Im-Politic: A World Trade Organization Pull-Out Proposal that Falls Sadly Short

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America First, CCP Virus, China, conservartives, coronavirus, COVID 19, export bans, GATT, General Agreement on Tariffs and Trade, health security, Im-Politic, Josh Hawley, Marco Rubio, national treatment, nationalism, non-discrimination, Populism, protectionism, reciprocity, Republicans, rules-based trade, sovereignty, Trade, unilateralism, World Trade Organization, WTO, Wuhan virus

I can barely describe how much I wanted to like Missouri Republican Senator Josh Hawley’s May 6 op-ed piece in The New York Times calling for a U.S. withdrawal from the World Trade Organization (WTO). That’s why I can also barely describe the growing disappointment I felt as I read through it.  At best, it deserves only an “A for effort” grade.

First, let’s give Hawley (considerable) credit where it’s due. As I’ve been arguing since it went into business at the start of 1995, and in fact was predicting during the national debate preceding Congress’ approval of the idea the fall before, the WTO has gravely harmed crucial American economic interests. (This recent post briefy summarizes my views.)

Let’s also give The Times op-ed page credit for running an article that’s even more strongly opposed to the pre-Trump U.S. trade policy status quo than President Trump has been – because although he’s approved policies that have thrown the WTO’s future into doubt, he’s never explicitly called for a pull-out, and in fact his administration has portrayed these measures as vital steps toward WTO reform.

Hawley, moreover, articulates many powerful indictments of the WTO’s failure to defend or advance U.S. interests satisfactorily – notably, the cover it’s given to China and other protectionist economies. 

Unfortunately, Hawley’s anti-WTO case and recommendations for going forward are fundamentally basedsed on two big misunderstandings. The first is that the pre-WTO global trading order set up by the United States was based on reciprocity, and therefore adequately safeguarded the interests of American workers. Absolutely not. In fact, the concept of reciprocity – holding that a country has no obligation to reduce its trade barriers any more than those of its partners – was explicitly rejected by the pre-WTO rules, which were known collectively as the General Agreement on Tariffs and Trade (GATT).

Instead, this global trade regime was based on two principles that actually entitled protectionist countries to maintain higher trade and related economic barriers than those of freer trading countries. The first was called non-discrimination. It simply urged all member countries to treat all other countries the same trade-wise. So if, say, Japan largely closed its markets to one country, all it needed to do to satisfy GATT rules was to treat other countries just as badly.

The second core GATT principle was called national treatment. Under its terms, member countries agreed to treat foreign-owned companies the same as their own companies. So if, say, a country like (again) Japan, which was is still known for fostering cartel-like arrangements that favored some of its own companies over others wanted to discriminate against whatever foreign companies it wished, that was OK according to the WTO.

Some limited exceptions were permitted to both principles. But they explain in a nutshell why Japan’s trade predation (among others’) inflicted so much damage on U.S.-based manufacturing during the WTO period, and why its own economy (among others’) remained so hermetically sealed throughout.

The GATT’s only saving grace – as I just tried to hint by using terms like “urged” and “agreed”  – was that its rules were essentially unenforceable. All told, though, it’s a lousy model for post-WTO U.S. trade policy.

The WTO has featured a strong enforcement mechanism, which is why Hawley (and other critics, like me) have rightly argued that the organization has eroded U.S. national sovereignty. But at the same time, Hawley wants to replace it with “new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty and allow this country to practice again the capitalism that made it strong.”

If the rules are for all intents and purposes voluntary, as with the GATT, then fine – although the question then arises of why the rules are needed in the first place. And the question becomes particularly pointed when it comes to the United States, whose longstanding role as the world’s importer of last resort has long given it more than enough unilateral leverage to create all by itself whatever terms of trade it wishes with any trade partner.

At the same time, this business about creating new arrangements with “other free nations” reveals a second major flaw in Hawley’s argument: a belief that there are lots of other countries out there that agree with the United States on defining what is and isn’t acceptable in international trade and commerce. That kind of consensus is a sine qua non of any rules-based system. In fact, it needs to predate the formal creation of that system. The existence of the system itself can’t summon it into existence – unless one or a group of members can force holdouts to accept the consensus, which brings us back to the question of why countries with those capabilities need a system in the first place.

