The Obama Administration has no trade policy, and cannot have one. China is able to have a trade policy, and has one. China does not believe that the United States has no trade policy, and tailors its policy to react to what it interprets as choices and decisions taken by the U.S. Government. The United States, to the extent it tries to have a trade policy, wants to show that it is not intimidated by the retaliatory choices of China. This systemic and profound misunderstanding is taking neither country in a healthy direction.
This article is in two parts, appearing on the blog in consecutive weeks. The first part explains the concept of “trade policy,” and what it means to have one. The second part explains the opening statements: that the United States Administration has no trade policy and cannot have one; that China can have one, and does.
Part One: What It Means To Have A Trade Policy
Politicians, pundits, and scholars talk and write about “trade policy,” but they rarely explain what they mean. “Trade Policy” refers to the accumulation of deliberate government choices to express positions and preferences on international trade. It has essentially three manifestations: in the laws and institutions of a country pertaining to trade; in the actions a country takes, pursuant to its laws, to restrict trade with respect to specific products or services; and in the negotiations a country undertakes to liberalize trade. As in all domains, policy must be understood as to what a country does, not necessarily what it says. It is politically correct everywhere to champion free trade rhetorically. If all the rhetoric could be relied upon, there would be no protectionism.
Free Trade v. Protectionism
Broadly, trade policy is thought to be either in favor of free exchange, or to be protectionist, favoring imports (free trade) or domestic manufacture (protectionism). Favoring imports, in turn, favors consumers because imports increase competition, expand the variety of products offered, and lower prices. Favoring domestic manufacture, however, generally is thought to defend jobs, and jobs, in the end, are at the heart of every trade policy.
Prior to the Clinton Administration, jobs in the United States were little associated with the production of goods for export, even though in virtually every other country jobs expansion was always understood to be dependent on exports. One of the important subliminal messages in President Obama’s vow, in his first State of the Union Address, to double exports over the next five years, was that the United States does not export very much of its gross national product. Imagine the reaction of the rest of the world if China or Japan were to promise a doubling of exports in five years.
The key difference between American and foreign perceptions of exports was that U.S. manufacturers were satisfied with the American continental market; foreign producers needed to sell into that market, not only because the United States was the quintessential consumer society, but because American wealth and the coherent continental market made it by far the most attractive and inviting place to sell. The United States, long the world’s leading champion of free trade, thought it had nothing to fear and everything to gain by encouraging the rest of the world to become more productive and sell to Americans.
Jobs And Trade Policy
Jobs, everywhere, is the key factor in trade policy. Every government maintains domestic peace by promoting and generating jobs, keeping its domestic population occupied and productive. Jobs depend on trade. Without jobs, whether in developed or developing countries, there is no income for consumers to buy imports, and no tax revenue for government services or government-built infrastructure to enable imports to reach consumers.
The more a product is entirely made from domestic materials and components, the more its producers and spokesmen (and the politicians who represent them) will want to protect their domestic market against foreign competitors, in order to protect their jobs, and the more they will want the rules of trade to favor domestic production over free trade. It is nearly impossible, however, for workers in the global economy to make something that can be finished without inputs from abroad, such that their domestic market, and their jobs, depend upon foreign goods. And, they may make something that is in much, or even more, demand, in foreign markets. They need those foreign markets open to buy their goods, and they know that it is exceedingly difficult to avoid reciprocity in market opening – for the foreign market to be open, the domestic market must be open as well. In all these circumstances, the centerpiece of trade thinking is jobs, but jobs may be protected variously by trade protectionism or by free trade. The more goods are made for export, the more the manufacturers of them must favor free trade.
Developed And Developing Countries
Developing countries historically fear free markets, especially in agriculture, because developed countries can overwhelm developing markets. The characterization of developing countries, however, has become more complicated and nuanced as countries develop at different rates and reach different stages of development. These differences lead to different views of trade.
