Renewing America Series: A U.S. Trade Rethink?

Monday, May 2, 2022
(Photo by Spencer Platt/Getty Images)

Aetna Professor of the Practice of Economic Policy, Harvard Kennedy School, Harvard University; Nonresident Senior Fellow, Peterson Institute for International Economics; Former Chairman, Council of Economic Advisers, White House (2013–2017); CFR Member

Senior Fellow for Trade and International Political Economy, Council on Foreign Relations; Professor of Practice, Georgetown University Law Center

Associate Professor, Faculty of Law, Queen’s University; Coauthor, Six Faces of Globalization


Dean Emerita, School of International and Public Affairs, and Professor of Practice in International Economic Law and International Affairs, Columbia University; Independent Chair, Board of Directors, Mastercard; CFR Member

Panelists discuss U.S. trade policy, including the challenges of anti-globalization sentiment, the changing trade environment, and how the United States can develop a more coherent plan on trade.

With its Renewing America initiative, CFR is evaluating nine critical domestic issues that shape the ability of the United States to navigate a demanding, competitive, and dangerous world.

JANOW: Good afternoon, and welcome. I’m Merit Janow. It’s my pleasure to preside at this afternoon’s discussion on “A U.S. Trade Rethink?”

This meeting is part of CFR’s Renewing America Series, which is an initiative evaluating nine critical domestic issues that are shaping the ability of the United States to navigate a changing, demanding world. This meeting is on the record, and I’m very pleased to be joined by three really remarkable individuals.

Jason Furman, the Aetna Professor of Practice of Economic Policy at the Harvard Kennedy School, who’s a nonresident senior fellow at the Peterson Institute and former chairman of the Council of Economic Advisers. And he was, indeed, for eight years a top economic adviser to President Obama and has written very broadly on economic issues.

Jennifer Hillman, who’s a senior fellow for trade and international political economy at the Council on Foreign Relations, professor of practice at Georgetown University Law Center, who’s written really extensively on trade law and policy and who previously served on the appellate body of the World Trade Organization, as did I. She followed me and was earlier general counsel of USTR.

And Nicolas Lamp, who’s associate professor at the faculty of law of Queens University and is the co-author of a really fantastic new book. Nicolas, I’m prepared to give you a little promotion here for Six Faces of Globalization that came out in 2021. And earlier in your career was the lawyer on the Appellate Body Secretariat, although we are meeting today for the first time.

So thank you very much for joining. We’ll have a conversation for about thirty minutes and then open it up for questions from our audience. So I invite you all to start thinking of your questions.

Let me suggest that we might try and cover sort of a couple of dimensions in our time in the next thirty minutes, what sort of happened in trade. Then talk about attitudes and policies, and then think about the future.

So starting with—turning to what is actually occurring in international trade and economic globalization, you know, it’s sometimes asserted that we’re seeing deglobalization occurring when trade patterns slow or grow more quickly or when we introduce more tariffs or restrictions on exports or on imports.

It’s sometimes said that the world and the U.S. is deglobalizing. But, of course, globalization includes goods, services, people, capital, and trade is a really important engine of global growth, and we’re entering some parts of the world in recovery.

So I’d like to invite Jason to, please, give us your perspective on the economics of trade and economic globalization today. What are you seeing as the major trends?

FURMAN: Great. Well, thanks so much for having me here and I’m just really excited to hear what all of you have to say about trade, given your deep expertise.

I think we’re really seeing a plateauing of globalization, especially in terms of trade. For the half century from 1960 through about 2010, almost year in and year out the volume of trade steadily expanded. Since then, it’s, basically, plateaued and, in fact, you know, exports are a smaller share of our economy today than they were fifteen years ago, the first time you’ve seen, you know, things, basically, flat or down over a period of time like fifteen years.

Part of that is just that there’s only so much there’s a benefit of trade and a lot of that we were able to experience and get through the year 2010, and at some point supply chains and, you know, imports and exports and all that just reached the limits of their benefits.

Partly it’s, though, that the policy process was moving forward with multiple rounds both on a multilateral basis through the WTO, or GATT and then the WTO, and then a lot of individual trade agreements and free trade agreements. And that process has not just stopped but, to some degree, reversed and so tariffs, after falling steadily in the United States for decades, have risen, starting in 2017 and, on average, risen quite a lot.

What you see when tariffs like that rise is it doesn’t really change the trade balance very much. It just changes the volume of trade. So you get less exports. You get less imports. The trade deficit stays, roughly, the same. Now you see some shifts in it—less of a trade deficit from China, more of a trade deficit from other places.

And the final thing I’d say—just sort of hard to summarize all the research on trade and inequality in one brief thing—the research on trade and efficiency is overwhelmingly clear. It is efficient. It benefits consumers. It benefits consumers in a progressive manner. Lower income households buy more goods. They benefit even more from trade.

In terms of the losses, they’re, frankly—that’s more uncertain than you might think. There’s some studies that find it increases inequality, some that finds it doesn’t. The magnitudes are, generally, not that huge, and so I think a little bit less of a rethink is needed for trade and inequality.

And the last thing I’d say, by the way, is if you want to deal with inequality, the idea that you change tariffs around is just about the worst way to deal with it. Where there may be some rethink needed, and we might discuss this, is on the national security side, where I think there may be some legitimate issues and also some illegitimate ones, and look forward to talking more about that.

