In early 2025, a new US administration and European Commission will be in place. It will then be more critical than ever that the United States and the European Union (EU) coordinate their approaches to international trade across a wide range of issues. A significant impediment to this coordination is the persistent temptation—by a range of players in transatlantic circles—to articulate and emphasize supposedly fundamental differences between Washington and Brussels in a way that highlights the virtues of one and denigrates the other. As satisfying as that classic conflict narrative is, it has real-world negative consequences for both parties and should be reassessed by all players in favor of the reality that what unites the United States and the EU dwarfs their differences.

State of play and the strategic imperative

Leading into 2025, cascading joint challenges of supply chain vulnerabilities, climate change, deindustrialization, competitiveness, geopolitical crises, and damaging third-country non-market economy policies and practices—coupled with an international rules system designed for another era—will increasingly drive both sides to use unilateral measures to protect and achieve legitimate policy goals. The US tariffs on steel and aluminum and the Inflation Reduction Act are two such examples; the EU Carbon Border Adjustment Mechanism (CBAM) and Deforestation Regulation are two others. Other measures risking transatlantic friction include the EU’s Corporate Sustainability Reporting Directive, the longstanding Boeing-Airbus subsidies dispute, previous tensions over the EU digital services tax, a failure to reach a critical minerals agreement, and US companies’ compliance with the EU’s Digital Markets Act.

The current trend is not abating. Unless the United States and the EU cooperate on those unilateral measures, there is a high risk that they will result in significant bilateral trade clashes. At a minimum, this will undermine achieving generally shared goals; at worst, it could result in spiraling bilateral trade retaliation.

A significant barrier to transatlantic trade cooperation is the persistent underlying narrative—among policymakers, think tankers, and others—that the United States and the EU approach the world from fundamentally different perspectives. In the memorable words of a distinguished commentator twenty years ago, the United States is from Mars, and the EU is from Venus. This can be an attractive narrative, as it allows each to claim virtues that the other supposedly lacks. It allows Washington to take pride that it is tougher and more clear-eyed than a feckless EU; it allows Brussels to claim that it is more law-abiding and multilateral than the “Wild West” United States.

But this narrative is a choice, not a fact. And the strong inclination to triumphantly celebrate supposed fundamental differences has negative real-world impacts. This narrative finds its way into public statements, is sometimes amplified by a press happy to report on big-picture fights, and can end up deeply embedded in the public consciousness, determining whether or not there is public support for US-EU cooperation. And this narrative of fundamental differences between the United States and the EU—each side claiming the higher virtue—undermines US-EU cooperation.

Further, US-EU cooperation is a necessary but insufficient condition for making progress on these global challenges. In a context in which cooperation with other trading partners is essential, setting up a sharp divide between the United States and the EU encourages those trading partners to take sides and discourages their cooperation with the EU and the United States.

Recent among many examples are the discussions over the Global Arrangement on Steel and Aluminum. To recall, the United States imposed tariffs on steel and aluminum from around the world because of damaging subsidized and non-market excess capacity in China, and the EU retaliated with its own tariffs on US products. Both sides brought dispute settlement disputes to the World Trade Organization (WTO). The United States and the EU de-escalated the situation by agreeing to a temporary two-year settlement in October 2021, under which historical levels of EU steel and aluminum could enter the United States duty free, and the EU suspended its retaliatory tariffs. By the end of October 2023, the EU and the United States were to have reached a permanent arrangement to free up bilateral trade in steel and aluminum and eliminate retaliatory tariffs. It didn’t happen, amid somewhat angry recriminations, but at the last nail-biting minute, Washington and Brussels agreed to extend the truce for another fifteen months to give breathing room to negotiate a deal.

