Leibowitz on Trade: Problems and Solutions

That really isn’t fair, but that is not the point of today’s discussion. New agreements will be harder to reach because each country has its own priorities. Interdependence between countries now has taken a back seat to notions of economic security. The pandemic certainly increased the pressure on those countries that believe they can be self-sufficient to keep out goods that undermine economic independence. The United States believes it can be self-sufficient and is less concerned about countries that can’t. Again, that’s not quite fair—but if you live in Japan, or Ukraine, or Thailand, or Albania or the Central African Republic, you are under no illusions about being self-sufficient. Access to foreign markets for them is key to their very survival.

The Washington Post, reacting to this change of policy, wisely and accurately pointed out that trade has major positive global effects—for one, the reduction of global poverty (from the fall of the Berlin Wall in 1989 to the end of the Obama administration in 2017, the World Bank estimates that the number of people living in extreme poverty, less than $1.25 per day, declined from nearly one-third to about 10  percent). This reduction could not have happened without the expansion of global trade in the last 30 years.

The current resistance to more trade expansion seems largely confined to interest groups that fear the loss of workers, including manufacturing jobs. For example, organized labor, which has not figured out how to organize unions around the new jobs of the 21st Century (technology and services), concentrates on preserving the jobs that organized labor recruited in the 20th. Unions have political power, especially (but not exclusively) among Democrats. The Republicans for more than a century argued for a dynamic economy that creates new jobs and saw fewer advantages in preserving existing jobs through trade protectionism in the economy. The Clinton and Obama administrations focused more on looking at tomorrow’s jobs than the Biden administration. This perpetual difference of views continues, and continues to divide the federal government.

Both tomorrow’s jobs and yesterday’s were visible in the speech and in discussions between the U.S. and Europe. Thus it came to pass that the United States agreed with the United Kingdom and the European Union (they are no longer the same) last week to suspend tariffs they had imposed as a result of the longstanding dispute over aircraft subsidies (the Boeing/Airbus conflagration). President Biden agreed to the four-month suspension of tariffs while the parties negotiated a resolution of the underlying dispute. It is a big deal: the U.S. imposed tariffs on $7.5 billion worth of trade, and the EU imposed tariffs on $4 billion of American exports. The deal to suspend these tariffs and reach a settlement was, as the Post noted, a “good sign” that both sides believe “endless wars” in trade should not continue.

There are higher priorities than settling old scores now; there’s China to be dealt with. Secretary Blinken ended his speech last Wednesday by highlighting the problems posed by China’s expansion and increasingly authoritarian tendencies. Allies must work together to achieve a common purpose of halting the theft of intellectual property, the life’s blood of the Western economy, and the manipulation of currency for trade advantage. These issues are, of course, difficult to resolve. The world community has not yet found the right solution that balances the benefits and injuries of the global trading system. If we keep trying, maybe we can get there.

But reversing the expansion of trade over the last 30 years is not only impractical, it would likely be catastrophic. The ascendency of the trade skeptics in recent years creates an impossible situation if we limit international trade until we find a way to solve these problems. For example, if “overcapacity” is a problem, the solution cannot be to stop trade until we figure out how to close the gap between global supply and demand. The cost, to the poor in the world and to advanced developed countries, including America, would simply be too great.

The suspension of tariffs and the commitment to resolve the Boeing/Airbus dispute gives me reason to be hopeful that other impasses can be resolved without insistence on “unconditional surrender” as a goal.

I recall two famous axioms of public policy that should be constantly kept in the front of our minds as we develop proposals to resolve trade disputes:

• “The perfect is the enemy of the good.” Voltaire (1770)
• “If goods do not cross borders, armies will.” Frederic Bastiat (1801-1890)

(In the interest of accuracy, the Bastiat quote was entirely consistent with his philosophy, but did not appear in his writings. The quote achieved widespread use in the World War II period.)

The Biden administration has put down markers regarding U.S. trade priorities. Secretary Blinken and incoming U.S. Trade Representative Katherine Tai (who will nail down her Senate win in the “confirmation game” this week) will wrestle with the inherent conflicts between political promises and successful international negotiations over the next four years. The balancing act, as always, will take consummate skill.

The Law Office of Lewis E. Leibowitz

1400 16th Street, N.W.
Suite 350
Washington, D.C. 20036

Phone: (202) 776-1142
Fax: (202) 861-2924
Cell: (202) 250-1551