A Winning Trade Policy for the United States

The Renewing America initiative is releasing today a new paper entitled, “A Winning Trade Policy for the United States,” co-authored by myself and CFR adjunct senior fellow Robert Litan. The paper is the first of two that will look at new directions for U.S. trade policy at a time when American support for the global trading system is under challenge as rarely seen before.

The title is a deliberate rejoinder to Republican candidate Donald Trump, whose economic policy platform “Winning the Global Economic Competition” is a manifesto for a return to discredited forms of protectionism. As we argue in the paper: “Protectionism is a backward-looking strategy that will only drive companies and investment away from the United States and encourage other countries to retaliate in kind.”

But it is not enough to caution against the danger of Trump-style protectionism; his campaign has tapped into the real harm done to too many Americans by what we call “a decades long failure of policy to facilitate the adjustment of those U.S. workers who have fared poorly in a more competitive global economy and to better tackle trading practices by some nations that have harmed some U.S. workers and firms.” Unless those concerns are taken seriously, it will be impossible to rebuild public support for a more outward-looking trade agenda.

What should be done? The honest answer is that the things we recommend should have been done a long time ago. We call for more vigorous enforcement of trading rules, including a more active role for the federal government rather than waiting passively for complaints from U.S. companies. China is a particular challenge both because of the size of its economy and its widespread violations of both the spirit and the letter of the World Trade Organization rules it voluntarily agreed to 15 years ago. Too often the United States and other countries find themselves with no choices other than feckless cajoling of Chinese trade negotiators, or formal WTO disputes that can take two years or longer. More robust enforcement options are needed.

We recommend that Congress put in place a program of “livelihood insurance” to help established workers who have lost their jobs or suffered a serious loss in income due to changes brought about by trade, by technology, or simply by changing consumer preferences. Trade is only a part of the story, and far from the largest part. Technology has already disrupted far more jobs than trade and will continue to do so, and consumers are demanding fewer goods and more services. Much as farmers were cushioned in the transition from an agricultural economy to a manufacturing economy, far more should have been done – and should be done in the future – to cushion workers in the transition to a more technology-intensive, service-oriented economy.

In their 1986 paper titled “Saving Free Trade: A Pragmatic Approach”, Bob Litan and Robert Lawrence proposed a scheme of “wage insurance” which addressed the lack of support for displaced workers. They recognized at the time much of what has transpired – that public support for freer trade would be imperiled if there was no help for the losers from economic change.

And from a political standpoint, it doesn’t actually matter how much of the disruption was caused by trade, how much by technology, and how much by other factors. As the U.S. Trade Representative Michael Froman put it recently:

“The fact is you don’t get a vote on automation, on whether there’s going to be a new generation of computers or robots that might replace your job. You don’t really get a vote on globalization. It’s a factor of the containerization of shipping, the spread of broadband, the integration of economies like China and Eastern Europe that used to be closed and are now part of the global economy. You do get a vote on trade agreements. So trade agreements become the vessel into which people pour their very legitimate concerns about job security, wage stagnation and income inequality.”

Finally, we argue in the paper that a winning trade policy must be focused on helping those sectors of the U.S. economy that really are winning in the global economy – telecommunications, engineering design, financial services, pharmaceuticals, aerospace, semiconductors, social media, internet search, and advanced manufacturing. These are sectors where innovation is the key to success, and where the United States is a global leader. A winning policy will be one that encourages these and other growing sectors to continue to expand, and just as importantly to invest and expand in the United States, providing more good jobs for more Americans.

This paper is being released in advance of the September 28 Council on Foreign Relations “Symposium on the Future of U.S. Trade Policy” in Washington, in which trade leaders like former U.S. Trade Representative Robert Zoellick, House Ways and Means ranking member Sander Levin (D-MI) and General Electric chief executive Jeff Immelt will talk about what has gone wrong and strategies for the future. The event will be live-streamed beginning at 9:30 a.m. at CFR Events.

And in our next paper, Bob and I will talk more about a trade negotiating strategy to pursue these ends. But the immediate challenge is to assure Americans that they will have more help in navigating a rapidly changing economy. The failure to do so has put the United States in a dangerous position – one in which its global economic leadership could be undermined by its own voters. That would be the worst outcome, for Americans and for the world.