Can Biden Resist the Lure of Protectionism?
Donald Trump withdrew from the Trans-Pacific Partnership during his first week in office. Soon he was fighting trade wars against half the planet: against Canada and Mexico, against the European Union and South Korea, against India and China. “Trade wars are good and easy to win,” he tweeted in March 2018.
Now the pandemic has inflicted the steepest collapse in world trade since the Second World War, and those around Trump see the pandemic as an opportunity for more rounds of protectionism in the future. In a January interview with Fox Business, Commerce Secretary Wilbur Ross predicted that the pandemic would encourage more businesses to shrink their supply chains and return jobs to North America. Trump himself agreed in a March 24 White House briefing:
This crisis has underscored just how critical it is to have strong borders and a robust manufacturing sector. Our goal for the future must be to have American medicine for American patients, American supplies for American hospitals, and American equipment for our great American heroes.
U.S. Trade Representative Robert Lighthizer denounced America’s “overzealous emphasis on efficiency” in an op-ed, warning that the only way for companies to ensure secure access to the U.S. market was to relocate production to the United States.
Many businesses protested that [Trump’s trade policies] created uncertainty. President Trump’s response was simple: If you want certainty, bring your plants back to America. If you want the benefits of being a U.S. company, and the protection of the U.S. legal system, then bring back the jobs.
And on May 15, in remarks at the White House, Trump vowed, “These vaccines that we’re going to be focused on and manufacturing, they’re all going to be [made] right here in the U.S.A.”
But as America erects new barriers to trade, its partners have responded in kind. Through the Trump years, polls have found a collapse in trust in the U.S. across almost all allied countries. In the fall, the European Council on Foreign Relations surveyed opinion across 14 EU member countries and found that huge majorities everywhere wished to stay neutral in disputes between the U.S. and China.
We are moving to a world in which—in the name of medical preparedness—each country and each major trading bloc could begin favoring local champions. The right-leaning populist premier of Ontario bluntly expressed the new thinking in a bitter reply to U.S. restrictions on medical exports to Canada: “I’m not going to rely on President Trump, I’m not going to rely on any prime minister of any country ever again. Our manufacturing, we’re gearing up and once they start, we’re never going to stop them.”
Similar sentiments have surfaced in Europe. “This crisis has revealed our morbid dependency on China and India as regards pharmaceuticals,” a vice president of the European Commission said on Czech television on April 19. “This is something that makes us vulnerable and we have to make a radical change there.”
Once protectionist impulses are loosed, they become hard to contain. Interest groups barnacle themselves to the protection. The protection spreads. If we must produce our own vaccines, surely we must also produce our own antiviral drugs. If we must produce our own antivirals, surely our own antibiotics. If antibiotics, why not our own medications of all kinds? Our own equipment? Our own machine-tool industry to produce that equipment? And so it goes, erecting barriers, slicing international supply chains, raising costs, reducing efficiency.
This approach would be costly enough for the large markets of a United States or a European Union. It spells ruin for a Japan or a United Kingdom, a South Korea or an Australia.
Can it be headed off? Should it be headed off?
Would a Joe Biden presidency work to preserve and expand open trade? Or would it succumb to protectionist tendencies? I recently put that question to a number of economic advisers to the Biden campaign.
Even before the pandemic, the once-rapid growth in world trade had faltered. From the end of the Cold War until 2008, world trade grew more quickly than world GDP. From 2009 until 2019, world trade grew more slowly than world GDP. As economists joked, globalization had yielded to slow-balization.
The United States, in particular, became wary of trade expansion. Under Presidents Bill Clinton and George W. Bush, Congress approved 16 trade agreements, including such major projects as the North American Free Trade Agreement, the Central America Free Trade Agreement, and the U.S.-Korea Free Trade Agreement. That progress slowed after 2008.
In the 12 years of the Obama and Trump administrations, Congress has approved only two agreements: the Trans-Pacific Partnership of 2016 (from which Trump withdrew in 2017) and the U.S.-Mexico-Canada Agreement of 2018, which isn’t really a free-trade agreement at all. (An International Monetary Fund analysis of the agreement assessed that, on balance, the USMCA restricted North American trade, as compared with NAFTA, because of its protectionist rules about components of North American automobiles and apparel.)
Why so little trade progress under Barack Obama? In the 1980s, New Democrats such as Clinton and Gary Hart upheld the open-trade cause against union-backed old-line Democrats such as Walter Mondale and Tip O’Neill. Newly elected Vice President Al Gore defended NAFTA on television against Ross Perot in 1993.
By the 2000s, however, the New Democrats were losing ground in their party. Obama used Hillary Clinton’s past support for NAFTA against her in the presidential-nomination contest of 2008. Bernie Sanders tried to use the same trick against Clinton with the TPP in 2016—and scared her enough that she scrubbed her support for TPP from the paperback edition of her 2014 memoir, Hard Choices.
