US Trade Policy in a Global Context
Episode Summary
Amar discusses with William (Bill) Reinsch, Scholl Chair in International Business at Centre for Strategic International Studies (CSIS). This episode of the Trade Knowledge Matters podcast delves into the complexities of US trade policy, examining the shifts in bipartisan consensus, the impact of economic security on trade decisions, and the evolving narratives within political parties. The discussion highlights the implications of tariffs, friend shoring, and sectoral concerns, while also addressing the challenges of market access and the intersection of trade with climate policy. The conversation concludes with reflections on the need for a positive narrative around trade and the importance of supporting workers affected by trade dynamics.
Episode Transcript
Trade Knowledge Matters podcast looks at US trade policy and its implications for international trade
Amar Breckenridge: Hello and welcome to this new season of the Trade Knowledge Matters podcast. And in this episode, we will look at US trade policy and its implications for international trade. Now, most recent attention on US trade policy has focused on tariffs, with the Biden administration having retained Trump era tariffs and candidate Trump pledging to implement higher tariffs in case he is elected in November. There are also the trade implications of the US Inflation Reduction Act, which have, raised a number of questions in trade partners. But this focus on particular trade instruments often obscures a broader perspective on US trade policy in a global context. And the reality is that between the inception of the WTO in 1995 and the inauguration of next year’s president in 2025, US trade policy has been turned on its head. And what was once a solid bipartisan consensus on the benefits of trade and the idea that trade rules were central to us geopolitical objectives has now turned into a bipartisan consensus against trade and the idea that trade is a cause of geopolitical risk and not a solution to it. It seems easy to forget that the Uruguay round of trade negotiations at the WTO and the NAFTA negotiations were launched by a Republican administration and were concluded by a Democratic one. Or that China’s accession was welcomed by a Republican US trade representative after the thorny final negotiations had been overseen by the Clinton administration. Fast forward 30 years or so, and the Republican administration opted out of a major trade agreement the US had initially sponsored. Namely the Trans Pacific Partnership (TPP), crippled the WTO dispute settlement process, and unilaterally imposed a series of tariffs on major trade partners. And all these decisions are more or less happily retained by its Democratic successor. So we make these points not to indulge in a form of sepia tented nostalgia, but to highlight that there are broad trends here at play, beyond the specific issues of tariffs and so forth. And these have, profound implications for economies, businesses and civil society globally. These trends are also broader than the forthcoming election important as it is. To discuss these issues in greater detail, I’m pleased to welcome a distinguished guest to this podcast, William Reinsch and Bill holds, the Scholl Chair in International Business at the Center for Strategic and International Studies, the CSIS. Previously, he was senior advisor at the law firm of Kelley, Drye and Warren, and served for 15 years as President of the National Foreign Trade Council, which represents multinational core companies on international trade and tax policy issues. And from 2001 to 2016, he concurrently served as a member of the U.S.-China Economic and Security Review Commission. He is also an adjunct assistant professor at the University of Maryland School of Public Policy, teaching a course in trade policy and politics.
What are underlying economic and political drivers for interventionist trade policies
Amar Breckenridge: Bill, it’s great to have you on this podcast. I’d just like to start the conversation by looking at a few trends in trade policy in the United States. So, data that’s collected by the Global Trade Alert Initiative, run from the University of St. Gallen in Switzerland, suggests that the United States has been the economy that ahead of China, has implemented the largest number of trade restrictive measures since January 2023. What, in your view, are the underlying economic and political drivers for interventionist trade policies in the United States?
