At a CFR event on Monday, U.S. Trade Rep. Katherine Tai said some things about tariffs. I know, I just did a blog post about Katherine Tai talking about tariffs! But she said some more things, and I have more to say in response. There were two sets of questions and answers on this issue, as follows:
Jennifer Hillman:
I'm wanting to turn a little bit to the sort of political context of trade policy. And I'm thinking about a study that just came out by MIT economist David Autor, who was the author of the very famous China shock paper about the damage that China's imports did to the US economy. And their recent study finds four things. One is that the Trump tariffs on 301 and 232 did not do any good for the US economy in the heartland. Secondly, [it] did not bring back any jobs into the protected sector. Thirdly, that the retaliation tariffs from China actually did cause a significant negative harm, especially on the farmers. And fourthly, and this is the one I'm really wanting you to comment on, that what the tariffs did do is increase the political support for Trump and for the Republican Party. Now the Biden administration has kept all those tariffs in place. And so I'm just wondering where that leaves room for any maneuvering in terms of the political context in which we find ourselves with respect to trade policy generally, or these tariffs in specific.
Tai:
Well, so Jennifer, I'm not surprised that you've asked those questions. And I'm not surprised that the questions, and maybe even that study, is so focused on the tariffs. Something that I just want to be really open about, I think that reducing trade policy and US trade policy down to a conversation about tariffs is really unfair, and I think ultimately not conducive to a really robust appreciation for what trade policy is. In many ways, it's a red herring. And you're right, I think that there is something political about it, but I don't think it's a D versus R, R versus D politics. I think it's a political red herring that is continually fostered by kind of the traditional trade approach versus the need to evolve into a new trade approach.
And so let me say a little bit more about that. What is really important to appreciate about tariffs is that they're a tool. They're a tool that can be used in constructive ways. They're a tool, at least for us in trade remedies -- I know this is very much your background, dumping and countervail, safeguards -- they are a playing field leveling tool, they are a tool for remedying unfair trade. I actually kind of like the way the Europeans describe these types of tools, dumping, countervail, they call them trade defense instruments. So within the world of the WTO, and what is blessed by WTO, are trade remedies and trade defense and the use of tariffs to counterbalance unfair trade like dumping and illegal subsidization.
What I also want to reflect is that trade policy and economic policy isn't just tariffs. And this is something I want to distinguish on behalf of the Biden administration, because we are focused on reinvigorating the American middle class and the American economy, ensuring that there is more opportunity in our economy that we can address the increasing sense of economic insecurity that Americans, especially younger Americans, have been feeling over the past 10-20 years, right. And that what we have done is to deploy a set of tools.
You are right that we have kept a lot of the tariffs, because we see strategic value in those tariffs in this exercise of building out the middle class and reinvigorating American manufacturing and the American economy. But we haven't stopped there, right? Trade and tariffs are not the only tool you will need to accomplish those goals. I want to highlight one of the pillars of the Biden economic approach, which is the investments. Starting with infrastructure, going to Chips and Science, and the Inflation Reduction Act, and the clean technology investments and incentives that President Biden has effectuated against many people's expectations in just the past three years. And so from our perspective, if the economy doesn't, as it operates, make a distinction between all these different disciplines and silos that we've created in the way we approach it, then our approach needs to break down those silos and it needs to take the tariffs as a tool, the investments as another tool, to help reinforce policies that support and empower our workers and to encourage our partners to be supporting and empowering their workers, and then also promoting economic vitality opportunities through the enforcement of our competition laws, that when taken together, you can see what we're trying to accomplish. And when taken together, I would welcome anyone to do a study and look at all of these working in concert and how they have made changes to the US economy. And I think at this point, President Biden has created close to a million new manufacturing jobs. You have to be looking at all these policy vectors as combined, but picking and choosing them, I think, really does trade policy, as part of the economic policy family, a significant injustice.
...
Kellie Meiman:
I know that trade goes far beyond tariffs, but I'm going to return to tariffs for one second, because one of the elephants in the room are proposals in the context of our electoral campaign, but not even just here, globally, that would be not trade defense or trade remedies, but kind of a blanket unilateral increase of tariffs. And just given everything that you and Ambassador Froman were talking about with the weaknesses of the global trading system, etc., what do you see as being, when that feels so attractive politically, right, to say, but when the inflationary impact on consumers but on our services sector or on our manufacturing, and frankly, just the retaliation risk, as far as what other countries would do to US exports, is so real, how do you think that this threat here and among our trading partners might be addressed?
