Over the past four years, the Trump administration’s fear-based U.S. nationalism has moved the conversation on trade to degree of protectionism levels rather than any kind of global engagement strategy. “Where should we erect barriers?” was the operating philosophy, a short-term, ill-informed approach shown decades ago to be ineffective.
A “Made in the USA” requirement for goods and services when the world has spent the past 75 years developing an integrated, efficient global system is a fantasy. It is based not on need, value, nor even fairness, but on fear and distrust, stoked by the same forces already deeply dividing the U.S.
Some attention needs to be paid to that fear, and President-elect Joe Biden has proposed a $400 billion “Buy America” initiative in connection with sorely-needed infrastructure investment. But the global system is moving ahead, and “America First” puts us at risk.
“ Unilateral trade barriers are an explicit rejection of the cooperative system — a clear invitation to others to give up on U.S. partnership, let alone leadership. ”
Embedded in that conversation is an implicit assumption of American leadership in any global economy, no matter what level of protectionism we adopt. This is delusional. American influence is already in decline, particularly given our abandonment of the global institutions the U.S. was instrumental in establishing: WTO, TPP, UNHCR, UNESCO, NATO (in part) and, of course, the Paris Climate Accord. Unilateral trade barriers are an explicit rejection of the cooperative system — a clear invitation to others to give up on U.S. partnership, let alone leadership.
Sadly, the recent pattern of global trade shows not so much a fragmentation of the global system as a U.S. withdrawal from it, to our great cost. The world is no longer comprised of a U.S.-led bloc and a China- or Russia-led bloc(s) but, rather, a global bloc and some non-global fragments (like North Korea). These days few countries want to exit the global system, but the U.S. has lately been hell-bent on it.
So what should the Biden administration do to change the situation in a sustainable way? Not an easy question, both because simply reversing disastrous decisions and recommitting will not immediately restore trust, and because the destructive forces that led to those shortsighted actions in the first place also need addressing, lest they cause a unrecoverable relapse.
Repair and rebuild
First, repair the damage. Reinstating our global commitments will be an essential start. Embedding them into our system so they can’t just be dropped by the next irresponsible leader will be more difficult. It means legislation to circumscribe the authority of the executive — without which no U.S. policy can now be deemed to have any permanence. It also means recommitting to an interdependence among nations, being explicit about the benefits each derives from working together and the costs each incurs for violating agreements.
“ The IRS carefully regulates expatriate individuals. It’s time to do the same for corporations. ”
Second, work with international business leaders and countries to promote responsible fiscal practices. Global supply chains are important, even inevitable. Global tax dodges are not. The IRS carefully regulates expatriate individuals. It’s time to do the same for corporations. Preferential tax treatment is often now more important than labor or material costs in determining where products are made and financial flows transacted. That needs to end — and a multilateral agreement could accomplish this.
Third, connect with experts and leaders around the world to restart the global trade adjudication mechanism. Biden’s choice for U.S. Trade Representative, Katherine Tai, currently the chief counsel to the House Ways and Means Committee, has the knowledge and experience to do this — and to recommit to the WTO, which has been actively disabled by the Trump administration. Exiting the WTO, as Trump intends, would leave the rest of the world free to impose tariffs and sanctions on U.S. products and services, dealing a potentially devastating blow to U.S. exports — which totaled $2.3 trillion last year.
Consider also the U.S. trade war on China (not with, but on), which has cost American consumers and businesses some $46 billion in its first 21 months alone. Tai, who is experienced in crafting trade agreements (including with China) to protect workers, and in enforcing them, must know that this, rather than a trade war, is the way forward. There is no scenario in which a U.S. exit from the WTO will be good for the U.S. economy long-term. Tai’s appointment suggests the Biden administration will understand that, and will engage multilaterally and across the board with experts, and major trading partners, to fix the system, not abandon it.
“ Tariffs harm Americans, not our supposed enemies. ”
Distrusting your neighbors — across the street or across a continent — doesn’t mean you can ignore them. You devise a rules-based system to live peacefully together. The global system following the devastation of World War II was designed to do this and the U.S. drove it. If the U.S. withdraws, it will be a generation until the world trusts America again. So the Biden administration must reengage, on the back of a bipartisan consensus — even if it is not a strong one at first. Early signals are that Biden wants to invest in U.S. infrastructure before focusing on the global system, but that he plans to get there in due course.
Still, I would urge the new administration, while making the domestic conversation about our economic survival, to explain why global trade is essential. Explain how tariffs harm Americans, not our supposed enemies. Finally, convene an inclusive conversation, based on facts and expertise, to determine the next steps. Only then will the U.S. stand a chance of fully participating — let alone leading — in the world again.
Maury Peiperl is dean of the George Mason School of Business at George Mason University.