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    In Washington, ‘Free Trade’ Is No Longer Gospel

    Like its predecessor, the Biden administration has largely dispensed with the idea of free trade as a goal in and of itself.WASHINGTON — For decades, the principle of “free trade” inspired a kind of religious reverence among most American politicians. Lawmakers, diplomats and presidents justified their policies through the pursuit of freer trade, which, like the spread of democracy and market capitalism, was presumed to be a universal and worthy goal.But as the Biden administration establishes itself in Washington, that longstanding gospel is no longer the prevailing view.Political parties on both the right and left have shifted away from the conventional view that the primary goal of trade policy should be speeding flows of goods and services to lift economic growth. Instead, more politicians have zeroed in on the downsides of past trade deals, which greatly benefited some American workers but stripped others of their jobs.President Donald J. Trump embraced this rethinking on trade by threatening to scrap old deals that he said had sent jobs overseas and renegotiate new ones. His signature pacts, including with Canada, Mexico and China, ended up raising some barriers to trade rather than lowering them, including leaving hefty tariffs in place on Chinese products and more restrictions on auto imports into North America.The Biden administration appears poised to adopt a similar approach, with top officials like Katherine Tai, Mr. Biden’s nominee to run the Office of the United States Trade Representative, promising to focus more on ensuring that trade deals protect the rights and interests of American workers, rather than exporters or consumers.The Senate is expected to vote on Ms. Tai’s nomination on Wednesday, and supporters say she will be easily confirmed.Mr. Biden and his advisers have promised to review the impact that past trade policies have had on economic and racial inequality, and put negotiating new trade deals on the back burner while they focus on improving the domestic economy. And they have not yet made any moves to scale back Mr. Trump’s hefty tariffs on foreign products, saying that they are reviewing them, but that tariffs are a legitimate trade policy tool.In her hearing before the Senate Finance Committee on Feb. 25, Ms. Tai emphasized that she would help usher in a break with past policies that would “pit one of our segments of our workers and our economy against another.”While Ms. Tai reassured senators that she would work with them to promote exports from their districts, she called for a policy that would focus more on how trade affects Americans as workers and wage earners.When asked by Senator Patrick J. Toomey, a Republican of Pennsylvania and a noted free trader, whether the goal of a trade agreement between two modern, developed economies should be the elimination of tariffs and trade barriers, Ms. Tai declined to agree, saying she would want to consider such agreements on a case-by-case basis.“Maybe if you’d asked me this question five or 10 years ago, I would have been inclined to say yes,” Ms. Tai responded. But after the events of the past few years — including the pandemic, the Trump administration’s trade wars and a failed effort by the Obama administration to negotiate a Pacific trade deal — “I think that our trade policies need to be nuanced, and need to take into account all the lessons that we have learned, many of them very painful, from our most recent history,” she said.Katherine Tai, the Biden administration’s nominee for trade representative, promised a break with past policies that had “pit one of our segments of our workers and our economy against another.”Pool photo by Bill O’LearyIn his first major foreign policy speech on March 3, Secretary of State Antony J. Blinken also said that the calculus on free trade had changed.“Some of us previously argued for free trade agreements because we believed Americans would broadly share in the economic gains,” he said. “But we didn’t do enough to understand who would be negatively affected and what would be needed to adequately offset their pain.”“Our approach now will be different,” Mr. Blinken said.Clyde Prestowitz, a U.S. negotiator in the Reagan administration, called the administration’s statements on trade “a revolution.” While Robert E. Lighthizer, Mr. Trump’s trade representative, also parted with the conventional wisdom on trade, he was seen as an exception, a former steel industry lawyer steeped in protectionism, said Mr. Prestowitz.