US Trade Policy as an Instrument of Foreign Policy
Alan Wm. Wolff (1)
February 5, 2018
For most of the last 100 years, the United States has entered into trade negotiations based upon the belief that open markets foster democracy which in turn supports the maintenance of world peace. This grand credo – that increased trade bolsters the prospects for peace - indicates that U.S. trade policy - aside from its announced goal the opening of foreign markets – has also had an important foreign policy component. In fact, trade policy has been a bedrock of U.S. foreign policy dating from the Second World War. If this is no longer the objective of U.S. trade policy, this largely unnoticed change in policy is nothing short of revolutionary.
Some clarifications are in order to keep the overarching policy objective in perspective: First, the fact that this high foreign policy aim was embraced by political leaders did not regularly affect actual detailed trade negotiations. In the trenches, U.S. trade negotiators, at least for the last several generations, have apparently been oblivious to the greater purpose that their efforts served. They simply sought to open foreign markets for U.S. goods, services, and investment. Second, foreign policy objectives can be served not only by opening markets but, as has been the case, through weaponizing trade though the imposition of sanctions.
The question examined today is whether the grand article of faith – that obtaining more open markets leads to the creation of democracies which in turn improves the prospects for world peace - is still accepted U.S. dogma and whether it is operational as current policy. If it is not, and the evidence suggests that this might be the case, the change in policy, is profound. If there has been a loss of faith, it is likely to have occurred through erosion over time, and is not solely a question of a new administration coming into office as a result of the 2016 Presidential election.
This paper attempts to trace the thread of trade policy for peace from its inception, and provide some evidence of whether somewhere along the way that policy was forgotten or discarded. If so, it is a paradigm lost.
Why is this so very important? It means that the basis for U.S. support for the multilateral trading system must now be found in pragmatism, in narrower commercial self-interest, and perhaps much less if at all on the basis of America’s foreign policy interests.
If the sole motivation for participation in the world trading system is obtaining reciprocity, can the system be maintained, much less improved? Which countries will act and to what extent for the global public good? This question is independent of providing “special and differential treatment” for developing countries. The answer to the question of how much countries will be willing to act on the basis of a broader definition of national interest is fundamental to the well-being of all.
Trade and foreign policy have been intertwined throughout history, with foreign policy often tailored to promote trade interests. In the 3rd century BC, during the Han Dynasty, China used its military power to maintain the Silk Road for its value for trade. In the year 30 BC, Rome conquered Egypt in large part to have a better supply of grain. In the 18th century, the British East India Company drove British foreign policy toward South Asia based on British trading interests. In the mid-19th century, trade dominated the thinking of the U.S. government in its relations with East Asia. Commodore Perry sailed to Japan 1853-54 in order to open that market to U.S. trade, and eleven years later the United States concluded the Treaty of Wangxia with China, again to support trade. In each case, foreign policy was enlisted to serve national trade interests.
A brief history of modern American policy
During the 20th century, the consideration of trade by the U.S. government took a very different tack. President Taft sought without great success to make foreign policy and trade mutually supportive. He sought to use American trade, investment and finance to shore up governments for reasons of foreign policy. (2)
Woodrow Wilson faced a world shattered by war. He saw trade as an integral part of an improved system of international relations. Wilson's Fourteen Points at the Paris Peace Conference prominently included the following objective:
III. The removal, so far as possible, of all economic barriers and the establishment of an equality of trade conditions among all the nations consenting to the peace and associating themselves for its maintenance.
This lofty objective did not, however, appear to have been a driving force in either trade policy or foreign policy of the Wilson Administration. Tariffs levels were set in order to accommodate domestic private sector interests and the Federal government's need for revenues.
President Franklin D. Roosevelt, who had served as Assistant Secretary of the Navy in the Wilson Administration, and Roosevelt's Secretary of State Cordell Hull made the trade Wilsonian objective operational. They saw trade as a way to move the world toward more peaceful relations, as well as providing economic benefits. This is how Cordell Hull articulated this principle of U.S. policy 80 years ago on February 6, 1938:
Our nation, and every nation, can enjoy sustained prosperity only in a world which is at peace; a peaceful world is possible only when there exists for it a solid economic foundation, an indispensable part of which is active and mutually beneficial trade among the nations.”
For Cordell Hull and the Secretaries of State who followed him, the foreign policy establishment that shaped U.S. wartime and post-war strategy, did not see diplomacy and trade policy as separate. In their minds, free trade, free markets and free men were inseparable ideals. (3) This is the rock upon which U.S. trade policy was based for decades to come.
