Last week, U.S. Trade Rep. Katherine Tai spoke at the Center for American Progress. You can watch the whole event here. As I try to do whenever I have time and she says something in the Q & A that intrigues me, I'm going to quote a few things she said and comment on them. The three topics from this event that I'm commenting on are: industrial policy, the global steel and aluminum arrangement, and EU digital regulation
First up is industrial policy. Here's what she said:
Question:
I want to start if I can with the 30,000 foot elevation of what this new industrial policy means. We know that this administration across the board, from the president, all the cabinet agencies, have worked furiously to actualize this historic commitment to renew ... industrial policy in the country, that has reinvigorated industries across the board, and has made a significant contribution to the states that you mentioned before that have been hollowed out. Can you kind of ground us in what that means for ensuing 21st century trade policy through your vision? ...
Tai:
That's a great question and a really important foundation and foundational place to start from. You know, I think one of the really important aspects of what we're doing now is that nothing ... in what we're doing is really a traditional approach. And I think that it's really important to recognize this, because I think that it gets lost in the conversation sometimes, that if it's not the thing that you've been doing over and over again, then ... what could you possibly be doing? But if you just look at the world around us, from the economy, to geopolitics, to supply chains, and sort of the clockwork of ... how we are interconnected to each other across all areas, you just see significant amount of change that's happening. And so from our perspective, in order to be responsible, and responsive, the trade policies that we pursue have to reflect the changes. And, moreover, it's not just change for change sake, but that we're pursuing a really positive affirmative vision for the kind of economy that we want to have, for the kind of economy that we want to lead in partnering with the rest of the world, to push towards a version of America, America in the world, and the rest of the world that is bright, where you can see a long future ahead of you, and that you see a sustainable path. And one where we feel like opportunities are rife, and that they're not shallow.
So bringing that back to where we are now, one is the recognition that there's change all around us, and we have to respond. We have to be positive about where we're driving towards. The other is to recognize that we're not writing on a blank slate, that the current economy that we have reflects decades of trade policies, but also economic policies, that have led us to a certain set of outcomes. So if you look at overall US GDP, we are still the largest economy in the world, we are extremely vibrant. But you also have to recognize that sectorally there's a significant unevenness. And while parts of our economy are incredibly strong, powerful, growing rapidly, that other parts of our economy are eroded from maybe where we have been in the past, but also where we would like to be. And certainly in terms of our industrial capacity, we do still make things here, don't get me wrong. But I think that we have a recognition that unless we start to do things differently, we will continue to see this trend of erosion in areas that we cannot afford to have erosion. And I think that goes to this focus on a reinvigoration of the American economy, of American manufacturing, this embrace of what I will call a very unique type of American industrial policy.
And I'm really glad you have asked me about this because I think that in the trade community for a very long time industrial policy was something that you used to, to accuse people of doing a bad thing. Industrial policy was a bad thing. And I think that, the traditional way we have talked about and thought about industrial policy is it's a thing that you did for yourself, to enrich yourself, to empower yourself at the expense of others. I think that the major change that we're introducing into this conversation is yes, there are things that we need to do for ourselves. There is a correction that we have to accomplish through reshoring for instance, bringing back online a critical level of manufacturing activity, for example, but at the same time, we are interconnected with the rest of the world, that this is in a way, part of what we are aiming for, but we want to be interconnected in a way that is positive. And so from a trade policy perspective, the question is, can you pursue industrial policy in a way where you can do it in a complementary fashion with other economies? So whether that's through supply chains, through coordinating defenses against unfair policies, we are looking for better ways of acknowledging the challenges that we have encountered to ensure that we can safeguard the the freedoms that we so value in our economic market based situation.
Is current U.S. industrial policy as Tai describes it different from what came before? She seems to distinguish between two types of industrial policy: (1) reshoring for ourselves, and (2) coordination of certain policies with others.
