i3 | December 01, 2020

A New U.S. Trade Policy for 2021

Peter Allgeier

This is the final article in our three-part series. Ambassador Peter F. Allgeier served as Deputy U.S. Trade Representative from 2001-2009 and U.S. Ambassador to the World Trade Organization from 2005-2009.

Although not coming from a trade policy expert, or even a trade commentator, some commonly quoted advice could be relevant for fashioning a new U.S. trade policy: “You can’t go back and change the beginning, but you can start where you are and change the ending.”

Briefly, what is our starting point?

First, the trade deficit. It’s not the most important metric of successful trade policy but it is the primary focus of President Trump. Compare the pre-Trump 2016 deficit with 2019, before the COVID disruption. China was Trump’s main target, and our deficit with China fell from $346.8 billion to $345.2 billion — a decline of 0.46%. But our overall merchandise trade deficit grew from $735.2 billion to $854.4 billion — an increase of 16%. These numbers demonstrate the fallacy of Trump’s assertion that trade deficits are a measure of economic failure. Actually, trade deficits increase when our economy is growing faster and unemployment is falling. The Trump tariffs on China have increased the cost of Chinese goods for American consumers and businesses, but have not “corrected” the deficit.

We’re also starting from a position of being sidelined from international trade negotiations and influence over the trading system’s rules. We’ve alienated ourselves from our closest trading partners — Canada, the European Union (EU), Japan and Mexico — by applying illegal, unilateral tariffs on them. And we’ve incapacitated the World Trade Organization (WTO) Dispute Settlement Understanding (DSU) mechanism.

What will it take to “change the ending” after four years of idiosyncratic trade policy?

First, we should return to the negotiating tables that the Trump administration abandoned. We need to rejoin the Trans-Pacific Partnership (now the CPTPP) to obtain improved market access to Japan, Malaysia, Vietnam and other Pacific countries. Membership in the CPTPP is important for us to exercise influence on the trading rules in Asia-Pacific to counter the influence of China. We also should resume the over 50-member strong Trade in Services Agreement (TISA) negotiations that we previously led. The U.S. is the most competitive supplier of international services in the world. We’ve run services trade surpluses every year since 1971. It’s in our interest to update the rules for services to reflect the explosion of digitally-provided international services.

Second, we should refashion our relationship with Europe to reflect the new situation post-Brexit. That means negotiating a free trade agreement with the UK and taking the next step for closer trade ties and regulatory cooperation with the European Union.

Third, we must resume our position as a constructive player in the WTO. Most important is genuinely and constructively participating in the reform of the DSU. We’ve lost credibility to lead that effort, but we can work with open-minded members and the new Director-General to rejuvenate the dispute settlement function. We must work with our allies on new rules governing state-run economies, digital services and fishing subsidies.

Of course, a necessary step in rekindling our trade partnerships is to dismantle the tariffs that the Trump administration has imposed, citing national security claims. And eventually, we need to ratchet back tariffs on China as part of a mutual establishment of fair-trade practices.

Finally, we need to address domestic concerns with trade. Most significantly that means an overhaul — and possible expansion — of trade adjustment measures that support displaced workers and prepare them for work in the new economy.

If we take these steps, we will “change the ending for our benefit as well as the global trading system, including China.

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