For decades now, the conventional wisdom has led us to believe there is a tension between a progressive trade policy – one that focuses on values beyond returns to capital – and American foreign policy.
This is a false tension, however. Far from impeding American foreign policy goals, a progressive trade policy advances them. FDR’s State Department team knew it.
The Failures of Making Liberalization Itself the Goal
The prevailing theory governing U.S. trade policy in the post-Cold War world has been along the lines set out by Fukuyama in the End of History: economic liberalization paves the way for political liberalization. But Fukuyama himself recognizes that this theory has failed, and he now considers Chinese state capitalism to be a threat to the democratic capitalist model.
Not only has political liberalization failed to materialize as expected, but the consequences at home have been devastating. The China Shock exposed the long-term, disastrous consequences for American manufacturing workers, particularly in the industrial heartland – that is, the industrial heartland that comprises much of the Blue Wall that was so crucial in electing Joe Biden. The China Shock also seems to have contributed to increased political instability.
More recently, COVID has vividly illustrated that a policy of liberalization for its own sake has led to supply chain concentration in China, and a corresponding vulnerability in the American ability to provide essential medical equipment to its own people. We know we need to restore manufacturing competency, and the Biden-Harris team has a plan for doing it.
If we want to keep the jobs we onshore, and secure our core manufacturing capacity for the long term, then we need to reform the rules of globalization. Otherwise, the same incentives that led to offshoring before will lead to offshoring again.
Our Foreign Policy Goals, and How Progressive Trade Policy Fits In
If a key component of American foreign policy is building relationships with allies and addressing the threat of authoritarian state capitalism – and there is bipartisan consensus that it is — then we need to make sure our trade policy supports that goal.
That means a policy that promotes sourcing in friendly countries, strengthens working families, and preserves the right to regulate. That’s a progressive trade policy.
A neoliberal policy, on the other hand, is what we’ve had for 25 years. It focuses on liberalization so that capital can maximize its returns. That is what has led to supply chain concentration in China. Even today, businesses have spent tens of millions of dollars lobbying Congress as it seeks to address forced labor in Xinjiang. Congressman Suozzi – a member of the business-friendly New Democrat Coalition – expressed his frustration with the business community’s approach. “Some things are unacceptable.”
By focusing on the ability of multinational corporations to maximize returns to capital anywhere in the world, neoliberal trade policy aggravates the very problems American foreign policy will be seeking to solve – and therefore is at cross-purposes with it.
Focusing on inclusive prosperity and true economic integration with allies is good for Americans. And it’s good for our allies, too.
The 1945 State Department Figured It out for Us
These aren’t new ideas. In fact, they come right out of the 1945 State Department, which produced a brilliant blueprint for a post-war economic order. The document is entitled “Proposals for Expansion of World Trade and Employment.”
The Proposals recognize that:
- Absolutist liberalization policies are unrealistic;
- The goal is fair treatment for “friendly states;”
- Economic cooperation is needed to achieve fairness and equity;
- Trade and employment must be considered together, because nations should not export unemployment:
- high and stable levels of employment are a necessary condition for increasing trade;
- high and stable employment is a main condition for satisfactory levels of living;
- the attainment of approximately full employment and its maintenance are essential to the full realization of the objectives of all liberal international agreements “and, therefore, to the preservation of world peace and security;”
- Concentrated industrial power can have more distortive effects on trade than government intervention;
- There should be an absolute exemption from trade rules for measures necessary to protect animal, plant, or human health (trade wonks will want to compare the language to GATT Article XX); and
- These rules do not impinge on sovereignty.
Note that the Proposals emphasize world trade and employment. Indeed, high employment is identified as a precursor to, not a consequence of, increased trade.
That stands trickle-down global economics on it head. You don’t expand trade on the assumption that jobs will follow. You get your domestic house in order first – and then you focus on trade.
Which is just how the Biden-Harris team has ordered its priorities.
They Understood the Link between Inequality and Authoritarianism. Do We?
This framework – particularly the recognition of the integrated relationship between trade and employment — emerged from the FDR/Truman team’s experience with income inequality as a spur for authoritarianism. Critically, this policy was developed through extensive interagency consultations. Yet today, our trade regime reflects little of the 1945 State Department’s nuanced, complex, and profound vision for global cooperation.
Today’s framework is principally built around the view that liberalization is, on its own, the purpose of the undertaking – something the authors of the Proposals rejected. They knew that a system promoting returns to capital at the expense of every other stakeholder would not be a force for stability, but rather a force for instability. They also knew that illiberal governments could commandeer globalization to pursue illiberal ends and jeopardize democracy itself.
As the geoeconomic threat of the CCP looms, and a global recession is disproportionately hurting the most economically vulnerable, U.S. foreign policy will focus on building relationships with allies – but we have to make sure those economic relationships promote truly inclusive prosperity.
Cribbing from the Post-War Geniuses
As we continue to look for answers on trade, we are fortunate not to have to start from scratch. All we have to do to chart a better course is to draft off the geniuses in the 1945 State Department, who conceived of a rules-based order that would promote economic equity across borders, and within them. They understood that promoting economic equity promotes peace and security.
We can build back better trade policy – strengthening both our allies and our own working families in the bargain.
November 11, 2020