On the reshoring, if I understand her correctly, I think she would accept that this part of current U.S. industrial policy is the same as what came before. Using protectionism and industrial policy to keep more manufacturing in the U.S. in the hopes of enriching ourselves at the expense of others has been a standard feature of U.S. trade policy for decades. As with anything, you can ratchet it up of course, but this isn't something new.
On the coordination point, based on things she has said in the past, the supply chain coordination that is under consideration now seems to mean, at least in part, that developing countries will supply natural resources for manufacturing to be done in the U.S. To me, that seems more like a traditional approach to industrial policy than something new.
And on unfair trade defenses, these have been heavily used for a long time. Is the coordination something new? I'm not sure. Perhaps someone who has worked on trade remedies might have a better sense. Regardless, given the level of recent usage of trade remedies around the world, I have doubts that efforts to coordinate trade remedies will have a noticeable impact. They already have a significant effect on trade, even though they don't get much coverage in the media and people outside the trade policy field don't understand them very well.
Next was the global steel and aluminum arrangement:
Question:
I wanted to ask about the global arrangement on steel. You said I'm hoping, or I'm expecting, to be able to share progress in the next weeks. Do you think it's possible that there'll have to be a partial solution at this point, and then a commitment to continue to work on the full ambition of both countering the non-market production and the green production and how that interplays with trade?
Tai:
So let me take a step back on what we're trying to do with the US - EU global arrangement. I talked about it in my remarks. But I also want to acknowledge how fundamentally paradigm shifting the vision is that we are pursuing, and actually how difficult a task it is that we have set out to accomplish with the Europeans. It really is a paradigm flip, right, from race to the bottom to race to the top, US and the EU coming together, putting our market forces together to drive, through trade, cleaner production, cleaner trade, in these carbon intensive industries, but then also to defend against non-market excess capacity, and then to drive incentives for fair trade and fair production. So it's a really big remit that we have.
The second thing I'll just talk about is that it's really a very technically challenging thing that we are proposing to do, although on that I will say that there are probably as many if not more trade lawyers in Brussels as there are in Washington. So if there are two partners that could come together to solve a really difficult task, it should be the two of us.
The third thing that I'll note is, I think that what we are asking the EU to do on this, I feel confident that they are committed to doing it and they recognize the need to do it. But I think that on some level it is also very, very difficult for Brussels on an emotional level. Because what we are doing is quite different. And as I note all the time, change is really hard. And on this I've also had the opportunity to reflect with my team on the record of US-EU trade negotiations and engagements. And I think that despite our best efforts, that our record has been, I would say sometimes we seem like star crossed lovers. It seems like we should be able to get the thing across the line and, maybe the most obvious recent point is on the Transatlantic Trade and Investment Partnership (TTIP), that despite the high level political commitment, that that was something that ultimately we weren't able to get across the line. So from my perspective, you never give up. Trade and economic collaboration is something you necessarily have to do with your partners. So this is a long way of saying, let's see, hang with us for I guess we've got exactly three weeks to get to our deadline. And I think that I will just say, as of right now, as hard a task as this has been, I'm extremely proud of our US negotiators. And I will say that we remain extremely committed to our partners and working with them.
On the issue of the EU state of mind, I would say the EU folks are mostly detached and analytical about all this, as evidenced by this quote from the FT:
The EU is planning to announce anti-subsidy investigations against Chinese steelmakers at a summit with the US this month as they further develop a common front against Beijing.
Brussels had agreed to join Washington’s efforts to shield industries from cheap competition, two officials with knowledge of the move told the Financial Times. Washington had asked Brussels to move against Chinese steel producers in return for avoiding the reimposition of tariffs on EU steel imposed by president Donald Trump in 2018, the officials said.
...
The EU officials said they understood the need for president Joe Biden to protect steelworker jobs in swing states such as Pennsylvania and Ohio to prevent Trump winning an election rematch next year.
We'll have to wait and see how the political calculations turn out of course. Ohio seems like a stretch for any Democratic presidential candidate these days, and Pennsylvania is looking tougher than I expected it to be for Biden.