Biden secured the Democratic nomination quickly enough to contain those kinds of fights. He has not resolved them. Instead, he has imported almost all of the Democratic Party’s points of view on trade into his campaign, as his advisers grope for some kind of synthesis.
The good news for Democrats is that synthesis is being reached.
The bad news for the world economy is that the price of that synthesis will be a go-slow approach to new trade negotiations.
“It’s inconceivable to me that Biden would propose a multilateral trade deal,” said Jared Bernstein, one of Biden’s left-leaning advisers. “Trade flows are important and beneficial, but they are no longer much influenced by trade deals.”
Sometimes cheerfully, sometimes reluctantly, Biden’s other advisers agreed with Bernstein’s assessment.
“It is unlikely that Joe Biden is going to walk in and be thinking: How do I reduce trade barriers to generate more growth?” one person near the center of the Biden campaign’s thinking on trade and economics told me, speaking on the condition of anonymity to discuss internal conversations. He added: “A lot of promises on how trade was going to deliver have not come true.”
Everyone I spoke with agreed that some increased measure of protectionism in medical supplies is coming. Perhaps the protectionist wall could be extended to encompass Canada and Mexico, and possibly—the more globally inclined advisers hope—widened to include other market-minded democracies too.
Jason Furman, who headed President Obama’s Council of Economic Advisers from 2013 to 2014, noted the sudden interest of Democrats in replacing medical imports from abroad. “There was no such noise six months ago,” he said.
But here’s the risk: U.S. adventures into protectionism in the ’80s, ’90s, and 2000s occurred within the context of a world of rapidly expanding trade. A quest for post-pandemic self-sufficiency in medical supplies, by contrast, would occur in the context of declining world trade, and could accelerate that decline into something even worse.
The big economic projects of a Biden administration—and, especially, a Biden administration backed by a Democratic House and Senate—are tightly focused on the U.S. national economy: new ideas for government spending and income support. Even those ideas that are not explicitly anti-trade simply omit to take the international economy very much into account.
If the U.S. raises the national minimum wage to $15 an hour early next year, as most Democrats seem to want, does it touch off a surge of more cheaply priced imports? And what happens then to any hope of resisting the protectionist impulses that increasingly animate Republicans and Democrats alike?
Atop the list of Democratic policy priorities is action on climate change. Without new trade agreements, climate action can become an open ticket to massive protectionism.
If the European Union imposes costs on European producers to reduce emissions, it will want to impose those costs on exporters who sell goods and services into the EU. That action, however, creates a temptation to calculate costs in ways that, even if only subtly, disfavor foreign producers. Health and safety regulations are permitted under World Trade Organization rules, but they can easily be abused. Back in the 1980s, Japan notoriously excluded foreign skis from the Japanese market on the grounds that only Japanese skis could be trusted on Japan’s uniquely hazardous slopes. Nor is the United States immune to such temptations. A carbon-restricting world will descend quickly into trade wars in the absence of the kinds of trade agreements that all Biden factions now eschew.
The coronavirus triggered a global pandemic that shoved the world into a global depression. Any recovery will have to be global too.
The problem of China’s bad behavior is real, and was incredibly badly managed by the Trump administration. Furman pointed to one likely difference between Biden and Trump: Biden won’t start trade wars with half the world at the same time as he tries to induce changes in the planet’s second-largest economy.
But avoiding blatantly counterproductive behavior is only the first step toward a sounder policy. Economic policy has to be guided by a vision of a world resisting the forces that want to sever the bonds of trade and investment that unite country to country, continent to continent. Those connections were deteriorating even before the pandemic. The current crisis threatens to weaken them further, endangering our collective prosperity.
The smartphone in your pocket contains components from dozens of countries. Disrupt the intricate supply chains that build the device, and you also disrupt hundreds of other businesses that use the phone as a platform. If the smartphone had not been developed first, how could the Venmo payment system have come into being later? Or ride-sharing services such as Uber and Lyft? Or smart-home systems such as Nest?
The products and services that glimmer on the edge of the possible—self-driving cars, GPS-guided drone delivery—will require even more ambitious global supply chains than the products of today do, merging advanced manufacturing with artificial intelligence. Arbitrarily imposed cost increases threaten all of that.
Deglobalization is a complicated way to say “going backwards and becoming poorer.” The Biden campaign’s trade policy is formed by the need to conciliate the largest possible number of Democratic factions and interest groups. To rescue the world of the 2020s from the global depression of today, an actual Biden presidency will need to break from least-common-denominator consensus—and develop a bold and assertive plan to reignite progress toward open and free trade among all willing countries.