The inability to reach a final arrangement on such a tight timeframe was not surprising. Its goal is as ambitious and unprecedented as it is critical: Climate change is an existential crisis, and non-market-based products threaten key industries and their ability to produce sustainable products. Washington and Brussels urgently need to address these issues, and this novel arrangement is a way to tackle both simultaneously: It would incentivize bilateral trade in environmentally sustainable and market-based products and disincentivize trade that is not. US National Security Advisor Jake Sullivan declared the arrangement “could be the first major trade deal to tackle both emissions intensity and over-capacity.” Negotiating such an agreement is not only novel, but it is challenging in an international rules system that prohibits discrimination against “like” products and that was negotiated when non-market state actors were not much of a factor.

That this was a groundbreaking negotiation addressing critical new joint challenges could and should have been the explanation for the inability to reach a permanent arrangement. That narrative would have supported the parties’ continued work to reach a final arrangement.

Instead, the public explanation from Brussels for the failure was that the United States was insisting on WTO-illegal tariffs and an illegal free pass on the EU’s CBAM as part of the arrangement. The EU’s trade chief, Valdis Dombrovskis, largely stuck to the line ahead of negotiations, stating, “As the EU, we’re committed to multilateralism, to the rules-based global order. We would like to avoid engaging in agreements which manifestly violate World Trade Organization rules.” Later, he hit Washington for failing to provide a clear path to end the tariffs, which Brussels deemed illegal. The United States was less vocal publicly on the failure to reach an agreement, but trade watchers understand the United States’ implied position is that the EU is institutionally hidebound, unwilling to reach beyond currently existing regulations that have failed for decades to fix the problem.

Each of these positions fit into the Mars-Venus narrative—and left each side convinced that it was right. But when talks break down with one party characterized as a rule breaker and the other as being rigid and unimaginative, it does not create an environment for further joint progress. How does the EU then justify negotiating with a rule breaker or ultimately finding a compromise along the lines of something it condemned? How does the United States justify continued discussions with a rigid institution that is unwilling or unable to be creative enough to meet new challenges?

To be clear, the United States and the EU will have good-faith disagreements over their approaches to issues, even those on which they agree. There is nothing wrong with confronting and trying to resolve those disagreements. But the readiness to attribute those disagreements to values-based fundamental differences digs a virtually unbridgeable gulf.

Looking ahead

This dynamic has shaped (and thwarted) cooperative US-EU efforts in numerous areas, including reforming WTO dispute settlement, addressing distortions caused by non-market actions of state enterprises, subsidies, excess capacity, coercion, and a host of other issues. Unless there is a change, it will continue to do so. And the number and significance of areas in which US-EU cooperation will be critical will only increase as joint global challenges mount.

Policy recommendations

There are ways to lay a better foundation for US-EU cooperation going forward:

• Focus messaging on common values and interests. All proponents of stronger transatlantic ties—think tanks, academics, business and nongovernmental organization (NGO) stakeholders, and government officials alike—should emphasize publicly and privately the reality that what unites the United States and the EU in the world trade order dwarfs their disagreements. These proponents should avoid the temptation to signal the virtues of one partner by denigrating the other and creating appealing, but largely false, fundamental differences. Those narratives, setting up epic conflicts between the forces of “good and evil,” are exciting but have profound negative effects in the real world.
• Identify priority areas for coordination and work most intensely and cooperatively on those aspects for which there is maximum overlap of interest. US and EU government officials should focus now, ahead of and in early 2025, on specific priority issues that require the most intense coordination. Issues represented by the Global Arrangement on Steel and Aluminum—climate change, including CBAM and similar measures—and non-market policies and practices should top the list. For each of those priority issues, the parties should identify the areas of strongest overlap in interest and work intensely on those areas. Where there are significant differences in approach that cannot be entirely bridged, those should be cabined off and addressed separately. The United States and the EU should also agree on principles of cooperation that avoid casting aspersions on the other party.
• Build buy-in from all stakeholders. Finally, the United States and the EU’s joint work on identified priorities, and the messaging that accompanies that work, should be strongly informed by the broad US and EU stakeholder community—including business, agriculture, labor, NGOs, think tanks, and others. This would ensure that the priority areas of work are, in fact, those that have a meaningful real-life impact, and would crystallize a positive public narrative supporting that work, both domestically and internationally.