Franklin Roosevelt joined Winston Churchill to enshrine this cardinal objective of U.S. policy as one of eight agreed points in the Atlantic Charter, which they issued at Placentia Bay in Newfoundland on August 14, 1941:
The President of the United States and the Prime Minister, Mr. Churchill, representing H. M. Government in the United Kingdom, being met together, deem it right to make known certain common principles in the national policies of their respective countries on which they base their hopes for a better future for the world: . . .
They will endeavour with due respect for their existing obligations (4), to further enjoyment by all States, great or small, victor or vanquished, of access, on equal terms, to the trade and to the raw materials of the world which are needed for their economic prosperity.
One year later, the United States having become an ally and combatant in the Second World War, President Roosevelt issued the following message:
"A year ago today the Prime Minister of Great Britain and I, as representatives of two free nations, set down and subscribed to a declaration of principles common to our peoples. We based, and continue to base, our hopes for a better future for the world on the realisation of the … principles [stated in the Atlantic Charter] . . . .[N]ations and groups of nations in all the continents of the earth have united. They have formed a great union of humanity, dedicated to the realisation of that common programme of purposes and principles set forth in the Atlantic Charter . . .
When victory comes we shall stand shoulder to shoulder in seeking to nourish the great ideals for which we fight. It is a worth-while battle. It will be so recognised through all the ages, . . .. We reaffirm our principles. They will bring us to a happier world."
Toward the end of the war, FDR continued to relate his efforts for more open trade to serving the cause of world peace. On March 26, 1945, he asked the Congress to extend and increase the President’s trade negotiating authority, writing:
The purpose of the whole effort is to eliminate economic warfare, to make practical international cooperation effective on as many fronts as possible, and so to lay the economic basis for the secure and peaceful world we all desire.
Trade was central to the reconstruction of Europe under the Marshall Plan, and as a bulwark against the spread of communism and Soviet influence. A central purpose of the Plan, as articulated by its administrator, the Economic Co-operation Administration, was "facilitating and stimulating the growth of international trade ...by appropriate measures including reduction of barriers which may hamper … trade." (5)
Not surprisingly, the relationship of trade to the postwar peace that was sought was further given prominence in the negotiation of the Havana Charter for an International Trade Organization (the ITO) in 1948. The first two sentences of The Charter's Articles of Agreement read:
Recognizing the determination of the United Nations to create conditions of stability and well-being which are necessary for peaceful and friendly relations among nations, the parties to this Charter undertake in the fields of trade and employment to co-operate with one another and with the United Nations.
With the Atlantic Charter and its reaffirmation, and the founding of the Bretton Woods and related institutions, the path forward for U.S. trade policy as an adjunct to a vision linking trade and foreign policy was set for the next two generations.
The General Agreement on Tariffs and Trade (the GATT), successor to the ITO, continued to pursue more open trade to be shared by all nations in line with U.S. wartime objectives. Trade policy was also combined with another strand of U.S. foreign affairs policy: While trade was fostered with Western Europe, it was being used as a foreign policy instrument to limit trade with communist countries under CoCom (Coordinating Committee) of the Western nations. CoCom imposed limits on exports of munitions to the Soviet bloc and China, and then, with the advent of direct Chinese intervention in the Korean War, imposed a complete embargo on all trade with China in December 1950. When I joined the U.S. Treasury in 1968, one of my first assignments was to write letters denying entry into the United States of anything that looked Chinese unless it could be proved by the person seeking to bring the item into the country that it came out of the Peoples Republic before October 1949, the date when the Communists took over. (6)
The Cold War dominated the next chapter of American trade policy. Sixty years ago, on March 25, 1957, France, West Germany, Italy, the Netherlands, Belgium, and Luxembourg signed the Rome Treaty creating the European Economic Community (EEC), also known as the European Common Market. The United States strongly supported the creation of this Europe project, in part to assure that war did not break out again between Germany, Italy and their neighbors, but also very much to form an economic bulwark against Soviet expansion. This came with real costs for American commerce, as a customs union to which America was not a party. By definition the European Economic Community gave better treatment to the trade of its members than to nonmembers such as the United States. (7)
In 1962, the Trade Expansion Act, enacted at the request of John F. Kennedy, contained three stated purposes: to stimulate the nation's economic growth through expansion of foreign markets; to strengthen economic relations with foreign countries; and to prevent Communist economic penetration. Increased authority was included for the President to lower U.S. tariffs if a trade agreement were reached with the European Economic Community. Tariff reductions were to be used to bolster the Europe project (and to dilute the discrimination inherent in the formation of a customs union). The European agreement authority was never utilized. No special U.S. trade arrangement was struck then or since by the U.S. with Europe. In addition, the legislation prohibited tariff reductions being made for countries dominated by “the world Communist movement”. This proscription included China, the USSR and Cuba. Based on the 1962 Trade Act, the Kennedy Round of Multilateral Trade Negotiations concluded in mid-1967, substantially lowering tariffs among the non-communist membership of the General Agreement on Tariffs and Trade (the GATT), the temporary organization salvaged from the wreckage of the ITO.