“Now here is Ms. Tai, with a mostly government official career behind her, talking without making any of the formerly necessary gestures toward the sanctity and multitudinous bounties of free trade,” Mr. Prestowitz said. “The conventional wisdom on trade no longer has an iron grip on policymakers and thinkers.”Like Ms. Tai and Mr. Lighthizer, many past presidents and trade officials emphasized fair trade and the idea of holding foreign countries accountable for breaking trade rules. But many also paid homage to the conventional wisdom that free trade itself was a worthy goal because it could help lift the economic fortunes of all countries and enhance global stability by linking economies.That idea reached the height of its popularity under the presidencies of George H.W. Bush, Bill Clinton and George W. Bush, where the United States negotiated the North American Free Trade Agreement, led the talks that gave the World Trade Organization its modern format, granted China permanent normal trading relations, and sealed a series of trade agreements with countries in Latin America, Africa and the Middle East.President Barack Obama initially put less emphasis on free trade deals, instead focusing on the financial crisis and the Affordable Care Act. But in his second term, his administration pushed to sign the Trans-Pacific Partnership, which came under criticism from progressive Democrats for exposing American workers to foreign competition. The deal never won sufficient support in Congress.For Democrats, the downfall of that deal was a turning point, propelling them toward their new consensus on trade. Some, like Dani Rodrik, a professor of political economy at Harvard, argue that recent trade deals have largely not been about cutting tariffs or trade barriers at all, and instead were focused on locking in advantages for pharmaceutical companies and international banks.David Autor, an economist at the Massachusetts Institute of Technology, said that economic theory had never claimed that trade makes everybody better off — it had said that trade would raise overall economic output, but lead to gains and losses for different groups.But economists and politicians alike underestimated how jarring some of those losses could be. Mr. Autor’s influential research shows that expanded trade with China led to the loss of 2.4 million American jobs between 1999 and 2011. China’s growing dominance of a variety of global industries, often accomplished through hefty government subsidies, also weakened the argument that the United States could succeed through free markets alone.Today, “people are much more sensitive to the idea that trade can have very, very disruptive effects,” Mr. Autor said. “There’s no amount of everyday low prices at Walmart that is going to make up for unemployment.”But Mr. Autor said that while the old consensus was “simplistic and harmful,” turning away from the ideal of free trade held dangers too. “Once you open this terrain, lots of terrible policies and expensive subsidies can all march in under the banner of the protection of the American worker,” he said.Some have argued that the approach could forgo important economic gains.William Reinsch, the Scholl Chair in International Business at the Center for Strategic and International Studies, wrote that Americans had come to understand that the argument that “a rising tide would lift all boats” is not always correct.“A rising tide does not lift all boats; it only lifts some boats, and for a long time, workers’ boats have been stuck in the muck while the owners’ yachts flow free,” he wrote. However, Mr. Reinsch added, “no tide lifts no boats. In economic terms, if we forgo the expansion of trade, we do not get the benefits trade provides, and there is nothing to distribute.”Workers making iron bars in a steel factory in China last month.Agence France-Presse — Getty ImagesIt remains to be seen how much the Biden administration will adhere to the Trump administration’s more protectionist policies — like keeping the tariffs on foreign metals and products from China.While the Biden administration has tried to distance its trade policy from that of the previous administration, many former Trump administration officials say the direction appears remarkably similar.In an interview in January, Mr. Lighthizer said that the Trump administration had reoriented trade policy away from the interests of multinational businesses and the Chamber of Commerce and toward working-class people and manufacturing, goals that Democrats also support. He said the Biden administration would try to make trade policy look like their own, but ultimately “stay pretty close.”“The goal is creating communities and families of working people, rather than promoting corporate profits,” Mr. Lighthizer said. “I think the outlines of what we’ve done will stay. They will try to Biden-ize it, make it their own, which they should do, but I’d be surprised if they back away from the great outline of what we’ve done and how we’ve changed the policy.”Ms. Tai has acknowledged some similarities between the Biden and Trump administration’s goals, but emphasized the difference in their tactics.In her confirmation hearing, she said that she shared the Trump administration’s goal of bringing supply chains back to America, but that the prior administration’s policies had created “a lot of disruption and consternation.”“I’d want to accomplish similar goals in a more effective, process-driven manner,” she said. More