But if anyone really believed in the required preexisting consensus before the CCP Virus struck, their conviction should lay in smoking ruins now. Because as of March 21, no fewer than 54 countries worldwide had been imposing export curbs of some kind on medical supplies, and the same think tank that compiled this data reported that, as of early April, that number had risen to 70. And their ranks included many U.S. allies. So it should be obvious that, when major chips are down, global trade becomes more of a free-for-all than ever.

Hawley has been among those leading U.S. conservatives and Republicans who are trying to develop a nationalist and populist approach to both domestic and international U.S. policy-making that can survive President Trump’s departure from the White House. (Another has been Florida Republican Senator Marco Rubio.) And I’ve been very impressed by much of their work so far.

But if they’re genuinely concerned about transforming U.S. trade policy, they’ll recognize the need not only to pull the United States out of the WTO, but to replace that organization with a unilateral strategy incorporating the street smarts and the flexibility to free up America to handle its trade policy needs on its own. If others want to sign on and accept U.S. rules and unilateral enforcement, so much the better. But that kind of “America First” arrangement is the only kind of international regime that can adequately serve the national interest.

(What’s Left of) Our Economy: Evidence from Supporters that Obama’s Anti-China TPP Case is Phony

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China, fast track, FTAAP, Obama, rules-based trade, TPP, Trade, Trans-Pacific Partnership, U.S. Chamber of Commerce, {What's Left of) Our Economy

It’s a good thing for President Obama and supporters of his trade agenda that reporters seem to ignore U.S. Chamber of Commerce material when it debunks one of his main stated rationales for the Trans-Pacific Partnership (TPP) trade deal and fast track negotiating authority.

The President and his trade allies repeatedly have argued that the TPP is needed to ensure that China doesn’t have the field to itself in “shaping the rules of the road” for doing business in the Asia-Pacific region. But recently, the Chamber reported that Mr. Obama is now OK with a China-led effort to engage in that very same rule-writing – its proposed Free Trade Area of the Asia Pacific (FTAAP). According to the lobby group, “The U.S. government now publicly supports FTAAP, after opposing it earlier.”

I haven’t found official U.S. statements of support for the FTAA. But at last November’s Asia Pacific Economic Cooperation (APEC) summit, Washington did agree to a Chinese proposal for this group to launch an FTAAP feasibility study (while succeeding in blocking any endorsement of a time-line for the deal). The Chamber’s claim indicates that Mr. Obama’s views of the FTAAP have softened further, and given how multinational corporations dominate the U.S. trade policy advisory system, it’s hard to believe that its assessment is far off base.

In principle, the Obama administration could have warmed to China’s plan in hopes of influencing rule-writing there as well. That’s the Chamber’s take. But if so, then why in Washington’s eyes are both FTAAP and TPP needed? Alternatively, why does the president now seem to believe that America’s rule-writing interests can be served in a trade negotiation that includes China, whereas for months he has insisted (and keeps claiming) that these interests require the rules to be written before China joins? Similarly, how could a finished TPP (without China, at least at first) ensure U.S.-friendly commercial rules for the Pacific Rim when America and most of the other countries involved are working with China to write another set of rules (albeit one that presumably wouldn’t get finished until much later)?

It’s important to note that, even without this FTAAP complication, the American notion of excluding China from an East Asia/Pacific trade zone is a fool’s quest. The region’s manufacturing in particular is too tightly integrated, and China plays too central a role in the system. Moreover, the idea that any of Asia’s main trading powers take seriously the idea of rules even for governing their own countries ignores millennia of history. But unless the Chamber’s report is flat wrong, this FTAAP news is compelling new evidence for a more important proposition – that the next accurate statement the president makes about fast track and TPP will be the first.

(What’s Left of) Our Economy: The Washington Post’s Embarrasingly Bad Pro-TPP Editorials Just Keep Coming

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Asia, China, escalation dominance, exports, Japan, Jobs, North Korea, pivot, rules-based trade, TPP, Trade, Trans-Pacific Partnership, Uruguay Round, Washington Post, World Trade Organization, WTO, {What's Left of) Our Economy

It’s a good thing for the offshoring lobby and other mindless American trade cheerleaders that the fate of President Obama’s Trans-Pacific Partnership (TPP) and other new trade deals won’t depend significantly on Washington Post editorials. If it did, the proposed Pacific rim agreement and the new negotiating authority also being sought by the president would be DOA in Congress.