JANOW: Thank you very much.

So let’s turn to the attitudes and policies around trade and economic globalization. Let me just say that, you know, one magnificent book on the history of U.S. trade was Doug Irwin and he characterized trade policy sort of since the founding of the republic as directives—as of one of three objectives: either collecting revenues or introducing restrictions or pursuing a policy around reciprocity to, you know, reduce tariffs if others open up through bilateral and multilateral.

But we’ve seen, you know, concerns about trade in the post-war period, you know, constantly, you know, since the Uruguay Round, the battle for Seattle, difficulties of NAFTA, difficulties of TPP not going forward, increasing concerns about China, impact on jobs. You know, it’s always been a very challenging area, although occasionally a bipartisan area, and I think it’s fair to say that we entered this administration with the Biden administration focused on other very pressing issues—the pandemic response, economic recovery, supporting strategic priorities.

So I guess I’d like to invite Nicolas, who’s written this book, thinking very broadly about attitudes towards globalization and trade, how would you characterize where we are today in the context of your understanding of broad trends?

LAMP: Well, what’s really fascinating about the United States that it has been, of course, the chief promoter of globalization for so many years. But it’s also been on the other side of this huge backlash towards globalization from so many different angles, right? It’s not just one angle—the Trump angle—which focuses on manufacturing jobs.

You have—on the left, you have the concern about inequality, about the elites appropriating all the gains from globalization. You have the concern that corporations are really benefiting at the expense of workers, both in the U.S. and in other countries. You have the security concerns that Jason mentioned.

You have concerns about climate change. And, finally, with pandemic, you have the critique of globalization that’s motivated by resilience. And so this efficiency rationale that Jason mentioned that has driven globalization for so long is really under attack from all these different sides.

And what’s really fascinating about the Biden administration as it came into office is that it seemed to recognize that. If you look at some of the writings of Jake Sullivan and others, they really seem to be taking on board all these concerns and says trade policy is no longer about efficiency. It can no longer be just about opening markets.

It will have to address these concerns and it will have to address them directly, and that’s the key difference, I think, to the old establishment view, which was that, well, we used trade to grow the pie and then we leave—use domestic policy to do everything else. And so all the other objectives that we have we can then pursue with the greater wealth that we have. And I think the argument here—the lesson that the Biden administration was drawing is that that’s not good enough.

We will actually have to use—try much more directly to address all these different concerns. And, for us, as we were finishing the book, that sounded kind of great because what we were arguing for was that—for the need to integrate the different perspectives brought forward by these different narratives.

But, of course, taking on board all these concerns is only the first step because as soon as you try to address all these different things to trade policy, tradeoffs will arise and I think that’s where the big disappointment, I think, with the Biden administration’s trade policy has been that all these valuable concerns are on the table but when we look at the actual policies where these tradeoffs have to be made, we often see the Biden administration defaulting towards protection. And so, I think, at least from the outside it looks a bit like America first in sheep’s clothing and I just want to give one or two examples.

I mean, one example that has been in the news a lot is on the solar tariffs, first, the extension of the Trump anti-dumping tariffs with China but then also now the (interstate ?) convention action, which is costing a lot of jobs in the installer industry in the United States.

Of course, it’s frustrating, to a large degree, the climate objectives of the administration, and so what I think we’re missing here in the public communication from the Biden administration is, really, first, an acknowledgement that these tradeoffs are there and that they are difficult and that you can’t really have it all. You have to say what you are prioritizing.

Another example is in relationship with China with the Section 301 tariffs. Essentially, this blunt approach of imposing tariffs on all these Chinese products maybe makes sense if you’re trying to generate leverage. But we don’t really see the administration negotiating with China at the moment.

So if you’re not using them as leverage, like, how do you justify imposing these tariffs? Why do you not look at the tradeoffs for inequality? We just heard from Jason how liberalizing trade is good for the poorest, right. So what are these tariffs doing for domestic inequality? What are they doing to actually help manufacturing in the United States, given that there are so many tariffs on intermediate products, right?

And so we don’t really see an engagement by the administration with all these—with tradeoffs that putting so many different values on the table poses. And so even at the beginning of the administration we saw it described sometimes as value-based protectionism, right—protection restrictions that are trying to further all these different objectives.

But if we don’t see an engagement with these tradeoffs—if we don’t, and if we—when there is a tradeoff we always see the administration defaulting kind of toward the protection, then you have to start asking, well, where are the values? How is it not just protection?

So maybe I’m going a bit too far here. But that’s the basic picture that that we see.

JANOW: OK. Thank you very much.

Jennifer, how do you see the Biden administration’s trade policy in the—and you have a perspective over time—both, you know, the evolution of U.S. trade policy and where we are today?

HILLMAN: Well, I think I’m going to pick up where Nicolas sort of left off or hinted, which is I think so far it has, largely, been sort of the Trump policy in sheep’s clothing. In other words, I think there has been a significant shift in the rhetoric and the tone by which the Biden administration is describing its trade policy. But on substance, not so much change yet.

You know, as Nicolas mentioned, we are still seeing all of the tariffs imposed on the, you know, some $360 billion in goods from China. They’re still in place and there is not much negotiating going on between the United States and China.

The tariffs on steel and aluminum imports that were imposed in the name of national security either remain as they were under the Trump administration or they have been replaced in the European Union, the United Kingdom, and Japan with tariff rate quotas, which mean you’re still going to apply the tariffs but only after a certain amount of steel or aluminum has been imported.