Bill Reinsch: Well, first of all, thanks for having me on. It’s an honour to join you and be the first one this season on the question. I think, first of all, you have to put it in context a little bit. A lot of the trade restriction actions have been taken in that time period were related to Russia and Russia’s invasion of Ukraine, and there were a lot of countries that undertook those restrictions. So it’s kind of an anomalous period in history when there’s a lot of trade restriction going on for national security related reasons. And that’s one reason why us policy has shifted in the direction that you describe, although I would phrase it a little bit differently than you did. But one thing that has happened is the conflation of security issues and trade issues. It’s very hard in the United States to have a discussion about trade policy without having a discussion about China in particular. And then, the minute you start to have that discussion, you end up having a discussion about security. In fact, you know, this has been evolving over time. I think that the companies have been increasingly sensitive to supply chain resilience issues
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Bill Reinsch: in both because of COVID and the problems that many of them ran into then, but also desires simply to shorten supply chains. Concerns about shipping price volatility, ocean freight price volatility, for example, and also the policies of the Trump administration that kind of were erratic might be the best word, and it was created a lot of uncertainty in the marketplace about what was going to happen next. All of those things have forced companies to inject a new variable into their planning. Instead of the traditional price quality delivery variables in supply chain construction, they’re now looking at resilience and security, which is not an economic variable. And so one of the results you get are supply chains that are more expensive and more complicated. In some respects, companies are simply changing things cost money, and changing them to less efficient models cost money, and we’re going through that.
Both Trump and Biden make trade policy decisions based on national security considerations
Bill Reinsch: The other factor, though, is an evolution in thinking about trade in the United States. And there’s actually been two evolutions, one in the Republican Party and one in the Democratic Party and the, two administrations, Trump and Biden, have sort of ended up in the same place, but they’ve gotten there for very different reasons, and they followed very different paths. And I think it’s important to spend a minute on that. The Trump trade narrative hasn’t changed in 40 years, and it’s a narrative about victimization. The United States is the victim of evil foreigners that are trying to steal our jobs, undermine our security, and destroy our manufacturing base, and he’s going to fix that, whereas all of his predecessors failed to do anything about it. The narrative is nonsense, but that’s what he believes. He’s believed it for 40 years, and when he’s in office, he acts on it. So he has one narrative, he has one metric, which is the bilateral trade balance, and he has one tool, which is tariffs, which are the solution to most of his problems. the Democrats have gone through a different evolution. They’ve gone through, for 30 years, battle within the Democratic party over trade policy, essentially between the left and the center. And, it was mostly manifest in the case you alluded to, which was the battle over the Trans Pacific Partnership, over TPP, which was an Obama initiative, but opposed by the left wing of his party. The difference between the left and the center right, oversimplify, is the left tends to see trade as a matter of imports, and therefore focuses on the damage they cause. The center tends to look at trade as a matter of exports and the growth opportunities they create. And there’s not really a middle ground there in the Democratic party. The incoming Biden people were all veterans of the TPP battle in 2015 and 2016, and they decided very early they didn’t want to do that again, by which I mean not, they didn’t want to do TPP again. They didn’t want to reopen an inter party battle that goes back to NAFTA in the early nineties, which was the same debate, and, they just decided they wouldn’t do that. The consequence of that decision was basically that they outsourced their trade policy to their left wing. And they don’t do everything the left wing wants, but they don’t do what the left wing is against. And what they’re against is, more market access, more imports. And that has led them to not pursue agreements that, would involve market access. But it has also made it easier for them. Then going back to where I began, make trade policy decisions based on national security considerations. And they’re following a policy which they would describe as ‘promote and protect’. I’ve put it more, I think more graphically, is if you’re in a race, a marathon, and we are with China, there’s only two ways to win. You run faster or you trip the other guy. The Trump approach is focused on tripping the other guy. The Biden approach is focused on both. So if you look at the IRA, the Inflation Reduction Act, if you look at the CHIPS Act, if you look at the, Infrastructure Act, these are all running faster. These are efforts to try to make our industries, particularly our high tech industries, more competitive so we can go up against China, not in China, but everywhere else where we meet them, on a more level playing field. At the same time, they pursued a tripping the other guy strategy, which, largely involves export controls and restrictions on investment, outbound and inbound. And that’s an effort to deny China the technology they need to enhance their own national security, to enable them to strengthen their military, which we are not happy about, and to enable them to better compete against us, which they’re also not happy about. So it’s promoted protect, but that has driven the Biden administration to do, in some sense, the same thing the Trump administration did, which was to impose a lot of tariffs. The difference is between the sledgehammer and the scalpel. Trump’s tariffs are broad, not nuanced. He’s talking now about 10% across the board, 20% across the board. Depends on what week it is, 60% or more on China. The Biden tariffs
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Bill Reinsch: are focused on specific sectors, specific industries, and specific products that they deem to be a national security or increasingly, economic security threat. So it’s a scalpel approach rather than the sledgehammer approach. But it’s a fair point to say that they both kind of ended up in the same place. A lot of tariffs.
