Restoring Support for International Trade

This is a guest post by John Veroneau, partner at Covington & Burling LLP and former deputy U.S. trade representative. He was also a member of the Council on Foreign Relations Independent Task Force on U.S. Trade and Investment Policy.

The politics of international trade have always been complicated.  The bashing of trade agreements in last week’s Presidential debate may not fully reflect the views of most Americans, but clearly the political environment for trade is deteriorating.  While open markets have been and will continue to be hugely beneficial to the United States, maintaining political support for such markets will require three steps: reframe the case for trade through the eyes of the consumer, refocus trade enforcement through the eyes of companies and workers, and renew the social safety net through the eyes of responsible dislocated workers.

Refocus the trade debate: The case for trade must be reframed with a more consistent focus on the consumer.  The founding fathers had consumers in mind when drafting the Commerce Clause of the U.S. Constitution.  They understood that state and local lawmakers would be under tremendous pressure to favor local companies at the expense of out-of-state competitors.  While such favoritism would benefit local companies, it would hurt local consumers who would be denied a more competitive marketplace.  To protect consumers, the Commerce Clause was drafted to bar states from discriminating against goods and services from other states.  For similar reasons, consumers benefit when U.S. laws do not discriminate against goods and services from other countries.

Conversely, developing inbound trade rules through the eyes of producers would lead inevitably to a “crony capitalism” where politically favored companies would be shielded from competition.  Such policies would hurt consumers and over time weaken our economy by making it less productive.

Enforce trade rules: While consumers should be the focal point in drafting inbound trade rules, U.S. companies and workers should be the focal point in enforcing trade agreements. The purpose of these agreements is to create a level playing field for U.S. exports. Unfortunately, we lack sufficient tools to address the discrimination facing exports of U.S. goods and services.

Reports by the Peterson Institute for International Economics as well as the Information Technology & Innovation Foundation (ITIF) catalogue the many actions recently taken by China, India, Brazil, Canada and others to protect national champions at the expense of foreign companies.  Under the guise of industrial policy, local-content requirements, forced technology transfers and other measures, our trading partners routinely put the thumb on the scale for their domestic companies.

When trading partners discriminate against U.S. companies, our typical response has been to press our trading partner to end the discrimination and, if that fails, to consider bringing a formal trade dispute.  Despite best efforts, diplomatic jaw-boning often fails.  And while bringing trade cases should yield good results, in practice countries often work around adverse rulings and continue to find ways to discriminate.  We need more tools and resources to counter discrimination facing U.S. exporters.  The U.S. government devotes considerably more resources to combatting one form of anticompetitive behavior (bribery) than it does for another anti-competitive behavior (theft of U.S. intellectual property) even though the latter is far more harmful to U.S. economic interests.  We need to re-prioritize and be willing to respond in more effective ways.

In particular, we must be willing to enforce trade agreements through self-help measures as we did in the 1980s and early 1990s.  If U.S. exports are unfairly blocked, we should be ready to respond swiftly in order to gain leverage to resolve the matter.  Knowing that the harshest response they can expect is to be sued in Geneva under the World Trade Organization (WTO) procedures, some countries flout their trade obligations.  This disregard is exacerbated by the fact that even countries found to be violating trade agreements cannot be compelled to change their laws.  We should not become WTO vigilantes, but neither should we limit our options to either jaw-boning or Geneva.  In the face of repeated trade violations, we should consider self-help measures and force trading partners to sue us if they believe we are acting inconsistent with trade rules.

Renew the social contract:  Lastly, the social contract needs to be refashioned to assure that the benefits of global markets are shared broadly.  The global economy offers unprecedented opportunities for many but severe challenges for others.  While most job losses are due to technology and market changes rather than globalization, maintaining political support for open markets will require updating the social contract to help workers who are responsible but nonetheless face chronic unemployment.  Through life-long education and job-training opportunities, tax and regulatory reform, and other measures, we need to do more to help responsible workers to return to the workforce as quickly as possible.

A dynamic economy relies on open markets and serves as the basis for U.S. competitiveness.  A churning economy, however, creates its own political challenges.  Addressing these difficulties and maintaining political support for open markets will require trade rules to be developed through the eyes of consumers and enforced through the eyes of producers.  It will also require renewing the social contract through the eyes of responsible workers who play by the rules but face challenging job prospects.