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Tuesday, September 22, 2020

ANALYSIS/OPINION:

Whoever wins in November, American trade policy needs a reset but neither the Trump nor Biden camps offer encouraging visions.

The America First agenda has enjoyed mixed results. Tariffs brought China to the negotiating table but the Phase One Trade Deal does little more than set numerical targets for Chinese purchases. Chiding Europe has increased NATO defense spending, but we still don’t have trade deal with the EU or UK.


Emboldened by its successful handling of COVID-19, an impressive economic recovery and prospects of surpassing the US in GDP by the end of the decade, President Xi has doubled down on his refurbished version of 1930s-style authoritarian capitalism—pre-war Germany and Japan had state orchestrated private economies that supported devastating military buildups.

Mr. Trump has accomplished too little of his primary objectives regarding Chinese protectionism—to transform the way China does business by stopping subsidies, market closing preferences for national champions like Huawei and Tencent and technology theft.

According to a U.S.-China Business Council survey, 13 percent of U.S. businesses in China were asked to transfer technology this year, up from 5 percent last year.

Yet, the world is changing. The Europeans increasingly recognize China poses a primary threat to western democracies. Democratic nominee Joe Biden, who happily helped President Obama appease China for eight years, now acknowledges America needs to get tough with China.

But Trump administration actions—both warranted such as applying WTO approved tariffs on Airbus in response to European government subsidies and unwise like refusing to approve judges for the WTO Appellate Body—have driven the Europeans to collaborate with China on the latter.

Ambassador Lighthizer in a recent Wall Street Journal op-ed got it both right and wrong. For too long, the WTO has operated by multiple sets of rules—depending on who you are. Its agreements required the United States and other industrialized countries to slash import barriers while permitting developing countries, including China, to maintain terribly high tariffs and other discriminatory practices.

He is correct to demand that this end.

I earned my tenure writing about trade agreements. At endless conferences over three decades, I was fond to ask if high tariffs are bad for the United States or Germany because those discourage trade based on comparative advantage, the efficient use of labor and capital and innovation, why are they good for Mexico, Nigeria or other developing nations? My colleagues in the Ivy League and other prestigious universities with big endowments that support their cossetted lifestyles and pious noblesse oblige never had much of an answer.

To this day, those free traders ignore the question because it’s too embarrassing.

Developing countries often fall into corruption because protectionist practices offer underpaid civil servants opportunities to sell favors to businesses protection shelter from imports. That’s not exactly in line with U.S. foreign policy objectives.

No one at the WTO likes to admit it but the 1948 General Agreement on Tariffs and Trade is a brief, terribly general document that from the very beginning was interpreted and elaborated by dispute settlement panels—members bring complaints when other members subsidize or otherwise break the rules that do harm—in a common law fashion.

The 1995 agreements that created the WTO added an Appellate Body as a second level of review, but the Chinese have an economic system that is so foreign to western principles that they have been able to run circles around it.

Mr. Lighthizer would have us throw out this Appellate Body, but that would not solve the elemental problem—the general and prescriptive nature of global trade rules in an era of rapidly changing technology and the incompatibility of the Chinese system.

The Europeans are not likely to support ejecting China from the WTO and if the United States accomplishes anything in negotiations to refashion the global trade body, likely those will be fig leaf reforms.

Mr. Biden’s public statements bow to mainstream Republicans, like Robert Zoellick, and moderate Democrats who long for the good old days. Kumbaya multilateralism that pretends the China problem can be addressed through reasoned cooperation—more Bush-Obama era accommodation and appeasement.

In the Indo-Pacific, where the game really is, the Indians, Australians and Japanese are earnestly trying to disengage supply chains from China and harden their military defenses. It’s time to refocus by joining them in partnership. Apply for entry into the 11 nation Trans-Pacific Partnership, bring in India and forge a tough military alliance to take our stand at China’s doorstep.

• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.


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