Vice President Biden announced his intention to be one of the most progressive Presidents since FDR. What was FDR’s approach in the aftermath of the Depression? As the eponymous Roosevelt Institute has explained,
“to restore the nation’s economic health FDR understood that he must do two things. First, re-establish the bond between the American people and their government by making the latter more representative of what he called “the common good,” and second put in place the type of structural reforms that would protect the population at large from the worst excesses of capitalism, while at the same time allowing it to flourish.”
As COVID continues to highlight cracks in the global trading system, here are five ways the Vice President can fulfill his progressive promise.
1. Achieve the Equitable Global Trading System FDR Sought.
- Enforceable labor rules
- Rules to promote real competition
- Cooperation with the IMF to address currency manipulation
- A recognition that foreign investors need discipline.
The Vice President can burnish his progressive credentials simply by picking up where FDR left off.
The current WTO reform proposals include none of these things. With the exception of Beto O’Rourke expressly, and Elizabeth Warren implicitly, Democrats haven’t focused on demanding that WTO reforms include enforceable labor rights. This is true even after the historic vote on the new NAFTA, which was in large part driven by a new labor enforcement regime.
And the Vice President can go one further. The FDR trade team did not ignore the environment – even in 1948 their vision included rules making it clear that conservation agreements override trade obligations. The Vice President can likewise put climate change front and center in his trade policy, either by pushing for a common set of baseline standards, or by making sure countries’ environmental efforts don’t take a backseat to the WTO’s longstanding obsession with prioritizing trade flows above every other consideration. It’s time to focus on quality of trade, not just quantity.
But to show he’s serious, he cannot simply make these aspirational goals: he must execute. That means he cannot cave in to the pressure to agree to dispute settlement reform until these goals are achieved. If he follows through, he will avoid the mistakes of predecessors, including Jimmy Carter, who succumbed to pressure to “do a deal” rather than heed the the Trade Act of 1974 mandate to include enforceable labor standards in the GATT, and Bill Clinton, who accepted a WTO package largely reflecting the corporate priorities of the Bush Administration.
To do less is to endorse the enforcement of rules that are anything but progressive: the Koch Brothers, for example, love the system.
2. Focus on Addressing the Full Scope of the Threat of State Capitalism.
FDR’s team was a full-throated advocate of establishing a global trading system based on free enterprise. And, as FDR’s team well understood, state capitalism is a threat to democracy. One of his key negotiators, Will Clayton, argued in favor of the Havana Charter by explaining that there were two paths. One
leads in the direction of free enterprise and the preservation of democratic principles. The other road leads in the direction of Socialism and state trading.
Yet, failing to heed this instruction, we let China – a major non-market economy – into the WTO without adopting the rules designed to safeguard free enterprise. The global trading system is not governed by the free enterprise rules the FDR team envisioned, but instead defaulted to a laissez-faire system when the American business community rejected them.
The scope of reforms on the table is dangerously narrow, whether it’s the Administration’s ambitions, or WTO Members’.
The Administration. The Administration is focusing on improving intellectual property protection in China – but that will simply make it even more rewarding for capital to flow there, taking jobs with it. Protecting intellectual property can be a comparative advantage; some companies choose to manufacture in the United States precisely because their intellectual property is protected. By focusing on having the PRC improve its protection of IP, we are focusing on making it safer to offshore to a geopolitical rival that has a fundamentally anticompetitive view of trade.
Moreover, the Administration is not focused on remedying the arbitrage that has allowed the PRC to create a false comparative advantage, be it through labor or environmental suppression. As the Center for American Progress pointed out, those issues are not even nominally part of the Administration’s reform agenda, yet they are part of the deregulatory incentive structure that drives offshoring American jobs to the PRC.
The Vice President must have a plan to address the PRC’s Made in China 2025 initiative. That initiative, which targets advanced manufacturing in sectors including aerospace, aviation, robotics, pharmaceuticals, and medical equipment, poses a further threat to the U.S. manufacturing base; it also threatens information technology. The current Administration has imposed tariffs on China on goods associated with MIC 2025, but it is not sufficient, and the pressure to remove the tariffs is strong. If there is no counterstrategy to address MIC 2025, the United States will continue to bleed jobs on the basis of PRC market manipulation. The old theory that offshored jobs would be replaced with higher-paying service jobs simply has not panned out.
