Jamieson Greer on Remaking the Global Trade Order
U.S. Trade Rep. Jamieson Greer had a NY Times op-ed yesterday entitled "Why We Remade the Global Order." I have a few reactions to specific things he said. I'll quote some points from the op-ed and then give a brief response.
Greer:
Our current, nameless global order, which is dominated by the World Trade Organization and is notionally designed to pursue economic efficiency and regulate the trade policies of its 166 member countries, is untenable and unsustainable.
While "economic efficiency" is one of the goals pursued by the existing system, there have been significant limits to this. I've always thought of the system as mainly being about "mutually agreed constraints on protectionism," with lots of inefficient protectionism permitted and still used. (And then you have areas such as IP protection, where I'm not sure economic efficiency is what is being pursued for many of the most impactful obligations.)
Greer:
The previous system rejected tariffs as a legitimate tool of public policy, meaning that the United States sacrificed tariff protection for critical manufacturing and other sectors.
Along the lines of my first point, it's worth emphasizing that rather than being rejected, tariffs have been a widely used tool of public policy, in the U.S. and elsewhere. In the U.S., there are still high ordinary tariffs on particular products, such as the famous 25% tariff on light trucks. In addition, trade remedy tariffs, and anti-dumping tariffs in particular, have played a prominent role in U.S. trade policy over the past few decades. The legislative change in 1980 that shifted responsibility from the Treasury Department to the Commerce Department for dumping margin calculations was particularly important here, and is an understudied aspect of U.S. trade policy. (I don't know if mattresses count as "critical manufacturing," but 744.81% anti-dumping duties on mattresses from Slovenia are certainly protective.)
Greer:
Over the past three decades, the United States slashed barriers to our market to allow vast inflows of foreign goods, services, labor and capital. At the same time, other countries kept their markets closed to our goods and deployed a suite of policies — such as subsidies, wage suppression, lax labor and environmental standards, regulatory distortions and currency manipulation — to artificially boost exports to the United States.
I think it's important to distinguish among trading partners on this point. If we are talking about developed country trading partners such as the EU, Japan, and Canada, the relative openness of the U.S. and others is pretty similar. Each one has tariffs, subsidies, and regulatory trade barriers that apply to various goods and services. At the same time, many developing countries do tend to have a higher degree of protectionism and non-market practices. How to deal with that, especially with the least developed countries, is complicated. Greer:
... other countries kept their markets closed to our goods and deployed a suite of policies — such as subsidies, wage suppression, lax labor and environmental standards, regulatory distortions and currency manipulation — to artificially boost exports to the United States. This approach made the United States and a handful of other economies the consumers of last resort for countries pursuing beggar-thy-neighbor economic policies. Our trading partners were adept at this game, and elites on Wall Street and in Washington were all too happy to cash in on the global arbitrage by moving production abroad. The net result? The bulk of global manufacturing shifted to jurisdictions such as China, Vietnam and Mexico where companies could exploit vulnerable workers or benefit from expansive state support while the United States ran up what in absolute terms is the highest trade deficit in the history of the world. It's true that there has been a shift of manufacturing production to developing countries, but I'm not sure protectionism, non-market practices, etc. are the main reason. To be clear, these policies and practices do exist and I think this should be addressed. But I also think it's worth emphasizing that it was inevitable that manufacturing would shift to these countries to some extent as they improved various conditions underlying domestic investment. A world with more competition in manufacturing than existed in the 1950s was always going to be the reality, regardless of protectionism and non-market practices. Greer:
We are now witnessing the Trump Round. ... In a few short months, the United States secured more foreign market access than it had in years of fruitless W.T.O negotiations.I agree that not much market access has come out of WTO negotiations recently (mainly, in my view, because of a general and widespread reluctance to liberalize). But I think the appropriate comparison for what Trump has achieved on market access should be the Uruguay Round negotiations or the various FTAs negotiated in the 2000s and 2010s. Greer:
When I joined a critical mass of my fellow trade ministers in June at a meeting of the Organization for Economic Cooperation and Development in Paris, I was struck by how many voiced serious concerns about the danger of macroeconomic imbalances, the threat of nonmarket practices and the sclerotic state of the global trading system — the same issues Mr. Trump has raised for years and now taken emergency action to address. What was long dismissed as heresy by the free-trade fundamentalists in Brussels, Geneva and Washington is now becoming conventional wisdom.
As someone who is a pretty strong supporter of free trade, I will note that I have not met many "free trade fundamentalists" in Brussels, Geneva, and Washington over the years. Most people are pragmatists who recognize the need to cater to domestic constituencies, leading to a wide range of protectionist carveouts from international trade rules.
Greer:
The results [of Trump's trade deals] are astounding. Every year for 40 years, the Office of the U.S. Trade Representative has produced a detailed report called the National Trade Estimate chronicling various barriers faced by U.S. companies, including high tariffs, requirements to produce goods in the countries where the companies want to do business, and restrictions on agricultural products contrary to scientific consensus. In the past, the only significant way the United States could remove these barriers (if at all) was by giving away the tariffs defending our manufacturing sector. Mr. Trump has flipped the script on this: Now, we are systematically eliminating these barriers abroad while ensuring sufficient tariff protection at home.
It seems to me that one of the tests of the success of Trump's trade deals will be how U.S. exports do in the coming years. Will the foreign government commitments on market access lead to increased U.S. exports?
Greer:
Importantly, these commitments are actionable, and the United States will enforce them. Rather than the drawn-out dispute settlement process favored by the old guard of trade bureaucrats, the new U.S. approach is to closely monitor implementation of the deals and swiftly reimpose a higher tariff rate for noncompliance if needed. President Trump uniquely recognizes that the privilege of selling into the world’s most lucrative consumer market is a mighty carrot. And a tariff is a formidable stick.
It will be interesting to see how Trump's approach to enforcement works in practice for market access commitments. From what I can tell, on balance WTO/FTA dispute settlement worked better for the U.S. than the previous unilateral approach under Section 301. The Trump administration's plan seems to be to ratchet things up from Section 301, adopting an even stronger form of unilateral pressure. We'll see how it goes, although as I suggested here, it would be nice to have some transparency on what is happening, and I hope we get some. For example, Greer mentions tariffs as the stick, but if the real stick involves security considerations, that's something we should know about and take into account.