To improve the cooperative dynamic in 2025, the United States and the EU should focus less on whether one is from Mars and the other from Venus, and more on the planet they share: Earth.

L. Daniel Mullaney is a nonresident senior fellow with the Atlantic Council’s Europe Center and GeoEconomics Center. He served as assistant US trade representative for Europe and the Middle East in the Office of the United States Trade Representative from 2010 to 2023.  

To read the report as it was published on the Atlantic Council webpage, click here.

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Introduction

The next White House occupant will have the unprecedented opportunity to decide the United States-Mexico-Canada Agreement’s (USMCA’s) fate. USMCA contains a sunset clause, Article 34.7, which terminates the Agreement in 2036 unless the parties agree to extend it through a “joint review” process set to begin on July 1, 2026. Readers facing more immediate challenges in 2024 might question the urgency of a decision that lies two years in the future, under an undetermined administration, and whose direct legal effect is delayed for ten years after that. But the USMCA’s implementing legislation, 19 USC § 4611, requires the President to “consult with the appropriate congressional committees and stakeholders”, as well as relevant executive branch officials, and to “provide opportunity for the presentation of views in relation to the operation of the USMCA, including a public hearing” at least 270 days before each joint review. To readers with a stake in North American trade—that is, at minimum, all North Americans: the time to strategize your participation is now.

The sunset clause was controversial, not least because it introduced little more to the Agreement than the fretful insistence of a doomsday clock. As former President Trump’s Trade Representative (USTR) Robert Lighthizer has noted, “[m]ost trade agreements, for reasons that don’t make any sense to me, are eternal… this one is temporal, although it’s complicated how it works.” The Agreement is initially set to expire 16 years from the date it enters into force. Every six years, the Free Trade Commission (or FTC, a group of minister-level government representatives from each party) conducts a joint review during which they decide whether or not to extend the Agreement by six years. If they extend the Agreement, then they can simply wait until the next joint review; otherwise, they must conduct annual reviews until the original expiration date. At any time in between, they may change their minds and extend the Agreement. The FTC may also, of course, meet between joint reviews and establish, dissolve, or otherwise collaborate with committees, working groups, and other subsidiary bodies to aid its decision-making. In May 2024, for example, the FTC held its fourth meeting, where it “took note of readouts from the Working Group for Cooperation on Agricultural Biotechnology and the Committees on Textiles, Technical Barriers to Trade, Good Regulatory Practices, State-Owned Enterprises and Designated Monopolies, and Small and Medium-Sized Enterprises.” Aside from consultation with and reporting to congressional committees, USMCA does not reserve any particular authority for Congress in the joint review process, so from a legal perspective the outcome depends on the executive branch—Congress’s role is essentially political.

Adrienne Sunset Clause

What readers should take most interest in is the process, specifically the approach that each prospective administration is likely to employ in a joint review, and the opportunities that each approach is likely to open to stakeholders to influence decision-making. Some predict that neither Trump nor Biden (or likely Harris) would extend USMCA in 2024. But like choices, in this case, will not lead to like results. When it comes to addressing some of the toughest challenges recognized on both sides of the political aisle, the two administrations’ approaches are rooted in fundamentally incompatible philosophical principles and priorities. Possibilities for stakeholder engagement, and outcomes for stakeholders, vary accordingly.

Trump and “Lighthizerism”

Trump has a clear vision for trade policy: wield it like a club and beat negotiating partners with it until they give him what he wants. In his second term, Trump has proposed a “ring around the country,” meaning a 60% tariff on all goods from China and a 10% tariff on all goods from all other countries (in addition to the Section 201, 232, and 301 tariffs his last administration imposed, as well as existing antidumping and countervailing measures). The architect of Trump’s trade framework was former USTR Robert Lighthizer. The two are reportedly still close, and Lighthizer would likely play a prominent role in Trump’s next administration, perhaps as Treasury secretary. For that reason, readers will benefit from an understanding of Lighthizer’s perspective on trade.