More generally, on the issue of taking joint action with the EU to address carbon emissions and Chinese non-market practices, I think there are things that can be done on both, although I'm not sure what I've seen so far in the leaks about the global steel and aluminum arrangement will achieve much. On the non-market practices issue, based on the reporting so far, the arrangement will involve a club that excludes non-market economies, and therefore excludes China. Then the idea seems to be that the US will impose tariffs on non-club members in a way that will almost certainly violate WTO rules, and the EU will try to impose tariffs on them consistently with WTO rules by using AD/CVDs. But regardless of the WTO-consistency of the measures, these types of unilateral actions seem, based on past experience anyway, unlikely to change China's policies and practices. I think the better way to do that would be through WTO complaints (such as a complaint focusing on the behavior of China's state-owned enterprises). I've heard people offer up explanations for why those cases haven't been brought, but the explanations don't seem convincing to me as a matter of strategy.
Finally, there was something about digital trade:
Question:
There's a question from Robert Kuttner from the American Prospect about pressure coming from big tech companies in the US to define the European Union's pro-consumer regulations as trade discrimination. He asked, do you have a position on this and might we expect some news about this any time soon?
Tai:
Let me just start out by stating a couple of facts. One is that the European Union has an incredible superpower as a political entity, and they're very good at regulating, in this sense, that they're able to get regulations going through very, very complex processes. You know, I think that my partners in Brussels have some of the hardest jobs in terms of navigating between 27 member states, but their regulations often have extraterritorial reach that cause all of us to sit up and have to respond.
On their regulations in the digital arena, I recognize, and this is through a lot of engagement with our partners in Brussels, that they are very, very concerned about the rights of European citizens with respect to privacy, for instance, the opportunity and the economic vibrancy in this arena of the economy to allow for opportunities for new entrants, and for new entrants to grow, startups to grow into small and medium sized, and to compete with the very largest.
I also recognize that in terms of this industry, the largest players, and they're really large, are almost all American companies. And so I think that ... that's where the tension comes up, which is in the trade policy conversation, our guiding disciplines are around discrimination. Are you treating foreign companies the same way you're treating your own? Are you treating this foreign company the same way that you are treating that foreign company? Right? That's the traditional trade conversation. I think that as it then crosses over into regulatory efforts that impact these big technology companies, we have to really be cognizant that measures that may look like they have a discriminatory effect may or may not be advanced with a discriminatory intent. And so I think from a trade perspective, that is the additional nuance that we have to bring to our engagement with our partners around their intentions, and then also around the impacts.
Last thing I'll say on this as well is, in this area, and I'll bring it back to climate as well, in these two areas, digital and also climate, what we are able to do in trade negotiations and trade policy is limited by where the American policy consensus is represented. And I want to really put a fine point, and this is truly out of deference and respect, on the US Congress, that in areas where the US Congress continues to debate and has not settled regulatory questions, in digital and also on climate, that there is going to be a limit to what we can do in trade in the international sphere. So I know that my partners in Congress love having us lead in all things, especially in trade. And I would just say that, in some areas, that we cannot lead until Congress speaks and acts. And I would just say on digital and on climate, those are two incredibly important areas where we cannot afford to sit on the sidelines, where I will be very, very eager to work with our Congress.
She's definitely right about the last point. When there isn't a clear U.S. domestic policy, as there is not on digital, how is the U.S. supposed to create and shape international consensus and agreements?
Finally, I may be reading too much into this, but I found it noteworthy to hear the way she talked about the issue of digital trade and discrimination. It came across to me as though she is getting pressure from Congress and interest groups to pursue this with the Europeans, but she doesn't feel like this is necessarily the right priority for U.S. trade policy. To some extent, she is trying to arbitrate between the big tech companies/Congress, on the one hand, and the Europeans on the other, to get them all to recognize the nuances of discriminatory effect and intent (which I agree that everyone should do!) and how they apply here. But again, maybe I'm reading too much into her language and tone.
