(What’s Left of) Our Economy: The World Trade Organization Unmasked

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Chad Bown, China, Foreign Affairs, Keith Bradsher, multinational companies, Peterson Institute for International Economics, Ronald Reagan, Section 301, The New York Times, Trade, trade law, Trump, World Trade Organization, WTO, {What's Left of) Our Economy

It isn’t every day that Washington’s offshoring-happy economic policy establishment reveals one of its dirtiest secrets in public (unwittingly, of course!). So anyone – and especially U.S. political leaders – with any interest at all in trade, globalization, manufacturing, employment, and related issues (e.g., the economy, getting re-elected) urgently needs to read the final paragraphs of Tuesday’s New York Times article reporting that President Trump will soon greatly ramp up trade pressure on China.

But it’s vital to read the passage intelligently, because the point is made in in the kind of Washington-speak intended to conceal its real meaning.

As Times reporter Keith Bradsher wrote, a key feature of Mr. Trump’s alleged new China strategy will be the use of a provision of America’s national trade law system called “Section 301.” It’s a provision that grants a president broad authority to respond with punitive tariffs to foreign trade practices considered to be damaging the U.S. economy in “unfair” ways, and to respond pretty quickly. (It’s still not nearly quick enough for me, but that’s a separate issue.) And as he made clear, it’s a trade law provision with a noteworthy history. In Bradsher’s words:

“The United States used Section 301 energetically against other countries during the Reagan administration and the administration of President George Bush. Mr. Lighthizer [the current chief U.S. Trade negotiator] was a deputy United States trade representative in the Reagan administration and has been an advocate of shielding the American industrial base from government-assisted foreign competitors.

“But the cases then thoroughly antagonized America’s trading partners.

“‘It was really the aggressive uses of this in the late 1980s and early 1990s that prompted the rest of the world to set up the dispute resolution system’ of the World Trade Organization [WTO], said Chad P. Bown, a senior fellow at the Peterson Institute for International Economics here.”

Bown – whose Peterson Institute home is heavily funded by the offshoring lobby – no doubt meant his statement to reinforce the standard establishment description of and rationale for the WTO-centered world trade system that’s been in existence for the last quarter century. That is, the international economy had too long operated on a law of the jungle basis that bred continual and dangerous conflict, and that in an act of enlightened self-interest, the world’s economies recognized these perils and created a global trade court that would mete out justice according to objective legal standards and thereby serve every countries’ long-term interests.

In fact, Bown wound up confirming a very different description of the WTO and the motives behind its creation that I have advanced since it was first proposed: It’s an arrangement supported by America’s trade partners in order to prevent the United States from using its matchless market power to promote and defend its legitimate international economic interests. P.S. – because U.S.-based multinational companies supply the American market from so many overseas factories, undercutting Washington’s unilateral power to restrict imports mattered crucially to them, too.

For the Reagan-era uses of Section 301 cases that Bown (and Bradsher) mention were noteworthy not mainly because they were “energetic” or “aggressive”. (Unless you view most of America’s trade partners as snowflakes or strong champions of the rule of law.) These 301 uses were noteworthy because they worked. All the evidence is contained in this article I published in Foreign Affairs in 1994. And as Bown made clear, this success was completely unacceptable to “the rest of the world” – most of which, like China, relies heavily on selling to America in order to grow and develop satisfactorily. As a result, these economies, along with the multinationals, became convinced that handcuffing the United States was essential. And official Washington dutifully went along.

Although Section 301 is still on the books, it’s been U.S. policy under Democratic and Republican presidents alike to avoid it in favor of WTO procedures (just as most foreign governments, including allies, and the multinational companies want). And legally speaking (a term I use advisedly when it comes to the WTO and international law generally), that approach seems to dovetail with WTO rules.

But the Trump administration appears to be considering the contention that the United States retains the unfettered authority to use 301 at least in certain instances. The administration further seems confident that, whether it’s right or wrong on the law, the WTO membership collectively will shrink from a frontal challenge for fear of completely destroying a dispute-resolution system that still might serve its interests well going forward – at least much of the time. 

