Biden’s Trade Tools In A Trump-Altered World: Consensus And Integrity

Foreign policy in a second Trump-Pence Administration is certain: “America First.” At the Republican National Convention, trade was the object of predictable boasts that by getting tough on China, the Administration reversed the outflow of jobs, globalisation was attacked as a treasonous conspiracy of coastal elites. So confident is the Republican Party in “America First” that it is running on the same platform as in 2016, which laid out this prescription.

But, what if the Biden-Harris ticket wins? What would American trade policy become? Separating what one objectively thinks will happen versus subjectively hopes might occur is difficult. Mindful of that proviso, the world can anticipate that the lodestar for a Biden-Harris Administration would be ‘Enlightened Trade’. Four guiding principles would beam light on what Democrats see as four dark areas of the world altered by ‘America First.’ Those dark areas are:

1. A diminution in bipartisanship;
2. A loss of civility;
3. An overemphasis on national security; and
4. An underemphasis on development.

A Biden administration would seek to re-forge the traditional Democratic-Republican consensus in favour of trade liberalisation, restore amicable relations with America’s allies, rebalance the relationship between trade and national security, and reposition the U.S. on the side of poor countries.

So, those four beams of light are:

1. Consensus;
2. Integrity;
3. Peace; and
4. Sustainability.

The first two focus on theory and style and are assessed herein. The third and fourth highlight substantive practice and are analysed in the subsequent ‘On Point’ column.

Consensus

Under President George W Bush, America signed 11 free trade agreements, seven of which entered into force during his administration, and the eighth just after he left office. The administration of President Barack Obama obtained congressional approval of the remaining three FTAs and saw them take effect, including ‘KORUS’ with South Korea – America’s most commercially-significant deal save for the North American Free Trade Agreement. It also sealed the Trans-Pacific Partnership, which fell victim in Congress to idiosyncratic American special interests, and from which President Trump withdrew three days after being inaugurated.

‘America First’ undercut the bipartisan consensus for trade liberalisation that characterised the post-9/11 years. True, the Trump administration completed a limited FTA with Japan, but that was so limited, it didn’t seek Congressional passage. It tweaked KORUS, where again no legislative action was needed. NAFTA 2.0 was an exception: it passed the House and Senate by 385-41 and 89-10, respectively. Yet, save for rules of origin on automobiles, the changes in this United States Mexico Canada Agreement were not dramatic.

A Biden administration likely would address atrophied bipartisanship by eliminating its conceptual cause: a paralysing Hegelian dialectic, i.e. a thesis that provokes a contradictory reaction (the antithesis), with the two standing in a tense relationship and requiring a resolution, a synthesis.

During the late 20th century, Republicans and Democrats chanted competing mantras, respectively, of “free” and “fair” trade. By the turn of the millennium, some members of both parties chanting both, claiming “I’m for free trade, but also for fair trade.” This dialectic resonates in the May 2007 Bipartisan Trade Deal, a laundry list of demands to which the United States Trade Representative must pay attention in negotiating deals. ‘America Firsters’ embody the dialectic: Vice President Pence repeated “free and fair trade” twice in his Aug. 26 RNC speech.

The dialectic has left America paralysed in the global trade treaty race. Canada—neither a laissez-faire free nor socialist trading nation—offers a stark contrast. Its impressive Comprehensive Economic and Trade Agreement with the EU took effect in 2017, and it is a party to the USMCA and TPP’s sans-U.S. avatar – Comprehensive and Progressive Agreement for a Trans-Pacific Partnership. If the key criterion for establishing or expanding manufacturing facilities or service centers is duty-free, quota-free access to the maximum number of markets, most of which have high labour, environmental, and consumer protection standards, then go north. Canada’s the place. Or maybe go south, or east. Trade agreements into which the EU and Mexico have entered recently bespeak American inaction.

To do so, it must shatter the ‘free-fair’ trade dialectic inhibiting both political parties from uniting to catch up to Canada, the EU, and Mexico.

Integrity

“No malarkey”, meaning no bunkum, is a favourite expression of Vice President Biden. Senator Harris doesn’t mince words either. They’ll probably tell the truth about trade theory and practice.

As to theory, the first truth is that removing tariff and non-tariff barriers never were conceived as a full employment strategy. Rather, the laws of absolute and comparative advantage pioneered by Adam Smith and David Ricardo, respectively, justify trade liberalisation. They do so by two static gains that yield a net benefit to society—production gains and consumption gains. The first comes from specialisation in making and exporting goods and services in which a country has a cost-advantage, based on relative factor endowments. Specialisation leads to increased total world output, which offers buyers the consumption gains of more merchandise from which to choose, at lower prices.

Additionally, the opening of markets yields dynamic gains, such as increased savings and investment that boost factor accumulation, i.e., a positive relationship between exports and savings rates, stimulating investment in land, labour, physical capital, human capital, and technology.

Over time, the human- and knowledge-capital accumulation that comes from learning by doing, is also a benefit from trade liberalisation. Contrast Singapore with North Korea, freer trade versus autarky, and the point is obvious.

What’s also obvious is the empirical truth, predicted by Smith and Ricardo, that the gains to a society from trade liberalisation are net-positive. The benefits accrue from the international division of labour. So, job creation and destruction are certain. Whether the effect on jobs—and incomes—is net positive or negative depends on the time-period measured. That’s the truth of the NAFTA 1.0 record. Yet, President Bill Clinton oversold its job-stimulus effects, while President Trump unjustly blames it for ravaging industrial jobs.

Trade (including with China) is a contributing factor, but it is not the prime or predominant cause. Technological change, including the substitution of labour with artificial intelligence, matters. It likely won’t over-sell trade deals as job-killers or job-creators.

A Biden administration also likely would highlight what development economists already know: among the factors, the most important ‘source of growth’ for an advanced industrial and service-based America is human capital. Alas, innumerable studies attest to American students falling behind their peers across parts of the Asia-Pacific region and Europe, thanks to America’s broken public secondary education system and costly tertiary educational institutions.

Enter the possible next First Lady, Dr. Jill Biden.

Her experience and enthusiasm for education, coupled with her husband’s and Senator Harris’ interest in college student debt relief, and providing high-speed internet to rural America, suggest a Biden administration will synthesise trade policy with education policy. In such a construct, trade policy will be education policy and vice versa. Being globally competitive requires well-educated workers.

There’s a third truth: Trade Adjustment Assistance. If, as the U.S. TAA statute puts it, trade “contributes importantly” to job loss, then help is needed – for the dislocated worker, shuttered business, and immediate community. A Biden administration will need to revisit the topic when the current TAA expires on June 30, 2021. They likely will push for what President John F Kennedy did in the first TAA bill, under the Trade Expansion Act of 1962, namely, simultaneous (1) trade liberalisation with (2) help for workers dislocated from that it and connect this linkage to their education policy.

Altering A Trump-Altered World

The task of objectively studying the theory underlying four years of ‘America First’ policy and fashioning a new metaphor that attracts widespread consensus—and as Biden likes to exhort, appeals to our “better angels”—is not easy. Enlightened Trade might just be that metaphor. In the next piece, ‘On Point’ looks at the two other beams that deal with the outcome of policy and practice – peace and sustainability.

Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.

The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.