“Developing” and “developed” here are economic terms. They refer to the construction, maintenance, and operation of infrastructure, to the production of increasingly sophisticated goods and services, to the opening of markets. Over the last decade, certain major developing countries, particularly Brazil, China, and India (not “BRIC” because Russia has not been admitted to the WTO) have separated themselves from most other developing countries by the scale and speed with which their economies are developing. China, in particular, proves that capitalism and democracy can develop separately (contrary to the popular theories of Milton Friedman, for example), as China marries capitalism (“with Chinese characteristics”) to an economy still dominated by state owned enterprises. Historically, developing countries had little influence in shaping the rules of international trade, but the combination of Brazil, China, and India has changed the dynamic. When they advance common interests in world trade forums, they can influence the practice and the rules that once had been largely dictated by the developed world, particularly Europe and the United States.
Governments do not long like to be dependent on other countries for food, which makes agriculture, and subsidies to agriculture, the most contentious of trade issues. Developing countries have always feared significant job displacement when confronting free trade, and developed countries have long craved access to the populations of developing countries because they are potential consumers of goods known not to be produced in those countries. Developing countries also tend to fear free trade because the availability of goods to buy that they do not produce can only retard or terminate the possibility that they will ever produce them.
An important common characteristic of Brazil, China, and India is that, while they identify themselves as “developing,” they generally embrace free trade because they see their paths to prosperity through exports. Nonetheless, India has led the developing world’s objections to European and American agricultural subsidies, with the aggressive support of Brazil and China.
The fault line between developed and developing countries as to trade was recognized analytically at least by the late eighteenth century. Alexander Hamilton, in his 1791 Report on Manufactures, advised the new Congress of the United States that it would be necessary to protect certain industries against foreign imports lest the new country fail to develop competitive industries. England, from whom the United States had just won its independence, was the paragon of free trade, and Hamilton feared that political independence would not mean much if the United States were to remain economically dependent on the manufacturing powerhouse across the sea.
The United States became, in the twentieth century, the global leader for free trade in the image of England in the eighteenth century, the world’s foremost manufacturing center. However, unlike England, the United States was not so dependent on exports. Its ever-expanding domestic market and continent-sized reservoir of natural resource inputs were considered by many sufficient to sustain economic growth.
The global economy has changed this calculus, reflected in ever-evolving rules of origin. It is no longer easy to tell where something has been made, which is the first step in determining the tariff treatment it should receive, in turn the result of agreements between or among the countries engaged in trade. A global distribution of goods and services leads to products with components from many different countries, making choices between domestic and foreign products artificial. Consequently, it is no longer clear whether free trade or protectionist preferences are more likely to protect jobs.
Complexity in the rules of origin has been compounded by the flow of ideas. Countries are increasingly inclined to seek barriers to the movement of goods based on the intellectual property they contain. Patents and trademarks are rapidly becoming core considerations for free trade, potentially shifting the paradigm of jobs to wealth embedded in intangible property. Laws focused on intellectual property rights inevitably favor developed countries, but developing countries are learning how to deal with those advantages. Brazil has proposed, for the compensation arising from the WTO finding against the United States over cotton, concessions over intellectual property rights, thereby tying such rights directly to international trade.
Notwithstanding the growing uncertainty as to whether favoring imports is to favor free trade and whether the defense of domestic manufacturing is necessarily protectionist, traditional lines have been drawn around trade law such that there is more than a little truth in the stereotypes. The challenge to recognize these lines is acute in the United States because the United States is second only to the European Union as the world’s largest consumer market, having been surpassed in 2008 shortly after the EU’s expansion to twenty-seven nations. It took a population 37 percent larger in the European Union to surpass, by a very small margin, the consumption of the U.S. market. Producers around the world, for at least a century, have depended on access to the U.S. market to prosper, and still do. They need to sell their goods in the U.S. market in order to earn capital and to preserve jobs at home.