We saw, you know, early on in the Biden administration the authority under which you can enter into new trade agreements lapse and there seems to be pretty little interest in trying to restore it at this point. There’s no new negotiations for a trade agreement occurring right now. So, to me, you step back and look at so what are they really saying.

I think I see sort of three things that they’re saying that may be kind of elements of a Biden trade policy and some whether they like it or not. I mean, one is this emphasis on a worker-centric trade policy. I mean, you hear it again and again.

I think we’re still all waiting to really understand what that means. But, at a bare minimum, what it means is that there will be labor sort of at the table and throughout the process of negotiating whatever is negotiated.

Secondly, there will be, clearly, enforcement of what I think are very path-breaking provisions within the U.S.-Mexico-Canada free trade agreement, the revision of what had been the NAFTA, which now allows plant-specific—you know, to go into an individual facility and figure out whether or not there are labor violations in that particular individual, you know, plant or operating facility, and then, presumably, down the road, if they continue to have labor violations, to engage in sanctions—again, an embargo, a ban, on imports from that particular facility and then, I think, seeking to include some or all of those elements that are coming out of the USMCA in other agreements.

Secondly, I think where you really hear the Biden team departing from where the Trump administration had been is in looking at flexible arrangements that will allow us to work with our allies. These are agreements that will fall, you know, far short of a full-blown sort of trade agreement with binding rules and binding dispute settlement and, again, they’re very much works in progress.

But I would note, in particular, the Trade and Technology Council with the European Union that has, you know, working groups on everything from technology standards to climate change to how do we secure supply chains to export control and investment screening cooperation. So, again, significant elements of trying to be more cooperative with our key trading partners.

And the second one that, you know, again, is still very much beginning—in its beginning stages is the Indo-Pacific economic framework, which is going to focus on these four pillars of fair and resilient trade, supply chain resilience, infrastructure and decarbonization, and tax and anti-corruption. We still don’t know kind of the scope. We still don’t even know, really, who are going to be the main players in that.

But, again, I think that’s part of this idea of the Biden administration that they’re not going to be trade agreements in the traditional sense but they are going to try to work out these other frameworks and arrangements.

And the third thing that, I think, you clearly see—and whether this was really by choice or by just circumstance—is—and I’m going to come back to where Jason was—a real erasure of the line between national security and economic security such that trade now becomes very much one of the key tools in the toolbox for enforcing our national security interests in a way that we really did not see in previous decades.

You know, I think you have to step back and look at what happened once Russia’s sort of unprovoked attack on Ukraine occurred, which was a collective round of sanctions that were much broader, much deeper, much faster, and much more coordinated than anything we’ve ever seen before, and I think there was much more of an acceptance among those that are joining us in the sanctions effort that it was sort of OK, if you will, to erase this line between national security and economic security.

So I think that’s where we stand right now. My bottom line is, again, a work in progress.

JANOW: Thank you very much. Let me just thank you. That’s very comprehensive. I’d just note that, you know, just last week, I think, Ambassador Tai gave a speech saying that we need to think—rethink trade policy in light of the vulnerabilities that trade has exposed. Maybe that’s the resilience argument, Nicolas, that you were alluding to.

And I thought Christine Lagarde gave a pretty major address last week addressing the vulnerabilities that trade has produced and argued that this was calling for new diversification strategies, you know, within Europe and within countries, increased emphasis on security, and a movement from global strategies to regional strategies.

So these are themes that are not just U.S. ones and also translating into some, potentially, industrial policy strategies within nations with trade effects.

Jason, I wonder if you could share your perspectives on these. Is this how you see the world evolving?

FURMAN: That’s, certainly, how the world is evolving. I mean, that’s a very good description of what policymakers intend to do. Whether trade is a good way to do that or not varies. In terms of industrial policy, I don’t have a lot of sympathy. I think it, generally, is something that if you gave the most enlightened policymaker in the world the task of, you know, creating a certain industry in a certain country, I’m not sure they’d do, you know, a fantastic job of it.

If you gave the actual political system with all the lobbyists and all the entrenched interests that task they would, certainly, make a failure of it, and we’ve seen that happen over and over and over again.

On the national security side, it might be that I understand the issue less well than everyone else on this panel that I have a little bit of sympathy for it. If you’re going to go out and say we’re going to make our economy more efficient with trade restrictions by, you know, growing this industry, I’m not going to believe that.

If you’re going to say we are willing to pay a price, we are going to be less efficient, our growth will be a little bit worse, our industries will be a little bit worse, but we’ll do more here and less elsewhere, I’m willing to then have a conversation about whether that tradeoff is worth it.

I think it’s really important to distinguish between your allies and others. Obviously, when stuff comes from Canada, that’s a wonderful thing for our national security, not something where we need to be concerned about, say, Canadian steel. But if you have that objective, you can distort it. You can get it wrong.

But I’m open to a conversation that the sole goal of economic policy should not be efficiency, that we need certain redundancies as well. And, you know, I don’t love the fact that all of our top microchips come from one island and that island is next to, you know, something that is—might be, potentially, very hostile.

JANOW: Thank you. So let’s look a little bit to the future before we open it up for questions and, of course, trade policy, you know, in the last decades have had global initiatives, regional initiatives, sectoral initiatives. We’ve seen all of that before and different parts of society we’re trying to make sure to be mindful of. And this session has been called rethinking of trade with a question mark, which is really an invitation for each of you to offer thoughts on what that could be.