Amar Breckenridge: Thank you. That’s a, very comprehensive, we ran a lot of additional points that we’ll explore the course of this discussion. We’ll return to market access a bit later.
You mentioned economic security as a driving concern for US policy
Amar Breckenridge: But an immediate question that comes to mind is you mentioned economic security a few times, and that being a driving concern for policy. One of the ideas that’s associated with that is the concept of friend-shoring, a term that was coined by Janet Yellen a few years ago. So the idea of economic security and friend-shoring are, ones that. That have gained a lot of traction, not just in the US, but also across the globe. The European Union has put out an economic security strategy which focuses quite heavily on the idea of being competitive in certain critical technologies and being able to direct the structural value chains around that. When it comes to the US, what sectors are most covered by this concern of economic security? You mentioned Biden’s scalpel approach, which directs tariffs at certain sectors. What are the sectors that are of primary concern to the US, and what might be some of the policy implications in terms of trade instruments and other policy measures?
Bill Reinsch: Well, first of all, I should say, I write a weekly column, and I did my column this week, actually, on this subject. We’re having a debate here on what the term means, what friend-shoring means to most people. I think it means let’s work with other countries, friends. And then who’s a friend? Turns out to be a more complicated question than you think. Let’s leave that aside for the moment. Let’s work with our friends to integrate their economic strengths into our supply chains so we can work together and cooperate in a reciprocal way. For the Biden administration, it appears to mean something different. It appears now to mean how do we persuade foreign companies to locate it in the United States, which I think is onshoring, not friend-shoring, but that appears to be what they’re trying to do. And you can hear it in the statements the President makes. He’s really focused on bringing manufacturing, particularly old manufacturing, heavy manufacturing, back to this country. And friend-shoring is code really for how do we get companies to do that? I mean, that’s sort of a semantic argument, but it suggests that when they say friend-shoring, it’s not really what other countries mean. Now, to answer your question, the Biden administration, in its first year did a lot of studying of what’s important, what’s critical, and they ended up with identifying four sectors, critical minerals, batteries, chips, semiconductors, pharmaceutical products, and personal protective equipment. So those were the big four. And they developed supply chain recommendations, for all of them. I think the one where friend-shoring or near-shoring, which has more geographic connotation than friend-shoring, has been most deeply considered as the pharmaceutical sector. They’re very interested in it. While, you know, the United States is a center of innovation when it comes to drugs and medicine, we’re not a center of manufacturing. They’ve offshored over many years, offshored a lot of that to other locations for, a variety of reasons. And they’re actively engaged right now in thinking about how to bring, near-shoring elements into their supply chains. We’ve written two papers on this on near-shoring in the pharmaceutical sector. So that’s a big one. Batteries is another one. And that’s one where it’s followed more the Biden pattern, which is how do we get companies in, primarily in this case, Korean companies, but to locate the United States. But it actually involves, also, an arrangement with a Chinese company, which is unusual given the current state of our relationship. But it’s not a manufacturing deal. Basically, an American company is licensing Chinese technology, which is a bit of a turnabout because, usually it goes the other way. Batteries happens to be a sector where the Chinese, arguably, are global leaders, both in the manufacturer and in R & D. So batteries is another one. Semiconductor supply chains, because of their complexity, have always been a good candidate for friend-shoring because they involve so many parts from so many different places. And I don’t, I’m not referring just to the chips, but to the end products. I mean, there have been business school case studies written about iPhones, for example, as a classic example of, extremely complicated supply chains where the end product is assembled in China, but their value added in the product is de minimis, and most of the value added is produced in seven or eight other countries, plus the IP, which largely comes from the United States. So those are the ones that people are looking at right now. But, you’re going to see it happening in a host of other manufactured products as well.
