Biden needs to dump protectionism

Editor’s Note: Dan Pearson, a former chairman of the US International Trade Commission, is a trade policy fellow at Americans for Prosperity, an organization that promotes the benefits of market-oriented policies and advocates for their adoption. The opinions expressed in this commentary are his own.

For the last four years, US trade policy has been trending away from the commitment to more free and open trade that has been a hallmark of our economic strength. President-elect Joe Biden has indicated his intention to strengthen the economy, boost employment and rebuild relations with our international allies. Those aspirations will all be made easier if the incoming administration abandons a self-defeating regime of high tariffs, protectionism and flouting the rules of the global trading system.

Instead, Biden should work to reform the World Trade Organization (WTO), boost the economy by reducing trade barriers and enhance individual liberties by enabling American producers and consumers to conduct business freely across borders.

But we still can’t dismiss legitimate concerns about the illiberal practices of other nations. Here is what Biden should do:

Nominate experienced trade officials

Personnel choices matter a lot. Biden has made a prudent decision in selecting Katherine Tai, a trade policy expert, to head the Office of the US Trade Representative. Tai not only has previous experience negotiating with countries such as China, she also has negotiated her way through the political complexities of trade on Capitol Hill. She will be able to hit the ground running.

In addition, USTR has three deputy positions. One of the deputies is stationed in Geneva and serves as chief of the US Mission to the WTO. An excellent candidate for that slot would be Jennifer Hillman. She has previous experience as USTR’s general counsel and as a commissioner on the US International Trade Commission. Most important, Hillman was a member of the WTO Appellate Body, where she adjudicated international trade disputes from 2007 to 2011. She knows the WTO very well and has written extensively about how it should be updated.

A Boeing 737 MAX airliner piloted by Federal Aviation Administration (FAA) Administrator Steve Dickson lands following an evaluation flight at Boeing Field the in Seattle, Washington, on September 30, 2020. (Photo by Jason Redmond / AFP) (Photo by JASON REDMOND/AFP via Getty Images)

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Another outstanding choice for deputy USTR would be Darci Vetter. Among other positions, Vetter has served on the staff of the Senate Finance Committee, as deputy undersecretary at the US Department of Agriculture (USDA) and as chief agricultural negotiator at USTR. Her background has given her an in-depth understanding of the challenges facing the incoming administration.

Reform the World Trade Organization

The WTO’s Appellate Body is dormant because the Trump administration has been unwilling to agree to new candidates for any of the seven judgeships. There have been complaints from various countries about the way the Appellate Body has overreached its mandate, sometimes creating new trade obligations to which nations had not actually agreed. Much preparatory work has been done by WTO members to refocus the Appellate Body’s efforts. The Biden administration should move quickly to achieve consensus on meaningful reforms and begin the selection of new Appellate Body judges. That could pave the way for additional steps to refocus the WTO on its much-neglected negotiating function, as well as helping to re-establish effective working relationships between the United States and its market-oriented allies.

End the trade war

The trade war that was imposed by the Trump administration should be unwound as quickly as is feasible. Section 232 tariffs on steel and aluminum, implemented on the twisted rationale that imports of those products – even from allies – undermine US national security, should be ended immediately.

Section 301 tariffs imposed on $350 billion of imports from China also should be removed. This is not to do a favor for China; rather, it is to do a favor for the many American businesses and consumers that are hurt by the extra taxes they are paying on those goods.

As of September 2020, the Tax Foundation reports the trade war has cost Americans $80 billion and has lowered employment by 179,800 jobs. The effect of those tariffs has been so great that they have doubled the average US tariff rate from 1.4% in 2017 to 2.9% as of May 2020. These tariffs are paid initially by companies bringing Chinese goods into the United States. Many of those imports are used as inputs in factories, so the tariffs have the effect of raising the costs of manufacturing in this country and eventually prices for consumers at stores.

Give power back to Congress to regulate trade

The Constitution provides Congress with the authority to regulate international trade. But over time, too much of that authority has been handed over to the executive branch.

The new administration should commit to amending Section 232 and other statutes that allow the president to restrict imports for national security reasons. Members of Congress from both parties, among them Senators Pat Toomey of Pennsylvania and Mark Warner of Virginia and Rep. Stephanie Murphy of Florida, have introduced bills that would allow such tariffs to stay in place only with congressional approval.

Don’t rely on protectionism

The Trump administration developed an industrial policy that played favorites, restricting imports to protect about 143,000 steel mill workers, for instance, while forcing nearly 6.7 million workers in downstream industries, like machinery, appliances or auto manufacturing, to deal with some of the highest-priced steel in the world.

It’s hard for businesses to be globally competitive when they are paying artificially high steel prices. And those prices are high, currently more than 40% above even high-cost Western Europe.

The Biden team should resist the temptation to use “industrial policy” – government measures intended to boost certain industries by restricting imports or subsidizing exports.

President Donald Trump listens during an event in the briefing room of the White House in Washington, Friday, Nov. 20, 2020, on prescription drug prices. (AP Photo/Susan Walsh)

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There’s little for Biden to gain by ending current tariffs only to replace them with onerous Buy American requirements, possibly requiring all federal contractors to use only goods produced in the United States, for example. Buy American already raises the price of steel used in federally funded projects considerably. This transfer of funds from taxpayers to steel mills would simply amount to picking winners and losers in a different way. It is especially troubling because US steel would be used in the large majority of government projects anyway, just at more competitive prices.

There is a sounder alternative. Some people advocate requiring all medical supplies to be produced in the United States. If protecting public health and safety is the goal, a more cost-effective approach would be to expand inventories held in the Strategic National Stockpile. If the government really wants additional N95 masks, for instance, to be produced at home or in allied countries, federal agencies could enter into long-term contracts to buy those items at price levels high enough to encourage firms to adjust their supply chains. No import restrictions are needed. The government can provide encouragement with a light touch, nudging the marketplace by using a carrot rather than a stick.

Use the World Trade Organization to deal with China

Finally, how best to address the many economic challenges posed by China?

A good start – once the WTO Appellate Body is up and running – would be to coordinate the filing of dispute settlement cases against a number of Chinese practices that violate commitments it made when joining the WTO in 2001. Much of the international community is rightly concerned about the damage China’s state-driven capitalism is doing to global markets due to its lack of protection for intellectual property and trade secrets, forced technology transfer and subsidies. In addition, a clear-eyed review should be conducted of trade and investment involving China to assess and address legitimate threats to US national security.

President-elect Biden has an opportunity to promote a better path forward on trade that will be good for our country. The best way to realize that path is to ensure our people maintain their freedoms and have access to opportunities in a growing and innovative economy. Policies that re-establish America as an open and willing trading partner will strengthen the economy here at home and rebuild commercial and political relations abroad.