International Economic Law and Policy Blog

Is NAFTA a Good Explanation for Workers Leaving the Democratic Party? The Case of Ohio

The Washington Post recently published an op-ed about Sherrod Brown, a long-time Democratic Senator (and previously a Representative) from Ohio who lost his seat in the November election, highlighting his view that the passage of NAFTA led to "workers" leaving the Democratic party:

... Brown says the political shift in his state began with a signal event: the passage of the North American Free Trade Agreement in 1993, the first year of Bill Clinton’s presidency.

“Workers have slowly migrated out of the Democratic Party,” he told me. “It accelerated as more and more jobs were lost. And I still heard [about NAFTA] in this campaign, especially in the Miami Valley, Dayton, where we still won, [and] up there in Mahoning Valley, where we didn’t win.

I'm skeptical of this argument. In a post last March about a paper that asked "Why have white, less-educated voters left the Democratic Party?" and offered NAFTA as a reason, I argued that, based on the voting patterns of Republicans and Democrats in Congress, NAFTA is a not a good explanation for voters shifting to the Republicans because Republican members of Congress were much more in favor of NAFTA than Democrats were:

One problem with [NAFTA as an explanation for the shift] is that Republicans were more responsible for NAFTA than were Democrats. NAFTA was mainly negotiated by the Bush administration. Then when Clinton was elected, he got behind it and added labor and environmental provisions to the deal, with the aim of making it more acceptable to unions and progressive groups (and causing some free traders to abandon their support). While Clinton and Al Gore were the public face of NAFTA passage, it's clear that Republican politicians were more supportive than Democrats were. In the House, the Republicans voted 132-43 for NAFTA, whereas Democrats voted 156-102 against. And in the Senate, the Republicans voted 34-10 for NAFTA, whereas Democrats voted 28-27 against.

So why would the passage of NAFTA steer voters towards Republicans? The Republican presidential candidates after Clinton's time in office were trade liberalizing people such as George W. Bush and John McCain. Why would the previously Democratic voters annoyed with Clinton's NAFTA support shift to a Republican party led by these free traders? Why wouldn't the passage of NAFTA steer voters towards protectionist Democrats, of which there were and are plenty? ...

This discussion was not state-specific, but now we have Brown invoking NAFTA as the explanation for the Ohio electorate's shift away from Democrats. I assume he knows Ohio pretty well, but is he right about this? Let's look at some of the votes there to test this out a bit.

Starting with the Congressional votes on the passage of NAFTA, both Ohio Senators at the time, John Glenn and Howard Metzenbaum, were Democrats, and they both voted against NAFTA. And over in the House, there were 19 Representatives back then, with 10 Democrats and 9 Republicans. The Democrats (including then-Representative Sherrod Brown) voted 8-2 against NAFTA and the Republicans voted 7-2 in favor.

What see pretty clearly in Ohio, then, is that at the national level, Republican politicians were very pro-NAFTA and Democratic politicians were very anti-NAFTA at the time of its passage.

Now let's look at how Ohioans voted in the elections that came after NAFTA. Which party did they support? And what were the NAFTA views of the candidates they voted for?

Starting with presidential elections, in the 1996 presidential vote in Ohio, the two main candidates were Bill Clinton and pro-NAFTA Republican Bob Dole, with Clinton getting a plurality of the vote. Then in both 2000 and 2004, George Bush, a relatively free trade-oriented Republican, won. The 2000 election is a little hard to read because NAFTA proponent Al Gore was the Democratic nominee, so I'm not sure which candidate voters thought was more closely associated with NAFTA/free trade. By 2004, Bush had negotiated several NAFTA-like FTAs, so it was pretty clear where he stood. His opponent John Kerry was also a NAFTA supporter, although he was talking tough on trade during the campaign.

Based on these presidential elections, it does seem like there was a shift towards Republicans in Ohio by the year 2000, but I don't think it's very convincing to argue that the Ohioans voting for George Bush that year were doing so on the basis of anti-NAFTA feelings.

Turning to the Senate, Metzenbaum's term was up in 1994 and he did not run again. The Senate election that year was between Republican Mike DeWine and Democrat Joel Hyatt. Here are the two NAFTA references I found in their debate:

DeWine: I think that we are clearly a nation of immigrants, and so we should, as Joel has pointed out very well, encourage legal immigration into this country, and we must discourage illegal immigration. One of the best ways to discourage illegal immigration, though, is to boost our trade with Mexico. One of the reasons, frankly, that I supported NAFTA, not only is it in the best interest of the state of Ohio, but I think it will help Mexico. It will help the middle class rise up there, which will make it much less likely that people will be entering this country illegally.

...

Question: Mr. Dewine, you both favor the GATT accord. You both favor line item veto. You both favor balanced budget amendments. Please tell us a specific, significant difference between you and your opponent that would help create jobs?

DeWine: Well, Tim, he has changed his position on GATT, and he has changed his position on NAFTA. He supported NAFTA ... was opposed to NAFTA when it was important to get the labor unions' endorsements before the primary. Then he's apparently changed his position. So with all due respect, I'm not sure that the premise of the question is entirely correct.

DeWine explicitly emphasized his support for NAFTA and questioned Hyatt's support for it. Pro-NAFTA DeWine won that election, so while Ohioans did move towards the Republicans, it's hard to see how anti-NAFTA sentiment was behind that. DeWine won again in 2000.

Glenn's term was up in 1998 and he also did not run again. That election was between Republican George Voinovich and Democrat Mary Boyle. Here is the one NAFTA reference I saw in their debate:

Question:

An issue that's important to the people of the Miami Valley is the loss of jobs to other countries, such as through NAFTA. As US senator from Ohio, how will you protect Ohio jobs?

Voinovich:

Well, first of all, one of the things that I'm very proud of is that when I became governor of the state of Ohio, we had the second highest unemployment of the 10 largest states. Today, our unemployment is at the lowest that it's been in 25 years, we've created more than 504,000 jobs. And as I mentioned before, our welfare roles are the lowest ... that is very much a part of the growth of jobs. As a matter of fact, in 1992 our export was 16 and a half billion dollars. Today it's 27 and a half billion dollars. The Commerce Department conservatively says that for every billion dollars of export, we create about 14,200 jobs. So we've created 100 and some 47,000 jobs because of export. And I want to point out that since NAFTA and the free trade agreement in the state of Ohio, we have increased our export to Canada by 91%. We do 12 and a half billion dollars with Canada a day. And with Mexico, Mexico is our seventh largest trading partner. Today, Mexico is our fourth largest trading partner. And last year, we increased our export to Mexico 40%, over a billion dollars. So that between the NAFTA countries, Canada and Mexico, they represent over half of the export of the state of Ohio. So I think there's a lot of misinformation out there talking about NAFTA and what its impact is, and in terms of losing jobs. I know some businesses in Ohio that had facilities in Mexico that after NAFTA closed them, because the only way they could do business in Mexico was to move to Mexico; when they took the trade barriers down, they were able to manufacture the products in Ohio and ship them to Mexico.