Amar Breckenridge: Thanks.
Are there signs that policies aimed at shoring are working at this stage
Amar Breckenridge: And so, just building on that then, we now have a few years of experimentation in these areas. Are there actually any signs that the policy interventions that, are
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Amar Breckenridge: meant to enhance economic security or friend-shoring, are there any signs that they’re actually working at this stage and are going to help the US get a strategic advantage in these sectors?
Bill Reinsch: Well, too soon to say. First of all, that’s on the promote or run faster side of the equation, which means it’s going to take time if you’re going to build a semiconductor fab plant here in order to help the United States recapture manufacturing share of that manufacturer. Now, that takes a few years. The United States is not a leader in accelerated process. We have permitting processes that take a long time. We have the, famous nimby problem. Not in my backyard. Anybody that wants to build anything immediately has to deal with the neighbours who don’t want whatever that thing is to be next door to them. We’re going through that right now with data centers. And so it takes a long time. And I think the short answer to your question is it’s too soon to say. There are initiatives though that are underway. You know, there’s a real billions of dollars are being invested in various elements of the semiconductor supply chain, all the way from polysilicon to ATP assembly, testing and packaging. Batteries, I’ve already mentioned there’s been a number of battery companies bringing themselves onshore, mostly, the big ones being Korean companies. There’s a lot of people looking at this in the pharmaceutical sector. I’m not aware of an awful lot that has actually happened and I think one of the things your listeners need to keep in mind is that sometimes this image that the media creates, that, well, there’s all this ferment, you know, and six months from now, everything’s going to be different. Well, six months from now nothing’s going to be different. Ten years from now, everything’s going to be different. We did a study of automobile supply chains. When we studied the US Canada Mexico Agreement (USMCA). And in the process of looking at that study, which was how rules of origin affect where companies locate production, one of the major automobile manufacturers, a foreign one, told us it takes them seven years to certify a new supplier. I thought that was a little long, but they have to satisfy themselves on price, on quality, on delivery. Can the potential supplier scale up to meet the demand of a large producer? what contractual obligations do they have to their existing supplier? These things don’t happen quickly. Have me back in ten years if we’re both still alive, we can have a conversation about whether anything actually happened. I think the answer will be yes, and that it will be significant, but I can’t point to very much on the ground right now.
The Trump administration has been hostile to market access, at least through tariffs
Amar Breckenridge: Okay. And let’s move to another topic. You mentioned in your analysis of the dynamics within the Democratic party that trade policy was essentially being driven by a faction of that party that was hostile to market access and for different reasons. The Trump side of the Republican party has also hostile to market access, at least through tariffs. So it seems that, you know, commitments by the US on market access in the classical sense of the term, is probably off the agenda for the moment. And that seems to be the case if you look at, for example, the Indo-Pacific Economic Framework (IPEF) and negotiations there. So with that in mind, are there actually any meaningful ways in which trade partners can engage with the US on, matters of trade and negotiations on trade?
