Foreign Policy
. Ambassador Lighthizer is not dismissive of the salutary effect that trade can have on foreign relations. “The tearing down of trade barriers within Europe, starting with the establishment of the European Coal and Steel Community in 1951, surely contributed to postwar security … ,” he writes. On the other hand, he clearly believes that the trade-peace correlation can be overstated. He notes, for example, that “exports as a percentage of global GDP peaked at nearly 14 percent in 1913,” i.e., just before the disasters of the 20th Century really got rolling. Bringing things up to date, China’s trade success seems to have made it more, not less, willing to challenge its neighbors, e.g., in the South China Sea.
At the risk of appearing flip – not at all our wish – peace in Europe these past 75 years may owe more to nuclear weapons and the stationing of American troops in Germany than to any of the instruments of trade. And that is not to detract from those instruments.
Economic Efficiency
. Some of the trade restrictions associated with the novel coronavirus raised new questions about supply chains. Ambassador Lighthizer’s criticism of outsourcing, however, goes further back. It is not with praise, for example, that he recalls that:
General Electric’s hard-charging CEO from 1981 to 2001, the late
Jack Welch
, told suppliers that his company would stop doing business with them if they weren’t outsourcing jobs. “Supply-chain relocation” became a cure-all peddled by management consulting firms.
The Trade Deficit.
The outsourcing discussion in Ambassador Lighthizer’s article leads direct directly to comments on the U.S. trade deficits. It is easy enough to find arguments to the effect that the trade deficits do not matter. Ambassador Lighthizer thinks they do. As he writes:
These persistent deficits are financed by net inflows of capital—which means that every year,
the country must sell U.S. assets to foreign investors in order to sustain the gap between exports and imports.
The Openness of the United States.
As indicated above, we fully expect future entries in this series to deal with some of the specific issues and actions that Ambassador Lighthizer discusses in his Foreign Affairs article, certainly including NAFTA/USMCA and the China 301 tariffs. We shall close out this brief review noting two more general points.
First, The Top Issues
going forward. In this category, Ambassador Lighthizer gives special prominence to “market-distorting
state capitalism in China”
and
“a dysfunctional WTO.”
And second
America’s Openness.
“The United States,” Ambassador Lighthizer writes, “has remained the most open of the world’s major economies throughout Donald Trump’s presidency.” The numbers he uses to back this up are trade weighted average tariffs. America’s trade weighted average tariff, he explains, was 2.85 percent in 2019, versus a 3.0 percent in the European Union. If you take U.S. trade with China out of the equation, the U.S. trade weighted average tariffs on imports from WTO members is just 1.3 percent.
All measures are flawed including that of trade-weighted average tariffs. They capture what importers paid on the products they brought in, but they cannot capture the trade that tariffs block. That said, we think Ambassador Lighthizer’s larger point about U.S. openness is correct, and the United States has the trade deficits to prove it.