Boyle:

Well, it's a good question, because I believe the most important thing we can do in terms of economic development in Ohio is build on our strengths right here, and the Miami Valley has many of those strengths. I believe most importantly, we ought to be talking about how we really move forward in a global environment, building on our strengths. That means we ought to be exporting our products, our manufactured products, and our agricultural products, but we also ought to be building and protecting our jobs here. There may be new jobs created in Ohio, but I would only put those percentages in light of what's happened all over the country. There have been over 15 and a half million jobs created in this country since the economy began to turn around in 1993. So I don't even know if Ohio has gotten its fair share of that development. What I am concerned about is making sure that we take the best advantage we can of what we have here. We have Wright Patterson here as a real key component of building the economy for the future here, moving into high technology and other areas, that we really can make a difference in terms of manufacturing those kinds of goods for the future. That's a lot more important than exporting our jobs. I believe that we have the core here in this part of the state of Ohio of really building the economy of this whole state. But it's going to take the kind of leadership at the state level and also at the national level to start with building on our strengths. Our workers are a well trained workforce. You can't talk about moving jobs to Mexico without remembering that in Celina, Ohio, the Huffy bicycle plant employed 960 people. Huffy went to Mexico and the 960 jobs are gone.

Voinovich, who comes across in his answers as much more supportive of NAFTA than Boyle, won this election, so again we see a pro-NAFTA Republican winning.

Summing up on the Ohio Senate, the passage of NAFTA was followed by a shift from anti-NAFTA Democrats to pro-NAFTA Republicans. I'm not saying NAFTA played much of a role in any of this, as Americans don't rank trade very highly in their hierarchy of important policies. And perhaps there is more to this than I was able to dig up in a few quick searches, and I'm happy to be corrected if I missed something in these elections (or later ones). Nevertheless, on the face of things, it does not seem as though anti-NAFTA sentiment is what drove people from the Democrats to the Republicans in the first couple post-NAFTA Ohio Senate races.

In the House, by 2000 the breakdown was 11-8 for the Republicans; by 2004 it was 12-6 (Ohio had its number of seats reduced that year). It would be interesting to see what the candidates were saying about NAFTA in Ohio Congressional races in the post-NAFTA period, and I encourage others to go further with this type of analysis (in both Ohio and other states).

On the general argument that Brown makes about NAFTA causing "workers" to move away from Democrats, the presidential and congressional elections cited above clearly show that there was a shift to the Republicans in this period, but what is the explanation? Republicans were the more pro-NAFTA party at the time of Congressional passage, and Ohio voters supported free trade-oriented, pro-NAFTA Republicans for president and senator in the subsequent elections. This undermines the argument that anti-NAFTA sentiment is the key to understanding the shift.

What might be an alternative explanation for the shift? Brown seems to want to downplay social issues here, arguing that even if Democrats are out of step with voters on these issues, economic issues can bring them back:

... Brown insists that Democrats can — and must — win back the votes of working-class Americans. Those voters may disagree with some of the party’s stances on social issues, such as guns, abortion, crime and immigration, but will return to the fold “if we stay on economic issues and do it right.”

My sense of things is very different. As I see it, social issues are where the Democrats are struggling with the specific group of voters being targeted here, with crime and immigration as two of the key problem areas at the moment. On these two and a couple other issues, my impression is that the Democrats' policies and/or messaging (1) have moved to the left since 1993 and (2) are a bit vague and unpersuasive to the voters in question. In my view, that is one of the main reasons these particular voters have left the Democrats. But there's not much science to any of this, and from what I can see on the internet, the debate over which direction the Democrats should go now on both economic and social policy is wide open.

ADDED:

To assist anyone who wants to look more deeply at the politics of NAFTA in Ohio, I wanted to mention that in the House of Representatives, it looks like there were four seats that shifted from Democrats to Republicans in the 1994 election (the Democrat's vote on NAFTA is in parentheses):

- 1st: David Mann (D) (Yes) to Steve Chabot (R)

- 6th: Ted Strickland (D) (No) to Frank Cremeans (R) (and back to Strickland in the 1996 election)

- 18th: Doug Applegate (D) (No) to Bob Ney (R). (Applegate retired, and Ney beat Greg DiDonato in the 1994 election).

- 19th: Eric Fingerhut (D) (No) to Steve LaTourette (R)

It's harder to find information on House races than Senate races, so the basic internet searches I did were not able to turn up much on the role of NAFTA in these elections. I'll leave the serious research for others who want to dig into this, but I did find some interesting details on the Mann vs. Chabot race.

The Washington Post wrote about Mann vs. Chabot just before the election, noting that labor unions were annoyed with Mann for his vote in favor of NAFTA. While some labor leaders helped organize a primary challenge against Mann (Mann won the closely contested primary), most ultimately supported him in the general election:

Shortly before the House voted on the North American Free Trade Agreement (NAFTA) last year, Frank W. Butler lunched with his old friend, Rep. David Mann (D-Ohio). Mann confided to Butler that he was leaning toward voting for the pact, which was bitterly opposed by organized labor.

"I told him," recalled Butler, business manager of the International Brotherhood of Electrical Workers Local 212, "if you do this I won't support you. I said my members won't even allow me to support you."

 

Today, Butler is co-chairman of the Committee to Reelect David Mann. In August, he sent a letter to the local's 1,200 members with his cold calculation of the choice between Mann and his conservative Republican opponent, Hamilton County Commissioner Steve Chabot.

 

...

Nationally, the AFL-CIO has endorsed 59 House Democrats and five Democratic senators who voted to approve the trade agreement that eliminated trade barriers among the United States, Mexico and Canada, part of a dismal record for labor in the 103rd Congress that also failed to enact legislation overhauling the health care system and banning the hiring of permanent replacement workers for striking union members.

"The vote on NAFTA has been taken," said AFL-CIO President Lane Kirkland in explaining the endorsements that are made at the local level. "It is done. It is not an issue in the next Congress as far as I am aware."

In a get-out-the-vote videotape sent to union locals, Rich Walsh, director of the AFL-CIO's Committee on Political Education, dismissed NAFTA as "the big exception" to a strong pro-labor record by Congress and the Clinton administration. What's important now, Walsh and other AFL-CIO officials argue in the tape, is to prevent big election gains by labor's Republican enemies.