Bill Reinsch: Well, first of all, I should say that if you ask the Biden administration about this they’ll tell you they’re for market access, what they mean is they’re for our American access to other people’s markets. They’re not really for other people’s access to our market, which, of course, prevents a negotiation because there’s no free lunch in trade. And, you’re not going to get anything unless you’re willing to give any, give anything. But they will not tell you that they’re against market access. Now, at the same time, they’ve taken a lot of hits for not doing anything to promote it. And in the process of taking a lot of public hits, they’ve attempted to answer your question. And for the last couple of years, there’s been only really one answer to your question, which is there’s a lot you can do on, basically regulatory harmonization that would improve market access. And they. You can point to, this is one of the things they tell the farmers, you know, one of the best things we can do for market access is to get other countries to adopt the same sanitary and phytosanitary standards that we have that would make it easier for us to export to them. Again, it’s one sided, but the idea is that if you regularize regulations, whether it’s agriculture, manufacturing, or even services, you do promote two way trade. If you make it easier for Indian lawyers to practice in the United States, at the same time you’re making it easier for American lawyers to practice in India. That’s a, market access activity. So that’s one thing. The latest thing, which came up just yesterday in an event, put on by a, different think tank, was looking at sectoral agreements. And I think this grows out of the effort to deal with critical minerals and critical mineral processing where the United States and actually Europe as well, are, kind of at the short end of that particular stick. China doesn’t so much dominate the minerals because they’re scattered all over the world, but it dominates processing, and it does. It actually, initially for a very, at the time, a good reason.
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Bill Reinsch: It’s dirty, it’s environmentally terrible. Basically, mining for lithium, just as an example, involves moving thousands of tons of dirt, which then you have to put someplace, creating a lot of dust to extract a very small amount of lithium, and then processing it, which creates more environmental degradation. Countries for a long time were happy to let the Chinese do that because they didn’t want to do it in their neighbourhoods. The result is that, you know, that we’re all vulnerable to Chinese, weaponization of trade, basically. So there’s a drive for critical minerals agreements. The United States is interested because it wants access to minerals that it doesn’t have, and we don’t have all of them. The countries that have the minerals are interested because, they want to make more money selling them. It’s going to turn out to be a more complicated issue than people think, largely because those countries aren’t just interested in being a natural resource economy. They want to move up the value, move up the value added chain, and they want to process the minerals in their country and get those jobs, and they want to manufacture the products that contain those minerals and get those jobs and that technology. So these are not going to be easy negotiations. But the new thing in the United States has been sort of, let’s look at sectors where we might be able to reach agreement, beginning with critical minerals, but chemicals would be another one that you could look at. Automobiles has been suggested from time to time that hasn’t gone anywhere. That may be another one that’s early stages on that. That’s really a question of whether the next administration wants to pick up that particular idea or not.
There are various proposals in the US to implement border tax adjustment measures on carbon
Amar Breckenridge: Picking up on that idea of sectoral issues and sector based negotiations. One other aspect of that is to look is how you deal with sectors that are intensive in carbon emissions in a world where you have different approaches to reducing carbon emissions and that creates trade spillovers. So one, aspect of this slightly fraught intersection between trade and climate policies is the introduction by the EU of Carbon Border Adjustment Mechanism, which has a very defined sectoral coverage. It specifies a few poor emissions intensive trade exposed sectors and tries to adjust for differences in carbon pricing across jurisdictions. So the EU’s CBAM looms large in people’s minds. That seems to be making a few people consider implementing their own version. The UK is committed to doing one by 2027, talks of one in Australia, possibly Canada, maybe China. What’s perhaps less well known is that there are various proposals in the US to implement border tax adjustment measures in relation to, carbon as well. And I think you’ve written a bit about this. Now, how would such measures work in the US, given the us particular context and the approaches taken there to the reduction of emissions? And what might be some of the implications for trade rules of the US pursuing this approach?