The next prominent landmark in the interrelationship between trade and U.S. foreign policy was the 1971 Nixon import surcharge. This trade measure was part of a package of measures that included a tax adjustment at the border to assist U.S. exporters. The relationship to foreign policy was important but indirect. A primary purpose of the 10 percent import surcharge was to persuade America’s trading partners to allow the dollar to depreciate. The concern at the time was not that the U.S. had a trade deficit, but that the U.S. current account trade surplus was not large enough to pay for America’s global military and foreign assistance role. (8)
On January 1, 1973, Denmark, Ireland and the United Kingdom became Member States (9). In early February, British Prime Minister Edward Heath in his remarks at a White House dinner hosted by President Nixon “paid tribute to the support that successive American administrations had given to European unity.” (10) Under the GATT rules (11), there were compensation negotiations for specific items of interest to the United States where tariffs were raised or market access limited. I was on the US negotiating team in 1974 to obtain some compensation. There was never any question but that the foreign policy objective to strengthen Europe would take precedence over U.S. trade interests, as U.S. goods would increasingly face discrimination in the enlarged European Common Market. Once again trade policy was subordinated to the central foreign policy objective.
I joined the Office of what is now called the U.S. Trade Representative (USTR) in the Executive Office of the President in March 1973 to work with the Congress for nearly a full two years on drafting the basic statute under which the U.S. has negotiated trade agreements, The Trade Act of 1974. (12) On April 10, in sending the proposed legislation to the Congress, President Nixon said that negotiations under the new statute would create American jobs, help American consumers, “and most importantly, these proposals can reduce international tensions, and strengthen the structure of peace in the world.” (13) I suspect that I was not aware of the policy prescription of world peace through trade agreements. During my six years in the Office, first Deputy General Counsel then General Counsel during the Ford Administration, and then as Deputy Trade Representative during the Carter Administration, I saw our primary objective being to open markets for U.S. exports, and a secondary objective to deal with harm from injurious trade. No one in our office talked at the time about the effect of our efforts on international relations, unless it was to avoid our causing strains in bilateral relations through trade remedies or through pressing demands for market opening.
During these years, from the perspective of the trade office, our work as trade negotiators as we viewed it proceeded independently of foreign policy - with three noteworthy exceptions. The first imposed by Congress, the second a Presidential response to a foreign act of aggression, and the third led by the State Department designed to support a closer relationship with China.
Within the 1974 Trade Act were provisions regarding relations with nonmarket economy (communist) countries. Opening up trade with Russia was part of the Nixon-Kissinger plan to promote détente (to ease tensions) between the United States and the USSR. Congress had other foreign policy concerns however. By statute it chose to condition trade relations with nonmarket economy countries (in this case, aimed at the USSR) on freedom of emigration. I worked with Senate staff to draft the Jackson-Vanik amendment that supported freedom of emigration from the Soviet Union, not because it was USTR’s policy to achieve this particular objective, but because this was the price that Congress exacted for giving its approval to the bill enabling trade negotiations to take place more generally.
A second example of trade being very visibly used to reinforce foreign policy was the negotiation of the first modern trade agreement with China, which in 1979 (14) followed from the 1972 Nixon visit to China and the issuance of the Shanghai Communiqué. (15)
A third example occurred when the USSR invaded Afghanistan in 1979. In response, President Carter imposed an embargo on U.S. exports of grain to Russia. Trade policy was again subordinated to foreign policy - in this case through the use of economic sanctions (16). (17)
U.S. trade policy toward Japan was not colored by foreign policy considerations – at least not from a U.S. perspective. I was astounded to read much later (in 1992) a statement by Toyoo Gyohten, a highly-respected former Japanese Finance Ministry official, in the book Changing Fortunes that he co-authored with Paul Volcker, then a former Treasury Undersecretary for International Monetary Affairs, that the Japanese government assumed that Japan’s trade protectionism was accepted by the United States in return for Japan’s following America's lead in matters of foreign policy. Japanese officials apparently believed that Japan had the right to free access to the U.S. market for Japanese products unreciprocated by equal openness of Japan to U.S. products.
A generation of American trade negotiators expended much of their energy on opening that Japanese market. Much of my own attention, during my time as a negotiator at the Trade Representative’s office during the 1970s, was devoted to this objective. We had never come across the Japanese rationale for accepting an American trade policy loss balanced only by a foreign policy gain as articulated by Mr. Gyohten. The U.S. objective in trade was not to foster U.S. foreign policy, but to allow market forces to determine competitive outcomes for U.S. imports seeking to enter the Japanese market. Mike Mansfield, U.S. ambassador to Japan at the time, a strong supporter of the U.S.-Japan relationship who was primarily focused on geopolitics, tolerated, but only just, the U.S. trade negotiators' efforts.
