from Renewing America

Elizabeth Warren's "New Approach to Trade" Looks Awfully Dated

Democratic 2020 U.S. presidential candidate Sen. Elizabeth Warren speaks during a town hall at the Peterborough Town House in Peterborough, New Hampshire, U.S., July 8, 2019. Elizabeth Frantz/Reuters

The Democratic candidate has laid out a comprehensive trade policy, but it speaks more to party activists than to voters.

July 30, 2019

Democratic 2020 U.S. presidential candidate Sen. Elizabeth Warren speaks during a town hall at the Peterborough Town House in Peterborough, New Hampshire, U.S., July 8, 2019. Elizabeth Frantz/Reuters
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If you wanted to write a new trade policy for the United States to clean up the mess that will be left behind by Donald Trump, what question would you start with? Mine would be, “how do you craft a trade policy that boosts good job opportunities for Americans, lifts wages, improves job security, and helps make the United States the best place to invest in the competitive industries of the future?”

Democratic presidential candidate Elizabeth Warren released her trade plan yesterday, the most comprehensive of any of the candidates so far. But she didn’t start from that question. Hers instead seems to be: how can the United States craft a “progressive” trade policy that checks the wish list of every Democratic Party activist? While there are some good ideas tucked away in her plan, the result is an unwieldy mess that will leave the U.S. with few, if any, new trading partners, and do little to persuade Americans skeptical on trade that the Democrats are doing anything to look after their interests.

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Election 2020

U.S. Trade Deficit

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Donald Trump

Trade has rarely been a top tier issue in presidential elections, but 2020 will be different. Along with immigration and to a lesser extent climate change, Trump made a sharp and decisive break with previous administrations, Republican as well as Democratic. His assault on U.S. trade policy helped him win the 2016 election in those places in the country left behind by globalization, especially the Midwest states of Pennsylvania, Michigan, Ohio and Wisconsin. Of the ten states hardest hit by manufacturing job loss in the twenty-first century, Trump won eight of them. If the Democrats cannot flip a handful of those states, Trump will likely be elected to a second term.

Elizabeth Warren knows this, and her program of “economic patriotism” is aimed at those same voters. But what she offers up will leave many of them wondering exactly what’s in it for them.

Her framing—consistent with her broader economic program—is that large corporations are winning at the expense of everyone else. She is certainly right that U.S. trade policy has far too often favored the interests of footloose multinational companies over American workers. U.S. governments have given away too much of their authority to tax and regulate companies properly to ensure their interests line up more closely with the interests of all Americans.

But bashing the companies as unpatriotic doesn’t put food on anyone’s table. Multinationals pay good wages, one-third higher than the typical U.S. company. U.S.-owned multinational companies account for nearly one-quarter of private sector jobs, more than half of all U.S. goods exports, and nearly eighty percent of all private research spending. Foreign-owned companies investing in the U.S. are nearly as important, accounting for one-quarter of U.S. goods exports. Winning the future means making sure those companies are investing, expanding, and creating jobs in the United States. Most Americans don’t hate large companies; they just want to get a good job with one of them.

From there, Warren descends into the long-standing wish lists of party trade activists. Take the thorny question of who gets to advise the government on trade negotiating priorities. If the goal is attracting investment and creating good jobs for Americans, state governors and local economic development officials ought to have the loudest voice. They are the ones on the ground every day trying to create those opportunities, and looking for help from Washington to attract investment and protect their communities against unfair competition. Yet they currently have no say in national trade policy.

More on:

Trade

Election 2020

U.S. Trade Deficit

World Trade Organization (WTO)

Donald Trump

Warren instead wants to balance the corporate voice with more representation from labor, environmental, and consumer groups—important voices to be sure, but not ones focused primarily on using trade to build the U.S. economy. She also wants all trade negotiating texts to be made public, a passion for Democratic trade critics since the 1980s. This would likely make any future negotiations to open new markets impossible. What government would offer a politically sensitive concession knowing that it would immediately be made public?

Warren also argues that the United States should only enter into trade agreements with countries that meet a long list of standards, including core labor rights, human rights, religious freedom, combating corporate tax evasion, ending fossil fuel subsidies and meeting Paris Climate emission reductions charges. Put aside for the moment that the United States could not even trade with itself if such restrictions were in place currently. Each of these goals is worth fighting for, but tying them all to trade would make it impossible for the U.S. to negotiate future agreements outside of Europe, Canada, and a few wealthier Asian countries. The fast-growing markets of the developing world would all be off-limits to U.S.-based exporters.

The economic logic here is at least a decade out of date; there is no question that large companies for several decades took advantage of low wages and weak standards in China and other developing country markets to outsource jobs away from the U.S., Europe, and other costlier locations. But the gains from labor arbitrage have largely been realized. The battle for the future is which countries will be able to deploy productivity-enhancing technologies like robotics, AI, and 5G. Cutting U.S.-based production off from almost half of the world market is not a recipe for success.

The rest of the document is a laudable series of goals—tackling climate change, lowering prescription drug costs, enforcing anti-trust rules, breaking up grain and meat packing monopolies, and enhancing food safety. Each has only a weak link to trade, and could better be tackled through proper domestic laws, regulations and enforcement.

She spends half a dozen paragraphs on the need to get rid of investor-state dispute settlement (ISDS)—the rules in trade agreements that allow companies to sue governments directly over regulatory changes. This is a good idea, and the Europeans, Canadians, and others have pioneered other approaches that she fails to mention. Nor does she note that the Trump administration largely eliminated ISDS from the new United States-Mexico-Canada Agreement (USMCA).

There are also baffling oversights. “China” appears just once in the document, despite the enormous challenge that it poses not just to the U.S. but to the global trading system. She offers a gentle criticism of Trump’s tariffs, but somehow fails to mention that U.S. consumers have seen soaring prices for items hit by the tariffs, that small U.S. manufacturers have been some of the biggest victims, nor that U.S. farmers are losing market share around the world from retaliatory tariffs. She offers no opinion on the merits or problems with the new USMCA, which awaits congressional ratification, except for a brief line that it would “help giant multinational agribusiness at the expense of family farms.” And she somehow fails to mention even once the World Trade Organization, which for all its flaws provided stability and greater certainty in global trade for more than two decades, and is now under assault by the Trump administration.

Finally, Warren seems to forget that the rest of the world will have a say in this too. She imagines that the lure of the U.S. market is so strong that we can force other countries to play by whatever rules we wish to dictate. Trump has tried out that theory on China, and has nothing to show for it yet. And when he walked away in 2017 from the Trans-Pacific Partnership trade deal in the Asia-Pacific, the eleven remaining countries went ahead with the deal anyway—to the disadvantage of U.S. farmers and other exporters. The world is simply not going to wait for the trade deals that satisfy a President Trump or a President Warren.

All of this is about 2020, of course. When voters in places like Michigan, Ohio, and Pennsylvania look at the candidates’ trade policies this fall, the question will be what’s in it for them—for their economic futures and the opportunities for their children? Warren’s plan ticks a lot of Democratic Party boxes, but offers no compelling answer to that question.

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