Debunking the "Hyperglobalization" Trade Policy Myth

Policy is often shaped by narratives, and recently there has been a bipartisan effort to create a narrative that, starting in the early 1990s, globalization and free trade went too far. According to this view, the creation of NAFTA in 1994 and the WTO in 1995 constituted a shift away from a "pragmatic" U.S. trade policy and towards something more "dogmatic."

As I see it, however, this narrative rewrites history and mischaracterizes the actual trade policy that existed during this period. In reality, post-Cold War U.S. trade policy was, on the whole, just about as balanced and flexible as what came before. In fact, it is the period from 2017 to today, under both Presidents Trump and Biden, that has shifted the United States away from the successful post-World War II trading system it helped create.

The "Aberration" Narrative

In two recent publications, trade policy officials from the Trump and Biden administrations have pushed a narrative that in the early 1990s, there was a break from post-World War II U.S. trade policy. In their view, the U.S. government helped create agreements/institutions such as the WTO and NAFTA that were "rigid" and that imposed excessive limits on the ability of the United States to use tariffs to protect domestic industries from foreign competition.

On the Republican side, U.S. Trade Representative Jamieson Greer gave a speech in Davos in which he argued that at the end of the Cold War, "American policymakers largely jettisoned our historic and pragmatic approach to trade," "pursued hyperglobalization regardless of the consequences," and "bound our hands with NAFTA and the World Trade Organization in ways that made it impossible for the United States to effectively respond to foreign practices and defend our industrial production." He subsequently referred to this period as a "30 year aberration" based on "a system ... agreed to in 1992 or 1994." To correct this mistake, he argued, the Trump administration's trade policies were taking the U.S. "back into normal history, which is, we have to use tariffs, we have to use trade measures, we use them for protection, we use them for geopolitical ends."

And on the Democratic side, Peter Harrell – who was the Senior Director for International Economics at the National Security Council and the National Economic Council during the Biden administration – wrote a piece for Foreign Affairs called "The Case for Upending World Trade" in which he argued that "[b]etween 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)," but they "balanced this preference with pragmatism, taking a flexible approach to policy that considered distinct challenges discretely." Harrell then contrasted this approach with what he referred to as "an overly rigid attitude toward trade" that emerged in the post-Cold War era and "dogmatism around the free trade rules that Washington established in the 1990s," and called for going back to "the more pragmatic, less rules-focused trade policymaking that reigned during most of the United States’ history."

Central to both arguments is the idea that the shift from the GATT to the WTO led to a world trading system that (1) bound the hands of the U.S. government through a dispute settlement system that was too strict and (2) imposed excessive limits on the use of tariffs. On both of these points, however, the reality looks very different from what has been claimed.

GATT vs. WTO Dispute Settlement

Both Greer and Harrell draw a contrast between dispute settlement under the GATT and dispute settlement under the WTO. Greer argues that whereas "[t]he GATT rules were intended to be flexible," allowing countries "to use the methods they need to support their economy while resolving the conflicts that inevitably emerged," the WTO involved "a rigid dispute settlement system, filled by unaccountable bureaucrats in Geneva, that interpreted the rules so narrowly that they lost much of their intended flexibility." As for Harrell, he says: "The dispute resolution mechanism in the GATT was also effectively nonbinding, encouraging countries to work out trade disputes diplomatically rather than litigating over rules."

While there are real differences between the two systems, there is, in fact, a good deal of continuity as well. The transformation of the GATT into the WTO did make dispute settlement more effective and enforceable, but the changes were not as fundamental and extensive as portrayed by Greer and Harrell. The biggest changes were as follows: losing parties could no longer block a panel ruling from having legal effect; and an appeals mechanism was created to improve the quality of the rulings.

Despite these important changes, the two eras of trade dispute settlement should be seen as more of a refinement than as a radical disruption. GATT disputes were not a purely diplomatic exercise, as they involved a significant amount of litigation and panel rulings as well, especially during the 1980s and early 1990s. While the blocking of panel reports did become a problem toward the end of the GATT era, panel reports were still regularly adopted and implemented by the losing party. When the legal scholar Robert Hudec undertook his well-known study of GATT dispute settlement covering the period 1948-1989, he found that of the 207 cases, 43% resulted in rulings and 31% were settled (the rest of the cases were withdrawn or abandoned). Hudec offered the following conclusion on the percentage of GATT complaints that were fully or partially successful – in the sense of achieving full or partial compliance with GATT obligations – for the complainant: "The GATT dispute settlement procedure has been a quite successful international legal institution. The overall success rate of 88 percent, or even the 1980s' success rate of 81 percent, means that at least four out of five valid complaints are being dealt with successfully."[1]

In the WTO era, diplomacy has continued to play an important role. Many disputes have been settled by the parties even before a ruling was issued. And when rulings were issued, disputes have sometimes been settled through resolutions that do not involve the respondent government coming into full compliance with the ruling (and in other disputes, the respondent government has simply not taken action that brings it into compliance with the ruling). It is important to note in this context that, just like under the GATT, WTO rules allow governments to rebalance trade concessions rather than change their laws and regulations to comply with a ruling. Greer himself acknowledged this flexibility in a subsequent speech, noting the following example:  "The United States won the EU Beef Hormone case in 1998, but the European Union never lifted its ban on hormone-treated beef imported from the United States.  Instead, the United States accepted a negotiated quota arrangement—market access for a limited quantity of hormone-free beef—far short of what the ruling required."