The other main project for trade negotiators during the 1970s was successful conclusion of the multilateral negotiations in the GATT. Our trade negotiators again were not consciously serving foreign policy objectives. Nevertheless, that was the characterization given to the effort from time-to-time, the more distant the speaker was from the negotiations. In January 1981, two years after the Tokyo Round of Multilateral Trade Negotiations was concluded, President Carter, in presenting the Medal of Freedom to the USTR Robert Strauss, created a narrative – giving a distinctly foreign policy cast to what had been achieved. The President praised his chief trade negotiator for
“strengthening the system of trade which links the nations of our increasingly interdependent world [through] . . . a multilateral trade agreement that would [contribute to] . . . the enhancement of peace among all the nations of the Western world.”
But outside of speeches of that sort, to my knowledge neither the State Department nor the U.S. trade negotiators thought in those terms, nor did they attempt to sell the negotiated results to the Congress or the public on that basis. They were carrying out a purely economic imperative, to open foreign markets for the benefit of American businesses and workers. The net result also benefitted American consumers, but that was a byproduct of trade negotiations, not the objective.
President George Herbert Walker Bush enunciated his position as one of reaching out to the USSR. He said that the West needed to move beyond a "grand strategy … based on the concept of containment" of communism, and that it was incumbent upon the United States to encourage a "growing community of democracies anchoring international peace and stability, and a dynamic free-market system generating prosperity and progress on a global scale." This approach was also taken by President Clinton, as noted by the editors of Foreign Policy Magazine:
From the beginning of his presidency, Clinton recognized that the dominant factors of international relations were shifting from nuclear throwweights to flows of foreign direct investment and trade. He saw the global economy not only as a vehicle for increasing U.S. prosperity, but as a medium for enhancing international stability. (18)
There were two major Clinton era contributions to trade policy being used to foster foreign policy objectives, NAFTA and China PNTR. Paul Krugman argued in the November December 1993 issue of Foreign Affairs that the then recently concluded North American Free Trade Agreement (NAFTA) was really about foreign policy, as opposed to trade expansion. We needed a stable neighbor to our south that would be on the road to a stronger democratic form of governance. The earlier U.S.-Canada Free Trade Agreement was about trade, but with respect to Mexico, I believe that Krugman was right - adding Mexico to the Free Trade Agreement with Canada to create the North American Free Trade Agreement) NAFTA was to a large extent motivated by foreign policy and national security concerns. Observers differ with retrospect to whether the agreement served U.S. commercial interests. It aided some American industries to be globally competitive through North American economic integration. In other cases, domestic production simply moved outside the fifty American states. From a foreign policy perspective, it was a success. The trade policy result is more contentious.
Permanent Normal Trade Relations (PNTR) with China was supported by the Clinton and Bush Administrations on both foreign policy and trade policy grounds. As Lee Hamilton, director of the Woodrow Wilson Center, wrote:
Extending PNTR to China and bringing Beijing into the World Trade Organization are firmly in America's national interest. Together, these steps will eliminate many barriers to U.S. exports and investment in China, integrate China more deeply into the world economy, foster positive change within China, and enhance the prospects for peace and security in Asia and the world. (19)
This theme more generally is also found in the legislation to support trade negotiations given to the George W. Bush Administration by Congress in 2002. It opens with the following:
(b)Findings. The Congress makes the following findings:
- The expansion of international trade is vital to the national security of the United States. Trade is critical to the economic growth and strength of the United States and to its leadership in the world. Stable trading relationships promote security and prosperity. Trade agreements today serve the same purposes that security pacts played during the Cold War, binding nations together through a series of mutual rights and obligations. Leadership by the United States in international trade fosters open markets, democracy, and peace throughout the world. (20) (Emphasis supplied).
This Congressional finding is still applicable U.S. law. It was not amended in the trade promotion authority currently in effect that was enacted in 2015. It remains part of the Congressional mandate for any trade negotiations that the Trump Administration might enter into.
The conclusion in 2015 of the 12-nation Trans Pacific Partnership (TPP) Agreement served both U.S. trade and foreign policy interests. Covering 40% of global GDP, TPP was a way to achieve a free trade agreement with Japan, to stitch together and update our prior trade agreements with Canada, Mexico, Singapore, Australia, Peru and Chile, and to bring added security to Vietnam, located as it is, not always comfortably, on the southern border of China. TPP had a strong commercial rationale. Its membership was poised to grow further as well, attracting the interest of other countries in the Pacific Region. Indonesia, Korea, the Philippines, Chinese Taipei, Thailand, and Colombia each expressed an interest in joining once TPP was up and running.
