of North Carolina last week. I thought her remarks offered some of the most clear and emphatic explanations of her philosophy on U.S. trade policy and trade politics. I suppose she has said all these things before, but somehow it just seemed to me that at this event she articulated it with particular clarity and passion. She covered a lot of ground, and I'm just going to pick out a few points to comment on, with two areas of disagreement and one area of agreement.
First up, she offers the following critique of the traditional U.S. approach to trade agreements:
For too long, our policies prioritized aggressive liberalization and tariff elimination. This approach did have benefits. We saw increases in economic activity and historic reductions in poverty in some regions. But the focus on maximizing efficiency also had significant costs and side effects: rising inequality and wealth concentration; good jobs lost overseas, decimating manufacturing communities.
I agree that efficiency was an important factor motivating U.S. trade negotiators, but there are plenty of exceptions. Was IP protection focused on maximizing efficiency? Arguably it often does the opposite. And how about carveouts for U.S. agriculture subsidies? Overall, I would say U.S. trade policy prior to Trump becoming president pursued a wide range of objectives, and efficiency was one of a number of things in a broad mix.
As to the issue of "rising inequality and wealth concentration," trade critics like to argue that free trade leads to this outcome, but it's worth noting that the view from the free trade side is that one of the harms of protectionism is that it contributes to, yes, inequality and wealth concentration. Obviously, one critique of protectionism is that it reduces overall economic welfare, but in addition to that, it also channels financial benefits to specific companies and industries, which, I would say, can contribute to greater inequality and wealth concentration. (In my view, one thing that has been missing from the Biden administration's analysis of past U.S. trade policy is taking a hard look at protectionism with this in mind.)
Here's another point from Tai:
A lot of people think that [a] traditional FTA is a gift that you bestow upon a partner. And ... it means that you're going to tie your economies together, and it's going to be this really great relationship. And very few people actually understand how the rules work. And then ... what happens is, the goal of a trade agreement, the way that we have traditionally negotiated them, is to take down all tariffs between your two countries. Which means really exposing your economies to each other.
It's worth noting here that most FTAs don't actually get rid of all ordinary tariffs; and with a handful of exceptions, trade remedy tariffs can still be imposed even where a trade agreement is in place. But putting that aside, yes, it's certainly true that trade agreements reduce tariffs. One of the main benefits of doing tariff reductions is that this increases competition in the marketplace ("exposing your economies to each other"). When governments protect their domestic industries from foreign competition, by contrast, they contribute to the emergence of domestic monopolies and oligopolies. So, at a time when there is an active effort by the Biden administration to, as they see it, make U.S. markets more competitive, I think trade liberalization could be a key part of this. Domestic industries lobby hard to avoid this competition, but society is better off as a whole if more competition exists. (Interestingly, Tai was just appointed to the White House Competition Council. The USTR press release notes that "[i]n July 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy, which created the Competition Council and instructed federal agencies to identify ways to promote competition in all aspects of the U.S. economy." Trade liberalization would be a great way to achieve this.)
Having done my usual criticizing of things Tai said, let me express support for one point she made:
I just want to say one more thing on climate and trade. I think that, especially with my partners in Congress, they really like to talk about, and the foreign policy establishment, they like to talk about American leadership, right? And America needs to lead and ... we shouldn't fall behind in the competition. One of the issues is, and I want to be really honest about this, on climate, on climate and trade, I can't lead. I can't lead because America doesn't have a broad base of bipartisan support around climate policy. And until we do, I don't have the tools to engage with the other countries that we need to, to work on solutions. And I think that goes also a bit for digital in terms of privacy policy, in terms of liability policy. Until the United States is able to articulate our own policies in this area, I got nothing to bring to the table in the international conversation, because I'm just a trade negotiator. If I do something through our trade policies that either forces domestic action at home, or that makes our domestic political actors feel like I'm tying their hands, that's the end of our trade policy, and that's the end of my job.
I think her statements are particularly relevant on climate policy. I'm not sure what will have to happen for various actors in the U.S. government to take climate change more seriously. At the moment, the economic nationalist right is pushing for policies that would increase carbon emissions, e.g., this: "The [J.D. Vance] bill also aims to create the first 'America First Vehicle Credit' for cars powered by fossil fuel and that are American-made." In this context, I think that criticism of trade policy officials on this issue is an unhelpful distraction.