The Post‘s latest missive on behalf of the TPP stumbled practically out of the gate. According to Post editorialists, the president’s claims that the Pacific deal and a roughly similar pact with Europe would boost American exports and create high wage domestic jobs were a welcome breath of fresh air. Huh?

The editorial then proceeded to careen ever faster downhill. According to the Post, listeners shouldn’t take literally Mr. Obama’s contention that “as we speak, China wants to write the rules for world’s fastest growing region. That would put our workers and our businesses at a disadvantage.” According to the Post, taking the president’s words at face value would amount to believing a “conspiratorial” charge that “Beijing’s bureaucrats are plotting to impose a whole new set of laws and regulations on East Asia’s economy.”

What Post writers evidently have forgotten is that turning the world trading system into one that’s governed by the rule of law instead of the law of the jungle has long been a central aim of U.S. policy. We know this, and we know that the TPP is Washington’s latest effort to achieve this goal, in large part because not only do Presidents keep highlighting its importance. So do major newspaper editorials – like this very same Post offering, which insists that the deal would “organize trade in the Pacific Rim according to U.S. free-trade principles rather than China’s mercantilist goals.”

Nor is this a standalone Post position. Last April, its editorial board wrote that TPP would:

“ensure that this huge area, including giants such as Japan, Canada, Mexico and Australia, conducts business according to U.S.-style rules on tariffs, regulation and intellectual property. China would be left on the sidelines, along with its mercantilist model of international commerce — unless and until it modifies that approach.”

What the Post – and the president – need to understand is that this quest for rules-based trade, as I’ve argued before, is actually counter-productive for Americans because so many of its trade competitors, especially in Asia, reject the idea of rules-based governance in their own countries. Believing that their governments will apply it to Americans (and other foreigners) when they deny this benefit to their own people is simply daffy.

At the same time, because American political culture is based on the rule of law, while U.S. competitors merrily keep ignoring new trade rules, the United States will keep respecting them – which has been a sure-fire recipe for super-charged trade deficits, slower growth, mounting job loss, lower wages, and astronomical national debt. Doubters should consider that these have been the unmistakable results of Washington pushing and signing the Uruguay Round agreement, which created a new organization – the World Trade Organization – aimed at writing and enforcing strong global trade rules, as well as bilateral deals like the free trade agreement with Korea, which is Mr. Obama’s so-called “high standards” model for the TPP.

But the Post‘s exercise in incoherence doesn’t stop there. Readers are told that the president’s reference to trade rules is really an allusion to:

“the wider strategic rationale for the Trans-Pacific Partnership, which would link North and South America, Australia and New Zealand more closely, and on more equitable terms, with Japan and other key Asian nations. By and large, these Asian countries seek to maintain a strong U.S. presence in their region as a counterweight to Chinese influence.”

TPP success “is therefore a vital interest for them — and for the United States. Both economically and geopolitically, the ­Trans-Pacific Partnership would perpetuate the United States’ stabilizing role in Asia….”

What these passages reveal is that the Post‘s editorialists don’t know the first thing about power politics, leverage, and bargaining chips – or even about the strategic situation in the East Asia/Pacific region. The United States has maintained a “strong presence” there since 1945 in the form of the Seventh Fleet and other military forces. It’s not going anywhere, and in fact, the administration’s military “pivot” away from the Middle East and toward Asia signals the aim to reinforce these units (even though little progress has been made so far on this front – at best).  

Not that big threats to America’s grand strategy in the Pacific region aren’t easy to identify apart from actual U.S. force levels.  As I’ve argued, the nation’s seemingly impending loss of nuclear escalation dominance against both North Korea and China is a far bigger worry.  TPP is completely irrelevant to solving this problem. 

And however important this region’s security and independence is to America strategically and economically, it’s obviously more important to local countries. Which means that they have a much greater need to demonstrate their usefulness to the United States than vice versa. That so many of these countries, especially Japan, have balked for so long at American proposals to open their markets wider says loud and clear that the Obama negotiating team has ignored these realities, and that anyone linked to this strategy should be fired for sheer incompetence. Editorial writers who parrot this nonsense of course can do no such damage to U.S. interests. But shouldn’t they be shown the door too?