Nevertheless, the reports of a Trump course change on China trade – which could eventually be broadened – are still just reports. All that’s certain now is that, if they’re accurate, the president will wind up showing the his own compatriots and the rest of the world what a real America-First trade policy would look like.

 

Im-Politic: The Latest Anti-Trump Smear is Anything but a New Low

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2016 election, Colbert King, David Duke, Donald Trump, Establishment Media, Foreign Affairs, Hobart Rowen, Im-Politic, Immigration, Japan, Japan-bashing, Nancy Pelosi, Obama, racism, Richard Holbrooke, The New York Times, Trade, Washington Post, xenophobia

I was tempted to say that Colbert King’s Washington Post column today – which tarred as race-baiting Donald Trump’s attacks on not only current U.S. immigration policy but trade policy as well – marked a new low in Establishment Media elitism and plutocracy coddling. Then I remembered that both the mainstream press and the broader Beltway political class have been using these underhanded tactics literally for decades.

According to King, when it comes to trade and immigration, in this year’s presidential campaign, Trump is using the formula employed by former Ku Klux Klan member, racist, and anti-Semite David Duke when he ran for Louisiana governor in 1991 – wooing “economically discontented and politically alienated white voters by playing to their fears and resentments.”

King rightly reminds that Duke – who has endorsed Trump’s presidential candidacy – is an unapologetic bigot. But he pointedly included in his attack on Duke’s success in appealing to voters who were “frustrated, insecure, angry and ready to blame someone” popular concerns over predatory Japanese trade policies and “massive immigration.” And he just as pointedly observed that these themes “echo today” in the rhetoric of the current Republican front-runner.

Sadly, he’s just the latest in a long line of U.S. leaders and Beltway scolds who have made lucrative careers working to ostracize any reservations about globalist trade and immigration policies that have enriched and empowered one percent-ers at the expense of the nation’s working and middle classes.

I first encountered these tactics in the early 1990s, while working at the Economic Strategy Institute. This think tank sought to challenge the free trade absolutism that then reigned virtually unchallenged in American policy circles. In the process, it tried to focus particular attention on Japanese economic successes that strongly indicated that a brand of capitalism differing significantly from the U.S. version could achieve impressive results and create major problems for American industries, their workers, and the country’s overall economic vitality.

An all-too-common response from the establishment pundits of the day, along with prominent think tanks created expressly to uphold conventional wisdom, was to brand the Institute as a “Japan-basher,” whose arguments were fueled by prejudice. Nor were the perpetrators shy about leveling these charges.

According to the late prominent American diplomat Richard Holbrooke – writing in no less than foreign policy establishment house organ Foreign Affairs in an effort to lower then-elevated U.S.-Japan tensions – “there may still be an underlying racism, not always conscious, in the attitudes of some Americans toward Japanese.” And the late Washington Post economics Hobart Rowen had no compunction in making this point to Members of Congress critical of Japan’s protectionism.  (Both these points are made in this Rowen column.)   

Immigration-boosting zealots in establishment ranks have committed the same intellectual crimes – and years before Donald Trump became a leading political figure. For example, when the Senate passed an immigration bill containing a path to legalization, The New York Times moaned, “It is hard to understand what — besides election-year pandering and xenophobic hostility — motivates [the House of Representative’s] unwillingness” to approve the measure. That was in 2006.

Commenting on the immigration policy environment, a junior Senator from Illinois charged, “A certain segment has basically been feeding a kind of xenophobia. There’s a reason why hate crimes against Hispanic people doubled last year. If you have people like Lou Dobbs and Rush Limbaugh ginning things up, it’s not surprising that would happen.” That was Barack Obama, and the year was 2008.

House [Democratic] Minority Leader Nancy Pelosi has stated, “I think race has something to do with them not bringing up the immigration bill. I’ve heard them say to the Irish, ‘If it was just you, it would be easy.’” That remark came in 2014. And if you Google the right search terms, you’ll see that these examples are just the tip of the iceberg.

