In One Sentence

• In support of what he referred to as a “new era of public-directed investment,” Todd Tucker, Roosevelt Institute’s Director for Industrial Policy and Trade, said that the United States needs more “actual meat on the bones” in implementing its climate and industrial policies.
• Tucker argued that U.S. climate and industrial policies should be conducted in the sequence of “survive, decarbonize and then become globally competitive,” and that tariffs should be used to “safeguard” investments incentivized by subsidies during the first two steps.
• Tucker also supported the crafting of bilateral and international agreements on a sectoral basis, provided they ensure companies follow “high-road practices,” e.g. in clean steel and aluminum production and, more generally, adhere to high climate-related standards.
• Michael Beeman, former Assistant U.S. Trade Representative, observed that the United States’ traditional bipartisan consensus on free trade and international engagement has collapsed due to the rise of zero-sum-centered politics, as politicians race to take an increasingly harder stance on tariffs in the name of protecting domestic sectors and production.
• According to Beeman, the United States has tended to “walk out” of trade negotiations in the hope of more advantageous outcomes but, instead, has often lost the chance to re-engage trade partners, and in the process surrendered its “decades-long global leadership on trade.”
• Michael Pettis, a nonresident senior fellow at the Carnegie Endowment for International Peace, criticized the existing multilateral trading system for focusing only on specific trade violations and for failing to address persistent trade surpluses.
• Accordingly, Pettis argues, the U.S. should “opt out of the existing global trade regime,” either unilaterally or with like-minded countries, and establish a new system that would “go after the trade imbalances themselves” as well as countries whose manufacturing capacities significantly exceed their consumption potential.
• According to Pettis, the new system should advocate for trade equilibrium and address trade imbalances through measures such as demanding currency appreciation, controlling capital outflows or increasing tariffs to limit the flow of imports. 
• Meanwhile, U.S. Trade Representative Katherine Tai emphasized that “strategic, smart, defensive use of tariffs” has a key role to play in “worker-centered” trade policy, adding that tariffs can be used constructively to level the playing field, give everyone “a fighting chance,” and create something “powerful and strong.”

Mark the Essentials

• Morgan Stanley analysts Ariana Salvatore and Arunima Sinha argue that a second Trump administration will be able to impose 60 percent duties on goods from China and 10-20 percent tariffs on all other global imports “seamlessly,” given the multiple authorities enjoyed by the executive branch.
• As per Peterson Institute fellows Kimberly Clausing and Mary Lovely, Donald Trump’s tariff proposals would cost the typical American household over $2,600 a year, and would essentially impact poorer households disproportionately. 
• Analyst Keith Rockwell concludes that Harris’ trade policy will be “less predictable” compared to Trump’s, whose protectionist stance is marked by “dead certainty.” He also notes that the U.S. political landscape is now more anti-trade than ever in the post-war era, with few politicians supporting pro-trade policies. According to Rockwell, Harris “falls squarely” into the camp that is skeptical of trade with China.

Keeping an Eye On…

• U.S. trade and tariff policy are coming full circle. The United States was among the first countries to benefit from the imposition of the MFN (most favored nation) principle on China. In the Treaty of Wanghia 180 years ago (in the wake of the British-won Opium War of 1839-42), the MFN principle—a stark novelty at the time—was among the key immunities and privileges granted to the United States. Today, by way of the Section 301 tariffs, Washington has de facto scrapped the principle in its trading relations with China, and some in Congress have called for its permanent revocation vis-à-vis Beijing. In the Anglo-American negotiations in the early-and-mid 1940s that culminated in the founding of the Bretton Woods institutions (namely, The World Bank and the IMF), the United States rejected the notion that creditor countries running current account surpluses should be compelled to make symmetric adjustment in order to ensure an equilibrium in external payments (at levels consistent with full employment). Today, some advocate for the establishment of a new system based exactly on that same idea of an external equilibrium backed by an escalating range of sanctions so as to address the U.S.’ trade imbalances with China. In the late-1940s, the deal-breakers in the negotiations that saw the United States walk away from establishing an International Trade Organization (the proposed third pillar of the Bretton Woods arrangement) were four-fold. Instead of removing tariff preferences, the draft ITO charter retained the largest existing preference program (the UK’s Imperial Preference system). Rather than proscribe quantitative restrictions, they were given a fresh lease of life on balance of payments grounds. Rather than make FDI more secure, it was accorded less protection than it had previously enjoyed. And finally, discrimination against American goods was provided a measure of protection, again on external equilibrium and adjustment grounds. Today, it is the United States that seeks to retain (and limit) preferences to like-minded partners, has de facto imposed barriers against inbound Chinese FDI, and actively discriminates against Chinese imports on trade imbalance and external adjustment grounds. On trade and tariff policy matters, where the United Kingdom was 75 years ago the United States is there today. What does this say? It probably says something that the Beltway classes would not be proud, or happy, to hear

Expanded Reading

• Harris’s record on trade paints a dire picture for American producers, consumers, The Hill, October 17, 2024
• ‘Off the charts’: How Trump tariffs would shock U.S., world economies, The Washington Post, October 16, 2024
• How Industrial Policy Gets Done: Frontline Lessons from Three Federal Officials, Roosevelt Institute, October 8, 2024
• Trade Intervention for Freer Trade, Carnegie Endowment for International Peace, October 3, 2024
• Walking Out: New Book Unravels the Shift in America’s Trade Policy and Its Global Consequences, Stanford University, October 1, 2024
• Trump’s bigger tariff proposals would cost the typical American household over $2,600 a year, Peterson Institute for International Economics, August 21, 2024