Bill Reinsch: Well, we’re behind all the countries you mentioned in trying to deal with this problem. we’re moving in the direction of trying to deal with it, but we’re moving very, very slowly. And how fast we move, I think, will depend on the outcome of the election, both at the presidential level, but also at the congressional level, because virtually anything of any consequence in this area would require congressional action, and that’s what’s been holding things up so far. Plus, if Trump wins, expect nothing. He’s nothing really a believer in climate change, and you can expect him to try to repeal some of the things that we’ve done that are in the Inflation Reduction Act. I don’t think he’ll succeed, but I think he’ll try. If Harris wins, then you can expect to focus on this. But if you look at what’s been introduced so far, only one piece has moved even a little bit, and it’s a modest one. It’s the so called PROVE IT Act. Congress has an affection for naming its acts with acronyms that you could pronounce. So the PROVE IT Act is the Providing Reliable Objective Verifiable Emission Intensity and Transparency Act. And this does have some bipartisan support, and it was approved by the relevant Senate committee earlier this year. So it’s really the only one that’s taken the first step in our process. I don’t think it’s gonna take the second step, at, least not this year. But it’s very modest, because basically what it focuses on is border adjustment measures, but simply trying to provide product specific, detailed emissions data on greenhouse gas emissions that would then help government to have a better information base for deciding what to do next. Its core measure directs the elements, the right, agencies in our government, to report on emissions intensity for a variety of products from the United States, from G7 countries, from our free trade partners, and from other nations. It’s broader than what the CBAM covers because it’s actually just information gathering. There’s nothing bites. Actually, the one that would bite, actually, there’s a couple that would bite. The one that has gotten
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Bill Reinsch: some attention is the Foreign Pollution Fee Act, which is introduced by two Republican senators. And what it would do is set up a fee based, system for imports only. And that’s one of its flaws. It doesn’t deal with domestic emissions, and therefore it violates the WTO rules. But it was set up a tiered structure of fees that, on imports that are determined by the greenhouse gas emission per metric ton of whatever item it is, whatever good it is that you’re talking about. Basically, free trade partners get something of a break, not a full break. And the countries that, of course, are the dirtiest, if you will, would pay the most. It violates GATT Article One and GATT Article Three. Unlike the European CBAM, it does not even pretend to create, a comparable scheme for American emissions. So that tells you in a way where the Republicans are coming from, which is let’s focus on the foreigners and the imports and give the Americans a pass. There’s a third bill introduced by a Democratic senator that would, is, I think, really the only one that takes the big leap, which explicitly sets a carbon price set at $55 a ton. And it would, you know, its closest we have to a CBAM analog. None of these are going anywhere, I don’t think, but they are illustrative. First of all, slowly, were moving, and of the controversy, even the Biden administration, which is probably the most pro-environment administration we’ve had, cannot bring itself to support a price on carbons. And one of the reasons that the EU and the US have not been able to reach an agreement over GASA, the Green Aluminium Sustainable Steel Agreement, has been that, the CBAM is based on carbon pricing, both domestically and on imports. And the Europeans have told the US, you know, you need to do the same thing. And the US response has been, we’re doing it by regulation, we’re not doing it by pricing. And we want that alternative approach to be accommodated in the CBAM. Europeans have pointed out that’s a lot harder to calculate, which is correct. And there the discussion stalls, I think, until the United States can acknowledges that it needs to price carbon, were not going to get very far globally. We did a paper on this a while back and were going to do another one. Were in the middle of another one on, what each of the two different administrations might do if they win in this area. We met with a Biden folks separately, we met with the Trump folks separately, and we’re going to meet with Europeans separately next week. But in the analysis we did a couple of years ago, we thought we saw three scenarios. One was we referred to as the virtuous circle scenario, which is Europe does it, other countries start to do it, our industries press us to do it, not for the noblest of motives. I mean, what will happen is companies will come in and say, you know, the Europeans are doing this is going to hurt us. We need to get even, and do the same thing to them. That’s not a noble motive. On the other hand, it gets the job done if the United States then goes ahead and does it. The second scenario was the death spiral. We resist, we sue the EU, they sue us, we go to battle in the WTO, we go to battle in European Court of Justice, they go to battle in US courts, and everything kind of grinds to a halt. And the third scenario was the ‘eh’ scenario. It doesn’t really affect us very much. So who cares? Let them do what they want to do in the intervening period. Since we did that, the last scenario is relevant until the EU includes chemicals and plastics, which they’re going to do. And the minute they do that, they impact the United States in a major way. So I think that scenario is going to go away because it’s only temporary. Right now it looks like actually, what’s happening is the first one, and you laid out the foundation for that in your question. More countries are adopting CBAM analogs and I think we’ll be driven to it eventually. It will be a laborious slow, we’ll be the last one to fall in line, and we’ll be kicking and screaming and whining and moaning and complaining the entire way. But in the end, I think we’ll do it, because we’ll need to do it simply to keep pace with everybody else.