As for Chabot, I couldn't find anything on what he was saying about NAFTA at the time of the 1994 election, but an interview he gave a few years ago in the context of Trump's protectionism makes clear that he was pro-NAFTA:

I'm a free trader, okay? Always have been. I think I was for NAFTA. I was a bit concerned about [Trump] taking on trade as an issue because I didn't necessarily look at it the way he does. I'll give him credit for it's working, that he hasn't done away with NAFTA or repealed it. He's improved it. It was a bit scary when we're working with our Canadian allies, and I think they are our biggest trading partner, if I'm not mistaken, but they're way up there. He's falling out with Justin Trudeau, and it's scary, but the agreement they've come with is an improvement over NAFTA. Mexican's government on board, the Canadian government's on board, and we're now going to be able to ... I mean, just giving you automobiles for example. Right now, I think it's 62 1/2%, or something like that, of the content of a car, according to NAFTA, has to be American made. Now it's up to 75%. That's going to mean real jobs here in the United States. Some coming back, some not going away in the first place. That's a big deal for a whole lot of people that are going to have good paying, a lot of union jobs here in America. Our dairy farmers have had a heck of a time getting their dairy products into Canada because of their rules over there. That has been modified dramatically, and we're going to have a whole lot of farmers that are going to be able to now export their milk and ice cream and everything into Canada. Our intellectual property protections are going to be much better as result. These are just improvements. I was for TPP, Trans-Pacific Partnership, and T-TIP, which was with the Europeans. I voted for our trade agreement with South Korea, for example. 

Appeal/Review Proposals under Consideration in the WTO Dispute Settlement Reform Process

In a recent post on appeal/review issues being discussed as part of the WTO dispute settlement reform process, I quoted something that referenced "an updated draft of the document known as the Appeal/Review Tables, which will reflect the progress made in the discussions since the summer break in Geneva." These tables were not available at that time, but the WTO has now posted them (the appeal/review section of the document starts on p. 19). There's a lot in there, and I won't get to all of it in this post, but I will offer a few comments on specific aspects.

There are six general categories of issues covered: Scope of review; standard of review; form of the mechanism; reducing/changing incentives to appeal; clarifying Members' expectations of adjudicators; and access to the mechanism. Then for each individual item in the table, there are the following headings: "Element," "Current system," "Reform idea(s)," "Key Objective(s)," "Observations"

The first category is "A) Scope of review." For the element "Filters, criteria or admissibility tests for claims," there are the following reform ideas:

1. Limit the appeal/review claims that would be assessed on their merits to those errors of law that would, if established, have a material impact on the respondent's implementation obligations with respect to a measure. ...

2. Create a leave to appeal or permission to appeal mechanism so that only alleged errors of law that were (a) raised with the panel during interim review; and (b) with a real prospect of success, would be considered by the adjudicators.

I like the idea of limiting the appeals that will be considered, but it seems to me that evaluating "material impact ... on implementation" or "real prospect of success" would be challenging. (And as I'll get to later, I'm skeptical about the interim review process in general, but putting my doubts aside, I'm not sure this would be much of a limitation for appeals given how many issues are generally raised there.) As an alternative appeal filtering idea, it may be worth just giving adjudicators discretion as to whether to rule on a specific appeal. The two approaches get you to a similar place, albeit with some important differences: A pure discretionary approach would save a lot of time and effort, but it would be less transparent as to why review of a specific appeal had been rejected. A decision about which approach to adopt would have to weigh and balance these factors.

The second category is "B) Standard of review." For the element also entitled "Standard of review," there are the following two reform ideas:

1. A high or limited standard of review that gives some deference to the panel such as:

a. a standard under which an appellant must establish that the panel's decision on a legal issue was 'clearly erroneous' or 'plainly unreasonable'; or

b. an approach whereby the appeal/review adjudicators would first consider whether the panel's interpretation was reasonable/permissible based on the customary rules of interpretation of public international law. The appellant's interpretation would only be considered if the panel's interpretation was unreasonable/impermissible.

2. Standard of review under which an appellant must establish that the panel:

a. was guilty of gross misconduct, bias, or serious conflict of interest, or otherwise materially violated a rule of conduct;

b. seriously departed from a fundamental rule of procedure; or

c. manifestly exceeded its powers, authority or jurisdiction, and any of these acts by the panel materially affected the decision and threatens the integrity of the process.

I have questions about the first one, and I'm not a fan of the second one.

On the first one, one question is whether this applies only to legal interpretation questions or also to law application questions.  Sub-paragraph (a) talks about "the panel's decision on a legal issue," while sub-paragraph (b) refers to " the panel's interpretation." It seems to me that the scope of these two things may be different, with the former possibly applying to the application of the law to the facts of the case. Another question is, how exactly would this standard be applied in practice? It might be helpful if the proponents of this approach could offer up some examples of panel findings that were reversed by the Appellate Body but would not be reversed under their approach.

On the second one, I'm just not sure this sort of appeal standard would be of much use. I don't think panels violate any of these standards very often, and such a standard would not allow an appeals body to carry out the valuable role of providing coherence in the interpretation of WTO rules.

The third category is "C) Form of the mechanism." For the element "Nature of the body," there are the following reform ideas:

1. Ad hoc selection of adjudicators, possibly drawn from a pool, roster or list.

2. Increase the number of standing adjudicators.

3. A mix of standing and ad hoc adjudicators (such as one standing Member and two ad hoc adjudicators in a Division).

4. In lieu of a separate appeal/review stage, add additional adjudicators (from a pool or through a process similar to panel composition) at the interim review stage of the panel proceedings to review and test the panel's conclusions.

5. In lieu of appeal/review by adjudicators, review of the panel's conclusions by a committee of WTO Members.

I find #1 to be the most interesting (and #3 as well, as a modified version of it). If I understand the U.S. objections to the Appellate Body correctly, they have a concern with the institutional nature of the Appellate Body. Shifting to ad hoc arbitrator appointments could help address the U.S. concern. (I'll have more to say about this in a coming paper).

On #4, as mentioned, I'm an interim review skeptic, which I will get to later. However, adding new adjudicators to the existing mix at this stage of the process is kind of fascinating. If you start with 3 panelists, and then add 2 more for the interim appeal/review process, what would that look like in practice? What if you added 4 new ones? My instinct is that it would all be a bit of a mess, but I'd like to watch it play out just to see.

And on #5, I don't have any objection to a WTO committee of this sort, but it doesn't seem like it would accomplish the things that people are looking for an appeals process to do.

The fourth category is "D) Reducing/changing incentives to appeal." For the element "Political commitment by Members to reduce appeals," there is the following reform idea:

1. Members give a collective, non-legally binding, political commitment to file appeals only in 'exceptional circumstances'.

I like this one. I'm not sure how much of an impact it would have, but I think it's possible that it could help change the culture surrounding appeals, and it's worth a try. Perhaps it would lead to fewer appeals filed and/or fewer appealed issues in cases that are appealed.

