The Twilight of US Trade Leadership



Claude Barfield | American Enterprise Institute

As 2024 begins, the United States continues its retreat from its post-World War II role as leader of a rules-based global trading system. This retreat began in 2017 with the mercurial and destructive trade policies of former president Donald Trump and has continued since 2021 with the deeply conflicted trade policies of current President Joe Biden’s administration.

The resulting damage is strategic as well as economic with the rise of China’s authoritarian state-capitalist model combining heavy public subsidies with technology protectionism and unilateral economic coercion.

In November 2023, trade officials capped years of a trade policy vacuum by failing to reach an agreement on the trade portion of its signature economic initiative in Asia, the Indo-Pacific Economic Framework for Prosperity (IPEF). The embarrassing debacle only reinforced Asian views that the United States is an ‘unreliable’ economic partner.

While deeper social and economic shifts have contributed to the United States reaching a low point in trade leadership, the proximate political event was Trump’s election in 2016.

Abetted by advisers who either knew better or were ideological cranks, such as economic adviser Peter Navarro, Trump’s ‘America First’ trade policy was guided by the president’s personal whims and false longstanding conclusions about postwar US trade policy. These false conclusions include the notion that trading partners — rather than US consumers and businesses — pay for tariffs, trade policy is the main factor influencing the US trade balance or that the World Trade Organization (WTO) always rules against the United States.

Two decisions in particular were damaging for strategic and economic reasons: withdrawal from the Trans-Pacific Partnership and the spurious invocation of a national security rationale to levy tariffs on steel and aluminium imports, even against US allies.

US officials have refused to accept a WTO decision that the tariffs violated international trade rules. Meanwhile, in the Asia Pacific, nations have negotiated new regional agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership agreement. These agreements have spurred increased trade flows and investment, leaving the United States behind.

Initially advanced by the United States, the CPTPP was the first major trade agreement to include an e-commerce chapter. Beijing is now pressing to join the CPTPP and though members can slow down the application, China may achieve its goal in the future.

Under Biden, the United States adopted a conciliatory tone toward US allies. Yet Biden continued many of Trump’s worst policies, including the so-called ‘national security tariffs’ and dawdling over proposals to restart the WTO dispute settlement process, which had been hampered by the Trump administration’s refusal to allow the appointment of new WTO Appellate Body judges — a stance continued by the Biden administration.

Arguing that traditional trade agreements negotiated under both Democratic and Republican presidents had sent jobs offshore and devastated local communities, US Trade Representative Katherine Tai promised a new ‘worker-centric’ trade policy that would be inclusive and equitable. During a major speech in April 2023, Jake Sullivan, Biden’s National Security Adviser, posited a ‘new Washington Consensus’ that eschewed free trade agreements and built upon new strategic industrial policy. Former director of the National Economic Council and former president Barack Obama’s top economic advisor, Lawrence Summers, strongly criticised the ‘aggressive economic nationalism’ and the statist emphasis in the speech.

The result of these policies is that while other nations, including major strategic competitor China, have moved forward with growth-enhancing trade pacts — with 36 agreements being notified to the WTO — the Biden administration’s only major international economic initiative — the IPEF — remains in limbo. IPEF is stymied by US refusal to offer market access concessions in exchange for its demands for politically difficult labour rights and environmental concessions.

Given the increasing centrality of the digital economy in the future, the most damaging policy reversal by the Biden administration is the decision to abandon longstanding US digital trade policies that championed the free flow of data, opposed forced data localisation and protected individual source code. In a triumph for misguided progressivism and trade union muscle, the United States Trade Representative officials withdrew from WTO e-commerce talks, asserting the need for more ‘policy space’. Even a Biden administration ally, US Senator Ron Wyden, labelled this move as a ‘win’ for China.

Trade policy is off the table until after the US presidential election. Even in 2025, the outlook is not good for renewed US leadership. Trump has vowed to cancel the IPEF and introduce across-the-board 10 per cent tariffs on all trading partners. There is no sign that Biden, if re-elected, would challenge the anti-globalists in his own party. Happy New Year.

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