The WTO. Similarly, WTO reform proposals are grossly inadequate. The focus seems to be on problems associated with state-owned enterprises, even though state-owned enterprises are just one means through which the Chinese government behaves in an anti-competitive manner. Even then, China has deemed the proposals a non-starter.
This is yet another reason to include labor and environmental standards at the WTO. The problem is not simply Chinese subsidies of, for example, such green technologies as solar; electricity in China is principally coal-based. Much as we value solar equipment, what is the net benefit to the environment if the PRC ends up with a monopoly on production that uses fossil fuels?
A China policy that promotes democracy and fair competition is a progressive China policy.
And progressives are mindful that it is not just American workers who suffer at the hands of state capitalism. Chinese citizens do it as well, be it through forced labor, social credit monitoring, or financial repression.
3. Fix our regional trade agreements’ bias toward capital over labor, the environment, and tax.
The Vice President indicated in one of the debates that he believes the TPP’s labor and environmental rules need to be beefed up. But the problems with the existing trade model go beyond the inadequacies with respect to labor and the environment. The bias in favor of capital is woven throughout these agreements, which are fundamentally designed to liberalize capital flows and restrain government policy space. One chapter after another limits government action, whether it’s in regulating food safety, product safety, or investment.
A progressive trade policy would revisit the current model. This approach would permit an evaluation of whether there is more that can be done to remedy what the Economist has recognized as an era in which capital gets a bigger and bigger share of the pie – at the expense of labor. (Answer: there is.)
4. Devise a strategic industrial policy.
In the 1970s, there was bipartisan support for industrial policy. But as progressivism fell out of fashion, and economic policy moved rightward, the idea that government could play a positive role in developing the manufacturing base become the subject of derision. (More accurately, we did not abandon industrial policy itself; rather, as the Roosevelt Institute has pointed out, we abandoned industrial planning. It’s yet another facet of laissez-faire policies, which are good for the owners of capital and less good for everyone else.)
Even before COVID exposed the fragility of supply chains, and the dangers of an eroded industrial base, strategic industrial policy – industrial planning – was starting to come back into vogue. The Defense Production Act can be used more aggressively to alleviate supply chain concentration and restore critical skills to American workers. And Vice President Biden can consider reviving the Reconstruction Finance Corporation, which FDR used in World War II to finance the ramp up production of much-needed military goods.
These programs would be job creators – something that will likely be desperately needed in a post-COVID world.
Beyond restoring our industrial base, the Defense Production Act offers us the chance to further domestic efforts on climate change. The Act promotes the use of renewable energy; it could be a vehicle for the Green New Deal.
To be clear, the goal is not to replicate the PRC model. That model has a fundamentally mercantilist, anticompetitive view of trade, placing a priority not just on having industrial capacity and worker skills in certain sectors, but in dominating a wide range of sectors – all while seeking self-sufficiency rather than mutually beneficial relationships. The Vitamin C litigation is a window into that mindset, and how it plays out for everyone else.
5. Make sure our trade and development programs promote development, not just trade.
Progressives support equality not just within U.S. borders, but beyond them. However, it is not clear that our trade and development programs are doing the job. While some of the criteria are oriented around development goals, such as improving labor conditions, others are less so, such as enforcing arbitral awards and increasing U.S. exports. Moreover, some development criteria are missing: for example, there is no evaluation of whether beneficiaries are addressing income inequality. Are all the spoils of liberalized trade going to a few oligarchs, or are they being dispersed more broadly through the population?
In this vein, it will also make sense to think carefully about the circumstances under which “free trade” agreements with the United States in fact benefit developing countries. It is assumed that these agreements not only benefit developing countries, but improve bilateral or regional relations. But we need to take a close look at what happened with the CAFTA countries and see what role, if any, the CAFTA trade rules may have played in the struggles some of the parties are currently experiencing.
April 21, 2020