Then for the element "Enhancing use of interim review," there are the following reform ideas:

1. With respect to any claim relating to the panel's assessment of the facts, require the substance of the claim to be raised with the panel at the interim review stage, as an admissibility requirement to a party bringing an appeal/review claim. This would not apply to factual errors in the final report that were not in the interim report.

2. With respect to any claim relating to the panel's legal interpretation or application of the law to the facts,
require or incentivize Members to raise the substance of the claim with the panel at the interim review stage. This would include:

a. Strongly encouraging parties to do so.

b. Requiring a party to state in its notice of appeal whether an issue was raised during interim review, but with no consequence if an issue was not raised.

c. Creating a link to the Accountability Mechanism in the Draft Consolidated Text (Title X) to monitor Members' behaviour with respect to interim review.

3. Extend the time for the panel to conclude its work at the interim review stage. 

As an outside observer who reads all the interim review sections of panel reports, I'm not convinced that the interim review process is worth the effort. But maybe there are things I'm missing and the people who actually litigate these cases can convince me it has great value. Regardless, from what I can tell, most Members seem to like interim review, so it is probably not going anywhere. Members often raise a wide range of issues during the interim review process, so making this a requirement in order to file an appeal would not be too much of a burden.

The fifth category is "E) Clarifying Members' expectations of adjudicators." For the element "Adjudicators' output (decisions or reports)," there is the following reform idea:

2. Clarify that previous reports are not binding on adjudicators.

There has been a lot of talk about the role of precedent as part of the dispute settlement reform process, and at times there have been suggestions phrased along the lines of "adjudicative reports shall have no precedential effect." I've complained about that here on this blog, noting that precedential effect can range from binding to persuasive, and "no precedential effect" goes too far. From what I can tell, previous reports are not generally treated as binding in practice, which the "cogent reasons" approach developed by the Appellate Body made (somewhat) clear; and we wouldn't want to preclude past reports from being used as persuasive authorities. Nevertheless, if people want to emphasize that previous reports are not binding, as the proposal does, and perhaps try to reduce the role of precedent slightly by changing the culture surrounding citing and relying on past reports, I don't have a problem with that, as long as the reports retain their persuasive authority.

The sixth category is "F) Access to the mechanism." For the element "Method of accessing the mechanism," there is the following reform idea:

1. Access to the mechanism by agreement (bilaterally or plurilaterally) of the disputing parties on a one-off or ongoing basis.

This one is interesting because, if I understand it correctly, it makes appellate review optional, allowing individual Members to opt in/out. I don't think this is ideal, but if the U.S. ultimately decides -- as seems to be its view now -- that it cannot accept an appeals mechanism for cases it is involved in, this approach could get us to a functioning tw0-track system in which most Members can have access to an appeals body in cases between each other, but then U.S. cases can be limited to just a panel stage. Currently, the MPIA seems like a plurilateral, ongoing example of this approach, and perhaps a variation of the MPIA could be formally incorporated into the DSU.

Discussing Tariffs with Michael Pettis

Finance professor Michael Pettis had a recent FT piece on tariffs. His piece builds on one of his Bluesky threads, which I discussed with him there. In this post, I'm going to react to some of the things he said in both the FT piece and the Bluesky conversation. (If you haven't heard of it, Bluesky is a recent addition to the social media landscape, based on the idea of protocols rather than platforms).

The Pettis FT piece starts this way:

If you want to understand the effects of tariffs on the economy, ask economic historians. Their views tend to be fairly nuanced, generally recognising that the history of tariffs is a varied one. Sometimes they are associated with higher economic growth and other times with lower.

For many economists, however, tariffs have become an ideological litmus test with little acknowledgment of these variations. Tariffs in advanced economies — and especially in the US — only matter, they argue, to the extent that they affect the prices of imported goods. For that reason, they are seen as always harmful to the economy because they always hurt consumers.

I love economic historians as much as Pettis does, but I'm not sure how he came to his impression of economists. When I talk to economists, they are always reminding us that there are "tradeoffs in everything." That applies to all economic policies, including tariffs, and when they talk about tariffs, they talk about them with a lot of nuance. (Of course, you can probably find some social media statement by an economist that doesn't have sufficient nuance, but the nuance is definitely there if you read the academic/think tank papers they publish.)

With regard to the tariff tradeoffs, as with any other economic instrument, there will be costs and benefits to tariffs, which you have to weigh and balance against each other. Prices and consumer welfare are certainly important, but they are not the only thing economists take into account. In addition to the consumer price increases that result from the tariffs, some key elements they consider are:

• the impact on industries that use imports as inputs in their own production;
• the increased profits and jobs in the protected industry;
• the deadweight losses from tariffs;
• the reduction in competition in the protected industry;
• the shift in investment away from unprotected industries, which are now relatively less profitable;
• the likely retaliation by trading partners.

In thinking about the impact of a particular set of tariffs on economic growth (and overall economic well-being), you have to weigh and balance all of these factors (among other things). Pettis doesn't seem to think economists take into account the full range of costs and benefits, but I'm curious what he makes of the numerous studies listed here or this one entitled "Are tariffs bad for growth? Yes, say five decades of data from 150 countries."

Also worth noting is that, for the purposes of this post, I'm assuming the tariffs are set by experts who are objective and knowledgeable. In the real world, however, tariff choices are heavily influenced by lobbyists, which is another element that should be taken into account in evaluating how well tariffs work.

With regard to Pettis's own weighing and balancing, I'm not sure what specific elements he is considering, but he argues in the FT piece that, in terms of the general impact of tariffs on the economy, "[s]ometimes they are associated with higher economic growth and other times with lower." His use of "associated" here is interesting, because I think he is implying causation. I have sometimes come across people who use that word and then deny later that they meant causation, but I don't think that's what he is doing. Rather, I think he is saying that at certain times and places in history, tariffs have led to higher overall economic growth. But he can correct me if I misunderstood him.

All of this came up on Bluesky when I asked Pettis about something he posted there on this same issue. He had argued the following:

As any economic historian knows, there is a long history of tariffs in which they sometimes boost overall growth and other times undermine it. That is why the idea that tariffs are always good is just as idiotic as the idea that tariffs are always bad.

I responded with this:

What are some historical examples of tariffs that you think boosted overall growth?

What I was hoping for here was a cite to a specific tariff, e.g., the 25% U.S. tariff on pickup trucks, but instead he offered the following:

US and German tariffs in the late 1860s and 1870s, Japan's in the post-War decades, China's in the past 3-4 decades, South Korea's in the 1970s and 1980s. It is actually hard to find advanced manufacturing economies that didn't become so except behind trade barriers and aggressive industrial policy.

While his references to general tariffs in a particular country/period were not what I had in mind, I decided to go with it anyway and asked him this:

In all those periods, the countries in question had a wide range of policies in place. How do you disentangle effects of the tariffs from the effects of other policies, in order to show that tariffs themselves led to a boost in overall growth? More broadly, how do you tie tariffs to growth levels?

