Trade policy cannot solve the problem of inequality in the United States


A political instrument, a political objective. Or at least no more targets than there are instruments. Economists have known this for a long time: the great Dutch scientist Jan Tinbergen, co-winner of the first Nobel Prize in economics, pointed this out more than half a century ago.

But try telling that to U.S. trade policymakers. The number of targets is getting longer and longer but the range of commercial instruments is struggling to expand, and some are marked “Do Not Touch”. In particular, the idea that tariffs can have a significant impact on income inequality and kick-start manufacturing – it’s not the same thing, as we’ll see – is highly unrealistic.

Give the Biden administration credit: reversing some of the income inequality that has grown since the 1970s is a great idea. But its “worker-centric” trade policy will not. This is especially true when trade policy is also supposed to achieve a host of other mostly laudable goals. These include, but are not necessarily limited to: economic growth, supply chain resilience (including “allied shoring” with like-minded countries), extending the geopolitical reach of states United States (particularly in Asia), improving environmental and labor standards among trading partners, isolating Russia through sanctions, and even, for real old-school trade types, creating opportunities export for American companies.

Meanwhile, the administration (and Congress) has chosen to forfeit one of its most powerful tools: the bargaining power that comes with granting access to America’s huge domestic market through through preferential trade agreements (PTAs). The Biden administration is not backtracking on the CPTPP deal, designed to shape the Asia-Pacific economy into an American model, for the foreseeable future, and there is widespread skepticism – including in Congress – that the Voluntary economic framework of the Indo-Pacific it pushes is a good substitute.

Where the United States already has preferential trade agreements as a lever, it does not hesitate to use them without worrying too much about the sovereignty of trading partners. It’s a good thing to have independent unions in Mexican auto plants, as the United States has strongly encouraged through the United States-Mexico-Canada agreement. But cutting low-cost Mexican competition in autos won’t do much for large-scale income inequality in the United States, where many autoworkers, especially in unionized plants, are relatively well paid.

And as I’ve noted before, the ongoing obsession with steel is the clearest case of worker-centric politics, focused on some workers more than others. The administration is still tough on steel and aluminum imports, despite the effect of rising input costs on downstream industries.

Steel workers are also paid above the average for the American workforce. Unless you have the utterly implausible belief that greater trade protection will create vast new jobs in a capital-intensive, job-displacing industry, prioritizing steel producers redistributes income toward the top to a limited number of people. There is already one American political party for white males with above-average incomes: having two seems overkill.

The best news for a while in the American labor movement was the successful organization of an Amazon warehouse in Staten Island, New York (notably by a recently formed union with a distinctly non-traditional leadership). Organizing the private service sector – unions are usually concentrated in industry and public services – is the great reward of labor movements in advanced countries. But Amazon depends on cheap imports, and service industries in general are more likely to be in the non-tradable sector or are in fact inaccessible by trade policy. The United States cannot protect its path to prosperity in a post-industrial economy.

The first US-EU Trade and Technology Council (TTC) meeting in September was held in Pittsburgh, Pennsylvania, precisely because it is a prime example of a city that has grown from a steel past to excellence in medicine, financial services and higher education. education. None of these are affected much by trade policy (although large-scale imports of foreign doctors would do American health care a great deal of good). The TTC, whose second meeting begins in Paris this weekend, is designed to discuss the regulation of technology and other new sectors. All is well, but again, with only non-binding agreements devoid of market access to offer, the United States will struggle to export its regulations overseas.

It is also a particularly difficult time to keep consumer goods prices in place. Noting that workers are also consumers who benefit from cheap imports is the sort of thing that traditionally boos economists as metropolitan elite theorists, but right now the trade-off is particularly clear. Low- and middle-income US households are hurting from soaring prices. Reducing the remaining Trump-era tariffs on imports of goods such as bicycles and clothing from China will not solve this problem on its own, but as the Treasury Secretary has repeatedly observed Janet Yellen, that will definitely help. The administration is actively discussing the proposal: the reality of free trade has clashed with protectionist ideology.

We understand why the administration has attacked trade policy as a lever. It doesn’t have an overabundance of other options. Attempting redistribution and economic renaissance via public spending, a much better idea, is met with insane resistance on Capitol Hill. Unfortunately, there doesn’t seem to be much appetite for another big expansion of public health care coverage. Education policy is largely left to the states.

But that’s no reason to put even more targets on the ground than the waning quiver of US trade policy arrows is supposed to achieve. Blaming trade and globalization for a wide variety of American ills is an old habit, and the administration should try to shake it off.

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