US has been generally reasonably aggressive in pushing digital trade agenda
Amar Breckenridge: Okay, thank you for that. There’s a lot to think about there. But in the meantime, let’s move to some other areas of trade policy. So another big focus of global trade policies on digital trade and cuts across both services and manufacturing. Now the US has been generally reasonably aggressive in pushing the digital trade agenda, notably by trying to limit data localization and trying to restrict the mandating of access to source codes, for example. And the USMCA was seen as being quite an advanced agreement in terms of its digital trade provisions. But more recently, in the context of WTO discussions, the US has adopted quite, an opposite in the sense that it has abandoned any ideas of having multilateral rules that restrict data localization or cover issues like source code access and so forth. What do you think has motivated this change of tack and what might be some of the implications for it?
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Bill Reinsch: It’s mostly political and well, it’s also philosophical. It’s a reflection of the split in the Democratic party that I mentioned earlier. the left wing of the Democratic Party does not like what they call big tech, they do not like big companies. And you know, the big five are what Amazon, Apple Alphabet/Google, Meta. What did I forget? Microsoft. They don’t like them from an antitrust and competition point of view. And they believe that a policy that is designed to permit the free flow of data and to prohibit data localization policies in other countries, provides at the expense of smaller startup companies. I think my personal view is that this is an incredibly stupid position to take. It’s kneecapping our own guys in a sector where we’re the world leaders. And it’s opening the door for Chinese competitors to become world leaders. And the Digital Markets Act and the Digital Services Act in Europe and the Cloud Act are doing exactly the same thing. We’ve written a number of studies about that. But one faction of the US Democratic Party thinks that the DMA and the DSA is good policy and that the US should do that. And the other faction of the party thinks not. The result of that fight was not that the United States has reversed itself, but that it’s withdrawn from the fight. What it did was inform the WTO that it was withdrawing its support in the relevant negotiation for proposals that would, prohibit data localization and ensure free flow of information, and prohibit forced sharing of source code. I think those are basic elements of free and open Internet. The left wing Democrats have decided that poses dangers, competitiveness dangers. And ironically, not unexpectedly, but ironically, conservative Republicans also oppose big tech for different reasons. They view it, they view the big tech companies effectively as using their platforms to censor conservative debate. So this is one issue that. I mean, I’ve been doing trade for a very long time. And you can describe most trade debates in the United States, not just recently, but for 40 years. You can describe most trade debates in the United States as the left or the right ganging up and shooting the center. And that’s what’s going on, on digital. The left and right are shooting the center. And the center is badly wounded on this issue. And the losers are going to be consumers that use the Internet, the use of data, because what you’re going to get is Internet fragmentation. And that’s not in anybody’s interest. But that’s the way we’re heading. I’m very depressed about it.