Let me ask Jennifer. You’ve been a(n) advocate for WTO reform. You write extensively on how trade and climate can be, you know, reinforcing of climate goals. Can you share your thoughts on if you were speaking to how to reform trade in light of our changing world at the multilateral level? Perhaps you have some suggestions.

HILLMAN: So my basic bottom line on it is I think the WTO has lost its real raison d’être or its raison d’être has shifted, and the WTO has not. If you think about it, from 1947 on, you know, the core bedrock rules of the WTO were around nondiscrimination. No discrimination on the basis of nationality—MFN—no discrimination between domestic and imported products, national treatment.

That’s not enough anymore. And so if the WTO is really going to move on, we’ve got to figure out a way to, as I’ve said before, erase the word “and” from trade and climate change, trade and labor, trade and inequality, trade and. The “and” has got to be gone and there has to be a consensus that the WTO can address all of these issues that used to be perceived of as not part of the trade agenda. And the trick, obviously, for the WTO is how do you get there at the same time that the institution itself needs to be reformed. It, simply, is not functioning as an executive secretariat. Its negotiating arm is, obviously, failing and now its dispute settlement arm is, largely, out of commission.

So the way in which the WTO goes about its business has got to be reformed and its basic core rationale for why it exists has equally got to be reformed and updated if it’s going to be an institution relevant to dealing with twenty-first century issues.

JANOW: Well, you know, you could say that’s a huge agenda and why should we prioritize it, you know, with so many pressing concerns. Do you see us able to take some, you know, steps that would be constructive, you know, if we wanted to move forward?

HILLMAN: Yes, I do. I think there is a way, and my bottom line is the WTO is worth saving. I mean, that is absolutely my bottom line because I still think it serves this base core function, and even those basic rules against discrimination are really important.

I also think having the WTO and its committee structure and its forum in which, again, members from all over the world can get together to discuss best practices, how to deal with aviation influenza when it arises, et cetera, et cetera, is still extremely important and the work of the committees and others.

And, yes, I think what’s going to be critical is to agree upon a reform agenda that can allow us to get there, and that is my hope that whether it’s coming out of this new meeting that’s coming up in June—the ministerial meeting that’s slated for June 13 in Geneva, or otherwise—there has to be a conversation both on the reform of the institution and on the reform of its basic mission.

JANOW: Thank you very much. I know one of the areas that people often point out is that, you know, can you gather coalition of the willing countries to advance issues, you know, that haven’t been captured well by the rule framework and move them forward in the WTO or elsewhere.

But, Nicolas, let me invite you—you know, you suggested in your comments and, I know, in your book that—you know, that there are substantive policy goals that can be well advanced through trade policies but you said maybe we expect too much from trade. If we’re trying to push things forward constructively in trade, what would you prioritize?

LAMP: Well, I think on each of the values that I mentioned there is progress to be made—climate, resilience. The difficulty is that it’s probably not going to be possible among as large a group as the WTO membership and, yes, I think we have to recognize that when we’re talking about these substantive goals we’re talking about something fundamentally different than traditional trade negotiations.

In traditional trade negotiations they were governed by reciprocity and you didn’t really have to agree on your substantive goals in order to engage in them. You just want—you wanted to lower trade barriers so you gave up your car tariffs in exchange for the other country’s soybean tariffs.

You didn’t have to share substantive policy goals. Reciprocity allowed you to kind of—to modify your policies and to exchange them. Now, with the U.S. moving away from reciprocity, effectively, saying we’re treating trade policy, again, as a domestic policy and we’re engaging in international negotiations as long as those international negotiations help us achieve our domestic policy objectives, you actually need substantive agreement on what you’re trying to do.

And just take an area of labor rights, which is such an important area for the United States, you’re never going to get any substantive agreement on labor rights in the WTO. So the only way to do it in the past was to engage in tradeoffs, to say to a developing country such as Vietnam, look, you’re getting market access and in return you have to reform your labor unions, right, and the U.S. is not even willing to do that anymore. It’s not putting market access on the table.

So the scope for international agreements has shrunk for these two reasons: A, we’ve moved away from just reciprocal exchanges of concessions to trying to get agreement on substantive policies, and B, the U.S. has, essentially, moved back from reciprocity to restriction and is not willing to pay for its goals on the international stage. And so, therefore, yes, if we can achieve something it will be among like-minded states, among allies, who maybe agree to build diversified supply chains among themselves.

But it’s very hard to see these agreements in the WTO and the fishery subsidies negotiations are one example where it’s being tried and maybe that’s our best hope of achieving such an agreement. But it’s very hard to see what’s going to come next.

JANOW: Thank you very much.

Jason, could I invite you to put forward where you think we should be pushing on the trade agenda, be it in support of economic growth or broader and other goals?

FURMAN: Yeah. So, you know, first, I’m happy to let Jennifer and Nicolas—and, Merit, you haven’t shared your opinions but you set that prioritization agenda, because part of it is what’s doable and what’s sustainable as opposed to, you know, what is the single highest economic priority. So I place a lot of weight on that.

