As we close in on the end of the Biden administration, I may have fewer opportunities to react to Katherine Tai's thoughts on trade policy. My Katherine Tai tag now has over 60 entries. I've enjoyed writing them, and I hope she has enjoyed -- or at least not been too annoyed by! -- reading them. After she leaves office, I hope for two things: (1) I get a chance to ask her what she thought of all my posts; and (2) she takes a job in which she continues to weigh in publicly on these matters, in which case I can keep the tag going and maybe reach 100 some day. (Maybe she would even consider posting something here?)
Her latest trade policy thoughts are in a new piece in Foreign Affairs entitled "The Real Purpose of Trade Policy." There's a lot in there, and of course as always you should read the whole thing, but I'm going to focus on these passages:
The year 2024 witnessed a number of meaningful anniversaries for the United States and its allies: the 80th anniversary of D-Day, when Allied forces landed on the beaches of Normandy, heralding the beginning of the end of World War II; the 80th anniversary of the Bretton Woods conference, which began less than two months after D-Day and resulted in the creation of the World Bank and the International Monetary Fund; and the 75th anniversary of the founding of NATO, the alliance that eventually enabled Washington and its partners to triumph in the Cold War.
Marking these anniversaries offered an opportunity to reflect on a familiar list of triumphs—not just the defeat of fascism but also the creation of a U.S.-led postwar order built on the NATO alliance and the United Nations, as well as a global financial system that paved the way for an era of economic growth, including through trade liberalization. But the last item is often misunderstood. The victors believed that the path to a durable peace was grounded not in trade liberalization itself but in a broader vision of global governance designed to provide economic security for working people.
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World War II globalized the risk of totalitarian dominance, and Roosevelt recognized that similar threats existed at home, from fascism on the right and communism on the left. In his January 1941 State of the Union address, Roosevelt famously identified four essential freedoms: freedom of speech, freedom of worship, freedom from want, and freedom from fear. That summer, he and British Prime Minister Winston Churchill signed the Atlantic Charter. Recognizing freedom from want, they stated that international economic cooperation was for the purpose of securing “labor standards, economic advancement, and social security.”
By the 1980s, the liberal dream of freedom from want had devolved into a neoliberal quest for freedom from regulation. The United States had almost completely lost sight of Roosevelt’s original postwar vision of shared prosperity. The Biden administration set itself the task of recapturing it. The three pillars of the president’s economic agenda—targeted investments, the empowerment of workers, and the promotion of competition—have also been core aspects of his trade agenda. By working to build the U.S. economy “from the middle out and the bottom up,” President Joe Biden moved the country closer to Roosevelt’s vision of durable peace and prosperity.
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By the mid-1980s, when the Reagan administration launched the negotiations leading to the World Trade Organization, the original postwar vision, which had linked democracy with economic security for working people, had been lost. The safeguards of the ITO charter had fallen by the wayside, and the so-called Washington consensus imposed a doctrine of rigid trade liberalization on developed and developing countries alike. Economics came to be dominated by thinkers such as Milton Friedman and other adherents of the so-called Chicago school. The more pro-democratic approach to capitalism, much of which had been embraced by President Dwight Eisenhower, fell out of favor. The laissez-faire ethos of the 1920s—the model that led to the 1929 crash and the Depression—came roaring back.
The effects of those trickle-down policies have become all too clear. They have left working people behind all over the world, pitting those in one economy against those in another as the private sector prioritizes short-term profit over inclusive, sustainable, durable growth. Along the way, the private sector has been able to exploit labor and environmental rules internationally, as inequality widens and the world experiences a global democratic recession.
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In the 1970s, industrial policy enjoyed bipartisan support in the United States. The postwar project of rebuilding economies in Europe and Japan had succeeded so well that the United States needed to plan in order to compete. But the demise of the New Deal economic paradigm at home and President Ronald Reagan’s assertion that “government is the problem” made industrial policy a taboo topic.
While the United States abstained from pursuing an affirmative industrial policy, China did not. ... A second China shock is in the offing, and the Biden administration has pursued an investment agenda to prevent that outcome.
Part of that agenda has been creating well-paying jobs at home and supporting a just transition to clean energy. Those opportunities help correct for decades of deindustrialization resulting from trickle-down globalization and seek to begin the process of repairing American democracy by demonstrating that economic governance can deliver for working people. Many U.S. trading partners already have industrial strategies or are developing them. A shared recognition of the need for diversified supply chains, including in clean energy sectors, has created opportunities for Washington to work more closely with them.