TPP was designed to provide concrete evidence to its Asian partners that America would remain interested and active in Asia. It was to be a counterweight to the growing regional influence of China with its creation of the Asian Infrastructure Investment Bank (AIIB) and the One Belt One Road (OBOR) policy that were emblematic of China’s reaching out across Asia. U.S. Secretary of Defense Ashton Carter said that TPP was as valuable to him as an additional aircraft carrier.
With TPP, trade policy was closely integrated with U.S. foreign policy, as it had been with varying degrees of intensity, through thirteen presidencies from FDR to Barack Obama.
Three days into the Trump Administration, U.S. participation in TPP was no more.
It is too early to judge what the foreign policy of the Trump Administration will be, nor anticipate the potential for interaction of this administration’s foreign and trade policies. (21) What do we know so far? I have not seen any reference to date from the Administration of its espousing the formula to which Woodrow Wilson, Franklin Roosevelt, and their successors subscribed to – namely that international trade fosters the growth of democracies which in turn leads to enhanced prospects for world peace.
If there is a discontinuity, why did it occur? What has changed?
First and foremost, the current administration has announced that it intends to redress what are taken to be imbalanced trade relationships with other countries. This, the primary announced goal of current U.S. trade policy, clearly resonates with a not inconsiderable number of American voters. These supporters of the President, concerned with their own failure to participate in the benefits of globalization, are likely to believe that America has done enough for the world trading system. More pointedly, in the view of some, it is time for America to be paid back for the investments it made for the global public good. This is not a majority public view according to polling data. Members of the American public, when asked whether they back free trade agreements, say that they do. (22) There is not a lot of evidence of a widespread movement toward isolationism which critics of the Administration feared in the early days of this presidency.
Second, there is little belief at present, in American policy circles, that movement in the direction of free markets, at least in the foreseeable future, is accompanied by movement toward democracy. The progress toward greater political freedom does not appear to be linked to rising standards of living and greater market orientation.
The WTO has 164 members. By signing up to the WTO, the trade of each acceding country is freer than it otherwise would have been. The trend to democracy, however, is not encouraging. According to one source that measures progress toward democracy in the most recent period, seventy-one countries suffered net declines in political rights and civil liberties, with only 35 registering gains in 2017. And 2017 marked the 12th consecutive year in which declines outnumbered improvements. (23) According to the IMF, world GDP growth has averaged nearly 4% per year since 1980, including this eleven-year period. (24) The march to prosperity does not seem to be in lockstep with the march to democracy based on present data. What the future holds, decades from now, is not available. Suffice it to say that in the case of the largest developing country that joined the WTO, U.S. policy makers would not say that the paradigm is working.
If freer trade is not leading to greater democracy, than the logic of free markets leading to democracy then peace, does not hold.
A third answer may be that it is felt the post war reconstruction has accomplished all that it could accomplish through trade. The case is not being made that the Trans-Atlantic Trade and Investment Partnership (TTIP) is needed to shore up European security. (25) During the Cold War, European reconstruction was seen as critical to preventing a slide to communist domination. Similarly, trade is not seen as a foreign policy tool with respect to Japan. During the Korean War, accelerated development of the Japanese economy was seen to be in America’s interest.
The United States and China have massive bilateral trade and are at the same time enhancing their armaments as a priority for the contingency that these weapons may be needed primarily with respect to each other. The U.S. and China each view their major trading partner as a strategic competitor with which conflict is likely to occur.
The U.S. government does not see external threats to smaller countries where it has interests solved through enhanced trade. As a result, it is not seeking trade agreements to bolster any particular regime, either because more is needed than a trade agreement, or nation building is no longer considered desirable or feasible, or both. As an example, the stability of Mexico, a concern when NAFTA was being negotiated, has not been articulated as a current U.S. motivation for re-negotiation of NAFTA.
Enhanced U.S. trade with Russia and Iran are not seen as practical inducements to change their current conduct in international affairs.
A fourth answer may be that the U.S. does not have much more to give in terms of lowering trade barriers in an era where industrial tariffs are on average very low for all developed countries. (26) The world of trade has become multi-polar. The U.S. is no longer the largest trading country, and adding in the European Union as a whole, it is only the third largest trader. (This cupboard-is-empty rationale does not appear to slow the EU in its own special trading arrangements with 95 countries. But those arrangements appear to be in place or being created for commercial, not foreign policy reasons, with the exception of Eastern Europe.)
The Future: Interaction of Trade Policy and Foreign Policy in the Trump Administration
While I have yet to find a statement from Secretary of State Rex Tillerson tying trade policy to the fostering of U.S. foreign policy objectives, the President clearly did so when he issued a tweet at 7:59 AM on April 11, stating:
I explained to the President of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem!