So, first of all, not backsliding, not putting new things on. Second of all, I do think working together with our allies is particularly important because there’s almost no excuse for trade restrictions with other high income countries that are friendly. There’s not an economic excuse. There’s not a national security excuse. There’s, basically, none. And when I say trade restrictions, I’m also including replacing tariffs with things like tariff rate quotas where the quotas are binding. So that may look like you loosened up your trade but, really, you substituted one thing for another. So that would be the second.

And then, third, I do think that global cooperation has gotten increasingly fraught and increasingly difficult, and so finding areas where there’s some other goal that’s not just economic that you can pursue through an international agreement of which climate change and the environment is probably the most compelling.

That may not be the number-one thing for GDP but it’s number one for something else that’s really, really important, and countries have enough of an interest in it that I’d be more optimistic that it might pass that first test of doable. But, you know, do no harm would be—you know, if we could just do that, that itself would be a dream come true.

JANOW: (Laughs.) Thank you. I agree with that as well. Do no harm. Advance the agenda where we can, including around the new economy. Find ways of better coordination on regulatory issues. I think the U.S. and Europe are, really, pursuing somewhat different policies in a number of core areas that really matter for us. We should be using these mechanisms. Those are a few of the issues. Climate, absolutely. And coming ourselves to a domestic—deeper domestic view around where economic and security issues come together, to me, seems like a domestic issue of some great significance.

I think we’ve reached the time of inviting questions from our participants. We have a wonderful, large number of them and let’s hear from them. I’d ask CFR to help us with that.

OPERATOR: (Gives queuing instructions.)

We will take our first question from Kellie Meiman Hock. Please remember to state your affiliation.

Q: Great. Can you hear me all right?

JANOW: Very well. Thank you.

Q: Perfect. Terrific. Thank you so much for this.

You know, I am curious to get a reaction from you and I think, Jason, you said it just perfectly that we need to figure out what’s doable and sustainable and I think part of that is for trade negotiators everywhere to—but, certainly, here in Washington to regain the social license to operate that I feel like we’ve just lost over the years, right, which is why what’s doable is a shorter list and why we’re talking about, you know, the issues, Merit, like you just highlighted—you know, regulatory transparency, et cetera, as opposed to ambitious market access, and I tend to think that’s what will get us to a place where we have social license to operate once again.

That list of what we need to do to attain that doesn’t really lie in the trade realm, right. It deals with issues of income inequality, which can link more to our tax code and other more complicated policies. But would love to hear from whoever would like to respond how you view that and just to get your response.

JANOW: Thank you. I think we—let me invite Jennifer if you’d like to offer some thoughts on what’s doable and sustainable, and I’m sure everyone has thoughts on that.

HILLMAN: Again, I think there’s a lot of them out there and, actually, I would love to hear Nicolas’ take on it. So I’ll let him do that. But, for me, the one that may create more saliency is around climate change because I think it is becoming increasingly clear that we simply are not going to get up to the scale and the speed that we need to to fight climate change unless we marry climate change and trade policy together.

We just can’t get there far enough fast enough unless we put the two together, and I think that is becoming increasingly recognized not just in the United States but, again, with a large enough coalition that there may be ways to do progress, and whether that consists of both the carrots and the sticks, if you will, of fighting climate change, meaning whether others are going to join the European Union and putting on a carbon border adjustment mechanism, whether we’re going to take this nascent idea around a green steel deal, an aluminum green deal, and expand it to other sectors or to other entities, but that we’re going to have to seriously speed up the technology transfer around fighting climate change along with, you know, again, pulling in a lot more private sector money on the—on transition financing without having fights over subsidies, I mean, there’s a series of issues within that space of trade and climate that, I think, may be the place in which the urgency of fighting climate change helps bring more parties to the table with some different kinds of tradeoffs.

JANOW: OK. Thank you very much. You know, let me just invite on the climate change and trade policy, I mean, Europe is developing a mechanism that is a border tax adjustment. We are not going down that path. So you could imagine us actually exacerbating trade friction between us unless we work this out somehow.

So I just want to invite Jason and Nicolas, do you think climate and trade is an area for cooperation in a new trade policy, et cetera? Or how do we make it so, I guess, is really—Jennifer is putting that forward as the invitation.

FURMAN: Look, I mean, there’s two sides of it. There’s the affirmative side, where you are reducing tariffs on inputs into cleaner energy and better energy efficiency. You know, I’d like to see more of that. Now, that’s not uncontroversial. My view is if you care about climate change you want to get wind turbines and solar panels from whoever can make them most cheaply, and if you’re trying to use that as your domestic industrial strategy you’re going to have a tradeoff and have less emissions reductions.

That’s not everyone’s view. I don’t think that was the administration’s view. I think they view this as an area not just for solving climate change but for industrial strategy. But there’s the affirmative let’s lower tariffs. That has controversy. Then there’s the other side, the border adjustment, which you just brought up.

I think border adjustment makes absolute sense if you have a price of carbon. It makes good economic sense in terms of reducing emissions, leveling the playing field, and good political sense to bring people on board with it so they’re not worried about the migration of your industries.

The problem is that we’re all not aligned in terms of putting a price on carbon. So if we try to border adjust before we’ve put a price on carbon then it’s really just veiled protectionism, and if Europe puts a price on carbon and border adjusts we’ll view it as something that was, you know, unfairly done to us. And so it’s a really fraught area. There’s a right and a wrong answer there. But it’ll be hard for the political system to get to the right one.

JANOW: Mmm hmm.