The divide between free trade and protectionism often is defined as a divide between consumers and producers. Consumers are distinct from producers because they define more of what is wanted than what is needed in a society. When people want a product no one makes at home – whether because the country does not have the needed raw materials or the machinery or skills appropriate to the manufacture, or because the product could not fetch a price commensurate with the costs of labor at home – they favor free trade, access to the imported goods. Of course, it is always possible for people to want one thing but make another, therefore favoring free trade in some goods, but not in others.
Partisanship And Socioeconomic Class
Historically, free trade seemed to be the prerogative of middle and upper classes, populated more by service providers, professionals, and management. They appeared to be less dependent on domestic manufacture for their jobs than trade unionists working on assembly lines.
Consequently, free trade appeared to become associated in the United States with the modern Republican Party, characterized by management and economic elites, and the Democratic Party became identified with protectionism because of its support from trade unions. Unions supported the election of Democrats; ”big business” backed Republicans. Democrats were elected from manufacturing centers and factory towns; Republicans became a rural and suburban party of large landholders and corporate managers. Intellectuals and professionals, however, tended to confuse the picture, sympathizing with workers, living in the suburbs, voting to protect manufacturing jobs.
These logical stereotypes, it turns out, have a polling resonance but are historically inaccurate when translated into partisanship, American party affiliations, and trade policy. For over a century, every Congress, whether majority Democratic or Republican, has resisted free trade.
Congressmen derive their power in the United States locally, and the most conspicuous local concern is employment. Most congressmen are inclined to protect the jobs that already exist in their constituency, not to protect jobs that might be if there were freer trade.
Almost every global and domestic initiative to liberalize trade has been taken by a Democratic President of the United States, and most backsliding has been at the hands of Republicans. FDR and Truman saw to the GATT; Eisenhower increased tariffs, and Nixon imposed voluntary restraint agreements on steel; the “Kennedy Round” of global tariff reductions was launched by the Democratic President who gave the negotiations his name; NAFTA was Reagan’s idea, but he also extended VRAs and NAFTA was legislated by Clinton, as was the creation of the WTO and the accession of China to world trade rules. It was a Bush that imposed safeguards on foreign steel.
There are reasons for this history, and for the inaccurate stereotypes, that go beyond the scope of this article, but are describe in my speech to the American Chamber of Commerce in the People’s Republic of China. The point here is merely that the principles that lead to supporters of free trade, on the one hand, and protectionism, on the other, do not translate consistently or reliably into the politics and policies of the two major political parties in the United States. When President Bush urged trade partners to complete the Doha Round before Barack Obama might become President, he was relying on the incorrect impression that Republicans would support free trade and a Democratic President would oppose it.
As popular views of trade are dictated by jobs, so a politician’s view is dictated by votes. When representing a constituency looking either to buy goods from the widest choice possible, or to export goods or services from domestic production, a politician will favor free trade. When the constituency is a domestic manufacturer whose jobs could be lost to foreign competition, a politician will favor protectionism. On balance, Republicans more generally represent constituencies of buyers and Democrats represent constituencies of producers, but the lines are inconsistent and the interests tend to narrow. Policy choices can be very specific. They can involve favoring free trade for agriculture, for example, but protectionism for automobile parts, making a state such as Indiana painfully complicated for both political parties. The same conservative farmer benefiting from massive subsidies can also lobby for open access to the Communist Cuban market.
Trade laws, which are the domestic interpretation of international agreements, reflect these choices and contradictions. They include special provisions crafted by individual legislators to protect the interests of particular constituencies provided it has been possible to compromise in the legislative process with politicians representing other, usually competing, interests.
The Three Components Of Trade Policy
Trade laws define the rules, but they alone do not constitute trade policy. The rules permit domestic agencies to investigate allegations of unfair trade, and to impose restrictions on goods or services found to be unfairly traded. The investigations, and the restrictions imposed, are probably the most important features of trade policy, because they have the most specific impact on trade partners. They determine the continuous tensions among countries over trade.