Instead of responding to any of that, he shift to a different argument:

But that works both ways, in which case you are arguing that tariffs have no impact at all, and that it is merely an astonishing coincidence that developing countries that "succeeded" all did so behind tariff walls.

And I responded with the following:

Tariffs clearly had an impact, but did they boost overall growth? What would growth have looked like without them? That was the question I had in mind. Also, just about every country used tariffs, and many did not experience industrial development/strong growth, so maybe tariffs aren't the key?

I did not hear anything further from him, so that was the end of that.

 

In the FT piece, Pettis later explains his view of how tariffs can make an economy grow and then provides an illustration:

So wouldn’t US tariffs — a tax on consumption — make American consumers worse off? Not necessarily. American households are not just consumers, as many economists would have you believe, but also producers. A subsidy to production should cause Americans to produce more, and the more they produce, the more they are able to consume.

Tariff policy is “successful”, in other words, if it raises domestic production by enough to pull consumption up with it — ie, if it causes Americans to consume more by producing even more. In that case American consumers are clearly better off, even as the share they consume of total domestic production declines. ...

...

If ... the US was to put tariffs on electric vehicles, the relevant question is whether US manufacturers would be incentivised to increase domestic production of EVs by enough to raise the total American production of goods and services. If they are, American workers would benefit in the form of rising productivity. In turn, this would lead to wages rising by more than the initial price impact the tariffs had and American consumers would be better off.

Of course, there is little doubt that the U.S. could impose 100% tariffs on EV imports in order to promote a domestic EV industry. But that's a very different argument than one that tariffs boost economic growth more generally.

With all this in mind, my question for Pettis is related to the one I asked on Bluesky: Is there a particular set of tariffs for which you can show that they have boosted overall economic growth? What I'd want to see here is an analysis of all the factors I noted above. Based on our Bluesky exchange, he seems to be saying something along the lines of "in the periods I referenced there were tariffs and around that same time an industry grew, and therefore tariffs worked in that case." But when you take into account the full range of effects of the tariffs, I would say the issue is a lot more complicated than that. If you are making a claim about overall economic growth, as he seems to be doing, it can't just be a simple exercise of identifying the existence of tariffs that were in effect at the same time as the economy was growing. You have to think about all the various policies and circumstances that existed at that time, and consider the full range of effects of the tariffs, which, of course, is how economists evaluate these things.

The U.S. Proposal on How to Handle Disputes on Essential Security Measures

At a DSB meeting in January 2023, the U.S. made clear its position that "it was a mistake to begin adjudicating national security at the WTO," and said: "we believe Members need to clarify and adopt a shared understanding of the essential security exception, and we therefore intend to seek an authoritative interpretation of Article XXI of the GATT 1994, pursuant to Article XI of the WTO Agreement." We now have a formal U.S. proposal to this effect (H/T to Peter Ungphakorn for pointing me to it), in the form of a communication entitled “Reflections from the United States on the Handling of Disputes Involving Essential Security Measures."

Here is the crux of the U.S. proposal:

WTO Members designed a system for the settlement of disputes where rebalancing can take place without interfering with a Member's assessment and sovereign responsibilities for its essential security. If a Member is impacted by an essential security measure, and the Member wishes the assistance of WTO Members in defining an appropriate rebalancing, the appropriate response is to bring a non-violation nullification or impairment claim pursuant to the General Agreement on Tariffs and Trade 1994 (GATT 1994), the General Agreement on Trade in Services (GATS), or the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), or the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

A non-violation nullification or impairment claim may be used to challenge any measure applied by another Member, whether or not the measure breaches the WTO Agreement, provided that the measure nullifies or impairs a benefit, or impedes the attainment of an objective, of the Agreement. Thus, the consistency of the measure with the WTO Agreement is not in dispute and is not assessed by an adjudicator; instead, the claim rests on the assertion that a Member's benefits have been nullified or impaired by the measure, with the objective of ensuring that the negotiated balance of concessions is maintained.

In the context of an essential security measure, such disputes should proceed in accordance with the following guidelines:

• Members agree to pursue arbitration under DSU Article 25 to determine the level of suspension equivalent to the level of nullification or impairment based on a claim of non-violation nullification or impairment with respect to an essential security measure;

• A complaining party Member agrees not to challenge the invocation of the essential security exception;

• A responding party Member agrees not to contest the claim of non-violation nullification or impairment provided the complaining party Member has not resorted to countermeasures; and

• The parties agree the complaining party Member may suspend the application of tariff concessions at the level equivalent to the level of nullification or impairment determined by the Arbitrator.

WTO Members should also agree, pursuant to Article IX of the WTO Agreement, to an authoritative interpretation of Article XXI of the GATT 1994, Article XIV bis of the GATS, and Article 73 of the TRIPS Agreement, to clarify the understanding of the essential security exception. To illustrate:

Under GATT 1994 Article XXI(b), GATS Article XIV bis:1(b), and TRIPS Agreement Article 73(b), each Member determines for itself whether an action it takes is necessary for the protection of its own essential security interests and whether one or more of the circumstances set out in the subparagraph endings are present. Therefore, in any dispute in which a responding party Member invokes GATT 1994 Article XXI(b), GATS Article XIV bis:1(b), or TRIPS Agreement Article 73(b) of the TRIPS Agreement, a WTO adjudicator shall not review a Member's invocation of GATT 1994 Article XXI(b), GATS Article XIV bis:1(b), or TRIPS Agreement Article 73(b), and shall instead limit its report to the DSB to note that invocation.

(footnotes omitted)

When I wrote about about the U.S. suggestion that it was going seek an authoritative interpretation on this issue, I noted two concerns: (1) that NVNI claims are hard to win; and (2) the existing DSU text provides a remedy for NVNI complaints that may not be as strong as the remedy for violation complaints. It looks to me as though the U.S. proposal addresses both of these points, as it is along the lines of what I had been pushing for in this context, which is immediate rebalancing in these cases.

This all leaves me with a few questions:

- The U.S. is invoking national security as part of domestic policymaking a lot these days. Is it ready for all the rebalancing arbitrations that might take place?

- How will the "guidelines" noted by the U.S. work? I feel like they would need to be formalized in some way, and I'm curious what the U.S. has in mind here.

- How will other Members react to this proposal in terms of its substance?

- The timing of the proposal is problematic because the Biden administration is on its way out. Will the Trump administration support this proposal? Will it put time and resources into pushing it?

More Discussions of Appeal/Review in the DS Reform Process

In July, I mentioned that the the WTO Dispute Settlement Reform Process was underway, with one of the key topics being a fix for the Appellate Body crisis. People can follow the discussions in limited detail as WTO news summaries are released, or in somewhat greater detail a few weeks behind the actual developments, as meeting minutes are derestricted. The Minutes of the Heads of Delegation meeting from October 11 are now available. (In addition, a November 21 meeting happened as well, and you can read the WTO's short news summary here.)

