Former USTR During Obama Era Says Global Rules-Based Trade Gone Forever
Former U.S. trade representative Michael Froman said the standards set by the World Trade Organization have been under stress for 15 years, and that its principles of global non-discrimination, bound tariff levels and restrictions on what can count as a bilateral or regional trade deal are dead for good.
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"I don't think we go back to it, no matter who’s president," Froman said Sept. 12 at the Brookings Institution.
Froman said liberalizing trade became a potent issue for Donald Trump as he campaigned, because, while its benefits were widespread, especially for the lowest-income Americans, they were also invisible, while its costs were concentrated, and "very acutely felt by a relatively small number of workers." After those workers' factories closed, they either took lower-paying jobs, or didn't get jobs at all, and their cities faced opioid crises.
"What President Trump has done has flipped all this on its head," he said, as the cost of the new tariffs "are going to be quite visible and be felt by everybody." And, he said, even if they work to add manufacturing jobs, it will be years before those jobs come online, and it will be a gain for "relatively few workers In relatively few geographies."
He said some Trump supporters understand that trade-off, and accept it, but it will be interesting to see the political consequences of Trump's protectionism.
Froman said the effective tariff rate in the U.S., before Trump took office in 2016, was 2.5%, and now it's about 16%.
"That cost has to be borne someplace, it’s not free," he said. He said the exporters can eat it; a retailer or a manufacturing company that imports inputs will see hits to their profits; and "some portion of it" will result in higher prices for customers.
"There’s always a lag when it comes to tariffs," he said, but he doesn't think Americans should be complacent about either the health of the stock market, or what could happen with inflation.
With the WTO dead, Froman said, there will be coalitions of countries seeking to continue trade liberalization, by joining the Trans-Pacific Partnership, or by signing trade deals, such as the one between the EU and Latin American countries known as Mercosur.
The U.S. may not be prepared to do that, he said, but said policymakers need to have more clarity about what goods they believe are so critical that they must be produced domestically, and which ones should be shifted out of China and sourced from North American neighbors, Europe, Japan or South Korea.
He cautioned that seeking to stand up strategic sectors through subsidies and protectionism is copying China's playbook. He said not only has China wasted a lot of money on developing its industries, they may be able to do it better than the U.S. can.