Anne O. Krueger
Former First Deputy Managing Director
International Monetary Fund
Senior Research Professor
School of Advanced International Studies, Johns Hopkins University
Stanford Center for International Development (SCID)
The world had its highest rate of economic growth from the end of the Second World War until the middle of the last decade. Almost all economies shared in growth well above the historical average and the number of people in poverty fell drastically.
A hallmark of that growth was the increasing multilateral liberalization of trade. Under the World Trade Organization, trade became truly global and countries no longer discriminated among trading partners. Transport and communications costs fell rapidly, further increasing globalization.
Despite successful US leadership toward global integration and freer international trade until 2017, President Donald Trump reversed those policies, withdrawing from US membership in the Transpacific Partnership, imposing tariffs on imports of steel, aluminum, washing machines and more, and declaring a “trade war” with China.
The US also refused to approve of the appointment of any new judges for the very important Dispute Settlement Mechanism of the World Trade Organization, thus rendering it ineffective in its important function of preventing trade wars. Although some countries (including the European Union) agreed informally among themselves to honor the rules and procedures of the Mechanism, its absence globally meant that the World Trade Organization could no longer enforce its rules.
Many Americans hoped and expected that President Biden would reverse the Trump policies, resume leadership in the World Trade Organization, and spur negotiations under it for further reciprocal trade liberalization in services and agriculture and in new issues such as ecommerce.
There were a few positive signs. The Biden administration has consulted other countries more than Trump did and has at least rescinded the steel and aluminum tariffs on EU countries (albeit with limits as to how much may be imported into the US without tariffs). The 12th Ministerial meeting of the World Trade Organization also enabled successful agreements on contentious issues, especially fisheries. Delegates further agreed to address many of the concerns that had been voiced.
Overall, however, the Biden administration has been much more protectionist and removed much less of the Trump trade policy framework than was hoped. Although discussions are ongoing between the Americans and the Chinese, the prospect for removal of the trade war tariffs seems at best uncertain. The administration strengthened Buy American regulations for government procurement despite an agreement within the World Trade Organization to open government purchases to international bidding.
Moreover, the administration has announced its intention to see more manufacturing jobs in the US and to pursue a policy of “friendshoring”. While the precise meaning of the term is unclear, it certainly implies that the US will not respect the multilateral arrangements under the World Trade Organization and will instead negotiate trading arrangements among its allies.
The first instance of this was the four power agreement among the US, Australia, India, and Japan, which addressed security issues and committed to economic cooperation. The second was the Indo-Pacific Economic Framework for Prosperity with thirteen countries, among them the US, Indonesia, Japan, the Republic of Korea and Vietnam. That agreement pinpointed four “key pillars”. These are commitments to engage on: a wide range of “trade issues”; “supply chain resiliency”; a “clean economy”; and a “fair economy”. There are no particulars as to what these will entail. There was no mention of tariff reduction (as would have taken place in the Transpacific Partnership).
The Russian invasion of Ukraine has raised questions as to how to protect high tech military secrets, insure adequate supplies of goods crucial for defense, and sustain an open multilateral trading system. The main policy measure taken to date in the US has been the passage of a bill allocating US$52 billion to fund semiconductor investment in in the US and another US $24 billion in tax credits for semiconductor producers in the US.
Debate over the bill has been contentious, with opponents arguing that the shortage of semiconductors is ending and that low-end chips can more efficiently be produced elsewhere at lower cost. Certainly one can ask why location in the US is preferable to Canada and other US allies.
The world still has much to gain by further cooperation in maintaining and strengthening an open multilateral trading system. Those countries that maintain open trade and investment policies will likely experience more satisfactory economic performance than those that turn protectionist. That lesson has been learned by many countries that were highly protectionist in the early postwar years. It must be hoped that the US rapidly learns its lesson and resumes its support of an open multilateral trading system.
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