I have three reactions here.
First, while the title of the piece refers to the purpose of "trade policy," I'm going to quibble with this characterization and say that I think Tai is talking about something bigger than just trade policy. In the piece, she mentions "a broader vision of global governance designed to provide economic security for working people"; she notes that when Roosevelt and Churchill signed the Atlantic Charter, they recognized freedom from want as an essential freedom and stated that international economic cooperation was for the purpose of securing "labor standards, economic advancement, and social security"; and she references a "broader code of economic ethics."
In my view, these issues go beyond trade policy, which I think of as narrower and focusing on the rules governing tariffs, protectionism, and subsidies. Obviously, a lot of other issues have seeped into the trade policy discussion over the years, but that doesn't make those issues into core trade policy issues so much as expand the international economic cooperation discussion to cover global governance more broadly. If all these other issues are trade policy, then trade policy would cover ... well, just about everything. Along these lines, recall my long ago April fools' day joke about a trade agreement on gun rights. And even without the jokes, thanks to the expansion of the scope of trade agreements, we actually do have trade rules requiring that copyright terms be for the life of the author plus 70 years. Tai seems to be for expansion, but it's worth noting that expansion can go in very different directions, and once you start down that road, it might go in a different direction than you had planned. Of course, it's clear that trade policy does not exist in a vacuum, and has overlaps with a wide range of other economic policies. But I think it's a mistake to classify all these trade-adjacent issues as "trade policy," and "global economic governance" is probably a better description of what she is talking about here.
Second, I don't think the mid-1980s was as "rigid" about trade liberalization as Tai suggests, in the U.S. or elsewhere. The creation of the WTO did tighten up the rules to some extent, but there were plenty of carveouts included as well. It's also worth noting in this context that 1980 was the moment that we saw a big shift in U.S. trade remedies practice, a crucial area of trade policy. A while back, I mentioned a Horlick & Shea paper noting that "the use of antidumping law in the United States increased significantly in the 1980s, with U.S. cases totalling three hundred and forty-six from 1980 to 1986, compared with one hundred and thirty-five from 1970 to 1976." (See also this Doug Irwin paper on the history of anti-dumping activity). As I've said before here on this blog, I'm not sure we will make much progress on crafting good trade policy until we put some more thought into what we are doing on trade remedies. The last time I recall such a discussion was in the early- to mid-1990s, at which point Mankiw & Swagel noted that anti-dumping was the "third rail" of trade policy. By the 2000s, it was mostly just the Cato trade folks who were talking about it, and it didn't seem as though anyone was listening. All the old questions are still out there waiting for a resolution.
Finally, I have a few questions for Tai about her vision for trade policy. First up is this: What do you want to see in terms of the use of tariffs, subsidies, and assorted protectionism around the world? Based on her descriptions of an ideal trade policy, I get the sense she thinks every country should focus on developing its own domestic industries, using subsidies, tariffs, etc. as key tools. But will state-supported industries that do not face much external competition really make the "working people" and "middle class" in all of these countries better off? How exactly do the benefits of corporate subsidies, for example, trickle down to most middle class people? Since none of this is really new, we can look around at all the countries where it has been tried. Have subsidies and tariffs helped the middle class in the many countries who have adopted this approach? I am skeptical that the results have been generally positive for the middle class. Just about every country has tried these policies, and there are many more failures than successes, with workers and the middle class suffering the most in the failures. And for the countries that have industrialized successfully in recent decades, and who used subsidies and tariffs just like everyone else did, there are often explanations for their success other than the subsidies and tariffs.
In terms of the international trade rules that should apply to all this, what I wonder is, does she have in mind any limits on domestic subsidies, tariffs, and other protectionism? If so, what are they? Keep in mind, that's basically what current WTO rules are -- modest constraints on subsidies, tariffs, and other protectionism. Does she want to keep that system, but just make it more flexible? How much more flexible? Because the existing system is pretty flexible as it is.
Also on this point about international rules, I understand that she wants to add new rules on labor and antitrust and the environment. As I commented here, though, one flaw with this idea is that the U.S. may never be willing to accept such rules if they were to have an actual impact on U.S. policy; and another flaw is that the U.S. position on these issues tends to change with each shift in political power within the U.S. (just about everything the Biden administration did is now up in the air in the incoming Trump administration).
That last section had a lot of questions I'd like to hear more from Tai about. As I suggested at the outset of this post, I'd be happy to have her talk about it here on this blog, but if not then maybe she'll write about it wherever she ends up.