Nicolas, would you care to comment on that or what else do you think is doable?

LAMP: Yeah. So I think, going back to the question about the license to operate for trade negotiators, I think we have to make the idea acceptable again that there are—there has to be reciprocity. There has to be something on the table for U.S. trading partners, right. And so, for example, if you’re talking about trade—about climate, for example, a big issue is, of course, are trade remedies, right. And so if there could be some kind of peace clause that the U.S. would not impose trade remedies on certain climate-relevant goods, I think that would be something that that would—China would find interesting.

I think we have to do the same thing in the security area. We can’t expect China to cooperate on anything if there’s nothing in it for China. And then so there—we need to be creative and think of some kind of be it procedural constraints, any kind of limits that we could put on the current U.S. ability to, essentially, designate anything as a national security concern in order to bring China back to the table.

And I think one of the big things that has been lost with the shift toward trade policy as domestic policy is the acceptance that you have to offer something to your trading partner as well and be it in the climate area, be it in the security area, that idea has to be rehabilitated, that unless the U.S. puts something on the table others are probably not going to be willing to negotiate.

JANOW: Mmm hmm. Well, you know, I think, Jennifer, you alluded to the early stage idea that’s come out of the Indo-Pacific economic partnership and also the fact that, at the moment, this is not under a trade promotion authority, et cetera, but trying to find areas, whether it’s digital or it’s climate, where we can advance a trade policy agenda without clarity on what we’re putting on the table. Would you like to say more about that?

HILLMAN: Sorry. Again, for me, I think Nicolas has put his finger on it, which is how much do countries want to put something significant on the table themselves if they don’t perceive that they’re going to get any benefit from doing so or from the United States as part of this agreement.

Yes, I think many of the countries in this potential Indo-Pacific framework do desperately want to know that the United States is going to be engaged in the Indo-Pacific region and is going to stay, you know, involved and working towards it.

But the issue is going to come back to what is in it for me. I mean, for each one of these countries there’s going to be a sense of and what do I gain by agreeing to do all of these things that the United States wants me to do that otherwise I may not want to do, and I don’t think we’ve really figured that out.

Now, again, I do think in the regulatory space, for example, there is, potentially, a way to provide some market access without a focus on tariffs—in other words, whether you can create some kind of fast lane, if you will, for goods that are produced or services that are done in a way that is comporting with a series of regulatory standards that the United States would like to see imposed.

So, I mean, you can think creatively about what is there short of providing, again, a reduction in U.S. tariffs that would give someone else more access to our market. But short of that, I think this is going to be the real difficulty with trying to move forward with these kind of frameworks is whether and how much willingness there is among the trading partners to engage in the discussion if there is no prospect of increased access into the U.S. market.

JANOW: Thank you. I think that first question, obviously, is a very expansive one. May I invite another one, please, from our participants?

OPERATOR: Our next question will be from Yves Istel.

Mr. Istel, if you could unmute your microphone. We are not—oh.

Q: Can you hear me?

JANOW: Yes. Please go—

Q: Thank you again.

I’d like to broaden the question slightly. Deglobalization is, obviously, a serious concern and we all know about the supply chain issues and the consequences. But services are an increasing part of the mix compared to goods both domestically and, increasingly, internationally. How do you integrate the notion of services into the various points that you have made? Thank you.

JANOW: Yeah. Thank you. Well, let me just say we—you know, we have the—you know, since the WTO was formed a services framework, but we have varying degrees of commitments at the international level around services. So, meanwhile, services trade has become enormously important including, obviously, financial and digital and others. Jason, would you like to comment on the broader role of services?

FURMAN: Yeah. You know, that’s one of the things that’s going on. Is there something—as we get richer, we want more services. We also are getting better and better at producing manufactured goods. So that’s a smaller part of what we need to do economically.

Some services doesn’t lend itself to trade quite as much, like restaurants, and that’s part of the natural and normal plateauing of trade I talked about at the beginning. But some of it is a greater challenge and opens up, you know, issues on the regulatory side, on the—you know, related to things like immigration and people.

But the benefits of it are also, certainly, larger if you can do things on the services side because that’s where we all have room for considerably greater efficiency and matters more to us.

So, you know, again, I sort of defer to the others here on how to make progress on it. But that’s an important area to make progress on.

JANOW: But if you ask the question—you know, sometimes when we talk about the world deglobalizing we’re really talking about trade slowing and tariffs or other measures that reduce the amount of trade. But if services—are we not seeing an expansion of services? We’re not seeing the deglobalization in the same discernible trend. Is that fair, Jason, or do you have a different—

FURMAN: Oh, yeah. Oh, no, we’re seeing an expansion in trade. I don’t think a trade surplus or trade deficit is how you should ever judge anything. But for those who do judge things those ways, of course, the United States has a trade surplus. We have—in services, and we have comparative advantage in services. So now I think we benefit from both ends of trade with the production side and the consumption side.

But, again, for those focused on the production side, additional progress there will support that, will support jobs and the like. But, yeah, it’s building on progress and it’s an area that, in some ways, is more challenging. But it’s definitely growing both domestically and internationally.

JANOW: Thank you. Unless Jennifer and Nicolas have a further comment you wish to make, I’ll—

LAMP: Just two quick comments. I mean, it’s, of course, one of the bright spots of the pandemic that with the normalization of remote work that also puts so many more services—essentially, make them vulnerable to globalization because if you’re working from home anywhere you could also be working from another country easily.

