Putting the US Back in USTR

That’s a line pulled directly from a speech given by Ambassador Katherine Tai, the US Trade Representative, yesterday at the National Press Club in Washington DC. I had the pleasure of moderating the fireside chat with her afterwards, which is definitely worth a view. I also interviewed former White House competition adviser Tim Wu and did a panel with Chris Gopal, who is for my money the world’s best supply chain expert. There is a lot to be teased out from Tai’s talk, which I’ve done in my upcoming Monday column.

Tai’s message built on National Security adviser Jake Sullivan’s April speech about connecting the dots between US domestic economic policy and US foreign policy. She took it further in terms of trade, noting her desire to put the “US” back in USTR. This means a return to domestic economic needs as the starting point of good trade policy, which as the former USTR Robert Lighthizer’s upcoming book No Trade Is Free lays out, is actually the historic norm for America — with good reason. 

No country has been able to maintain its position as a world power by giving up on manufacturing, as the US has over the last 20 or 30 years, thanks in part to various trade deals that assumed our economy could survive and thrive on the service sector. Manufacturing is the sector where most innovation comes from and in that sense, it represents the long-term economic capacity of a country. Consumption on the other hand, is more about short-term gains. As I’ve pointed out many times, more cheap stuff has not offset inflation in all the important areas like healthcare, housing and education.

Tai made a point of noting that she was spending a lot of time travelling through the US heartland, talking to all sorts of business leaders and public officials about what they want from the trade system. USTRs don’t usually spend a lot of time at home; rather they are abroad, wrangling the latest new trade deal. But as Sullivan made clear in his recent speech, trade qua trade is no longer good enough. We need trade that works for both people and planet. And when it comes to people, the benefits do need to start with the American people first, given that they’re the ones that are voting for the policymakers that implement these deals.

This is an important point, and one that Lighthizer really takes up in detail in his book, which lays out what an anomaly the last 20 years have been when it comes to US trade policy. He cites, for example, a speech that Ronald Reagan gave in 1985 in which he said,

“Above all else, free trade is by definition fair trade. When domestic markets are closed to the exports of others it is no longer free trade. When governments subsidise their manufacturers and farmers so that they can dump goods in other markets it is no longer free trade. When governments permit counterfeiting and copying of American products it is stealing our future and it is no longer free trade. When governments assist their exporters in ways that violate international laws, then the playing field is no longer level, and there is no longer free trade. When governments subsidise industries for commercial advantage and underwrite costs, placing an unfair burden on competitors, that is not free trade.”

Indeed. Lighthizer was brave enough to raise the scrim on the fact that China was doing all of that, which was one of the rare triumphs of the Trump years. Like it or not, he started an important conversation, one that the Biden administration has now taken up. Tai has recently made some strongly worded statements about Chinese economic coercion, and also focused on the importance of reducing chokepoints of economic power wherever they come from — be it Chinese mercantilism or multinational corporate concentration. 

Neither Lighthizer (in his book) or Tai are arguing for America Alone, or some total reshoring of jobs, which isn’t possible anyway. Rather both seem to be making the point that you need a better balance of production and consumption, both domestically and in fair alliances with allies, to achieve a prosperous society economically and otherwise. As Lighthizer puts it, “free trade is a unicorn — a figment of the Anglo-American imagination. No one really believes in it outside of countries in the Anglo-American world, and no one practices it.”

Given the prevalence of industrial strategy and state subsidies in most countries, I think that’s more or less true. As he points out quite rightly in his book, continental Europeans love to talk about free trade, but rarely practise it fully. The wilful blindness to all the contradictions in the global trade system is one reason that the World Trade Organization itself is fundamentally broken. 

What’s to be done? I think both Lighthizer and more recently Tai have done a great service by fostering an honest conversation about how trade needs to work at home before it can work abroad. US tariffs are at record lows. America’s willingness to give unfettered access to the largest and richest consumer market in the world with very few requirements has led to a global race to the bottom in terms of people and planet. We need to build floors not ceilings. This was a point that Tai made in her talk, which stressed the desire of the US to move beyond a “colonial” model of wealth extraction in which desire for cheap goods and natural resources trump labour rights for environmental impact.

Nobody thinks global trade isn’t necessary and good. But the system is in desperate need of tweaking. Tai’s speech really starts to lay out a new paradigm in which access to US markets and investment are contingent on good behaviour for people and planet, as well as supply chain resiliency.

Lighthizer makes a strong case in his book that something more akin to the old General Agreement on Tariffs and Trade system could work better for the US than the WTO. He also advocates the use of section 301 provisions to resolve trade disputes at a bilateral level, given that the WTO seems fundamentally unable to enforce its own rulings, even when it can make them. There’s much more to say here and I will be saying it in future columns as well as a review of the Lighthizer book in July. But the point that trade needs to work at home before it can work abroad is a crucial one.

Ed, rather than asking you to sound off on what I’ve written, I’d like to ask you a historical question since you are at the moment finishing up a biography of Zbigniew Brzezinski. What do you think he would have to say about where the global trading system is at the moment and how we might fix it? 

Recommended reading

• This personal history in the New Yorker by Jiayang Fan, who emigrated from China with her mother (a former doctor who had to become a housekeeper in the US to make ends meet, and ultimately died a slow and miserable death from ALS) is one of the most haunting and poetic pieces of writing that I’ve read in a long time.

• This New York Review of Books piece on childhood in the 16th century, is an interesting look at what it was like to be a kid before the invention of helicopter parenting. 

• And in the FT, check out our farewell to one of my all time favourite writers, Cormac McCarthy, as well as the tour de force magazine piece on the odious Crispin Odey.

Edward Luce responds

Thanks Rana — and I am glad you haven’t totally lost interest in what you recently labelled GMOTP (great men of the past)! There is a lot we can learn from history that is relevant to our future. As another dead man once said, “The farther back you can look, the farther forward you are likely to see.” That said, I wish I could give you a richer answer on Zbigniew Brzezinski’s view of the global trading system. Alas, like most foreign policy strategists, including Henry Kissinger, George Kennan, Madeleine Albright and so on, Zbig did not engage much with economics. He had a strong philosophical belief in the economic and technological openness of the US system and why that gave it a decisive advantage over the USSR. That proved to be correct. 

The ignorance of geopolitical minds about economics is matched only by the economics profession’s ignorance about foreign policy. In Lighthizer’s case, I would argue that ignorance stretches to the history of economics. The postwar story is one of declining trade barriers, both tariff and non-tariff, producing greater general prosperity. The further a developing country has been from the Cuba or Venezuela model, the better its people have fared. The fact that there has been no such thing as perfect free trade is a very poor argument for abandoning it. It’s like saying total objectivity is impossible in journalism, or scholarship, so we should just give in to our prejudices. As for Katherine Tai putting the US back into USTR, it has always been there. What has changed is the “T”: I would argue that she is acting as the US Tariff Representative.

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