has set out a bold new plan for U.S. trade policy that, if implemented, could effectively end America’s leadership in promoting open, free, and fair trade. In a recent op-ed, the U.S. trade representative railed against the World Trade Organization and trade deals. Some of his themes are familiar; others new. Butunless Washington stops trying to make the entire world follow its rules rather than working toward consensus, U.S. companies are going to face tough times abroad. If “America First” continues to mean that America goes it alone, U.S. consumers will eventually feel the pain as well.
Lighthizer’s newapproach to trade policy takes particular aim at bilateral trade deals that he says “discriminate in favor of preferred trading partners.” That’s an odd argument to make considering the administration has pursued new bilateral deals, including one with the United Kingdom that has stalled while London attempts to leave the European Union, and initiated negotiations with Kenya in July. The White House has also relied on a bilateral deal with Japan to gain access for U.S. beef exports. I asked the U.S. trade representative’s office to comment on these inconsistencies and other issues raised by Lighthizer’s op-ed, but they did not respond.
Lighthizer does like some deals. He approves of “agreements intended to foster regional integration among contiguous states—like those governing trade within the EU, or the U.S.-Mexico-Canada Agreement.” In the world he describes, all WTO members, rich and poor alike, would have to grant most-favored nation status to each other. That means even poor and developing countries would without exception, have to offer market access on the same terms to all—an untenable position. Making that the standard would inevitably push many countries out of the system and closer to China and the EU, which have both shown an eagerness to sign trade deals without the restrictive conditions the U.S. prefers.
And why should it matter if countries are physically next to one another? The global nature of trade and shipping means that American consumers can eat fruit year round and drink wine from practically any producing country in the world. Global competition means better prices. It’s why sneakers, sweatshirts, and televisions can be sold largely at affordable prices.
Another sticking point leveled by Lighthizer, one he also raised in congressional testimony in June, focuses on “large and advanced economies” like India and China that, he believes, should be giving the U.S., EU, and Japan the same trade treatment they receive in return. The U.S. used to charge low tariffs on certain Indian imports like steel, even though India would charge higher rates on similar categories of goods shipped from the U.S. Recent rounds of trade war-inspired tariff increases and removal of some trade preferences have led relations to sour. Lighthizer’s argument makes a certain intuitive sense, but it presupposes that all countries share the same economic priorities as the U.S. The world is neither that simplistic nor likely to become that way any time soon.
Cultures define trade fairness quite differently. According to Secretary of Agriculture
it is perfectly acceptable that larger farms put smaller ones out of business. “In America, the big get bigger, and the small will go out,” he said last year. In India, where the majority of the population lives in rural areas with small farms providing sustenance, protecting their livelihood is a priority. India has, over time, begun to selectively liberalize its domestic market, giving companies like Walmart, Amazon, and Netflix access to the world’s next billion customers. It’s unlikely they can lower tariffs across the board to U.S. levels. And yet there are many potential gains for U.S. consumers and businesses if other tariffs with India were significantly reduced.
The countries that formed the World Trade Organization not only made exceptions for these differences, but carved out space and time for poorer countries to reform so they could compete against global companies. Otherwise entire swathes of a developing economy and its nascent industries could be quickly overrun by cheaper imports where economies of scale have already been reached. Every country’s leader puts his or her population first. No one will jeopardize their future for a new conception of free or fair trade.
Washington’s problem is that it is losing global influence. Lighthizer, and the president he serves, believe that access to the U.S. economy is so lucrative that countries have little choice but to accept whatever trade terms America sets. But China has signed 47 free-trade agreements in no small part because it offers far more lenient criteria for its trade deals. The EU too, much to Lighthizer’s dismay, has signed 72 bilateral trade deals. (The U.S. has 20.) The White House lambasting its allies and even imposing tariffs on some of their goods hasn’t strengthened its position. Rather than using the powerful leverage of a coordinated U.S.-EU-Japan effort to gain market reforms in China, for example, the administration is determined to go it alone. The result: a weak phase-one U.S.-China deal that was presented as a prelude to something bigger and now seems likely never to come.
Chinese state-owned enterprises continue to exert influence over the economy. Beijing’s retaliatory tariffs hurt U.S. exporters, and the trade deficit with China stubbornly refuses to reverse course. Meanwhile China’s own exports continue to soar. Contrary to repeated presidential tweets and press comments to the contrary, China isn’t paying the bulk of U.S. tariffs. Importers and retailers have been shouldering much of the burden and filling the Treasury with their earnings that could be spent keeping staff employed during this recession.
With the entire U.S. retail sector in a tailspin, firms won’t be able to bear this extra cost much longer. The mishandled federal government response to Covid-19 has led to a dramatic fall in consumer demand. Major retail chains have declared bankruptcy, including the oldest department store in the U.S., Lord and Taylor, as well as J. Crew, and others. Unemployment remains double its pre-Covid-19 levels, and if a second wave of fall infections materializes this will likely surge.
The overall U.S. export picture was bleak even before the pandemic. Growth has stagnated. Total exports in 2019 dropped nearly half a percent from 2018. This trend started well before the current administration, with years of slow to negative growth dating back to 2012 even though U.S. productivity has gone up and factories and services remain globally competitive.
Lighthizer wants a complete overhaul of the WTO. That is an unnecessarily complicated approach, made even less likely by the unbalanced advantages it would create for the world’s wealthiest countries. Reform from within can achieve more parity and less abuse, but that will require cooperation rather than the coercive approach the current administration favors.A trade policy that benefits U.S. companies and consumers would include a renewed effort to use multilateral influence over countries abusing the trading system instead. The White House should also re-engage with Asia, the century’s growth region, and strike deals that benefit U.S. firms facing increasing competition there. Absent a concerted White House push, these firms will increasingly rely on their international subsidiaries and the benefits offered by free trade agreements that already exist. Africa too, long ignored, has incredible potential. Companies will not manufacture in the U.S. what they can produce overseas in low to tariff free trade zones.
These trade issues will be the same for whomever is elected to work for America as president this November. It’s time for a new era in trade not defined by the lax enforcement of previous administrations or the extreme unilateralism of the current one.
Brian P. Klein is an editor for Dow Jones and a former U.S. diplomat.