So, of course, Richard Baldwin, with his “globotics” revolution has been promoting that argument that we may actually see as a long-term effect of the pandemic a huge expansion of globalization in trade and services.

A final—a second point, which goes to the—back to the worker-centric trade policy, there still seems to be an overvaluing of manufacturing work. And I think that’s something that we hoped would change with the Biden administration, this focus on the hardcore manufacturing worker as the real worker that matters and the discounting of the importance of services work, and the solar panel example is, again, an example where, of course, you have lots of service sector jobs in installing solar panels, but a lot of the focus seems to be on the manufacturing of solar panels.

And so I think if we focus more on services, we also have to revalue the work that is being done there.

JANOW: OK. Thank you. Let me invite a further question.

OPERATOR: Our next question will be from Jennifer Fonstad.

Q: So I thank you very much. Great conversation.

My question is a little bit broader. So we’ve talked a lot about the deglobalization and the slowing down of trade, and I’d be interested in the panel’s perspective on whether it’s really deglobalization versus a regionalization of trade and, in particular, there have been a number of—well, in particular, the free trade agreement, the Regional Comprehensive Economic Partnership, you know, with—and combining China and Japan and the Asian community and other regional efforts, whether it’s really the—we’ve been very U.S. centric in our conversation but I’m wondering if the U.S. is really the driver of this and how that will—and whether we’re missing something on a regionalization basis. Thank you.

JANOW: Thank you. I mean, we’re, certainly, seeing new regional policy frameworks being created. I suppose it also puts on the table your question whether we’re seeing patterns of trade reflected as well. I wonder who would like to comment on that.

HILLMAN: I only start, really quickly, because I think there is no question that one of the big trends coming out of the last, you know, ten years is the increase in regionalization and, to me, it is both a result of the failure of the WTO to reach new, more global agreements but it is also, you know, again, the rise of these very significant regional agreements, and I would put the Regional Comprehensive Economic Partnership that you mentioned, you know, on that list partly because of the size. It includes China, South Korea, Australia, New Zealand, and all—Japan and all of the ASEAN countries.

So, again, it’s a very, you know, sort of Asia regional focus. Why does it matter? Because it is not a free trade agreement. It is not lowering all the barriers to zero. But it is very significant in a couple of ways. One is that it has these common rules of origin.

So, in other words, if you make anything in which all of the components of the thing that you’re making come from any one of those RCEP countries it qualifies to trade under whatever is the lowest of the RCEP, you know, sort of tariffs into those countries. So it is a huge push to do all of your work within those RCEP countries.

Second thing that it has done is created this conversation and sort of forum in which all of the trade ministers from all of those countries have gotten together multiple, multiple, multiple times. So the push is really there to kind of stay within that sort of region if at all possible. And, obviously, the other part of it is the sheer economics of it. I mean, it used to be that countries went—I mean, particularly, U.S. manufacturers and others went all the way to China or Vietnam or other places in order to take advantage of whether it was access to certain materials or, most often, access to lower cost labor or other lower costs. That is changing. I mean, again, however many man hours it used to take to produce a ton of steel is ten times less.

So if you do not need as much labor you do not need to go to these far-flung areas. And as you see the kind of just in time and I want to order something from Amazon and click on it and have it be delivered to my house within four hours, that is pushing a lot more, you know, again, distribution services, manufacturing, et cetera, to go more regional.

So for a whole lot of reasons, to me, I think that the trend toward greater and greater regionalization is only going to get more and more strong, and then the issue is, you know, whether we are already at the point where we’ve got, you know, the sort of America’s bloc, the European Union bloc, and the Asia bloc, and you’re seeing then, you know, kind of some lesser levels of economic growth coming out of the areas like in Latin America and, to some degree, in sub-Saharan Africa that don’t have significant amounts of intraregional trade. So I think it is a trend to be continued and very substantially.

JANOW: Jason, would you care to comment on this?

FURMAN: You know, yeah. I mean, this is an American-centric title for this panel so I was unapologetically so. But, you know, look around the world. You know, in Germany a trade agreement with Canada is controversial. This is one of the world’s great exporting and trading countries—Germany—and one of the world’s least offensive countries—Canada—and somehow CETA, the EU’s trade agreement with Canada, has become, you know, sort of less than totally obvious.

So you are seeing, you know, regionalization of trade but, you know, that process itself is not, you know, a smooth one and one that’s without controversy, and it’s one that the United States has, basically, absented itself, you know, from, for the most part.

JANOW: Yeah. Let me just add that, you know, I see these trade agreements as economic agreements but they’re also broader political and policy tools, you know, to build up confidence, to have more regulatory and other forms of interaction, and deepen relations. So some of these frameworks, you know, are deeper integration instruments with economic consequences and a lot—others are not, but they’re politically useful and they build confidence in other ways.

And so I think you’re seeing a lot of experimentation going on increasingly, interestingly, in the digital space where you’re seeing, for example, Singapore doing digital framework agreements, you know, with a number of countries that are going further than trade agreements in some areas of digital around cyber consultations, around, you know, discussions around algorithms, other things.

So I think the regionalization dimension is very much a work in progress, as Jennifer says, and has a lot of different features, some very concrete—tariff related—and others more relationship building and, you know, shifts in economics as well as, you know, political and security dimensions entering into the evolving evolution.

