“It’s unfortunate that it feels like we’ve been wrapping something with wrapping paper, in a box, and we’ve got something hidden in there,” says Katherine Tai, the United States trade representative. “It’s really complicated right now.”
Tai was discussing with me a long-delayed comprehensive review of American trade policy toward Beijing, something that she began formally unwrapping in a major speech at the Center for Strategic and International Studies yesterday and that she said she had been iterating in policy decisions up until now. But the need for rethinking and the imperative of caution came up over and over again in our discussion about how the new, progressive administration is approaching trade. Trade policy is changing. It’s complicated.
What it’s changing from is clear enough: For decades, Democratic White Houses were more pro-trade than the Democratic base, arguing that the benefits of barrier-free commerce—cheap imports, a big market for exports, and economic integration as a ballast against geopolitical conflict—far outweighed the costs. Armed with these arguments, Bill Clinton signed NAFTA, and Barack Obama negotiated the Trans-Pacific Partnership, among other deals, over the objections of labor unions and other trade skeptics.
But with the passage of time, it became clear that many elite Democrats had downplayed the costs of free trade. The “China shock” suppressed wages, reduced employment, and hollowed out the Rust Belt. Offshoring sapped the American economy of some of the innovation “spillover” from manufacturing. Elite Dems had also failed to grasp the political risk of allowing so much deindustrialization, and how devastating the loss of manufacturing jobs would be for a large cohort of workers without a college degree.
The concerns were not just domestic either. Critics argued that the country’s trade deals fell short of preventing environmental degradation, human-rights abuses, and a race to the bottom on labor standards in other countries. And both Democrats and Republicans came to view China as a threat—given its repression in Xinjiang and Hong Kong, its support for corporate espionage and theft of technology, its recalcitrance in complying with trade protocols, and many, many other issues. We are now at “an inflection point, in terms of the version of globalization” that we have currently and that we will have in the future, Tai told me.
Or perhaps we’re just past it. Four years ago, Donald Trump stormed into the White House, making all of these arguments and a number of racist, jingoistic, mercantilist, and nonsensical ones too. He posited that trade was zero-sum, leeching America of dollars and jobs and innovation. He blustered about getting rid of the trade deficit entirely, withdrawing from the TPP and NAFTA. He promised to decouple the American economy from the rest of the world and to reshore manufacturing. And he prosecuted a trade war with Beijing, slapping billions of dollars of tariffs on imported products. That trade war has become all the more fraught during the coronavirus pandemic, when supply-chain disruptions and shortages have made clear how dependent the U.S. is on other countries for vital goods.
Whether it was a draw or a loss is debatable, but we certainly did not win the trade war. The United States has not unscrambled the omelet of globalization and brought supply chains back to this country’s shores, at least not in any meaningful way. The trade deficit has not disappeared. Tariffs have raised the costs of imported goods for American consumers, rather than punishing the foreign producers of those goods, much as economists had anticipated. Still, this is one of vanishingly few policy arenas in which the Trump and the Biden administrations have significant overlap. Biden might not want a trade war, but his administration has taken an openly hawkish posture toward Beijing.
The administration is just starting to clarify its policy toward its most complex trade partner and international rival. In her speech at CSIS, Tai said she would hold talks with her Chinese counterpart, criticizing Beijing for failing to live up to all the commitments it made during the Trump administration while also indicating that the Biden administration would ease up on some tariffs. “China’s government continues to pour billions of dollars into targeted industries and continues to shape its economy to the will of the state, hurting the interests of workers here in the U.S. and around the world,” she said.
Still, what Democratic trade policy is turning into is a much harder thing to describe, and Tai described the administration as being in a careful, transformative space. “We have lost the trust of important portions of our economy that we have to win again,” she told me. “Our trade policies need to be durable. And what we have seen is, where we have taken our policies out on a limb, where we've rolled over one too many stakeholders, our policies have become so fragile that they’ve gone up in smoke,” she said, referring to Obama’s TPP.
The administration is talking up its vision of a “worker-centered trade policy,” one that gives primacy to individuals rather than businesses or industries. “We have a chance at crafting a different version of globalization because we are committed to starting from a different place, thinking through the impacts of our trade policies on human beings from the very beginning,” Tai told me. But would implementing such trade policies now repair the damage done by the trade policies of 20 or 30 or 50 years ago? Perhaps not. Moreover, it is hard to say how such worker-centered policies can be put into practice, given the trade deals the country remains locked into and the international institutions it belongs to.
But trade policy is changing from one focused on opening markets and lowering the cost of imports to one focused on American workers. It’s a long project, and a complicated one.