Technology & Trade

A Series of Unfortunate Events (Lemony Snicket strikes again)

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By William Reinsch

We seem to be falling into an unfortunate pattern of trade events lately. First, somebody in the White House dreams up an astonishingly bad idea which is then promptly leaked by its opponents, also in the White House, which in turn sets off a vigorous business and agriculture community lobbying campaign against the idea, which usually succeeds if not in killing it outright then in putting it back on the shelf temporarily. This is immediately followed by another bad idea, and the Rube Goldberg mechanism to kill it off cranks up again. One would think that by now all parties would be exhausted, but the stakes are so high that no one can afford the luxury of a nap for fear of missing the next ridiculous proposal. 

So far we have seen the currency manipulation threat against China, the near-withdrawal from NAFTA and later on from KORUS, 45% tariffs on China, tariff increases on Mexico and, briefly, Germany, a U.S. content standard for NAFTA autos, a sunset clause for NAFTA, and a seasonal dumping proposal — and that’s not a complete list. While some of these have met well-deserved deaths; others are still pending, and some have become the Walking Dead of trade — zombies which for the moment have disappeared but at any moment could pop out of the White House and devour your brain. 

These proposals have presented a dual problem for companies and individuals trying to cope with the global marketplace. First, they are bad ideas which, if implemented, would stifle growth and cost us jobs. Second, and in a way worse, the uncertainty they create simply by being proposed has a negative effect on jobs and growth because people defer decisions when they are uncertain about the direction of government policy. Ambassador Lighthizer acknowledged that in his remarks at the Center for Strategic and International Studies on September 18, although he missed the point entirely. He commented that one of the reasons why they were trying to move quickly on NAFTA was to minimize the uncertainty the negotiations were causing, ignoring the fact that it is the negotiations themselves and the president’s accompanying threats that have created the uncertainty. If he wants to restore business confidence, he should simply stop renegotiating rather than speed it up.

He then went on to make everything worse by making clear there was more to come:

“The real policy difference…is not over whether we want efficient markets, but how do we get them?…we must be proactive, that years of talking about these problems has not worked, and that we must use all the instruments we have to make it expensive to engage in non-economic behavior and to convince our trading partners to treat our workers, farmers, and ranchers fairly. We must demand reciprocity at home and in international markets. So expect change, expect new approaches, and expect action.”

To be fair, he was only repeating the president’s message, which the latter rolled out again at the U.N. the next day. I have to say, though, I listened to Ambassador Lighthizer’s comments with a bit of nostalgia since I wrote the same speech for my then-boss Senator John Heinz in the 1980s. At that time we used to joke that there were no protectionists in the Senate. They were all free traders; they just disagreed over how to get there. (The joke fell a bit flat after then-Senator Fritz Hollings took the floor one day to announce he was a protectionist). 

So, this all sounds familiar, but there are two important differences.  First, there is an obvious difference in rhetoric. The ‘80s were an era of good manners compared to today, beginning with President Reagan, an example of both the elegance and eloquence we used to expect from our presidents. Second, the arguments then were kept firmly within the multilateral system. The U.S. was seen as the leader of the system; there was an understanding that the system had been good for us as well as others; and it was important for us to sustain the system by taking care to resolve our problems within it. Today’s threats to either ignore or withdraw from the WTO are very different. 

That may be why panic is growing among America’s farmers and businessmen. Trump’s and Lighthizer’s rhetoric doesn’t just stand up for our rights; it threatens the very system that gave us those rights and portends a return to the law of the jungle, a world where, as one wag said, “What’s mine is mine and what’s yours is negotiable.”  This will not end happily for anybody, but in the short run perhaps we can at least hope for a respite from the now-weekly attacks on our trading partners or the trading system.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative

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