Trade Policy: Is the Best Defense Still a Good Offense?

The second meeting of the AICGS Geoeconomics Strategy Group focused on “Trade Policy: Is the Best Defense Still a Good Offense?” The new U.S. administration’s emphasis on trade defense—stepping up enforcement mechanisms to ensure that countries or companies that violate trade laws are held accountable for their actions—is an important feature of international economic engagement. Without vigorous enforcement, the rules that hold together the global trading system could begin to fray. But is defense enough? Without trade offense—creating new rules and opening markets through bilateral or multilateral trade agreements—the U.S. and Germany would miss the chance to update the trading system so that it reflects changes to the real economy and continues to promote their values and interests.

The members of the group were generally skeptical about the Trump administration’s commitment to pursuing vigorous trade offense. For the moment, the focus in the White House seems to be on reducing U.S. bilateral trade deficits rather than reforming the trading system. The point was made that deficits should be viewed as a global rather than a bilateral phenomenon, and one whose remedies lie in policies to promote domestic savings rather than in extracting concessions from individual trading partners. The group noted, however, that the leaked document outlining the administration’s approach to renegotiating NAFTA, as well as the president’s late March executive orders on trade, took a moderate approach on trade defense that respects U.S. commitments in the World Trade Organization and existing bilateral agreements.

One participant framed the change in approach in Washington as a shift from “auto-pilot” to “manual control” on trade. Policies and actions can no longer be justified as serving free trade itself; they need to demonstrate concrete advantages for employment, particularly in manufacturing. As for public opinion in the United States (and to a certain degree in Germany and Europe as well), a distinction needs to be drawn between trade and trade agreements. Polling shows that the U.S. public is in favor of the former but more reserved about the latter, meaning the base of support for trade offense could be more solid.

At the same time, it is useful to disaggregate polling numbers to get a clearer idea of the sources of support and opposition to trade offense. Millennials, who grew up with globalization and the gig economy, are the most inclined to favor U.S. participation in the global economy. They understand the value of connectedness and that it is more realistic to protect the worker rather than the job. People in their 40s and 50s who are experiencing disempowerment as they lose 9-5 jobs are the most fearful of what trade policies may bring.

To a certain extent, trade policy has been caught in a bind between purely domestic policies on the one hand and foreign policies on the other. It is not trade policy that is responsible for most of the decline in manufacturing jobs in the United States. Witness Germany, which has maintained a much higher proportion of industrial employment in its economy through its decades-old apprenticeships and worker training and adjustment programs. The German government has helped the country’s workers to adapt to the technological changes that are at the root of most manufacturing job losses in the U.S., which has failed to invest in its workers in the same way. One open question is whether U.S. and European governments should continue to treat workers who lose their jobs from trade differently from those who experience unemployment because of purely domestic causes—not only from technological changes like automation but also because firms move from one state or region of a country to another or because one firm proved to be more competitive than another.

Beyond the domestic policy context, U.S. trade policy has for some years played an important role in broader geopolitical objectives, and this is beginning to be the case in the European Union as well. The U.S.-Panama free trade agreement was in part about securing the Panama Canal, the U.S.-Colombia FTA about joint efforts to stem the flow of narcotics, and the U.S.-Bahrain FTA about the Middle East balance of power. Most prominently of all, the Obama administration made the case for the security role that the Trans-Pacific Partnership (which the Trump administration has withdrawn from) would play in Asia vis-à-vis China. While these foreign policy arguments resonate among members of Congress, it is not clear that the broader public in either the United States or Germany is susceptible to them. The large demonstrations in Germany against the Transatlantic Trade and Investment Partnership (TTIP)—the most strategically important trade agreement to date—suggest some skepticism is in order about the effectiveness of political communication on behalf of trade policy that is based on geopolitics.

Even a more limited narrative about trade agreements as a form of global economic governance faces challenges. In principle, Americans or Germans should welcome modern trade agreements for the way they provide a voice for people in the making of environmental or health or labor policies in other countries. But at a time when there are strong pro-sovereignty movements around the world, the fear that someone else is setting rules for you may be stronger than the appeal of having a say in the rulemaking of others.

If, despite these headwinds to trade offense the U.S. and the European Union were to resuscitate the TTIP negotiations, they might wish to consider making e-commerce and the digital economy the center of this effort. While there are real differences between the U.S. and the EU on data privacy, there is a paucity of rules governing international trade in digital services, which are also playing an increasing role in traditional manufacturing via the Internet of Things/Industry 4.0. In the end, publics in the United States and Germany may prefer to create some predictability and order in this domain rather than risk that what is optimistically now called disruption turns into something more threatening like chaos.

April 5, 2017