Published 20 September 2022
Conventional US trade policy has tracked closely with principles of free trade. The only thing is: Katherine Tai is not buying it. Since her appointment as US Trade Representative, Tai has argued that this outlook has failed too often and produced unwanted side effects and risks.
The philosophical underpinnings of the US approach to trade have remained largely unchanged for more than seven decades: Trade is good, free trade is better. Governments simply need to minimize or remove barriers to trade and market forces will deliver a host of economic and societal benefits.
In the economic realm, efficiencies will be maximized, resulting in more and better products at lower cost. Real wealth will rise. Workers will have expanded opportunities because of the ability to serve global markets rather than just local markets. In the social realm, individuals will benefit from higher standards of living through access to things like life-changing technologies and life-saving pharmaceuticals.
In essence, the traditional US philosophy has tracked closely with an over-simplified (and sometimes misunderstood) version of free trade laid out in the writings of neo-classical economists such as Adam Smith and David Ricardo.
Katherine Tai is not buying it. During numerous interviews, Congressional testimonies, and speeches, Ambassador Tai has consistently sketched out a much different understanding of how trade actually works. It’s time to start listening.
Living in the real world
Since her appointment as US Trade Representative, Tai has argued that our multi-decade pursuit of the theoretical ideal of free trade has left far too many behind, has produced far too many unwanted side effects, and has raised far too many risks. This must change. According to Tai, “We have to rethink what trade policy can be in the 21st century and that it must benefit more people.” Tai has stressed that trade policy “can’t exist in a vacuum,” but rather requires a more holistic approach to be a “force for good.” Trade policy “must fit the times”; it can’t be focused just on “market access.”
Compared to her predecessors, Tai talks less about economic efficiencies and reducing trade barriers and more about building a “resilient, sustainable, and worker-friendly global economy.” Discussions in the World Trade Organization, Asia Pacific Economic Cooperation grouping, or Group of 20 developing economies need to be “about bringing a new and relevant energy to the way that we are doing trade, to thinking about trade and trade relationships, and these organizations, as not just instruments for liberalizing trade.”
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For Katherine Tai, the real world of trade does not take place in the antiseptic vacuum implied by the textbooks or aspired to by previous policy makers. Achieving the desired results will therefore require a very different approach to our trade relationships and trade agreements. As Tai has said on several occasions and most recently in Iowa, “What has become clear to us is we need to turn the page on the old playbook.”
Observable reality
Tai’s desire for a new approach reflects, at least to some degree, observable reality. Distortions and externalities abound. While benefits can still be derived, the free trade ideal has been corrupted on many levels. Trade has become inextricably linked with geopolitics. We were perhaps naïve to ever think otherwise. In an era of rising geostrategic tensions, trade relationships and economic interdependence are being weaponized. Trade is not simply being conducted based on Ricardian economic efficiencies. Geostrategic calculations now must be plugged into the equation, often with painful consequences.
As trade has expanded exponentially in recent decades thanks to trade agreements, the production and transport of those products have helped lead us to environmental consequences many scientists believe are existential. Yet our global trade body, the World Trade Organization (WTO), has largely steered clear of environmental issues and free trade agreement (FTA) provisions are mostly platitudinous. The pressure to pursue economic efficiencies at all costs under free trade regimes also has led to labor abuses or otherwise disadvantaged the working class. Yet again, the WTO has been mostly silent, and FTAs have not provided meaningful remediation.
Worse yet, the headlong pursuit of free trade has led to some countries seeking to benefit by actively engaging in a race to the bottom on labor and environmental standards, further exacerbating problems that the trade-opening agreements have been powerless to remedy. In Tai’s judgement, this has got to stop.
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The immensely attractive ideal of having a comprehensive and thoroughly up to date trade rule book that is promptly and effectively enforced has proven to be a pipe dream. WTO rules are hopelessly out of date and the dispute settlement mechanism has been largely sidelined. Predatory trade practices thrive and inflict severe damage on trade partners.
In sum, we have ended up with a world that bears little resemblance to the idealized world we once envisioned. In surveying this landscape, Tai has concluded that simply tearing down trade barriers and trusting that the desired economic and societal benefits will necessarily and organically materialize has been a losing proposition.
Just a blip?
The Biden administration is halfway through its first term with no guarantee of a second. What are the prospects that a future administration will revert to the traditional US philosophy on trade? It is difficult to foresee a scenario under which that happens. Although liberals and conservatives in the US have generally approached trade issues from different directions, they have ironically ended up standing on more or less the same philosophical ground. Imagining two more antithetical political figures than Joe Biden and Donald Trump is difficult, yet one would be hard-pressed to identify major differences in their respective trade policies. The pro-globalization, pro-free trade administrations of George H.W. Bush, Bill Clinton, George W. Bush, and Barack Obama might ultimately come to be seen as historical anomalies.
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Take Katherine Tai at her word
Irrespective of whether one strenuously agrees with or vehemently opposes the views held by Ambassador Tai, no one should doubt that she has the courage of her convictions or that she intends to effectuate this new philosophy on trade. Her boss, President Biden, has been equally consistent. Since the campaign trail, he has expounded a US worker-centric approach to trade and stated and restated that there will be no return to “business as usual” when it comes to trade policy. He has done nothing in office to contradict these pronouncements.
All interested parties, both within the US and beyond, need to listen to Katherine Tai. The Biden team means what they say on trade. Three practical implications are especially noteworthy:
- US trade policy will not be conducted on a stand-alone basis to the same extent it has in the past. Instead, trade policy will be woven together more tightly with foreign policy, industrial policy, technology policy, environmental policy, and domestic social policy, including issues like gender equality and inclusivity. This is the “holistic” approach Tai is talking about. Aside from any possible merits, it will complicate trade relations immensely and potentially even dissuade some countries from engaging more deeply with the US on trade.
- Significant modifications would have to be made to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to square that agreement with the vision and priorities laid down by Tai. As it stands, US reentry into that agreement is an absolute non-starter. Whether the existing 11 members of the CPTPP would be willing to entertain the modifications that would presumably be required by the US, remains an open question. Tougher labor and environmental provisions would almost certainly be on the US agenda, but that would likely constitute only the starting point for renegotiations. At least for the foreseeable future, a US return to the CPTPP should be considered a longshot.
- There is nothing in Tai’s vision for trade that should generate optimism about a dramatic improvement in trade relations with China. All indications point to an approximate maintenance of the Trump era status quo. A heightened focus on labor and human rights could cause an even further deterioration.
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© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).
From 2014 to January 2024, Mr. Olson was a Senior Research Fellow of the Hinrich Foundation. Mr. Olson began his career in Washington DC as an international trade negotiator and served on the US negotiating team for the NAFTA negotiations.
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