Peter Harrell on "Upending World Trade"
Peter Harrell, formerly of the Biden administration and now at Georgetown Law, has a new Foreign Affairs piece called "The Case for Upending World Trade: How Trump’s Vision Echoes America’s Traditional Approach." In the piece, Peter makes several points that I want to respond to.
First, he invokes the Washington Consensus as guiding U.S. policymaking in the WTO era:
In the wake of the Soviet Union’s collapse, U.S. economists and politicians alike came to a consensus: most believed that privatization, deregulation, free markets, limits on subsidies, and strong intellectual property rights were the best economic policies.
I feel like this claim, which I hear somewhat frequently, is overstated. For economists, it is probably true that there was widespread agreement on these points (except for intellectual property rights, which does not fit well with the other issues). But I don't think this consensus existed for U.S. politicians, especially in trade policy, where politicians were on balance still protectionist and supportive of subsidies (agriculture being the most famous example).
As support for my view, note first that when trade deals were passed by Congress, it was often fairly close (see, e.g., the NAFTA and CAFTA-DR votes in the House). There was always plenty of opposition, and issues such as labor rights and environmental protection often had to be brought in to trade agreements in order to get the necessary votes from Democrats. Some of the affirmative votes reflected grudging support for the trade agreement as a whole rather than a full-throated endorsement of the free trade aspects.
In addition, these deals all had a big carveout that allowed for protectionism: anti-dumping/countervailing duties (AD/CVDs). As I described in my last post, there was extensive use of AD/CVDs during the so-called "neoliberal" era, which provides some good evidence that the WTO system maintained the flexibility for governments to use protectionism.
Putting this issue in a broader perspective, Peter started the piece as follows:
Between the end of World War II and the early 1990s, U.S. presidents generally supported free trade and encouraged other countries to lower trade barriers with initiatives such as the 1947 General Agreement on Tariffs and Trade (GATT), which encouraged countries mostly outside the Soviet bloc to mutually reduce their tariffs. But U.S. administrations balanced this preference with pragmatism, taking a flexible approach to policy that considered distinct challenges discretely. When necessary, U.S. presidents were willing to use tools such as tariffs, sector-specific deals for politically-sensitive products such as textiles, and hard-nosed negotiations to tackle discrete trade tensions. The idea that strictly governing international trade with a set of universal rules would deliver economic and geopolitical benefits to all countries is historically abnormal.
Based on the use of AD/CVDs alone, I think it's clear that during the WTO era, "[w]hen necessary, U.S. presidents were willing to use tools such as tariffs ... ," which have been widely used in sectors such as steel. (Unlike with safeguards, the president doesn't have a direct say in individual AD/CVD decisions, but, subject to Congressional approval, presidents decide who to put in charge of the Commerce Department, and thus are able to influence the general policy related to dumping and subsidy calculations if they want to.)
Second, Peter also weighs in on the issue of Chinese policies and practices: "U.S. and allied policymakers tried for years to convince China to play by the WTO’s rules." I made the point here, among other places, that the period after China's WTO accession would have been the best time to challenge China's policies and practices through WTO complaints. Unfortunately, the challenges that eventually came were often narrow, and the systemic issues were ignored to a great extent. My sense is that during this period the U.S. was distracted with various foreign policy issues, on which it needed China's support or non-opposition, and that limited how far it was willing to go in challenging China. (It's not too late, though, if anyone wants to return to an approach that worked fairly well.)
Third, I want to quibble with his perspective on trade dispute settlement:
The dispute resolution mechanism in the GATT was also effectively nonbinding, encouraging countries to work out trade disputes diplomatically rather than litigating over rules.
Clearly there are differences in the degree of flexibility in the GATT and WTO dispute settlement systems, but I think people sometimes exaggerate them. There was plenty of litigation under the GATT; and there has been plenty of diplomacy during the WTO era. And to take an example of a prominent U.S. critique of WTO dispute settlement in recent years, while the use of precedent has been controversial in WTO dispute settlement, it was a term commonly used in the GATT era as well.
And then fourth, also related to the GATT vs. the WTO, I think Peter understates the broad substance of the GATT era. He says:
The first time a high-level U.S. government document identified a rules-based trading order as Washington’s overarching policy aim appears to be in 1991, when the Economic Report of the President—an annual review of the U.S. economy and the president’s priorities—stated that the “primary thrust of U.S. trade policy is to use multilateral discussions and fora . . . to promote free, rules-based trade.” Of course, presidents before the 1990s pursued international trading orders such as the GATT or the short-lived International Trade Organization, an idea that President Harry Truman backed but that the Senate failed to adopt. But these efforts mainly sought to impose some discipline on specific aspects of global trade such as tariff rates and export-oriented subsidies.
With regard to the GATT, though, think about the national treatment obligation, the MFN obligation, and the potential of the NVNI remedy, among other things. This was, in fact, a very broad set of obligations, applying to all domestic legislation and regulation. And the ITO, of course, would have gone even further, dealing with issues such as labor rights and restrictive business practices as well.
Summing all this up, in the debate over the WTO era vs. what came before, I'm all for weighing the substance of the two eras, and evaluating what worked and didn't work, both politically and in terms of policy. Clearly we are in a time of disruption, and we need to come up with an approach that works going forward. I have plenty of my own criticisms of past U.S. trade policy, and suggestions for how to fix things (I will come back to this at the appropriate time!). But I worry that if the calls to go back to the past misread what the past looked like, that will make it difficult to find a way forward.