The apparent trade-off: if President Xi could restrain the North Koreans from continuing development of its nuclear and missile technologies that threaten our homeland, our troops deployed abroad and our allies, China might be allowed to keep a larger portion of its trade surplus with the United States, supported as it is by its mercantilist trade measures. Whether this stark trade-off could be delivered by either country is unclear. What is clear is that the two streams of national security and trade policy at that moment intersected. It is a traditional use of trade policy, not dissimilar from the Russian grain embargo imposed by President Carter, as leverage to seek to foster foreign policy goals.
No other policy example of the trade-foreign policy linkage stands out as starkly in this first year of the Trump Administration. When the President gave a major address in Danang on November 10, 2017, he praised democracy, economic development and prosperity in the region. He did not attribute these positive attainments to trade, nor did he conclude that they contributed to peace in the region.
In the Bush and Obama Administrations, TPP was seen in part as a foreign policy tool, to give comfort to Asian countries in tangible trade agreement form that there would be a lasting American commitment to Asia. As of this writing, it is not clear that the Trump Administration has abandoned the use of trade agreements to promote foreign policy goals in the region. President Trump at Davos on January 26, 2018 stated that he could see the United States joining with groups of former TPP partners in improved trade arrangements. This statement was in line with U.S. trade objectives (implicitly reciprocal) and possibly linked to foreign policy objectives.
The December 2017 National Security Strategy does not resolve the question of trade and foreign policy linkage:
Our vision for the Indo-Pacific excludes no nation. We will redouble our commitment to established alliances and partnerships, while expanding and deepening relationships with new partners that share respect for sovereign, fair and reciprocal trade, and the rule of law.
ECONOMIC: The United States will … seek equal and reliable access for American exports. We will work with partners to build a network of states dedicated to free markets and protected from forces that would subvert their sovereignty.
Earlier in the year, in the first month of the Trump Administration, President Trump and Prime Minister Abe issued a Joint Statement on February 10, 2017, two weeks after the U.S. withdrawal from TPP that provided, besides increasing cooperation on military and foreign policy matters, the following:
The United States and Japan reaffirmed the importance of both deepening their trade and investment relations and of their continued efforts in promoting trade, economic growth, and high standards throughout the Asia-Pacific region. Toward this end, and noting that the United States has withdrawn from the Trans-Pacific Partnership, the leaders pledged to explore how best to accomplish these shared objectives. This will include discussions between the United States and Japan on a bilateral framework as well as Japan continuing to advance regional progress on the basis of existing initiatives.
That exploration has not yet yielded a detailed plan for moving forward. Unspoken is any link to a foreign policy objective, and yet the press often cites geopolitical objectives and effects of trade arrangements in the Asia.
The U.S., Japan and the EU joined together to state in December 2017 during the WTO Ministerial Meeting in Buenos Aires, that they would collaborate to deal with creation of industrial excess capacity and trade distortions created by others. The trade component of this policy trilateral declaration is explicit, the foreign policy element, if any, is only implicit.
What I have sought to do in the foregoing narrative is indicate that for seventy plus years, trade policy, for better or worse in terms of impact on particular sectors of the U.S. economy, was carried out in conjunction with U.S. foreign policy. President Trump’s December 2017 National Security Strategy acknowledges this progression of US support for the postwar international economic system.
For 70 years, the United States has embraced a strategy premised on the belief that leadership of a stable international economic system rooted in American principles of reciprocity, free markets, and free trade served our economic and security interests. Working with our allies and partners, the United States led the creation of a group of financial institutions and other economic forums that established equitable rules and built instruments to stabilize the international economy and remove the points of friction that had contributed to two world wars. That economic system continues to serve our interests, but it must be reformed to help American workers prosper, protect our innovation, and reflect the principles upon which that system was founded.
The Strategy then goes on to concentrate on challenges, often referring to unfair trade. (27) But it does envisage a relationship between geopolitical interests and trade, providing that trading arrangements deliver fairness and reciprocity:
Fair and reciprocal trade, investments, and exchanges of knowledge deepen our alliances and partnerships, which are necessary to succeed in today’s competitive geopolitical environment. Trade, export promotion, targeted use of foreign assistance, and modernized development finance tools can promote stability, prosperity, and political reform, and build new partnerships based on the principle of reciprocity.
Together these statements mark a break with the past. The emphasis is on mutuality of benefit, not the United States as guarantor of an international economic system. Alliances are deepened if they are reciprocal, fair and balanced. The tools that promote development are still mentioned, and these can lead to political reform, but not necessarily peace, with an end objective being reciprocal relationship.