With regard to the October meeting, here's an excerpt of the report provided by Jessica Dickerson (Australia), focusing on the work being done on the issue of appeal/review:

2.1. Ms. Jessica Dickerson (Australia), speaking on behalf of the Co-Convenors, made the following report:

"Since to recall, the technical work on Appeal/Review is organised around six sub-topics, which are set out in the Transparency Note. There are many overlaps and connections between these subtopics but they are nevertheless useful to structure our discussions. Since the beginning of expert-level work in this formal process, we have discussed each of the six sub-topics at least twice.

We have had detailed exchanges of perspectives on the sub-topics of Access to the Mechanism and the Form of the Mechanism. In view of their close relationship, we have begun to discuss these subtopics together and will continue to do so. We do not have any breakthroughs to report to you today, but we are having very good conversations that deepen our understanding of each other's interests and concerns. Similarly, discussions are continuing on the Standard of Review that adjudicators should apply in reviewing a panel's decision, but Members have different views regarding whether the existing standard should be clarified or changed and, if so, how."

So, no breakthroughs, but good conversations, and different views on the standard of review. Here's more:

"At this point in time, my fellow Co-Convenor on Appeal/Review, Joël Richards, from the delegation of Saint Vincent and the Grenadines, and I have identified four potential reforms that show promise in terms of their potential to address some interests and concerns of Members. These are listed at the top of page 3 of the Transparency Note and relate to the sub-topics of Scope of Review, Reducing/Changing Incentives to Appeal and Clarifying Members' Expectations of Adjudicators. However, we would like to emphasize that there are also other reform ideas under both Scope of Review and Reviewing/Changing Incentives to Appeal that experts are continuing to discuss.

Regarding the four possible reform ideas in the Transparency Note, as deeper engagement on these ideas is needed to make further progress, we have organised a workshop for experts next Friday, 18 October, that will focus on the three ideas in paragraphs a to c in the Note.

The purpose of the workshop is to deepen experts' understanding of the ideas, to develop the ideas further, if necessary, and for the participating experts to exchange questions and answers regarding the ideas. We strongly encourage your delegation to attend, in person or virtually, but are also available to brief any experts that cannot."

Still not a lot of specificity yet, and as far as I know the Transparency Note is not publicly available, but here's something:

"With respect to the fourth reform idea identified in the Transparency Note as showing promise at this stage of the discussions, which is to Clarify Members' Expectations of Adjudicators, experts have expressed general support for maintaining the current 60 or 90-day timeframes for appeal/review proceedings, with some advocating for a higher upper limit, such as 120 days, and some also seeking flexibility in complex disputes. We will continue our discussions and, in response to a request from experts, we will consider data provided by the Secretariat regarding Appellate Body timeframes.

Another aspect of our work is clarifying Members' expectations of adjudicators in relation to making appeal/review proceedings more efficient, which links to our discussions on timeframes. While there is considerable support for enhancing efficiency through reforms such as word limits for submissions, many capacity-constrained Members hold concerns that such reforms could make their engagement in the system more difficult. Experts intend to begin discussing in more detail what potential streamlining reforms might look like and, in so doing, see if concerns regarding capacity can be addressed.

Regarding the output or reports produced by adjudicators, experts generally support the following three reforms:

a. Ensuring that adjudicators exercise judicial economy to focus on what is necessary to resolve the parties' dispute.
b. Clarifying that adjudicators' reports do not have precedential value.
c. Clarifying adjudicators' responsibilities for decision-making and drafting reports.

Each of these possible reforms is addressed in the Informal Consolidated Text so, at an appropriate time, experts should consider whether the draft text regarding those reforms reflects their interests and addresses their concerns.

As the Co-Convenors for Appeal/Review, our assessment is that the four potential reform ideas I have just described – as set out in the Transparency Note – may soon be ready to be reflected in draft text. This would not signal that any Member has agreed to the ideas or that consensus has been reached. It would simply enable experts to continue to develop the ideas in more detail and therefore to assess in a more fulsome way whether such reforms would meet their interests. We would ask for your support to move some ideas to drafting in the near future.

It is important to clarify that, if some potential reform ideas move to a drafting phase, we will ensure that experts also continue to discuss the sub-topics and ideas on which, so far, less progress has been made.

As you know from the Transparency Note, Joël and I have recently held informal consultations with interested Members to hear their views regarding the process, the reform ideas under discussion and how to advance our work. There was considerable support for holding more meetings, including in different configurations, provided that transparency and inclusiveness were maintained. Many delegations also said that discussions on some reform ideas were now sufficiently mature to be reflected in draft text. We would like to thank delegations for their time to meet with us and remain available for further consultations with any Member.

To assist our ongoing technical work, Joël and I will circulate today an updated draft of the document known as the Appeal/Review Tables, which will reflect the progress made in the discussions since the summer break in Geneva. We hope your experts here and in capitals will continue to find this document useful."

This overview is helpful, although there is obviously a lot that we on the outside are not able to see. On the substance, I'll just note briefly that with regard to precedent, I'm not sure what everyone thinks "Clarifying that adjudicators' reports do not have precedential value" means. I assume that going forward, parties to disputes will continue to cite to prior reports as persuasive authorities, which means they have some precedential value. It may be that we just end up with a slight change in culture, under which parties can argue a bit more about whether a particular prior report should be followed, and panels and any appeals body have more flexibility in whether to follow those reports.

WTO Members also weighed in on these issues. Here is a sampling:

3.4. The representative of China made the following statement:

"First, we reaffirm our strong commitment to delivering the reform mandate by 2024. Second, we praise the substantial progress made by our experts under the leadership of the Facilitator and the Co-Conveners, and the swift change of gear after the summer break. Third, we fully agree with the next steps outlined in the HOD Transparency Note, in particular to start drafting for mature elements on a rolling basis, while developing further convergence on unresolved elements. We count on our experts to have a full set of drafts ready by the end of November for political consideration and accelerate the discussions to meet that end. Again, do not let perfect be the enemy of good."

...

3.9. The representative of India made the following statement:

"It is heartening to note the progress that has been made across various difficult issues. For India, the primary motivation for involvement in this process is an early restoration of the Appellate Body. India asserts that it is necessary, and critical, to restore the two-tier structure and balance that was envisaged under the Marrakesh Agreement. To this end, it is important for us that any reform in the system preserves the balance of interests. Changes such as reworking the scope of interim review or introducing novel concepts like 'materially significant impact' should be undertaken with extreme caution. ... We look forward to continuing to engage in these discussions with a view to speedy restoration of the Appellate Body." 

...

