What is US trade policy?
Despite the importance of trade policy in the world today, US trade representative Katherine Tai has been one of the less high-profile Biden administration appointees over the past two years. There are many reasons for that. One, she is a low-key person, not given to grandstanding or politicking. Two, the administration itself has been struggling to craft and articulate a new trade policy for the post-neoliberal world (sorry Ed, I know you hate the phrase, but it’s being used by many folks inside and outside the White House to describe a more multipolar world in which many old-line economic truisms are being challenged).The trick in this process has been to find a way to balance the two big priorities for Joe Biden — US workers and US allies — in a way that doesn’t diminish either. That’s a tough needle to thread, obviously. China has all too often become a negative touchpoint there, a common threat for the US and its allies to criticise around issues such as trade without actually focusing on the dysfunctions at home that led to this point. For example, the Chinese Communist party didn’t reach over and snatch millions of American jobs and intellectual property all by itself. Big US corporations outsourced them, as part of a neoliberal economic paradigm that focused solely on raising share prices and lowering consumer prices (technological disruption was very much part of that process, which I look at in my Monday column).While I do think Xi Jinping’s regime and the Communist party in general pose a strategic threat not just for the US but for any liberal democracy, I don’t think that US foreign policy should stumble into a narrative about keeping China down. First, nobody could (except for the Chinese themselves, as I said in my response to Ed’s last note). Second, while there are some hawks that do espouse “containment”, whatever that means, I don’t believe this president is really about that. I think the US has simply failed to find a clear narrative about how domestic economic concerns and foreign policy concerns should be knitted together.On this front, I was interested in a speech that Tai gave last week that started to put some more meat on the bones of a new US approach to trade, which will obviously be central to a new US domestic and foreign policy. Here are some of my principal takeaways, referencing specific quotes from the speech:“We are investing in American communities. We are writing a new story on trade, one that makes us more resilient, our economy more sustainable, and our results more inclusive. Whether you have a college degree or not, whether you have five employees or 500, whether you are a small dairy farmer in Wisconsin or a steelworker in Pennsylvania — trade should work for more Americans and help build the economy from the bottom up and the middle out.” This isn’t about keeping China down. It’s about pushing America up.“It is clear today — even to many who are accustomed to a more traditional approach to trade policy — that we must adapt to the realities of today’s global economy. That means making smart investments here at home to increase our own competitiveness. That also means investing in research and development and clean energy technology and strengthening our manufacturing base. Industrial policy is now part and parcel of trade policy. This is absolutely necessary if we are going to win the economic competition of the 21st century.” Industrial policy and trade policy must work hand-in-hand.“The economy is more than numbers — it is people. So, our economic policy must work for our people. With that goal in mind, we are pursuing new and innovative initiatives with key partners around the world . . . but we are also focusing on common sense, trade-facilitative measures. That includes tackling non-tariff barriers, which are real and can be more significant hurdles than tariffs, especially for our small-and-medium sized businesses.” Neoliberal (or, if you prefer, neoclassical) economic modelling has too often assumed that markets are perfect. They aren’t, and they need more active tweaking by government.“Trade should work for the common good and help set responsible standards on labour, the environment, and other priorities that reflect American values. It should also promote fair and healthy co-operation that lifts up workers and communities, and that is the focus for [the Indo-Pacific Economic Framework for Prosperity].” Yes, we need a new trade alliance in Asia to compete with China. But not if it sells out US labour or puts the green transition at risk.“I am proud of a recent agreement we concluded with Japan on critical minerals. We’ve become too dependent on certain countries or regions for important inputs. That is one reason why President Biden signed the Inflation Reduction Act into law last year — the largest investment in American history to address the climate crisis. It will incentivise the manufacturing of clean energy technology here at home. It will also create good-paying jobs — in wind, solar and electric vehicle manufacturing. And it will fortify and diversify the critical supply chains for clean energy products.” Resiliency and redundancy trump efficiency. We need to move away from concentrations of power be they in countries or companies.If I had to sum all of this up into a single takeaway, I’d put it something like this: “Trade isn’t a goal in and of itself — it’s a way to lift up workers at home and in allied nations, and bolster broader economic goals such as creating better jobs, combating climate change, and reducing concentrations of power.” I’m keen on this message — Ed, what are your thoughts?Join Salman Rushdie, Jamie Lee Curtis, Ta-Nehisi Coates, Barbara Sturm, your favourite FT writers, and more on May 20 in Washington, DC, and online to experience our weekend paper come to life at our FTWeekend Festival. Register now and as a newsletter subscriber, save $20 off using promo code NewslettersxFestival.Recommended readingThe annual letter to shareholders from JPMorgan Chase chief executive Jamie Dimon is always worth a close read. There are many things to dig into here, but the aspect that I found most interesting was Dimon’s bullish take on industrial policy, which he believes should be developed “specifically to safeguard our national security, and two, to counter unfair economic competition, particularly where our national security is directly concerned. For example, making bicycles would not be part of the second example. But China, using subsidies and its economic muscle to dominate batteries, rare earths, semiconductors or EVs, could eventually imperil national security by disrupting our access to these products and materials. We cannot cede these important resources and capabilities to another country.”I love thrillers and enjoyed this New York Review of Books survey of two new books about John le Carré, and suspect many Financial Times readers will too.In the FT, don’t miss Gillian Tett on her lessons learned from covering three banking crises. And check out my ‘Economists Exchange’ interview with former White House competition adviser Tim Wu, who does a great job of channelling how the shifts in antitrust policy herald other post-neoliberal economic shifts.Edward Luce respondsRana, I don’t find Tai’s speech convincing: lots of boilerplate rhetoric and not much substance. If the goal is to combat China’s large-scale mercantilism, which is reasonable, the US should be forging trade and investment treaties with other nations, especially in the region. Or failing that, it should be taking the lead to set global digital standards, including on AI. But that isn’t happening. The Indo-Pacific Economic Framework is little more than a talking shop yet it is as far as the Biden administration is prepared to go.Instead, China is the one that’s pushing for deals left, right and centre. My guess is Xi now has better than even odds of getting China into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership within the next two or three years, which would be a geopolitical disaster for the US and would also exact an economic price. America’s partners, notably Japan, Australia, Singapore and South Korea, would prefer it if the US returned to what was originally the TPP and was largely an American initiative. But they are losing hope that this will happen. If they cannot retrieve the US, they will eventually be forced to admit China, which is the largest trading partner to two-thirds of the countries in the world.I have strong sympathies for the Biden administration’s domestic investment goals, especially the green technology drive. But as I have said before, they are getting crucial pieces of the economics wrong. I don’t even think the politics works. What they are doing may amount to a paradigm shift, as you say. But no policy that starts with the prefix “post-neo . . . ” will make it outside the beltway. They might as well market their policy in Chinese. In the meantime, and in the spirit of ecumenical debate, I wish you and all readers a happy Easter/Ramadan/Passover/or secular long weekend.Your feedback And now a word from our Swampians . . . In response to “Putin and Ukraine’s spring offensive”:“Xi has masterfully preyed on Putin’s grievances like a snake. The big winner from this war is China and the big loser is Russia, as the latter is now just another -stan country in China’s Eurasian backyard. — Reader lazy-fox More