This should not be taken as abandonment of the international trading system, rather a concentration by the Administration on changing that system. The United States position, as articulated by the U.S. Trade Representative, is that “If the WTO did not exist, it would have to be created.” This could be interpreted as referring only to its value as a set of trading rules, and not as an instrument of international stability that is necessary to the preservation of world peace. In fact, in the weeks following the Taormina Summit, the U.S. Trade Representative pledged to make the “utmost efforts” to make the December 2017 WTO Ministerial Meeting a success, and declared it to be so at its conclusion, the U.S. Trade Representative having addressed what the U.S. considered needed reforms in the WTO system. (28) (29)
Since arriving in Geneva in September, I have made it a theme of my conversations with WTO members that the United States is not willing to underwrite the international trading system, not alone in any event. I have said that others would have to define their national interests to be broad enough to contribute to carrying this burden. In their own eyes, the European Union, Japan and China, as well as mid-sized countries may feel that they have moved their policies in that direction. In fact, all, including the United States, will have to raise the level of their game to maintain and improve this system.
I am optimistic that there will be enhanced broader leadership by the United States in the near future (30), and that a number of other countries will in fact step up to the challenge of acting in the best interests of maintaining and enhancing the world trading system. They will do this because they will find that it is in their geo-strategic as well as their economic interests to do so.
The United States is for the foreseeable future an indispensable country both for keeping the peace and for setting the rules of trade in this multi-polar world, but it is likely that it will be willing and able to do so only with greater burden-sharing by others.
Does supporting the world trading system foster world peace? We cannot be sure that greater trade, leading to prosperity guarantees a march to democracy in every country, but we know from the 20th century and more recent experience that the opposite is true – failure to maintain openness to trade, consequent economic decline and domestic high unemployment, does lead to instability, and a threat to peace, both internally and internationally.
- While I am currently serving as Deputy Director General of the World Trade Organization (from October 2017), my observations on U.S. trade policy are personal and draw from my years as an observer of, and sometime participant in, the formulation of trade policy in Washington. back to text
- https://millercenter.org/president/taft/foreign-affairs. back to text
- See The Wise Men, Walter Isaacson and Evan Thomas, Simon and Schuster, 1986. back to text
- Britain sought to retain its system of imperial tariff preferences, which the U.S. strongly opposed. (The EU has in effect reconstituted a network of preferential trade deals, 96 of them in place or under negotiation – nineteen in the latter category. But that is another story.) back to text
- http://pdf.usaid.gov/pdf_docs/PNACN037.pdf. back to text
- As a counterpoint, my last assignment at Treasury was to be Director of the Office of Multilateral Trade Negotiations, and a drafter of the legislation that became the Trade Act of 1974 giving future Presidents a mandate to enter into trade-liberalizing negotiations. back to text
- In preparing this paper, I came across the Congressional Budget Office’s 1990 estimate of the Economic Effects of the Common Market of 12 becoming the Single Market of the European Union in 1992. The estimates were slight in terms of effects on US GDP but ranged from a loss of US exports to the 12 EU members of 2.1% to 5.7%, unless the EU became protectionist, in which case the loss of exports would be 9.8%. I have not seen an estimate of the adverse effects on U.S. trade of the 75 “free trade agreements” the EU has negotiated, nor the additional 18 under negotiation (not counting the TTIP agreement with the United States on which work has been suspended). back to text
- The import surcharge was accompanied by a demand made of the European Community, Japan and Canada to unilaterally dismantle nontariff barriers limiting U.S. exports. (There is an echo of this kind of demand in the Trump Executive Order that calls for a report within ninety days to explain bilateral trade deficits with 16 countries. A difference is that the Trump directive is not linked to U.S. geopolitical objectives). In 1971, America’s trading partners refused to grant the U.S. unilateral trade concessions. This led to another major round of multilateral trade negotiations - the Tokyo Round, launched in September 1973. back to text
- In light of Brexit, one might call the UK coming into the European Communities “Brentrance”. back to text
- Public Papers of the Presidents of the United States, Richard Nixon. back to text
- Art. 24:6 of the General Agreement on Tariffs and Trade. back to text
- Enacted on January 3, 1975. back to text
- Public Papers of the Presidents of the United States: Richard M. Nixon, 1973. back to text
- Proclamation 4697—Agreement on Trade Relations Between the United States of America and the People's Republic of China, President Jimmy Carter, October 23, 1979. on January 24, 1980. Congressional approval was required and occurred in early 1980 and thereafter conferring contingent Most Favored Nation (MFN) status on China. This exempted Chinese exports to the United States the trade-prohibiting 1930 tariff rates. back to text
