History of US Trade Policy as an instrument of Foreign Policy: Paradigm lost under Trump?

Came across this interesting speech by Alan Wolff, Deputy Director of WTO on February 5, 2018.

Wolff points how US has used its trade policy as a mix of foreign policy and economic policy:

For most of the last 100 years, the United States has entered into trade negotiations based upon the belief that open markets foster democracy which in turn supports the maintenance of world peace. This grand credo – that increased trade bolsters the prospects for peace – indicates that U.S. trade policy – aside from its announced goal the opening of foreign markets – has also had an important foreign policy component.  In fact, trade policy has been a bedrock of U.S. foreign policy dating from the Second World War.  If this is no longer the objective of U.S. trade policy, this largely unnoticed change in policy is nothing short of revolutionary. 

Some clarifications are in order to keep the overarching policy objective in perspective: First, the fact that this high foreign policy aim was embraced by political leaders did not regularly affect actual detailed trade negotiations. In the trenches, U.S. trade negotiators, at least for the last several generations, have apparently been oblivious to the greater purpose that their efforts served.  They simply sought to open foreign markets for U.S. goods, services, and investment.  Second, foreign policy objectives can be served not only by opening markets but, as has been the case, through weaponizing trade though the imposition of sanctions.

The question examined today is whether the grand article of faith – that obtaining more open markets leads to the creation of democracies which in turn improves the prospects for world peace – is still accepted U.S. dogma and whether it is operational as current policy.  If it is not, and the evidence suggests that this might be the case, the change in policy, is profound.  If there has been a loss of faith, it is likely to have occurred through erosion over time, and is not solely a question of a new administration coming into office as a result of the 2016 Presidential election. 

This paper attempts to trace the thread of trade policy for peace from its inception, and provide some evidence of whether somewhere along the way that policy was forgotten or discarded.  If so, it is a paradigm lost. 

Why is this so very important?  It means that the basis for U.S. support for the multilateral trading system must now be found in pragmatism, in narrower commercial self-interest, and perhaps much less if at all on the basis of America’s foreign policy interests. 

If the sole motivation for participation in the world trading system is obtaining reciprocity, can the system be maintained, much less improved?  Which countries will act and to what extent for the global public good?  This question is independent of providing “special and differential treatment” for developing countries.  The answer to the question of how much countries will be willing to act on the basis of a broader definition of national interest is fundamental to the well-being of all. 

He starts the history from Woodrow Wilson era where subsequent Presidents used trade policy to push foreign policy agenda. However, those on the other side would argue US used trade policy for neither foreign or economic purposes but to just puts its nose in all global matters.

Is Trump era doing a reversal of this trade driven agenda:

It is too early to judge what the foreign policy of the Trump Administration will be, nor anticipate the potential for interaction of this administration’s foreign and trade policies. (21)  What do we know so far?  I have not seen any reference to date from the Administration of its espousing the formula to which Woodrow Wilson, Franklin Roosevelt, and their successors subscribed to – namely that international trade fosters the growth of democracies which in turn leads to enhanced prospects for world peace. 

If there is a discontinuity, why did it occur?  What has changed? 

First and foremost, the current administration has announced that it intends to redress what are taken to be imbalanced trade relationships with other countries.  This, the primary announced goal of current U.S. trade policy, clearly resonates with a not inconsiderable number of American voters.  These supporters of the President, concerned with their own failure to participate in the benefits of globalization, are likely to believe that America has done enough for the world trading system.  More pointedly, in the view of some, it is time for America to be paid back for the investments it made for the global public good.  This is not a majority public view according to polling data.  Members of the American public, when asked whether they back free trade agreements, say that they do. (22)  There is not a lot of evidence of a widespread movement toward isolationism which critics of the Administration feared in the early days of this presidency.

Second, there is little belief at present, in American policy circles, that movement in the direction of free markets, at least in the foreseeable future, is accompanied by movement toward democracy.  The progress toward greater political freedom does not appear to be linked to rising standards of living and greater market orientation.

The WTO has 164 members.  By signing up to the WTO, the trade of each acceding country is freer than it otherwise would have been.  The trend to democracy, however, is not encouraging.  According to one source that measures progress toward democracy in the most recent period, seventy-one countries suffered net declines in political rights and civil liberties, with only 35 registering gains in 2017.  And 2017 marked the 12th consecutive year in which declines outnumbered improvements. (23)  According to the IMF, world GDP growth has averaged nearly 4% per year since 1980, including this eleven-year period. (24)  The march to prosperity does not seem to be in lockstep with the march to democracy based on present data. What the future holds, decades from now, is not available.  Suffice it to say that in the case of the largest developing country that joined the WTO, U.S. policy makers would not say that the paradigm is working. 

If freer trade is not leading to greater democracy, than the logic of free markets leading to democracy then peace, does not hold. 

third answer may be that it is felt the post war reconstruction has accomplished all that it could accomplish through trade.  The case is not being made that the Trans-Atlantic Trade and Investment Partnership (TTIP) is needed to shore up European security. (25)  During the Cold War, European reconstruction was seen as critical to preventing a slide to communist domination.  Similarly, trade is not seen as a foreign policy tool with respect to Japan.  During the Korean War, accelerated development of the Japanese economy was seen to be in America’s interest. 

The United States and China have massive bilateral trade and are at the same time enhancing their armaments as a priority for the contingency that these weapons may be needed primarily with respect to each other. The U.S. and China each view their major trading partner as a strategic competitor with which conflict is likely to occur.

The U.S. government does not see external threats to smaller countries where it has interests solved through enhanced trade.  As a result, it is not seeking trade agreements to bolster any particular regime, either because more is needed than a trade agreement, or nation building is no longer considered desirable or feasible, or both.  As an example, the stability of Mexico, a concern when NAFTA was being negotiated, has not been articulated as a current U.S. motivation for re-negotiation of NAFTA. 

Enhanced U.S. trade with Russia and Iran are not seen as practical inducements to change their current conduct in international affairs.

fourth answer may be that the U.S. does not have much more to give in terms of lowering trade barriers in an era where industrial tariffs are on average very low for all developed countries. (26)  The world of trade has become multi-polar.  The U.S. is no longer the largest trading country, and adding in the European Union as a whole, it is only the third largest trader.  

Hmm..

Lot more in the speech…

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