One of the difficulties is developing a powerful narrative around trade
Amar Breckenridge: Okay, well, let’s try and finish on a note that might convey a bit more optimism. The economists, like ourselves, spend time trying to quantify the benefits of free trade and trade liberalization. You talk about cost to consumers, cost protectionism. Data localization is a form of protectionism. One of the difficulties is developing a powerful narrative around that. So costs are usually fairly diffused to consumers, and incremental reductions in growth rates are not politically visible. And in a country like the United States, where trade is about 20% of the GDP, the cost of protectionism in the US can be worn perhaps more easily than in other countries. It’s difficult to push against a political narrative when that political narrative draws on powerful undercurrents, emotive undercurrents, whether it’s on the left or on the right, and you describe the left and the right as ganging up and shooting the center. And both are driven by kind of very powerful, underlying emotive narratives, which essentially see traders as some hostile phenomenon. So, in that context, what are some of the ways in which you can develop a narrative that is favourable towards trade and the idea that rules and governance around trade are a desirable thing for everyone?
Bill Reinsch: Well, first, I disagree with your data point. Trade as a percent of us GDP is more than 27%, not 20%. and it’s been going up, but you have a point, because it lags well behind almost every European country, but it’s been increasing. I think there’s two ways to tackle the problem. First of all, I define the problem a little bit differently. For me, the trade issue has always been that, the benefits are diffuse and the costs are specific. So when a factory closes or moves offshore and blames it on imports, that’s a specific cost. And there are actual people out there, and they all vote, who believe that they’ve lost their job because of trade, and they believe they’ve lost their job because of foreigners. This is what Trump plays into. the fact that you can get grapes or strawberries, in January or asparagus in January, and the fact that your t shirt costs $10 rather than $13 is the result of trade. But that’s a diffuse thing. People don’t think about that when they go to the grocery store because there’s very rarely one bin of American asparagus and one bin of Chilean asparagus. It’s just asparagus. So this is why, if you look at trade from the standpoint of imports, you end up focusing on the costs, and then you get the narrative that you’re describing.
00:35:00
Bill Reinsch: If you look at the imports from a growth opportunity as a growth opportunity, then you come out with a different narrative. And I think there’s two ways to approach that. One, it’s with virtually the only data point that I can ever remember for sure is that 96% of the world’s consumers are outside the United States. We are a mature, slow growth economy with a actually declining birth rate. We cover that up by immigration. But it’s, you know, we are headed in the same direction as numerous European countries, in the same direction that where Japan and Korea are already well down that path. If we want to grow, if our companies want to grow, they have to trade. That’s where the growth market is. The United States is not a growth market. And you have to make that point over and over and over again. People that want to grow get it, but it needs to be repeated. On the other side. We’ve done a terrible job of dealing with the victims of trade. I would say the only people in the world that have done a decent job of dealing with the victims of trade is Denmark. And if you want to do a podcast sometime, get somebody from the Danish Labour Ministry and talk to you about what they do. It’s very interesting. And, they will be the first to tell you it hasn’t been completely successful, but it’s been more successful than anybody else. And we’re at the bottom of the pile. We don’t spend nearly enough on it. To the extent we do job training, we train people for the jobs that don’t exist anymore. We don’t help them get new jobs, we don’t help them relocate. You know, it’s just a very disappointing policy on our part. One of the things we can do is a have a better policy, which is not cheap, but it’s, you know, it’s important. But the other thing we can do is, is help workers understand that there is help out there, there is relief out there, and that there are things that the government, state, local and national can do to help them adjust when something bad happens, whether it’s caused by trade or caused by an earthquake or something else.
Amar Breckenridge: Okay. So there are a fair number of things that can be done, and I suppose it’s down to economists, political scientists, take up the cuddles on that. There’s a lot more that we could cover, but I think we’ve reached the end of our podcast, so I’d like to thank you again, Bill, for taking your time to share those thoughts with us and for those listening. You can also follow Bill’s thoughts, on the CSIS website and the podcast here runs. And to those who are listening, also remember to, review and rate this podcast, share it with people you like, and to join us for the next episode, which will be coming shortly after this one. So Bill, thanks again for joining. It’s been a pleasure.
00:37:33
Bill Reinsch: Thanks for having me. Always fun.