U.S. trade policy can still solve problems but requires new approaches that engage with current realities rather than wishful thinking, says former chief of staff to the U.S. trade representative.
July 31, 2024 2:10 pm (EST)
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The sterile shouting matches that define contemporary trade policy are not, at their core, about trade. Whether the debates are about the size and scope of industrial policies to support domestic manufacturing, regulation of the digital economy, how to respond to income inequality, or even how deeply the United States ought to be intertwined with other societies, trade policy has become the battlefield for differences that it can’t resolve—never mind the deep social fissures behind them. Trade initiatives that do not take those fissures into account are unlikely to endure, however well intended.
More From Our ExpertsThis predicament has led many observers to conclude that there’s nothing worth doing in trade policy—or that the only thing worth doing is reverting to an earlier focus on efficiency and market access, and the generation of initiatives that went with it.
That’s shortsighted. Trade policy offers a set of tools countries can use for economic and national security ends. Amid the climate crisis, resiliency concerns, and relentless pressure on governments to deliver tangible benefits to all their citizens, Washington and the world have never been more in need of creative tools for policymakers and legislators that build coalitions to manage deep disagreements.
Where policy entrepreneurs have had success in bridging divisions—between parties or otherwise—they have identified qualities that, rather than feeling like middle-of-the-road compromises, included tangible outcomes that different factions could view as victories. Think about state-level successes at opening up power grids to renewable sources: some supporters heralded the free-market competition, while others cheered the greening of the energy market. Criminal justice reforms at the federal and state level, such as the 2018 First Step Act, have similarly united religious conservatives, libertarians, and racial justice activists.
Trade policy is ripe for this approach, once it is understood that the goal should no longer be liberalization for its own sake. Instead, trade offers tools to deal with major global and domestic challenges. Policymakers can reach for trade tools, instead of avoiding them, when they can be used to bring disparate constituencies together, rather than pushing them farther apart. When trade policy is a matter of practical problem-solving, zero-sum trade-offs can turn into win-win trade-ups. There are three places to start.
More From Our ExpertsTrade initiatives recast with the aim of minimizing the carbon intensity of traded goods and services (or securing access to the critical minerals needed for green manufacturing) can meet two distinct goals: if successful, they reduce greenhouse gas emissions and create a greener economy, but they can also advantage energy-efficient U.S. products in domestic and export markets.
Even tentative explorations of such policies have attracted coalitions that cross party lines and bring climate, business, and labor stakeholders into the fold. One such example is the Joe Biden administration’s unfinished Global Arrangement for Sustainable Steel and Aluminum. Another is the congressional effort to enact a fee based on the carbon intensity of imports, a so-called carbon border measure to match measures under development by the European Union and others. The future of trade policy could include designing a free trade agreement or regional preference program around energy efficiency, pursuing innovative sectoral deals or clubs such as the critical mineral agreements, or rebooting and possible expanding the unfinished Global Arrangement.
The United States-Mexico-Canada Agreement (USMCA), which replaced the North American Free Trade Agreement (NAFTA), includes an unprecedented arrangement allowing private entities to bring allegations of worker-rights violations for joint assessment by the United States and Mexico. With more than twenty-seven thousand workers benefiting from its outcomes to date, the USMCA’s Rapid Response Mechanism (RRM) offers a template for how business and labor, and developed and emerging economies, can advance shared interests in transparent and rising labor standards.
The RRM works because the U.S. and Mexican governments, businesses, and organized labor all saw the benefit of progress toward better worker representation and observance of rights. And the results are real: Mexico’s labor reforms have progressed; Mexican workers have benefited in specific cases, and more broadly, Mexican manufacturing sector wages have risen; and both U.S. and Mexican manufacturing have grown. The RRM holds important lessons for updating existing agreements or opening wider vistas for negotiating new ones.
While the work of comprehensive World Trade Organization (WTO) reform will take years, foregrounding that conversation is an opportunity to walk the talk on attending to the priorities of emerging economies while highlighting how U.S. aims and methods differ from its geopolitical rivals’. An important but painfully insider debate about how appeals to WTO rulings are handled (spurred when the Donald Trump administration declined to appoint appellate judges, effectively shutting the process down) has obscured two more fundamental areas for reform where Washington can make common cause with others.
First, the resurgent interest in industrial policy and resilience means that many members desire more flexibility—the code word is “policy space”—than WTO rules foresee. Beijing, Brussels, and Washington in one way or another have simply taken more flexibility to support industrial policy. Emerging economies also want more latitude.
At the same time, many governments say they prioritize the green transition equally or above the pure efficiency and trade maximizing goals that informed the WTO’s creation. Making energy efficiency, rather than cost efficiency, a foundational aim of trade policy would entail a major shift in how we think about trade. Proposals for doing so, from approaches that fit within existing WTO rules to regimes that would rewrite or sit alongside the current structure, ought to offer fertile ground for policy creativity.
In the face of fragmentation and declining faith in international institutions, governments have been reluctant to wade into fundamental WTO reform, even as the United States and others work on an extensive menu of smaller-bore improvements. A consensus-bound body of 164 members will not reform itself at a pace that produces rewards for any single president, prime minister, or even highly motivated director general.
But this is a missed opportunity on multiple fronts: to develop visions of how international institutions adapt in response to fragmentation; to engage countries of the Global South as equal partners in remaking institutions to meet their concerns; and to develop models for how conflicts in global trade—over climate goals, resilience, national security, or other concerns—could be negotiated and managed outside the WTO .
In those policy areas, shifting national priorities have created new opportunities to build trade policy creatively. But that requires designing policies that engage with current realities rather than wishful thinking. Taken together, energy efficiency, workplace rights, and a renewed WTO point the way toward a future international economic order that offers genuine returns and participation to all its stakeholders—North and South, public and private, business, labor, and communities. That is, after all, what defenders of a rules-based international order say they want.
Heather Hurlburt is an associate fellow at Chatham House and former chief of staff to the U.S. trade representative.