Tai:
So I think you described it as an elephant in the room. But I think that it's actually a particular person that you're talking about, right? So I guess what I would say is this. Everybody just take a breath. When tariffs come up, I don't know, just really channel your trade nerd self and recognize that tariffs are a tool. That they can be, they can be emotional, and they can be hyperdramatic, and we've seen them used in that way in the past. But whether it's coming from us or from others in our national debate, take the time, use your great expertise, interrogate what is being proposed, and ask what would this action be done for? What is the objective? It's a little bit like the flip side of trade liberalization for trade liberalization's sake. Let's ask, what larger purposes liberalization might serve and how we can use liberalization as a tool to accomplish those goals. For me, it's at this point, in everything that we've seen in the world economy, it's in that conversation, how does trade liberalization and other tools, how can they be harnessed to promote sustainability, resilience, and more inclusive economic outcomes. On the tariff side, I would say let's take the same approach, which is to say tariffs shouldn't be applied just for tariffs sake, right. But ask that secondary question, which is, what is the goal that you're trying to accomplish with those tariffs and whether or not you can articulate a coherent, a strategic approach. And I think from my perspective, again, I'll just bring it back to the way that we have approached the issue of tariffs and trade policy, has been to contextualize it around the overall goal of building out the middle class, reinvigorating America's economy, and how we can work with our partners on a constructive vision for how we do all this together.
Let me offer a few points here in response, many of which have the same theme: What does the evidence tell us about tariffs?
First, I don't know how to determine exactly what percentage of trade policy tariffs make up, but it's a significant portion. They are not the only thing, but they are at the center. And as a core trade policy issue, we really need to have a good understanding of their impact on the economy and on international relations.
Second, to me, the emotion around tariffs is mostly based on some people's feelings that they "work," in some sense. An example of this thinking is, the U.S. had tariffs in the 19th century, and the U.S. industrialized in the 19th century, so according to some people, tariffs must have "worked." But people who have studied the issue know the history is a lot more complicated, and I think what we need is a more empirical, evidenced-based approach to tariff questions.
Third, along the same lines, I like this framing for thinking about the use of tariffs: "what is the goal that you're trying to accomplish with those tariffs, and whether or not you can articulate a coherent, a strategic approach?" Something I would like to hear more about from Tai, or anyone else in the administration, is how exactly they think the various tariffs they are imposing accomplish the strategic approach they are pursuing. Here are a couple examples: How does the dumping that anti-dumping tariffs are supposed to be countering compare to what we do in antitrust law? Are the Section 301 tariffs changing China's trade practices? Are the Section 232 tariffs enhancing U.S. national security? I know what the assumptions are on these issues, but walk us through the reasoning so that we can interrogate the logic and evidence.
Fourth, I was also intrigued by this explanation: "the way that we have approached the issue of tariffs and trade policy has been to contextualize it around the overall goal of building out the middle class, reinvigorating America's economy and how we can work with our partners on a constructive vision for how we do all this together." Do tariffs build out the U.S. middle class? Do they reinvigorate America's economy? Do they help us work with our partners? The evidence from economists who study this mostly indicates that the answer to all of these questions is "no." The Autor et al. study mentioned by Jennifer Hillman found: "So far, the trade-war has not provided economic help to the US heartland: import tariffs on foreign goods neither raised nor lowered US employment in newly-protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory US agricultural subsidies."
But of course, it's always worth gathering more evidence, and there has been a lot of recent new practice with tariffs, so it's worth further study. As I suggested here, maybe ask the ITC to take a look? Along these lines, Tai said this: "I would welcome anyone to do a study and look at all of these working in concert and how they have made changes to the US economy. And I think at this point, President Biden has created close to a million new manufacturing jobs. You have to be looking at all these policy vectors as combined, but picking and choosing them, I think really does trade policy, as part of the economic policy family, a significant injustice." I would welcome that kind of study as well! But I think you can separate out the tariffs from the other parts, and evaluate the tariffs' impact on the economy. Even if you think the Biden administration's overall economic policies are a success, that doesn't mean the tariffs are making a positive contribution.
Finally, do tariffs actually work politically? As I've said on this blog before, Trump made heavy use of tariffs when he was in office, Biden was very critical of that during the 2020 campaign ... and Trump lost and Biden won! So maybe tariffs aren't that much of a political success story after all. I don't mean to suggest that you can't sway a few voters with tariffs that help specific corporations and industries. As the Autor et al. study put it: "Residents of regions more exposed to import tariffs became less likely to identify as Democrats, more likely to vote to reelect Donald Trump in 2020, and more likely to elect Republicans to Congress." I'd want to look closely at those voters and see if there were other reasons for the switch, but even beyond that, perhaps there are also harder to measure effects on other voters and that is part of why Trump lost?
(OK, one final, final thing. I don't think there has been "trade liberalization for trade liberalization's sake." Rather, people believe trade liberalization is good for the economy, especially the lower- and middle-classes who benefit most from more competition and lower prices, and that's why they pursue it.)