The third, remaining manifestation of trade policy is in the negotiations pursued to reduce tariff and other trade barriers, and in the choice between bilateral and multilateral negotiations. Although many observers think trade policy amounts to nothing more than these negotiations, they can take many years and have little or no short term impact on trade relations. Although formally the GATT took two years to negotiate (completing in 1947), Secretary of State Cordell Hull began the process of its achievement with reciprocal trade agreements in 1934; the Uruguay Round, launched in September 1986 was not concluded until January 1995, and the Doha Round, now at a standstill, was launched officially in Qatar in November 2001, and only after earlier false starts, as in Seattle in 1999. Meanwhile, the bilateral agreements the United States signed with Korea (2007), Panama (2007), and Colombia (2006) remain without endorsement of the U.S. Congress and without, therefore, any effect on trade. Of these three, moreover, the only one significant in economic terms involves Korea. The others, like an earlier agreement with Australia, are primarily political.
The objectives of trade negotiations are always broadly the same: to reduce tariffs and trade barriers and generally to liberalize trade. However, domestic forces driven by the need and desire to protect jobs seek to protect certain sectors and thereby to limit liberalization.
Industry in one country may crave market access in the trade partner; the trade partner may have a specific domestic need to protect its own production in that very industry. Trade negotiations routinely come apart over such conflicting needs, but they may also unravel over perceptions of nontariff barriers. For instance, the United States imagines itself to have a strict environmental regime that imposes serious costs on its manufacturing industries. Those industries believe competitors in other countries to enjoy unfair advantages by manufacturing with less exacting environmental standards. In a trade negotiation, they want the United States to oblige the trade partner to impose similar standards.
The other main point of contention in American trade negotiations, besides environmental standards, is labor. The United States imagines itself to provide the highest standards of worker protection, including minimum wages, maximum hours, and worker safety. These protections cost industries money, and those industries for whom trade liberalization is being negotiated want foreign industries to expend comparable capital to meet comparable standards. Trade unions, especially, demand that labor standards in other countries be comparable to the standards in the United States, and for at least three reasons: to make the cost of production comparable; to advance a common global cause for the rights of working men and women; and to impose a layer of protection for their domestic manufacturing jobs.
Environmental and labor standards are highly contentious in trade negotiations for many reasons. Many specialists in international trade have long believed that they have nothing to do with trade and ought not to be part of trade negotiations. Others who believe they are properly part of negotiations learn slowly that standards may work differently in different countries, and that American rules are not necessarily the most exacting, but instead may have different purposes and costs. Finding common ground can distract from traditional trade negotiations, and can emphasize disagreements between countries. Nonetheless, they are now core American demands in trade negotiations, accepted by both Republican and Democratic Presidents.
All three components of trade policy – institutions (including laws and regulations); trade remedies (investigations and imposed trade restrictions); and trade negotiations – are effectively beyond the control of the executive branch of the U.S. Government, preventing the United States from formulating and adhering to a coherent trade policy. But all three are well within the control of the central government in China, enabling China to articulate and maintain a trade policy. China wishes the world to believe that it is the leading force for free trade, but there are persuasive reasons why its goods are subject to more trade actions than the goods of all other countries combined. Part Two, next week, will explain why the United States and China are positioned so differently.
此处“发展中”和“发达”是经济学用语。它们指建设、保持以及使用基础设施以生产日趋复杂的产品和服务、打开市场。过去一个世纪里，一些主要发展中国家，尤其是巴西、中国和印度（不是“BRIC”四国，因为俄罗斯还不是世界贸易组织成员国）的发展速度和规模远远超越其他发展中国家。尤其是中国，国有企业占主导的中国经济与资本主义（以具有中国特色的方式）相结合，它证明资本主义和民主可以分离（与Milton Friedman 的观点相反）。以往，发展中国家无法影响国际贸易政策的制定，但是巴西、中国和印度的结合改变了这一局面。当他们在国际贸易舞台上为实现共同目标而努力，他们可以影响、改变过去受欧美等发达国家主导的规则和惯例。