A Trade Policy for the Middle Class



Orit Frenkel | The Hill

When he takes office in January, President-elect Biden will inherit the worst set of domestic and global crises since Franklin Delano Roosevelt — a global pandemic, a ravaged economy combined with social unrest, deeply frayed global ties, and a cold war with China. These circumstances necessitate a reexamination of traditional policies. Four new realities should guide the administration’s thinking:

Foreign policy and trade begin at home. Traditional approaches have dealt separately with “domestic” issues, such as job security and workforce development, and “international” issues such as trade, aid and diplomacy. Recent elections have shown that the American public is skeptical of global engagement because their jobs are insecure and a social safety net is lacking. America cannot be globally competitive unless it is strong at home, a reality sharpened by the pandemic and its job losses

The U.S. must launch another “New Deal” for working families that includes investment in workers, infrastructure, training, education and R&D, including a national effort to prepare workers for jobs that increasingly are digital and automated. Special attention should ensure that marginalized and underserved communities have equal access to training and education programs. 

This must be accompanied by investment to upgrade America’s decaying traditional infrastructure, as well as in a national 5G network, to ensure that every household has access to a fast, secure internet. Finally, the U.S. government must upgrade its investment in R&D, which declined from 2.25 percent of GDP in 1962 to 0.6 percent in 2019, to maintain America’s national security and global competitiveness. Biden’s plan includes a $300 billion for increased R&D, focused on breakthrough technologies such as 5G and artificial intelligence.

National security is expanded and industrial policy is back. National security traditionally has applied only to economic security in very limited circumstances. Prior to President Trump, this type of restriction last had been used in 1986. The pandemic and new economic realities have expanded our concept of national security. America cannot be competitive, or safe, if we cannot keep our population healthy, which calls for increased onshoring of medical supplies and pharmaceuticals and ensuring that our supply chains are diversified, resilient and secure. Beyond health care, the definition of national security should be expanded to include key infrastructure purchases.

Global supply chains are complex and it is not realistic to uncouple our economy from the rest of the world. Nonetheless, there is a growing realization that America is weaker without strong manufacturing, particularly for essential products. America will continue to depend on global supply chains; however, a targeted reshoring is called for. Biden’s plans include $400 billion for increased public procurement, largely accomplished by a tightening of existing “Buy America” provisions. This needs to be done carefully so as not to exclude domestic products that contain some foreign components. 

Maintaining American leadership in critical technologies is a key part of an expanded vision of national security. Bipartisan support favors an industrial policy for a limited number of key technologies such as semiconductors. Legislation, such as the CHIPS for America Act, is necessary to counter China’s massive investment in semiconductors and expand its global market share.

Trade deals are paused and focus is on low-hanging fruit. With the notable exception of the United States-Mexico-Canada Agreement (USMCA), the Trump administration largely has kept Congress outside of its trade agenda, engaging in unilateral trade actions, such as the imposition of tariffs on China and our allies, or smaller arrangements that eliminated the need for congressional approval. 

Trade Promotion Authority, Congress’s delegation to the president of authority to negotiate trade agreements, expires in July 2021. Congress will want to engage in a deliberate rethink of what a 21st-century trade agreement should include. That, combined with urgent domestic needs, suggests that the new administration should wait before negotiating trade agreements. In the meantime, there is a great deal of low-hanging fruit. 

The tariffs imposed by President Trump provide President-elect Biden considerable leverage. The priority will be to roll back tariffs on our allies, which will spur our economy, as well as restore frayed alliances, which are key to coordinating an approach to China. Reforming and strengthening the World Trade Organization (WTO) is important; however, agreements reached in the WTO are of lower ambition, given its large, diverse membership, and the U.S. should simultaneously pursue higher-standards agreements outside of the WTO.

The tariffs on China provide tremendous leverage to redefine our relationship. The Biden administration should first roll back tariffs on critical inputs used in manufacturing, as well as medical equipment and pharmaceuticals necessary to combat the pandemic. This could serve to draw China into discussions on issues of commonality, such as the pandemic or climate policy. Further tariff reductions should be done, as a negotiation with our allies, to reduce China’s use of non-market measures, such as subsidies or production overcapacity.

Finally, strong enforcement, including USMCA’s labor, environmental and other provisions, will be important confidence-building measures when it comes time to negotiate new agreements.

New priorities: Climate is critical, digital is the future, and values matter. The new administration will have new priorities, which will have an important role to play in Biden’s plan to “Build Back Better” the American economy. Biden is expected to rejoin the Paris Climate Agreement once in office. The Biden administration’s climate initiative should form the underpinning of new trade agreements, including the elimination of tariff and non-tariff barriers on environmental goods and services; a reduction in carbon emissions; the elimination of fossil fuel subsidies; and agreements on border adjustment for carbon pricing.

Second, the pandemic has driven home that our future is digital. Digital access, inclusion and infrastructure must be a domestic priority, and negotiating digital governance agreements must be an international priority. The U.S. needs to work with allies to negotiate agreements that allow for the free flow of data, ensure privacy, and promote a vision of the internet that is open, transparent and democratic. This is vital when faced with China’s vision of the internet that promotes censorship, monitoring and autocracy, which it is advancing across the developing world.

Finally, American foreign policy should be based on shared values of democracy, human rights, and the rule of law. These values start at home. Overcoming systemic racism and other violations of our democratic values must be a priority to reassure a distraught nation and send a message globally that America once again is a beacon of democracy.  

The challenges facing President-elect Biden provide an opportunity to reimagine traditional policies and create a framework that will lead to a stronger, more inclusive and competitive workforce, positioning the U.S. to work with its allies to lead on the 21st century’s most pressing global challenges. 

Orit Frenkel is executive director of the American Leadership Initiative. Follow her on Twitter @OritFrenkel.

The original piece appeared in The Hill: https://thehill.com/opinion/finance/530549-a-trade-policy-for-the-middle-class