This piece was first published on VOXEU.
Last week, in an article in Foreign Affairs and in testimony before the House Ways & Means Committee, United States Trade Representative (USTR) Robert Lighthizer laid out the most comprehensive defense of the Trump administration’s trade strategy to date. Lighthizer asserted the nobility of the administration’s agenda, which he argued is designed to support workers and bring manufacturing jobs back to the United States. He sees his unilateralist policies and rejection of free market principles as a necessary correction to the mistaken approaches of previous administrations. Unfortunately, it is Lighthizer’s trade strategy that falls short in terms of its own standards of success, his goals notwithstanding.
Lighthizer’s piece in Foreign Affairs emphasized the need for a trade policy that “balances the benefits of trade liberalization with the policies that prioritize the dignity of work”. No one can deny the importance of well-paying jobs or dismiss the impact on U.S. manufacturing of Chinese imports. But agreement on the problems he has identified does not imply agreement on Lighthizer’s strategy for addressing them.
First, contrary to Lighthizer’s assertion that the administration’s trade policy should be credited with creating more well-paying manufacturing jobs, the evidence shows that the administration’s policies have made life harder and jobs less secure for the very people for whom he claims his trade policy is working. For instance, even when the economy was growing in 2019 there was low business investment and flat job growth in mining and manufacturing jobs. The tariffs imposed on the vast majority of imports from China and on steel and aluminium raised manufacturing costs, while also reducing household income, particularly for the poor and low income. And his threats of trade actions against countries around the world have created constant uncertainty for U.S. business, dampening trade and investment.
Second, the administration’s decision to negotiate or renegotiate bilateral trade agreements rather than open new markets means that U.S. exporters today have improved access to fewer foreign markets and face higher tariffs and more barriers than at the start of the Trump administration. At the same time, key export markets, including Japan and the EU, have been negotiating comprehensive trade deals with other countries, just not the U.S. In this context, USMCA is a boy’s finger trying desperately to plug a hole in the dike.
Lighthizer ignores all this and instead touts USMCA as a paradigm-shifting model agreement, including its provisions on labor. In fact, the USMCA hews very closely to the text of the Trans-Pacific Partnership (TPP), an agreement that Trump pulled out of in his first week in office. The USMCA includes most of the same rules but less market access into Canada and Mexico than it would have obtained through TPP, and none of the additional access to the large export markets in Asia and South America that were in TPP. Among the few areas where the rules were changed in USMCA was on labor, which are more enforceable than originally negotiated because of the demands of House Democrats. And, while USMCA supports labor unions in Mexico, as USMCA applies only to U.S. federal laws it does not cover state-level bans on union membership, where lower union membership has been linked to lower wages and other worker benefits.
But the fundamental problem is the administration’s failure to provide a coherent vision for maintaining and expanding U.S. competitiveness in the 21st century, including through its trade policy. Instead, the administration has developed a trade policy that seeks to shield the U.S. from the world rather than lead the world. For instance, Lighthizer is justifiably concerned about the potential for outsourcing higher-end services jobs as China invests heavily in its universities. Instead of recognizing that with the right trade, education, immigration, health, and other policies, the U.S. can out-innovate and out-compete the rest of the world, each year the Trump administration has proposed cuts to education and seeks to restrict opportunities for the best and brightest to work in the U.S. and start businesses. Lighthizer projects a backward-looking vision that places a lot of bets on growing the manufacturing base and producing jobs that can support low skilled workers, at a time when manufacturing is increasingly complex and skills orientated. This is not the basis for a durable trade policy that can respond to the opportunities and challenges of the 21st century.