There’s no doubt that there’s entirely too much anger in American politics today, and that Trump is responsible for much of it. But many of his opponents are in no position to single out Trump’s contribution. As King’s column make clear, their ranks include smear merchants, too. And their paper trail long predates the current campaign.

Our So-Called Foreign Policy: A Conflicted but Noteworthy Call for a U.S. Middle East Pullback

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Council on Foreign Relations, energy, Foreign Affairs, foreign policy establishment, Henry Kissinger, Iran, ISIS, Middle East, Obama, Our So-Called Foreign Policy, Saudi Arabia, Syria, terrorism

The signs are getting curious-er and curious-er that the American foreign policy establishment is becoming more and more taken with the idea of just throwing up its collective hands in exasperation and walking away from the Middle East. In addition to being personally gratifying to yours truly, as I’ve been urging this course change for many months, it would be great for the nation as a whole, as the region has become completely dysfunctional on every level imaginable. Therefore, the notion that any outside power can intervene or try to manage events constructively has become a formula for disaster.

Last week, I noticed that former Secretary of State Henry Kissinger, clearly still one of America’s foremost foreign policy gurus, published a column in The Wall Street Journal that could easily be read as a thinly disguised brief for withdrawal. This essay has now been followed by one in Foreign Affairs that argues explicitly for a U.S. pullback – mainly in military terms. That journal has for nearly a century rightly been seen as the flagship publication of the national foreign policy establishment – or, more accurately, its increasingly underwhelming remnants – because it’s sponsored by the Council on Foreign Relations, the closest approximation the nation has to Establishment HQ. And to thicken the plot further, Kissinger has long been a leading power in the Council’s counsels.

Skeptics can observe that the article’s authors are two former Obama administration White House foreign policy advisers, and that, just to keep a premature campaign promise, the president wants nothing more than to wash his hands of the Middle East and its seemingly endless wars and turmoil. But its appearance in Foreign Affairs means that a much broader – and powerful – part of the establishment has at least decided that this recommended strategy has now become legitimate to bring up. And such developments and the signals they send throughout not only the policy and political communities, but into the upper ranks of business and finance, have a habit of influencing decision-makers sooner or later.

The main problem with “The End of the Pax Americana” – which Foreign Affairs‘ editors billed as pointing to a “Post-American Middle East” – is that the pullout depends on a great many things going right in a region where confidence in the future has rarely been justified. The authors’ overall prescription is that Washington seek to advance America’s “primary interest” in the Middle East – “regional stability” – by acting as an “offshore balancer.” As they explain, this political science-y term entails “refraining from engagement in overseas military operations and forgoing quasi-imperial nation building to focus instead on selectively using its considerable leverage to exert influence and protect U.S. interests.”

But usually when analysts use phrases like “use its considerable leverage to exert influence,” it’s a sign of fudging. On the one hand, they’re seeking to dispel the illusion that the United States remains powerful enough simply to dictate outcomes in the region. On the other hand, they’re insisting – for no apparent reason – that the amount of influence that can be exerted will always, or at least often enough, suffice to achieve the desired goal.

It also seems that the authors are saying that whatever interests the United States retains can’t be addressed militarily (hence their warning that “Political and economic developments in the Middle East have reduced the opportunities for effective American intervention to a vanishing point….”) but can be handled diplomatically. Which seems awfully, and inconvincingly, convenient.

But the bases for the authors’ optimism are also specific and concrete, though no more persuasive. Will the United States really be able to continue deterring Iran’s ambitions to be the Middle East’s kingpin even after it becomes clear that a major military campaign against ISIS has been ruled out?

Indeed, it’s doubtful that the authors themselves believe this. In the first place, they pointedly add that Iran probably isn’t strong enough to dominate the region. And in the second place, even though they portray a major ant-ISIS campaign as the height of strategic folly, they argue that “a serviceable regional U.S. military presence” can “prevent ISIS from expanding further (into Jordan, for example) and…deter Iranian breaches of the nuclear deal and respond to any destabilizing Iranian moves, such as a major ground intervention in Iraq.” Even, apparently, though this presence should never be used.