Thus, both the GATT and WTO versions of dispute settlement involve a mix of diplomacy and law. WTO dispute settlement is not as "rigid" as suggested, and even with the changes made as part of the transition from the GATT to the WTO, the dispute settlement system continues to have flexibility. While it is certainly worth considering the proper balance between the two elements, and additional tweaks are possible, the GATT and WTO eras are not as different as they are sometimes portrayed.

The Technocratic Turn in Tariffs

Both Greer and Harrell suggest that tariffs fell into disuse in the post-Cold War period. Greer talks about the "30 year aberration where we pretended that ... we didn't need to protect our supply chains and we didn't need to protect American workers," and "now we're actually back into normal history, which is, we have to use tariffs, we have to use trade measures, we use them for protection, we use them for geopolitical ends." And Harrell says, "[b]etween the end of World War II and the early 1990s, ... [w]hen necessary, U.S. presidents were willing to use tools such as tariffs, ... ."

But the reality of tariffs during this period is that, despite all the talk of free trade and free trade agreements, the U.S. used tariffs frequently, with much of the tariff imposition being turned over to lawyers and economists in the form of trade remedies, in particular anti-dumping and countervailing duties (AD/CVDs). Indeed, the post-Cold War period in question saw the continuation of one of the most significant developments in U.S. trade policy: AD/CVDs became a much more important tool of protectionism after 1980 (and the WTO and NAFTA did not slow their rise).

The World Bank maintains a historical database of these duties, including the "orders" – directions to U.S. Customs and Border Protection to collect a designated tariff on imports of a particular product from a specified country – imposed each year. Focusing on anti-dumping, which is the more commonly used remedy, after a legislative change in 1979 that shifted responsibility for dumping (and subsidy) calculations from the Treasury Department to the Commerce Department, in order to generate more aggressive usage of these measures,[2] there was an increase in the number of anti-dumping orders imposed, which has continued to this day:

U.S. Anti-Dumping Duty Orders

Data derived from World Bank, Temporary Trade Barriers Database

Reliable pre-1980 data is difficult to find, but for comparison, Alfred Eckes found that there were 4 anti-dumping duty orders from 1960-1970; 18 from 1971-1975; and 21 from 1976-1980.[3]

Greer complains that "we bound our hands with NAFTA and the World Trade Organization in ways that made it impossible for the United States to effectively respond to foreign practices and defend our industrial production," suggesting that the use of AD/CVDs was being overly restricted through these international rules. But while WTO rules provide some modest constraints here, and there were objections to specific WTO dispute settlement rulings on these issues, the data show that the existence of the WTO has not done much to rein in the imposition of AD/CVDs by the United States. There have been fluctuations, with the state of the U.S. economy being an important factor, but the data clearly indicate significant and consistent usage over time after the 1979 legislative change.

It's also worth noting that most of the orders are still in place today: According to the U.S. Commerce Department, as of this writing 819 AD/CVD orders are in effect. Thus, in addition to the rate of imposition being consistent, the cumulative effect has increased as new orders are added and most old ones remain.

Historical Narratives as Policy Debates about the Future

In crafting their narratives, Greer and Harrell promote their policy views as the "pragmatic" ones, in contrast to the more extreme policies they attribute to their opponents, who pursued "hyperglobalization." But the reality of the policies in place during the period in question is very different. Throughout the post-Cold War era, the WTO dispute settlement system maintained a good deal of flexibility and tariffs were widely used.

Importantly, these narratives are not just about establishing an authoritative historical record. They also play a role in crafting U.S. trade policy going forward. If the post-Cold War period really was too extreme, then the arguments for "upending" this trade policy are more compelling. However, if the policies of this era actually remained pragmatic and balanced, then arguably it is the period of more unilateralism and protectionism starting in 2017 that is outside the norm established after World War II with the creation of the GATT (and building on the reciprocal trade agreements negotiated by Franklin Roosevelt starting in 1934).

What the future holds for U.S. trade policy is still up in the air, to be decided in the coming years on the basis of electoral outcomes. Are we going to continue the post-World War II system of international rules, under both the GATT and the WTO, that provide modest constraints on protectionism, along with carveouts that explicitly allow the use of tariffs for the protection of specific domestic industries? Or are we going to move in the direction of a trade policy based on unilateralism and protectionism with few constraints? As the search for a stable and enduring U.S. trade policy continues, it is important to have a clear and accurate understanding of the history.

[1] Robert E. Hudec, Enforcing International Trade Law: The Evolution of the Modern GATT Legal System (Butterworths, 1993), at 277, 353.

[2] As economic historian Douglas Irwin notes, “this shift took place in part because of the perceived indifference of Treasury to the plight of [the domestic industry].” Douglas A. Irwin, The Rise of U.S. Antidumping Activity in Historical Perspective, IMF Working Paper, February 2005, at 7, https://www.imf.org/en/publications/wp/issues/2016/12/31/the-rise-of-u-s-17551

[3] Alfred E. Eckes Jr., "Opening America's Market: U.S. Foreign Trade Policy Since 1776" (University of North Carolina Press, 1995), at 275.