My 2021 Trade Policy Wish List
If I had to choose a word to describe the trade landscape in 2020, a strong candidate would have to be disruption. The first three quarters of the year witnessed an 8.2 percent drop in the volume of world merchandise trade, compared to last year, and it is still unclear if there will be a deeper plunge as the year draws to a close. But this downward trend, while rapidly accelerated by the pandemic, had already begun in 2019 due to increasing global trade tension. In fact, the World Trade Organization (WTO) estimated a 0.1 percent drop in merchandise trade volume in 2019, with the dollar value of world merchandise exports falling by 3 percent, to the tune of $18.89 trillion USD. While it will take time for us to recover, I offer five practical ideas for trade policy in 2021 that can help ease the economic burden on Americans, repair our fraught relationship with our closest trading partners, and revitalize the rules-based trading system.
Rein in executive authority on trade policy
In just one term, the Trump administration has been responsible for nearly a quarter of all Section 232 investigations initiated since 1962. This statute has allowed him to levy tariffs in the name of national security—such as on steel and aluminum products from our allies. The administration has threatened action on automobile imports as well—as if importing cars is a national security threat. These actions have been overtly protectionist, encouraged cronyism through a lack of transparency, and hurt our economy. Economists Lydia Cox and Kadee Russ estimate that by mid-2019, the rise in input costs due to the Section 232 tariffs led to 75,000 fewer jobs in U.S. manufacturing. As my colleague Scott Lincicome and I argue in a forthcoming paper, the tariffs imposed under Section 232 should be rescinded, and the law reformed to rein in future abuse of presidential power.
But Section 232 is not the only executive branch trade issue. Long before Section 232 became the talk of the town, antidumping policy had been abused, and it has only gotten worse in recent years. As my colleague Dan Ikenson explains, U.S. antidumping laws have “become a commercial weapon used by U.S. companies against other U.S. companies” and “a convenient channel through which domestic firms can saddle their competition (both foreign and domestic) with higher costs and their customers with fewer alternative sources while giving themselves room to raise their own prices, reap higher profits, and reinforce their market power.” It is an issue that is ripe for reform.
Avoid knee-jerk protectionism
The COVID-19 pandemic has triggered a substantial amount of economic nationalism, including calls from many politicians to “re-shore” supply chains and reduce trade dependency on other countries. As my colleagues Dan Ikenson and Simon Lester explain, using the pandemic to justify protectionism or to promote deglobalization would do more to hurt than help the U.S. economy, for it ignores the many benefits we derive from participating in the global economy. Furthermore, claims of U.S. overdependence on global trade are overblown, and not really a “problem” worth solving. And, as we all eagerly await our jab in the arm, it’s a good time to remember that the COVID-19 vaccine is a triumph of globalization. Now, more than ever, it’s critical to keep the trade lanes open, not least because most Americans actually think positively about trade and globalization. And as my colleague Jim Bacchus lays out—Democrats can rehabilitate the failed trade policies of the last four years by embracing the benefits of trade that their constituents are already well aware of.
Lower the temperature in our trade war with China
This may have been the year where every trade policy discussion included the question, “but what about China?” Indeed, China has occupied the Trump administration since day one, and the many issues we need to resolve will undoubtedly carry over into the Biden administration. But, the approach should be different. As my colleagues Simon Lester and Huan Zhu suggest, a better way forward will include working with our like-minded allies to discipline China’s unfair trade practices at the WTO, and to push for further liberalization. U.S. policy towards China must be informed by an understanding that normalizing our trade relationship with China was a good decision that has benefitted both our countries. Keeping China out of the WTO would not have made Americans better off. Of course, this doesn’t mean that there isn’t anything we can improve upon, but having these discussions in a less-heated and acrimonious way may generate more progress on these issues than we’ve seen over the last four years. Also, the United States would benefit from a reflection on the lessons of China’s rise—which my colleague Dan Ikenson argues, policy makers have simply got wrong.
Get the WTO back online
The WTO has faced a number of challenges this year, with the United States continuing to block appointments to the organization’s highest court, known as the Appellate Body. This has left the appeals mechanism defunct, and damages WTO dispute settlement more broadly. Imagine a situation where the U.S. no longer had a functioning Supreme Court—that’s where the WTO is now. The United States has raised many concerns about the WTO’s dispute settlement system, but discussions on reform have gone nowhere. It’s time for some real practical discussions on how to improve dispute settlement—not a continuation of the status quo. My colleagues Jim Bacchus and Simon Lester have offered some thoughts on how to make dispute settlement more effective and efficient, and remain optimistic that a solution is within reach.
Another issue that requires immediate resolution at the WTO is the appointment of its Director General (the top administrator of the institution), a post that has been vacant since September. The United States has also held up this process, despite the fact that a front-runner candidate has emerged. Getting a Director General in place will not only help move important negotiations along, but also help facilitate discussions on broader issues of reform.
Conclude negotiations on fisheries subsidies
WTO Members have been trying to wrap up a deal to eliminate subsidies that contribute to illegal, unreported, and unregulated fishing, as well as some subsidies that lead to overcapacity and overfishing. So far, they’ve missed two deadlines, though some progress has been made. One of the major snags in these talks is the fact that developing countries, which historically have been given special treatment at the WTO to take on less ambitious obligations, are critical to tackling the issue of fisheries subsidies. For example, 9 out of 15 of the largest marine capture fish producers are developing Members— and some, such as China and India, have requested flexibilities on their commitments, citing developing country status. This mindset has to change for negotiations to be successful.
Importantly, the fisheries talks must be multilateral—the last time I checked, fish do not respect territorial boundaries. Overfishing is by definition a global problem requiring a global solution. But it’s also important the keep in mind that the five main providers of fisheries subsidies are China, the European Union, the United States, South Korea, and Japan, who account for 58 percent of all global fisheries subsidies. These Members must recognize that they are the biggest part of the problem and avoid trying to create so much flexibility for themselves that it makes the agreement merely symbolic. The future of the WTO’s negotiating function depends on it.
Looking for the light amidst the darkness
The holidays give us time to reflect on the year, and think about ways we hope to improve ourselves and the state of the world. And what a year it has been. With so much loss brought on by the pandemic, many other policy areas feel so marginal. But at the same time, everything else also seems more relevant than ever. The fact is, we will need to pull together and think big about how each of our respective areas of expertise can shine a light in a year of so much darkness, and work towards making our country, and the world, more open and more prosperous. My trade policy wish list is a small contribution to that end, but one that I hope generates a discussion on how the disruptions of this year have amplified the benefits of liberalization and the heavy costs of protectionism.