3.15. The representative of Brazil made the following statement:

"The dispute settlement mechanism of the WTO is an absolute priority for Brazil. In its current dire condition, it negatively impacts on the work and functioning of the organization, thereby weakening the multilateral rules-based trading system. Since 2017, the dispute settlement mechanism experienced an increase in demand by Members while being challenged with a fall in membership. A final blow was given in 2019. Since then, Members do not have a fully and well-functioning dispute settlement mechanism. How much longer can the organization endure without one of its main pillars? This is a question we should be asking ourselves as the deadline of 2024 approaches. We keep repeating the need to 'restore a legally binding two-tier system', but these words do not appear as such in the mandates given by the Ministerial Conference. The Ministerial mandate, on which we are working informally since April 2022, directs us to 'conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all Members by 2024'. There is no mention of 'restoring', no specificity on how 'binding' it should be, nor on the number of 'tiers'. But there is a commitment to have a system that is 'fully and well-functioning by 2024', and the current one is not. In spite of all efforts, good work performed, and the enhanced inhouse inclusiveness and transparency since March, discussions on the dispute settlement mechanism remain mostly invisible to the outside world. We cannot maintain this process below the radar any longer, lest we give the impression nothing is happening. The paradox of an inclusive and transparent process being confidential cannot be lost on us. We cannot work to the detriment of the institution, whose existence has a global and multistakeholder reach. Little information so far on progress achieved, or the lack thereof, has been shared with the outside world. After a year and a half, what we have are incomplete informal documents of unclear levels of stability, and less still of general acceptance. We invested a lot of time on accessibility, an important issue that should be less controversial and easier to agree on; but has proven equally difficult to tackle. And within the topic of accessibility, efforts have now been diverted to lengthy and inconclusive discussions on a 'litigation fund'. We must bear in mind that accessibility and the funding of litigation for developing countries require a functional dispute system to begin with, not the other way around. Discussing access to a dysfunctional system beats the purposes of our efforts. The focus of discussions should be on appeal/review, the fundamental second tier of the mechanism that provides a final outcome to disputes, without which trade disagreements within the WTO linger endlessly as Members appeal to the void. Having a system that delivers a final decision, including the possibility of retaliatory measures, is essential to ensure WTO rules and discipline are respected and enforced. At this juncture, the perspective of fulfilling the mandate on DS Reform is rather dim. It is difficult to believe we are in a position to start drafting only one month prior to the 'by 2024' deadline, and that we can decide on a meaningful outcome by the last General Council in mid-December. Facilitators for drafting under each topic would still have to volunteer and self-guide, under a methodology of work and with goals that would be agreeable to Members. Perhaps it would be more realistic to work towards a common understanding on fundamental issues, such as: 'can we have a credible and enforceable mechanism by the set deadline?'; 'can we agree on a system that effectively delivers final decisions?'; 'does this require a standing appeal body with fixed membership, etc.?'. Brazil believes time is running out and we should be focusing on what can be achieved on the fundamental substantive issues."

3.16. The representative of the European Union made the following statement:

"We agree that experts have had good discussions in those past few weeks, as reflected in the Transparency Note circulated ahead of today's meeting. We want to underline in particular the efforts that have been made to ensure transparency and inclusiveness of the discussions. The fundamental issue of appeal/review is still unresolved, and our efforts must focus on finding concrete solutions that meet the interests of all Members, building on the progress made so far. At this stage, the Transparency Note identifies four reforms that have that potential, and we agree. We also agree that, where we can, we should start legal drafting with respect to such reforms that show promise. We want to stress that it is not our task to come up with reforms on each of the six sub-topics under the topic of 'appeal/review'. These were identified by the Co-Conveners merely to structure the discussions, but they are not a checklist. Our task is to find solutions that will deliver a fully and well-functioning system. To achieve that goal, we have to find the right combination of reforms that meet the interests of all Members. That assessment must take into account the cross-cutting reforms contained in the draft consolidated text which ultimately will be part of the single reform package. ... To conclude, we look forward to continuing our engagement on appeal/review and on accessibility, in order to identify concrete solutions to these priority issues as soon as possible. As soon as those solutions are identified, we should look again at the entire package of reforms, including those contained in the draft consolidated text." 

...

3.36. The representative of the United States made the following statement:

3.37. "On next steps, we are generally okay with the process that you have laid out. On drafting, we have heard various comments. We agree that we should not rush to drafting on items that are not ripe. The working methodology used during the informal process and suggested here – thoroughly developing the contours of ideas before shifting to drafting groups – is one that worked well and that we should utilize. The Ambassador of Brazil asked how much longer we can continue to work under this posture. We cannot identify this issue as the most important, and then put in obstacles to doing the work needed. We understand the fast pace may be difficult for small delegations, but we need to find a way to move it forward. On substance, we need to be clear: We are not here to restore the Appellate Body as it was. The task is to work towards a 'fully and well-functioning dispute settlement system'. We will continue to work towards achieving that. To do that, we have to stop having the same binary conversation and instead be creative – there are creative ideas on the table that we need to continue to explore. At the end of the day, we are not going to roll over and accept any outcome – this issue is critically important to us. But we want to stress that we remain committed to working towards an outcome." 

My read of the situation at this point is that the likelihood of success in the short-term is not great, and things are about to get more difficult. But I'm not on the ground in Geneva, so maybe don't put too much stock in what I have to say on this.

Guest Post: Are the USMCA’s rules of origin for automobiles enough to stop Chinese sourced parts coming into the US/Canada?

This is a guest post by Karen Soriano, a recent Masters graduate in international economic policy from the Norman Paterson School Of International Affairs

With President-elect Donald Trump’s frequent social media pronouncements on trade, it would be a futile practice to fact-check every claim made. However, recent comments by Trump have sparked a flurry of reactions from Canadian officials on the dangers of Mexico as a back door for Chinese goods to enter the US and Canada. In this regard, Ontario Premier Doug Ford stated:

“You look at Mexico, they're importing cheap products – undercutting our hard-working men and women not only here, but in the U.S. – from China. They're slapping a ‘Made in Mexico’ sticker on and shipping it up and taking our hard-working men and women’s jobs away from them. Unacceptable.”[1]

In the days following this statement, Deputy Prime Minister Chrystia Freeland made the following comment along the same lines: 

“We are perfectly aligned with the United States and that means we are not a back door to unfair Chinese traded goods. The same cannot be said about Mexico.”[2]

The Deputy Prime Minister further noted that Canada, unlike Mexico, had imposed tariffs on Chinese EVs and aluminum/steel, matching similar tariffs imposed by the U.S.

The perceived economic threat from China has many aspects these days, including the economic impact of Chinese imports on nascent industries and security concerns resulting from Chinese investment. In the context of the USMCA, as the Ford and Freeland statements allude to, one of the big concerns is that the rules of origin for autos may act as a loophole that allows Chinese auto parts used by factories in Mexico to be incorporated into finished vehicles sold in the U.S. and Canadian markets. This post explores the validity of this concern.