Moreover, the serviceable presence itself turns out to be pretty big. In fact, they maintain that “The American military footprint in the region should not change.” In fact, neither should the Obama administration’s current military strategy:

“The air campaign against ISIS should continue, and American troops will still need to be deployed occasionally on a selective basis to quell terrorist threats or even respond in a limited way to large-scale atrocities or environmental disasters. But a resolute policy of restraint requires that any major expeditionary military ground intervention on the part of the United States in the Middle East be avoided and that regional partners be encouraged to take on more responsibility for their own security.”

And that reveals a further weakness with the authors’ proposals: As they themselves point out, Washington has few, if any, local countries it can rely on. Worse, its supposedly closest allies, like Saudi Arabia, seem deeply conflicted about the desirability of defeating the terrorists – as opposed to trying to use them to overthrow Syrian dictator Bashir Al-Assad.

Nonetheless, even though “The End of Pax Americana” doesn’t make a sound case for U.S. withdrawal from the Middle East, and in fact seems to back only the slightest actual policy changes, its appearance in Foreign Affairs is a minor milestone. It pushes the foreign policy mandarinate – and therefore the nation as a whole – one step closer to a strategically sensible and prudent case for exiting the region, one that recognizes America’s potential to deal with the threats the region still generates mainly through domestic policy that capitalize on its geographical remoteness from the Middle East and its potential for even greater energy self-sufficiency.

But all the progress in the world won’t make a difference unless it takes place fast enough to prevent a new regional disaster for the United States. And so far, it’s been tough to justify genuine optimism on that score.

(What’s Left of) Our Economy: Better U.S. Growth Through Tariffs

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Alabama, Bloomberg, economists, FDI, Foreign Affairs, foreign direct investment, imports, incentives, Jobs, manufacturing, production, recovery, tariffs, Trade, {What's Left of) Our Economy

If there’s anything you can count on other than death and taxes, it’s nearly all of America’s economists and members of the political and policy elites abhorring unilateral tariffs on imports as dangerous folly. (Multilateral tariffs, applied with the approval of the World Trade Organization, are generally more popular, as they’re seen as an internationally acceptable means of enforcing global trade rules.) Which is why it’s so important for RealityChek to keep pointing out examples of these duties working like a charm to help bring valuable production and jobs to the United States.

A recent Bloomberg item showed just how effective tariffs can be. This report on a recent $120 million Chinese investment in a copper tubing factory in Alabama contained the usual boilerplate about the Chinese company wanting to avoid higher wages back home and seeking to manufacture closer to its customers. To their credit, the reporters also noted that Alabamanians needed to shell out $20 million in incentives to make sure the Chinese chose their state – a widespread practice that should remove much of the shine from this piece of the American manufacturing renaissance meme.

But they and their editors also buried a crucial inducement for China deciding to produce these goods in the United States – to avoid tariffs on copper products. Nor has this been an isolated case. Years ago, in Foreign Affairs quarterly, I described how Reagan-era tariffs and quotas resulted in major new foreign investments in American auto assembly plants and steel mills. And similar measures clearly continue driving the construction of lots of new foreign-owned facilities in the United States today. Of course, America’s trade competitors have mastered this strategy, too. Scholarly research makes clear that erecting trade barriers in order to induce “tariff jumping” investment is common in developing countries. But Europe also attracted considerable U.S. and other multinational capital in the electronics and information technology sectors with this practice.

Tariffs are especially promising for America, however, not only because of that matchless consumer market mentioned above, and the leverage it creates with foreign governments and corporations alike. They’re especially promising because this huge consumer market is so far away from most of the foreign production sites that still supply it so successfully. Making products in America is both a great way to cut transportation costs and a great way to cut delivery times.

American labor and regulatory costs of course remain on the high side. And foreign governments are rarely shy about using a wide range of subsidies – including artificially cheap currencies – to keep their own goods and services competitive. All the more reason, then, for Washington to set about meaningfully boosting the weakfish U.S. recovery by using tariffs more systematically to lure productive, job-creating foreign investment and technology.  Why keep arguing with success?