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    W.T.O. Set to Gain New Chief, but Deep Issues Remain

    AdvertisementContinue reading the main storySupported byContinue reading the main storyW.T.O. Set to Gain New Chief, but Deep Issues RemainThe appointment of the Nigerian economist Ngozi Okonjo-Iweala to lead the World Trade Organization removes one obstacle, but the group’s future remains uncertain.Ngozi Okonjo-Iweala, a development economist who spent 25 years working at the World Bank, will become the first woman to lead the World Trade Organization.Credit…Fabrice Coffrini/Agence France-Presse — Getty ImagesFeb. 14, 2021, 3:26 p.m. ETWASHINGTON — Ngozi Okonjo-Iweala, a Nigerian economist and former finance minister, is poised to become the first woman and first African to lead the World Trade Organization, when the members of the global trade body meet on Monday to consider her candidacy for director general.The appointment would remove a key obstacle to the functioning of the World Trade Organization, which has been leaderless during a time of growing protectionism and global economic upheaval brought about by the pandemic. But even with Dr. Okonjo-Iweala at the helm and the renewed support of the Biden administration, the World Trade Organization, which was founded in 1995 to ensure that trade flows as smoothly and freely as possible, will face steep challenges surrounding its effectiveness as the world’s trade arbiter.Trade negotiations, including an effort to restrain harmful subsidies given to the fishing industry, have dragged on without resolution. A key part of the organization for settling trade disputes, called the appellate body, remains crippled after the Trump administration blocked appointments of new personnel. And there are deep divisions over whether rich and poor countries should receive different treatment under global trade rules.There is also growing consensus that the World Trade Organization has failed to police some of China’s worst economic offenses, which many in the United States consider the world’s biggest trade challenge today. And there is deep uncertainty about whether the group can be overhauled to address those shortcomings.“There are a lot of issues that are begging for reform,” said Wendy Cutler, a former U.S. trade negotiator and a vice president at the Asia Society Policy Institute. She said that the Biden administration’s support for Dr. Okonjo-Iweala could be “an easy way to gain good will and get everyone focused on the important substantive issues.”The Trump administration spent the last four years mostly criticizing or ignoring the World Trade Organization, ultimately weakening the institution by carrying out its most prominent trade policies outside of its boundaries. Rather than working with the World Trade Organization, President Donald J. Trump took on trading partners like China and the European Union one-on-one, deploying hefty tariffs that those governments argued contravened the W.T.O.’s rules.President Biden is likely to take a very different approach. He has criticized Mr. Trump for alienating allies and weakening the multilateral system, and is expected to make the United States a more active player in international groups including the World Trade Organization.That includes supporting the organization’s new leadership. On Feb. 5, the Biden administration announced it would support Dr. Okonjo-Iweala, reversing efforts by the Trump administration to block her candidacy.The former director general, Roberto Azevêdo, announced last May that he would leave the job a year early and departed in August. While the vast majority of the organization’s members supported Dr. Okonjo-Iweala to replace him, Trump administration officials, particularly the former trade representative Robert E. Lighthizer, had criticized her lack of trade experience, and supported the South Korean candidate, the trade minister Yoo Myung-hee, instead.On Feb. 5, Ms. Yoo withdrew from the race.Robert Lighthizer, the Trump administration’s trade representative, expressed no regrets for the role he played in suspending the W.T.O.’s dispute settlement system.Credit…Alyssa Schukar for The New York Times“The United States stands ready to engage in the next phase of the W.T.O. process for reaching a consensus decision on the W.T.O. director general,” the Office of the United States Trade Representative said in a Feb. 5 statement. “The Biden administration looks forward to working with a new W.T.O. director general to find paths forward to achieve necessary substantive and procedural reform of the W.T.O.”Dr. Okonjo-Iweala, 66, is a development economist who spent 25 years working at the World Bank, including as managing director, and served two terms as Nigeria’s finance minister, as well as the country’s foreign affairs minister. A U.S. citizen who earned a doctorate from the Massachusetts Institute of Technology, she serves on the boards of Twitter and Standard Chartered and is an adviser to the Asian Infrastructure Investment Bank. Until recently she served on the board of GAVI, an international organization