Economics/Class Relations

What’s driving America’s new approach to international trade?

What’s driving America’s new approach to international trade? Katheryn Russ on jobs, national security, and climate change.
Markus Spiske
Against the grain of decades of U.S. government policy, President Joe Biden appears to be on a historically unusual course with domestic and international trade. Since the Reagan era of the 1980s, the leaders of both of America’s major political parties had embraced a kind of global liberalization based on deregulation, privatization, and a rejection of any idea that governments should actively shape markets at all. That was until Biden’s predecessor Donald Trump, referring to himself as “Tariff Man,” started dropping import duties on a whole array of product categories. Now, Biden hasn’t just left these protections mostly in place; he’s issuing more than US$200 billion in subsidies, grants, and loans to boost domestic manufacturing—including of semiconductors, electric vehicles, and batteries.

Internationally, his administration is offering billions more to lure foreign investment to the U.S., as well as to direct supply chains away from China and toward U.S. allies. It’s also enacting a ban on exports of cutting-edge semiconductors to the People’s Republic. And it’s done all of this while abandoning most of America’s standing efforts to push for trade liberalization worldwide. “This vision is a fundamental break from the economic theory that’s failed America’s middle class for decades now,” Biden said in a recent speech in Chicago. What is all this?

Katheryn Russ is the chair of the economics department at the University of California, Davis, and was the senior economist for international trade and finance for the White House Council of Economic Advisors in 2015-16. Russ sees the Biden administration both as building on Trump’s trade policies and as developing new ones—designed to combine its economic, climate, and geopolitical goals.

One key shift from Trump to Biden, Russ says, is a new way of using trade policy to advance national security. For example, security imperatives are behind the White House’s recent efforts to reduce America’s reliance on supply chains originating in China—as well as to deny Beijing and its military access to the world’s most advanced semiconductor chips. The new U.S. trade model, Russ says, is also a response to growing income inequality and the damage the Biden administration sees the free-trade regime as having done to local communities, as entire American industries were wiped out by the globalization of production. Still, Russ says, it’s an open question whether workers and the middle class or the wealthy will ultimately benefit more from these new policies—and so, what political gains they might end up meaning for Biden and his party.

Michael Bluhm: Just how much of a change do you see Joe Biden’s approach to global trade representing?

Katheryn Russ: It’s important to understand the extent to which a lot of the Biden administration’s approach is continuous with a shift that started seven years ago during the Trump administration. Since then, there’s been a historically unusual willingness, in the White House and throughout the U.S. government, to use subsidies—even when they may be in violation of World Trade Organization rules. The U.S. is now using tariffs much more aggressively than it used to, including as a tool for global strategy.

In fact, more and more, you can see political leaders in the U.S. being inclined to think about trade agreements almost exclusively in terms of global strategy—particularly when it comes to digital goods and services, where the U.S. tends to have a big comparative advantage. Today, Washington isn’t really pursuing any broad, rules-based trade liberalization—which was the prevailing U.S. approach until the Trump presidency.

Bluhm: If there’s been a fundamental continuity on trade and globalization through the Trump and Biden years, to what extent, if any, has the Biden administration broken from the Trump administration here?

Russ: You can see a lot of specifics about the current administration’s thinking in a supply-chain report issued by a White House task force after Biden’s first 100 days in office—and I think you can see three new organizing ideas in it.

One is a focus on creating jobs in a range of key sectors. That may involve protecting them with tariffs or other measures the Trump administration initially put in place, even if with some modifications. But under the Biden administration, it now also involves enacting industrial policy—using the federal budget to support these jobs.

The second new organizing idea is a broader, more nebulous notion about national security. During the Trump administration, the U.S. government put out another report, headed up by the Department of Defense, looking at national-security risks in the context of global supply chains. This was the first attempt at articulating these ideas, mostly at a general level—but you can see the beginnings of an argument for putting tariffs on virtually anything that connects with national-security interests. There are clear parallels between that report and the Biden administration’s supply-chain report. Since Trump, national security and geopolitical rivalries have come heavily to shape the U.S. government’s approach to trade in a way we hadn’t seen before. The Biden administration has started to turn these ideas into policy and put them into practice.

The third new idea—and the clearest departure from the Trump years—has to do with the environment. Biden’s people are trying to promote industries that will reduce the country’s carbon footprint. They seem very serious about addressing this—and global warming generally.

More from Katheryn Russ at The Signal:

The measures the Biden administration is advancing may or may not actually increase, or even protect, American jobs. But their purpose is to address public concerns about the negative impact of trade and globalization on American workers. There’s still a lot of controversy among economists over whether there’s been any net U.S. employment loss on account of increased trade—especially increased trade with China—but there’s also a lot of research indicating very serious local disruptions in U.S. labor markets. Some places experienced major adverse impacts on employment from import surges—again, particularly import surges coming out of China. Economists call it the China shock. I don’t think U.S. public policy really addressed these disruptions as they were happening. Not only did American workers lose their jobs, but there were increases in student-teacher ratios in U.S. public schools, reductions in policing and other public services, and negative effects on U.S. home values. Wherever these things happened, the China shock was massive.”

I’m not sure it’s ultimately so radical, what Biden’s doing. Circumstances have been changing. China has become more of a geopolitical rival; it’s become more assertive, militarily and politically, on the world stage. It’s not unreasonable to address that in the field of trade, especially since this assertiveness from China has been accompanied by massive industrial policy to support certain companies and sectors. In a country as big as China, industrial policy can potentially shift the spatial distribution of entire global industries. At times, what the Biden administration is doing sounds extreme, and it’s not always supported by clear economic logic. But I don’t it’s incoherent; they have these three defined pillars, and they’re trying to think about them—and public opinion—in practical terms. And in its current state, economic theory doesn’t always provide practical answers.”

Negative public feeling about trade policy has been collateral political damage from neglecting the problem of inequality for decades. Some communities are increasingly hollowed out; some workers are increasingly left behind; and there’s solid research showing that these developments have fueled a lot of anti-trade sentiment. It’s unclear whether people will judge new U.S. trade policies by the number of jobs that come out of them—or by how they address inequality. The Biden administration talks about their trade policy as worker-centered, but they’ve been focused on industries—industrial policy and protection for industries. We don’t know whether the benefits are really going to transfer to workers. And if these policies end up disproportionately benefiting people with higher incomes—or groups with active, highly funded lobbyists—then they’re not likely going to create much political benefit for Biden.”

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