The philosophical underpinnings of the US approach to trade have remained largely unchanged for more than seven decades: Trade is good, free trade is better. Governments simply need to minimize or remove barriers to trade and market forces will deliver a host of economic and societal benefits.
In the economic realm, efficiencies will be maximized, resulting in more and better products at lower cost. Real wealth will rise. Workers will have expanded opportunities because of the ability to serve global markets rather than just local markets. In the social realm, individuals will benefit from higher standards of living through access to things like life-changing technologies and life-saving pharmaceuticals.
In essence, the traditional US philosophy has tracked closely with an over-simplified (and sometimes misunderstood) version of free trade laid out in the writings of neo-classical economists such as Adam Smith and David Ricardo.
Katherine Tai is not buying it. During numerous interviews, Congressional testimonies, and speeches, Ambassador Tai has consistently sketched out a much different understanding of how trade actually works. It’s time to start listening.
Living in the real world
For Katherine Tai, the real world of trade does not take place in the antiseptic vacuum implied by the textbooks or aspired to by previous policy makers. Achieving the desired results will therefore require a very different approach to our trade relationships and trade agreements. As Tai has said on several occasions and most recently in Iowa, “What has become clear to us is we need to turn the page on the old playbook.”
Observable reality
Tai’s desire for a new approach reflects, at least to some degree, observable reality. Distortions and externalities abound. While benefits can still be derived, the free trade ideal has been corrupted on many levels. Trade has become inextricably linked with geopolitics. We were perhaps naïve to ever think otherwise. In an era of rising geostrategic tensions, trade relationships and economic interdependence are being weaponized. Trade is not simply being conducted based on Ricardian economic efficiencies. Geostrategic calculations now must be plugged into the equation, often with painful consequences.
The immensely attractive ideal of having a comprehensive and thoroughly up to date trade rule book that is promptly and effectively enforced has proven to be a pipe dream. WTO rules are hopelessly out of date and the dispute settlement mechanism has been largely sidelined. Predatory trade practices thrive and inflict severe damage on trade partners.
In sum, we have ended up with a world that bears little resemblance to the idealized world we once envisioned. In surveying this landscape, Tai has concluded that simply tearing down trade barriers and trusting that the desired economic and societal benefits will necessarily and organically materialize has been a losing proposition.
Just a blip?
Take Katherine Tai at her word
Irrespective of whether one strenuously agrees with or vehemently opposes the views held by Ambassador Tai, no one should doubt that she has the courage of her convictions or that she intends to effectuate this new philosophy on trade. Her boss, President Biden, has been equally consistent. Since the campaign trail, he has expounded a US worker-centric approach to trade and stated and restated that there will be no return to “business as usual” when it comes to trade policy. He has done nothing in office to contradict these pronouncements.
All interested parties, both within the US and beyond, need to listen to Katherine Tai. The Biden team means what they say on trade. Three practical implications are especially noteworthy:
- US trade policy will not be conducted on a stand-alone basis to the same extent it has in the past. Instead, trade policy will be woven together more tightly with foreign policy, industrial policy, technology policy, environmental policy, and domestic social policy, including issues like gender equality and inclusivity. This is the “holistic” approach Tai is talking about. Aside from any possible merits, it will complicate trade relations immensely and potentially even dissuade some countries from engaging more deeply with the US on trade.
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