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The Biden administration’s trade team is inheriting a number of thorny, near-term challenges with broad implications for American workers, farmers, and businesses. From the White House to the Office of the U.S. Trade Representative and across the cabinet, it will be important for officials to remain focused on the big picture—including imperatives such as these.
1) Remember Trade is an Engine of Growth
More than 95% of the world’s consumers live outside the U.S., and securing better access to those markets to allow the export of more American-made goods and services is critical to U.S. economic growth.
Trade can boost job creation as well. Economists generally agree trade’s impact on the labor market is qualitative: That is, it favors the expansion of more productive sectors offering higher-paying jobs. However, boosting exports can add to job creation in periods when output is below potential—which it certainly is today.
And yet, much of today’s trade debate isn’t about harnessing trade to pull the economy out of recession: It’s about imposing new conditions on trade as leverage to achieve other objectives. Those objectives may be admirable, and this isn’t a new impulse, but it has its limits. For example:
- The U.S. pressed Mexico to accept new labor rules as a condition of its continued access to the U.S. market under USMCA. However, the fact that Mexico agreed reflects its unique dependence on the U.S. economy, and it may be impossible to reproduce elsewhere.
- Congressional Democrats are seeking to tighten conditions in the Generalized System of Preferences (GSP), which afforded 120 developing countries duty-free access to the U.S. market for select goods before it lapsed last year. GSP’s objective is to foster trade-related growth in developing countries, but if they are obliged to jump through too many hoops to access its relatively modest benefits, will they just take a pass?
With many champions of conditionality already joining the fray, the question is: Who on the Biden trade team will be an advocate for trade-driven growth? Can a workable balance between these two imperatives be struck?
2) Return Trade Policymaking to “Regular Order”
The Biden administration should prioritize efforts to shore up U.S. trade policy’s democratic foundations. Recent years have seen some erosion to these institutions and processes, and like cracks in the foundation of a house, work is needed now to avoid worse damage further down the road.
Stakeholder consultation is a priority that the new administration appears to be taking seriously—as, indeed, the law requires. The Trade Act of 1974 mandates that the president “shall seek … and take into account” advice from the private sector on trade negotiating objectives, the operation of trade agreements, and other international economic policy issues. The same law created the trade advisory committee system—with sectoral and functional committees focusing on specific industries, agriculture, labor, and the environment—and it plays an indispensable role in keeping U.S. trade policy tethered to the expertise of individuals and enterprises directly engaged in trade.
However, the trade advisory committee system has atrophied in recent years, and key initiatives have proceeded without heeding the guidance of cleared advisors or, at times, even keeping them in the loop. Reinvigorating this system with new appointments and a more serious commitment to this process must be a priority.
In addition, the Biden administration must revive the interagency process for trade policymaking. The Departments of State, Treasury, Agriculture, Commerce, and others each bring unique perspective to international economic policy, and each has statutory prerogatives that have gotten short shrift in recent years. Restoring this process will help ensure trade policy advances the national interest broadly.
Similarly, the concerns and input of the congressional committees of jurisdiction on trade have at times been ignored, or key initiatives have advanced while leaving congressional trade leaders insufficiently briefed and engaged. Executive engagement on trade cannot be limited to ad hoc engagement with select groups of members of Congress from a single party.
3) Restore Science—In this Case, Economics—to its Rightful Place
“Economics isn’t just something you find in a textbook,” wrote Treasury Secretary Janet Yellen in her first post-confirmation tweet. The notion that the administration’s top economic policymaker would invoke the “queen of the social sciences” at such a moment is not surprising given her background, and it aligns with President Biden’s pledge “to make evidence-based decisions guided by the best available science and data” (issued in a January 27 presidential memorandum). The same should hold for trade policy.
By contrast, the Trump administration’s trade policy was largely determined by attorneys from the trade remedy bar, many of whom had worked for years representing the steel industry, and they did not prioritize the advice of economists. Notably, the administration’s oft-cited goal of reducing the U.S. merchandise trade deficit was frequently criticized by economists. Similarly, economists polled by the University of Chicago uniformly said tariffs, such as those imposed on steel imports, would not improve Americans’ welfare.
Those steel tariffs exemplify how a failure to heed objective economic analysis can prove costly. The Trump administration argued the tariffs helped the sector raise its capacity utilization, but employment was essentially flat. Meanwhile, U.S. workers employed in manufacturing industries that depend on steel as an input outnumber those in steel production by approximately 45-to-1, and those much larger industries were harmed by higher costs. Some U.S. auto manufacturers reported new tariff costs in the range of $1 billion. Workers certainly felt the sting as well: It would be difficult to argue such costs have no impact on hiring or compensation.
The Biden administration has appointed a large number of distinguished economists to positions in the White House and elsewhere. Their advice should help guide President Biden’s trade policy. In addition, the new U.S. Trade Representative should consider elevating—if only informally—its office handling trade policy and economics.
In sum, keeping focused on the big picture will be critical to the Biden administration’s trade policy. Remembering the importance of trade as a tool to enhance growth, listening to a wide range of stakeholders and the Congress, and paying heed to expert economic advice will help steer the enterprise in a better direction.