that distributes vaccines to poor countries.In her first stint as finance minister, she led negotiations that resulted in most of Nigeria’s external debt being wiped out. Later, as coordinating minister of the economy in Nigeria — a powerful position created for her that has never been held before or since — many ministers took directives from her, according to Patrick Okigbo, a policy analyst based in Abuja.In her 2018 book, “Fighting Corruption Is Dangerous,” Dr. Okonjo-Iweala wrote about how her reforms to tackle corruption and shore up the economy made her many enemies. When her mother was briefly kidnapped, she said, the kidnappers demanded Dr. Okonjo-Iweala resign.Her years of navigating Nigerian politics, with its many internal factions and vested interests, had made her “a pro” at choosing and fighting the big battles, Mr. Okigbo said.“If she could handle Nigeria, she should be able to do a good job at the World Trade Organization,” he said.Dr. Okonjo-Iweala has said that her earliest priorities will be ensuring the free flow of vaccines, medicines and medical supplies to help deal with the pandemic and aid the global economic recovery. She has vowed to push for new trade agreements on fisheries and the e-commerce industry, and called for finding “solutions to the stalemate over dispute settlement.” She also said she would prioritize updating trade rules, encouraging members to be transparent and notify one another of changes to their policies, and strengthening the organization’s bureaucracy.Following Dr. Okonjo-Iweala’s appointment, one of the most pressing issues for the World Trade Organization will most likely be the paralysis of its system for settling trade disputes.The appellate body, a part of the organization that considers appeals by countries to W.T.O. decisions on trade disputes, has been shuttered for over a year, after the Trump administration blocked new appointments to the panel that hears those arguments. The Trump administration argued that the appellate body had exceeded the mandate it was created with, ultimately engaging in a kind of judicial activism that undercut U.S. trade law, harming American workers and infringing on American sovereignty.Before leaving office in January, Mr. Lighthizer expressed no regrets for the role he played in suspending the W.T.O.’s dispute settlement system, saying in an interview that it had “become a net negative for America, and getting rid of it was a positive for American interests.”He added that the World Trade Organization had “been largely a failure,” though he said that getting rid of the group entirely would “create more problems than it’s worth.”“I don’t think it did what we said people wanted it to. It hasn’t done anything on the negotiating front to speak of,” Mr. Lighthizer said.While the Biden administration is unlikely to be as critical or confrontational as the Trump administration about the issues plaguing the World Trade Organization, some Democrats share certain concerns about the organization’s shortcomings, including whether the appellate body has unfairly constrained U.S. trade policy. And many officials in the Biden administration recognize the World Trade Organization has only limited power to push China to make economic reforms.The Biden administration’s nominee for United States trade representative, Katherine Tai, knows well the W.T.O.’s strengths and shortcomings.Credit…Hilary Swift for The New York TimesThe Biden administration’s nominee for United States trade representative, Katherine Tai, is intimately acquainted with both the strengths and shortcomings of the global trade body, having successfully litigated cases against Chinese export restrictions at the World Trade Organization during the Obama administration, when she served as general counsel for the office of the trade representative.Ms. Tai led a legal challenge, supported by Canada, Japan and the European Union, to a ban China had imposed on the export of rare earth materials, a key input for electronics. The United States won the case, and China dropped its quotas in 2015.Last week, the Biden administration also announced that it was appointing Mark Wu, a Harvard Law School professor who has written about the World Trade Organization’s shortcomings when it comes to China, as a senior adviser to the office of the trade representative.In an influential 2016 paper, Mr. Wu argued that the World Trade Organization had effectively disciplined China in areas where it has relevant rules. But for some of China’s most egregious economic practices — in particular, the state’s prominent role in industry and its heavy subsidies paid to businesses — the World Trade Organization has fallen short, Mr. Wu said.“The W.T.O. system works but only up to a point,” Mr. Wu wrote. “The W.T.O. faces a challenge: Can the institution craft a predictable and fair set of legal rules to address new trade-distortive behavior arising out of China Inc.? If not, key countries may turn away from the W.T.O. to address these issues. This will weaken the institution.”Ruth Maclean More