So I think we have time for another question. Let me invite CFR to help us further.

OPERATOR: Our next question will be from Irving Williamson.

Q: Thank you very much for a fascinating discussion.

I wanted to raise the question of the Biden administration’s effort to do domestic economic reform, you know, tackle—so someone else mentioned the problems of tax policy and the fact that the biggest impact comes from what we do domestically. But that’s been stymied. So my question, really, is can we—while being stymied can the administration really afford to ignore and not be more, shall we say, progressive on its international trade policies, knowing that it would have preferred to have done the domestic reforms and gotten the political support that would have given them more freedom internationally?

But since that’s not happening, can we afford not to go forward internationally, given the pace of what’s happening in the rest of the world and given the concern about inflation? Thank you.

JANOW: Thank you very much. Let me invite anyone who’d like to speak to that. Inflation has finally arisen in this conversation. Let me invite Jason to offer a—(laughs)—on how trade can help us with inflation.

FURMAN: Yeah. Look, first of all, you know, I’m a big fan, for the most part, of President Biden’s domestic agenda. I really still hope that he figures out how to salvage parts of it and get parts of it done. I don’t think that the international side—you know, I don’t think you can promote some of what he wants to in terms of expanding opportunity, reducing inequality, reducing poverty, with, you know, trade restrictions. I don’t think that will help it.

I do think, though, it could help with inflation. So reducing tariffs would help. I don’t think they’re a huge deal. But, frankly, I can’t think of a tool the administration has, outside of the Fed, administratively that would be a bigger deal for inflation than tariffs. So it’s sort of a medium-sized policy in a world where every other option is small.

And so, yeah, I think one of the best domestic policies they can do to deal with the number-one acute domestic policy problem the country faces is to reduce tariffs, and then we have a lot of chronic problems in terms of opportunity and the like and, unfortunately, there’s just not a lot of trade tools for that. There’s no substitute for Congress passing something like investments in children and the other proposals President Biden has put forward.

JANOW: Thank you very much. Jennifer, would you care to comment on this?

HILLMAN: I don’t know whether—maybe this is more a lot of what Nicolas is talking about so I don’t know whether he would be a better one to try to answer that question.

JANOW: OK. I thought each of you might but, Nicolas, please start us off.

LAMP: Yeah. Actually, I think the U.S. is missing the boat a little bit because if you look at the future of globalization, I’m actually not that convinced about the regionalization point. I think where it is going to continue is, I think, among strategic allies and where it’s going to slow down is among geoeconomic competitors.

But if we look at that group of strategic allies, the U.S. is really the only country that is imposing trade restrictions on other countries in that group, right. You don’t see Europe doing that. You don’t see Japan doing that. You don’t see South Korea doing that. And so it’s—we’re in real danger, I think, of missing out of—on the globalization train that is continuing to go at a(n) quick pace.

The other countries—yes, in Europe, you’re going to see a bit of decoupling from China and with Japan you see—going to be—going to see attempts to become less dependent on China. But among those strategic allies, you don’t really see what the U.S. is doing. And so I think that’s—there’s a real opportunity here for the Biden administration to promote all its concerns about China but get rid of that part of the Trump administration’s agenda, which Jason said is the least defensible, which is to put in place trade restrictions among allies.

JANOW: You know, at the end of the day, I am mindful of the fact that, you know, under our Constitution, you know, the regulation of trade resides with our Congress, who’s delegated it to the executive branch. So if we are going to take measures, you know, that have domestic trade tariff consequences we’ll need congressional approval to do so unless we focus on areas that don’t have those effects and where we can move forward through executive agreements or other forms.

So I think Irving asked the question can we afford to not engage. I think it’s very important to engage, but we’ll need to develop some new coalitions at home if we’re going to have a robust foreign economic policy.

And let me just invite Jennifer if she wants to make a final comment.

HILLMAN: No. I mean, I think at the heart of the question is, again, I understand exactly the Biden administration’s notion that we would like to wait until the United States has gotten its domestic house in order. Until we are a more competitive country, until we have gotten our handle around some of these emerging technologies, until we have done a better job of fighting the income inequality that we have, until we have put in place the whole entire panoply of policies that would allow the United States to have a more just, fair, equitable, and sustainable economy we want to wait on moving on trade policy, and I think the honest answer is we can’t afford to do it.

I mean, and, to me, in part, because the rest of the world is going to move ahead without us and we are then going to be really left out of what will become very locked in both supply chain arrangements and, you know, sort of legal and trade agreement arrangements that the United States will not be a part of.

And the second thing, to me, is I don’t think it helps to isolate the United States or try to isolate the United States economy entirely and, yet, become more competitive and have better technology and be more innovative and be more fighting of income inequality.

So I would love to see—I’m with Jason—I would love to see the vast majority of the Biden administration’s Build Back Better agenda move as soon as possible. But I’m not sure that we can wait forever for that to both pass and have its effects be felt before we are going to have to start thinking about how do we engage in the rest of the world or we will be, to some degree, significantly left behind.

JANOW: Thank you very much. This has been a very rich discussion. I want to thank all of you who have attended and a special thanks to Jason, Jennifer, and Nicolas. I’ve been invited to remind you that the video and transcript of this meeting is going to be posted on the CFR’s website.

Thank you all for joining us, and I think there is an after salon for those who’ve signed up for it. Thank you all. Great being with you.


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