Trade Cases

Leibowitz: The State of Play in Trade

Written by Lewis Leibowitz

There seems to be an erratic but discernible move toward more normal international trade policy. The last four years was anything but normal. Consider the following:

• After World War II, the United States found itself in a preeminent position in the world. Nearly half of the production of goods and services in the world came from the United States.

• The traditional powers of Europe and Asia had been heavily damaged or virtually destroyed. France was conquered and subjugated by Germany. The British Empire, which controlled one-fourth of the globe’s area and population, was in the process of being dismembered. Germany itself was utterly destroyed, as was the Japanese Empire.

• The world needed a new start and the United States was in a position to dictate the terms of that new start.

• Rather than take advantage of its position to impose rules that would perpetuate American power and position, American policy makers thought bigger, analyzing the causes of the two World Wars and the aspirations of peoples all over the globe. They also perceived the threat of Communism from the newly victorious Soviet Union.

• The global economic system that was created at the Bretton Woods Conference in 1944 and subsequent meetings led to a world trading system that concentrated on reducing economic barriers between nations. But those barriers were not removed, only reduced.

Many of the issues we contend with today are the result of that incomplete makeover of the global trading system. Political pressures in a democracy (and even in non-democratic societies) do not go away easily. Over the last 30 years, pressures in the United States and elsewhere have increased to protect existing industries. In part, this was due to declining economic growth that naturally pressures governments to conserve existing resources. Declining industries know who they are—but industries of the future don’t know. In politics, the declining industries have more clout, which is unfortunate but a fact of life. But the future industries, created largely by private initiative and accumulation of capital, are the way we create new jobs to replace the old.

Donald Trump’s administration gave increased voice to those who wanted to keep American industries going, but Trump did not invent those pressures. They have always been around.

With the Biden administration, these pressures continue and are increasing because of the economic crisis engendered by the coronavirus pandemic. A new impulse to give money to support people in need is commendable. But the ability to do so is finite—we just don’t know the limits yet, because currently the United States government seems to have a limitless ability to borrow and finance huge payouts to the American people. The money that will be given out does not constitute “taxpayer dollars.” Not even close; half the money will come from creditors, foreign and domestic, not from tax revenues.

It is hard to see this going on indefinitely, but many, I am sure, will disagree.

One trend that is clear after only 18 days is that the Biden administration is re-embracing international institutions, undoing as much as it can the renunciation of those institutions by the Trump administration. Already, President Biden is rejoining the Paris Climate Accord, the World Health Organization and just announced this week the support for Ngozi Okonjo-Iweala, the former Finance Minister of Nigeria, as the new World Trade Organization Director General, the senior position in the WTO. Ms. Okonjo-Iweala will be the first African and the first woman in that position.

The Trump administration did a lot to undermine (and nearly destroyed) the WTO, first by refusing to agree to appoint new members of the Appellate Body, which functions as an appellate court in the global trading system, and then by opposing the appointment of Ms. Okonjo-Iweala as the new Director General, succeeding Roberto Azevedo, who retired last August. The WTO had reached near-consensus on her choice (another historic event—the two finalists were both women). The WTO needs to reform to resume its place as the forum for advancement on international trade issues, but at least there is now leadership.

The Paris Climate Accord and the World Health Organization are also flawed and fragile institutions, like most international institutions (and like more than a few domestic institutions). But, as Churchill once famously said, “To jaw jaw is better than to war war.”

So, expect more rebuilding of international cooperation through institutions. And this will mean renewed trade negotiations, which may lead to agreements on such issues as tariffs and quotas on steel, which are likely to be resisted, in some cases successfully, by vested interests in the U.S. that feel they helped President Biden win the election last year. There is nothing new about this.

A second perpetual concern is wealth creation versus wealth distribution. For decades, the two major parties have scrapped about this. Since 1932, Republicans tend to be more concerned about wealth creation and Democrats put greater emphasis on wealth distribution. President Biden, as a Democrat and a strong supporter of organized labor, supports the Democratic position, as do many liberals in Congress. The COVID relief package, a $1.9 trillion monster, is aimed at improving distribution of wealth to lower income people and, because it does not do much to raise taxes on the wealthy, does not treat income redistribution as a “zero sum” game.

Trade is seen by many as a zero-sum game with as many losers as winners. I have never thought this was true and I still don’t. Trade, both locally and internationally, improves the lives of everyone. The problem is that workers are often displaced by technology, and governments sometimes set policies that focus more of the pain of that on workers in other countries. The real conservatives are unions who organized yesterday’s workers—sadly, they have not succeeded in organizing the workers of today and tomorrow. Those who like to protect their domestic market want to create new rules that make it more expensive for competitors to compete—environmental rules, for example.

The new administration will certainly focus more attention on wealth distribution than the last administration—but this is not only a domestic policy. Developing countries are the world’s future flash points.

The Biden team will make plenty of mistakes, for sure. One of them could be a mistaken belief that government redistribution actually creates more wealth. The evidence does not support that; slicing the pie differently is not likely to make tomorrow’s pie larger. But we may see some attempts in that direction.

These are surely introductory developments. As the weeks and months go by, new policies will take shape in foreign affairs and economic policy. Recovery from the pandemic and additional unexpected developments will come. We can draw conclusions from the administration’s reaction to them.

As always, comments are welcome.

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Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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