Auto Rules of Origin

Under the USMCA’s rules of origin, in order for a passenger vehicle to receive preferential treatment it must contain a regional value content (RVC) of 75%. This leaves only 25% of the car’s value to be potentially sourced from China. Moreover, the difficulty of meeting this threshold is increased, as there are different RVC thresholds for different parts of the car (core parts: 75%, principal parts: 70%, and complementary parts: 65%). Particularly significant is the core parts threshold, which includes the engine of a car, and in the case of an electric vehicle, the battery. Core components make up nearly 50% of a car’s value and in the case of electric vehicles, the battery alone makes up 40% of the value. This implies that an engine or battery wholly sourced from China would make the car ineligible for preferential treatment. This is particularly significant if one of the main Canadian concerns relates to its nascent electric vehicle industry.

Two more factors to take into consideration that limit Chinese components' presence in a USMCA-traded vehicle are the labor value content and the steel and aluminum requirement. The labor value content rule requires 40% of the automobile to be made by workers earning at least US$16 per hour. This means that of the 75% RVC, 40% of that must be, practically speaking, produced in the US or Canada. The labor value content further reduces the window of opportunity to claim Chinese products as Mexican after assembly. As previously mentioned, especially in the case of an electric vehicle, a battery with Chinese components assembled in Mexico would cause the car to no longer qualify given its large contribution to a vehicle’s value.

Finally, if the concern is centered around dumped materials being used to create these components and how that would affect key Canadian industrial sectors (i.e. steel and aluminum), it is further required that 70% of the total steel and aluminum used for the vehicle must be sourced from North America. This would essentially imply that not even the raw materials could be imported into Mexico and then sufficiently transformed to meet the requirements.

If vehicles with a certain percentage of Chinese components cannot meet the USMCA’s rules of origin, they would likely be classified as non-USMCA products and subject to the 27.5% tariff for Chinese vehicles and 102.5% tariff for electric vehicles.

With all this in mind, a large influx of “unfair Chinese traded goods” stemming from Mexico in the auto sector, particularly for electric vehicles, is unlikely, as the existing rules place limits on how much Chinese content can be included in these vehicles and still qualify for the USMCA’s zero tariffs. While it does not come as a surprise that Canada would want to align closely with the US to avoid Trump’s new tariffs, concerns that Mexico could act as a backdoor in the auto industry are probably overblown.

Nevertheless, with Canadian officials expressing these concerns publicly, there is a good chance that revisions to the existing rules of origin could be put on the agenda for the 2026 USMCA review. The current rules are strict, but they can always be made stricter, and there are likely to be calls for making it even more difficult to qualify for the USMCA tariffs while using Chinese content in a finished vehicle.

 

[1] Ford calls for Mexico to be excluded from North American trade deal,

https://www.ipolitics.ca/news/ford-calls-for-mexico-to-be-excluded-from-north-american-trade-deal

[2] Canada shares U.S. concerns about Mexican trade with China as possible trade talks loom,

https://abcnews.go.com/International/wireStory/canada-shares-us-concerns-mexican-trade-china-trade-116027009

Will "Post-Neoliberalism" Mean Unfettered Markets or Unfettered Industrial Policy? (Or Are We Post-"Post-Neoliberalism" Now?)

There has been a lot of talk over the past eight years about whether we are now in a period of "post-neoliberalism," with efforts to flesh out exactly what that means for economic policy. To some extent, it even seemed as though there was an alliance between those on the left and those on the right who had objections to "neoliberalism" (although there is no consensus on what this term means), and I've seen a number of left-right anti-neoliberal alliances involving American progressives on the left and "populists" on the right. One thing people on the left seem to think post-neoliberalism should mean is less reliance on markets. Maybe that's what post-neoliberalism proponents on the right believe as well, but it has been a little harder to follow their arguments.

With Trump's victory, I have been curious about what the anti-neoliberal left wing's take would be on the future of economic policy. In their view, are we still in post-neoliberalism, but just with the right wing populist version of it in effect? Did Trump's first election set the shift in motion, Biden's governing philosophy cement things, and now under Trump again post-neoliberalism is the present and future? 

One prominent proponent of the left-wing post-neoliberalism movement is Financial Times columnist Rana Foroohar. In the middle of the Biden administration's industrial policy push, she was ardently making the case that we were in a post-neoliberal world. But now with Trump's second election, she seems worried that things have gone off the rails a bit, and that we are now headed for even more reliance -- even "unfettered" reliance -- on markets. In a recent piece entitled "The return of the techno-libertarians: Silicon Valley billionaires are selling a dream of unfettered markets — but reality is not so certain," Foroohar puts forward the view that under Trump, U.S. economic policy will now be based on a "a philosophy that aims to end all constraints on markets."

 

But is that really what the tech folks have in mind? Are they "libertarians" who want "unfettered markets"? Let me present an alternative theory of where U.S. economic policy may be headed.

 

There is clearly a tech crowd that has some influence with Trump at the moment, but what we are seeing from them is not full-fledged libertarianism. While we are likely to see some targeted deregulation in a few policy areas, another part of what they are looking for is more government spending on things they sell (space travel, defense tech, etc.), and this government spending is a form of industrial policy. Under this version of industrial policy, instead of picking winners based on ideas about overall the economic well-being of the country, private sector people who are trying to influence policymaking simply want to channel the industrial policy to ... well, themselves. (It might even be said that they are pushing for an almost "unfettered" industrial policy.)

 

Such a result should not be too surprising, and in fact this is one of the main reasons many of us have concerns about industrial policy. While there may be a handful of people who want to use industrial policy for what they see as benevolent central planning and are immune to lobbying, once the policy is in motion, it inevitably gets captured by interest groups. (Interestingly, Foroohar herself recognizes at times in her piece that the tech actors in question are seeking and getting lots of government money: "Trump’s band of techno-libertarian “volunteers” — as Musk rather disingenuously put it, given Tesla and SpaceX get more federal funding than NPR ..."; "As Trump builds his new administration, the gains have already been stupendous. Watch as Palantir takes over the military-industrial complex, ...")

 

With all this in mind, I'm not sure what is in store for "post-neoliberalism" going forward. The Biden administration certainly pushed its "anti-neoliberal" economic policy agenda pretty far, and then the Democrats fared poorly in the 2024 election. Will the Democrats go back to this same playbook next time they are in power? Or will they rethink what policies work politically? And if at least some of the post-neoliberal crowd on the left wants to disown the populist right wing version of post-neoliberalism, does anything remain of the alliance against neoliberalism? Perhaps now we are nearing the end of the debate over whether there was or is something called "neoliberalism" or "post-neoliberalism," and we can just focus the discussion on what degree of market-orientation we want the economy to have.