- The 28 February 1972 Shanghai Communique, a foreign policy document of supreme importance in post-WWII global affairs, contained a paragraph on trade: "Both sides view bilateral trade as another area from which mutual benefit can be derived, and agreed that economic relations based on equality and mutual benefit are in the interest of the peoples of the two countries. They agree to facilitate the progressive development of trade between their two countries." back to text
- The embargo had little economic effect on Russia as it switched its sourcing of grain to South America and domestic farming. back to text
- There were also rumors of earlier instances of trade concessions being used as payment for national security objectives - of permitting increases in imports to serve foreign policy goals – more shoes from Spain to smooth the way for a military airbase and more textiles from Turkey to cement that wing of the European alliance. But these instances, if they occurred, were relatively minor in terms of the impact on broad U.S. trade interests. There have been other documented instances of these trade-offs later. back to text
- http://foreignpolicy.com/2009/11/19/think-again-clintons-foreign-policy/. back to text
- https://www.wilsoncenter.org/article/permanent-trading-privileges-for-china-debate. back to text
- 19 U.S.C. 3801. back to text
- In fairness to the Trump Administration, the Obama Administration took a year or two to settle on its trade policy, and it was staffed more quickly than the current administration. back to text
- nbsp; 52% say free trade agreements between the United States and other countries are a good thing for the U.S., while 40% view them as a bad thing, according to a recent survey by Pew Research Center. . . . Today, 44% say free trade agreements have definitely or probably helped their financial situation, while 38% say they have definitely or probably hurt their finances. http://www.pewresearch.org/fact-tank/2017/04/25/support-for-free-trade-agreements-rebounds-modestly-but-wide-partisan-differences-remain/ back to text
- Freedom House states that Democracy faced its most serious crisis in decades in 2017 as its basic tenets—including guarantees of free and fair elections, the rights of minorities, freedom of the press, and the rule of law—came under attack around the world. . . . This marked the 12th consecutive year of decline in global freedom. https://freedomhouse.org/report/freedom-world/freedom-world-2018. For another look at the question, see the work of the Pew Research Foundation, to be found at http://www.pewresearch.org/fact-tank/2017/12/06/despite-concerns-about-global-democracy-nearly-six-in-ten-countries-are-now-democratic/. back to text
- IMF data - IMF World Economic Outlook database, updated with the latest figures from IMF's January WEO Update, based on purchasing power parity (PPP). back to text
- German Chancellor Angela Merkel on her return to Germany from the G7 Taormina Summit told her listeners: “Europe “really must take our fate into our own hands.” . . . the days when Europe could rely on others was “over to a certain extent. This is what I have experienced in the last few days.” back to text
- See Shakespeare, King Lear. back to text
- China and Russia challenge American power, influence, and interests, attempting to erode American security and prosperity. National Security Strategy of the United States of America, December 2017. back to text
- Excessive self-designation of developing country status, lack of compliance with current agreements particularly with respect to notifications and transparency, and a dispute settlement system that delivered results “that could not have been obtained at the negotiating table.” Lighthizer. The National Security Strategy further states: SHAPE AND REFORM INTERNATIONAL FINANCIAL AND TRADE INSTITUTIONS: The United States will continue to play a leading role in institutions such as the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO), but will improve their performance through reforms. These reforms include encouraging multilateral development banks to invest in high-quality infrastructure projects that promote economic growth. We will press to make the WTO a more effective forum to adjudicate unfair trade practices. back to text
- First, the WTO is obviously an important institution. It does an enormous amount of good, and provides a helpful negotiating forum for Contracting Parties. . . . [T]he United States looks forward to working with all Members who share our goal of using the WTO to create rules that will lead to more efficient markets, more trade and greater wealth for our citizens. Such outcomes will build public support not only for open markets, but for the WTO itself. Lighthizer, Opening Statement, Plenary, WTO MC11, Buenos Aires. back to text
- Statement by USTR Robert Lighthizer on conclusion of the Ministerial Meeting: “MC11 will be remembered as the moment when the impasse at the WTO was broken. Many members recognized that the WTO must pursue a fresh start in key areas so that like-minded WTO Members and their constituents are not held back by the few Members that are not ready to act. In this regard, the United States is pleased to work with willing Members on e-commerce, scientific standards for agricultural products, and the challenges of unfair trade practices that distort world markets. Further, the United States intends to continue pushing meaningful disciplines on harmful fisheries subsidies based on guidance agreed to by Ministers at Buenos Aires. We are proud to defend the interests of U.S. stakeholders at the WTO, including our farmers and ranchers, who need a result on agriculture that is based on the realities of today, rather than a 16-year-old, outdated and unworkable framework. “The United States looks forward to working with those WTO Members who are seeking free and fair trade through the implementation of WTO agreements and decisions as negotiated by Members. We welcome the opportunity in 2018 to continue to discuss how we can improve the functioning of the WTO and to ensure that it achieves its objectives for the benefit of all Members.” back to text