During Trump’s first term, international political economy scholar Quinn Slobodian observed that “Lighthizerism departs from standard free trade philosophy […] in its commitment to using an openly politicized arsenal of tools” to improve the US’s trade deficit; in its scorn for constructivist, multilateral approaches in favor of transactional, bilateral ones; and in its embrace of unilateral executive action to “[unsettle] existing arrangements and [push] partners to the negotiating table.” Lighthizer began his trade career as a deputy US trade representative in the 1980s, when the American factory worker’s bogeyman was a Japanese manager, not a Chinese bureaucrat, and the Reagan administration was combatting global industrial competition by pioneering the use of “aggressive unilateralism” in the form of Section 301 tariffs. In Slobodian’s view, Lighthizer hardened his philosophy in the crucible of 1980’s trade conflicts, which Lighthizer believes the “icon of modern conservatism, Ronald Reagan, [won by imposing] quotas on imported steel, protect[ing] Harley-Davidson from Japanese competition, restrain[ing] imports of semiconductors and automobiles, and [taking] myriad similar steps to keep American industry strong.”

Citing congressional testimony by Lighthizer in 2018, Slobodian illustrates how Lighthizerism has adapted to a world where China is the US’s new super-competitor by “taking a page from the playbook of what [he] sees as [the US’s] main adversary: Chinese state capitalism.” After reflecting on a Congress member’s question about whether the US, with all of its democratic restraints, can rely on tariffs to sustain a long-term competition with an unrestrained non-democracy like China, Lighthizer responded: “[The Chinese] do take a longer view, which by the way, I think is the right view. To the extent we can, we ought to be taking it.” Lighthizer elaborated more recently during an interview he gave at Harvard, lauding China’s use of a “mercantilist economic policy” to create surpluses, which in his judgment “they’re smart to do.” While more analysis would be necessary to draw clear parallels between Lighthizerism’s role in a Trump administration’s overall industrial policy and Chinese-style state capitalism, the strategy that Lighthizer lifts from China’s playbook is to make full use of the concentrated power of the executive branch. Imposing tariffs by unilateral executive action—as Trump did with Section 301, for example—is Lighthizer’s way of enacting a mercantilist policy, as he believes China can, without interference from a Congress whose constituents are broadly supportive of free trade. Under Lighthizerism, in Slobodian’s framing, democratic accountability is “an unfair disadvantage that the adversary does not share.”

To be sure, a democratic administration would employ the same tools—after all, it would face the same global challenges. Biden has not lowered the Trump-era tariffs, and in fact has expanded them in product categories such as solar panels, electric vehicles, batteries, steel and aluminum, and some medical products. And Biden USTR Katherine Tai’s view on the proper goals of trade policy coincides with Lighthizer’s in certain respects, at least rhetorically, in particular with regard to labor. In Lighthizer’s words: “We need a worker-focused trade policy not a corporate, price-centered one.” During her time as USTR, Tai has famously pioneered a similar-sounding “worker-centered” trade policy. But for Tai, this policy involves strategies such as using USMCA’s Rapid Response Mechanism (RRM), as well as multi-stakeholder negotiations, to improve labor standards in Mexico so that American employers can less easily use the threat of offshoring against organized American workers. Lighthizer’s vision for a worker-centered trade policy, insofar as he has articulated one, is fundamentally different.

Lighthizer’s worker-centered policy appears to revolve around the traditional tool of granting or withholding market access, largely by adjusting tariff rates through executive action, and aims primarily to “eliminate the trade deficits that are bleeding our country to death and achieve balanced trade.” For Lighthizer, tariffs are a worker-centered trade policy. They are the persuasive power that a Trump FTC representative would open-carry at every joint review. They are the tools at the disposal of working groups, committees, and any other stakeholder who wishes to have a voice in trade negotiations. Readers with a stake in trade policy, including the upcoming USMCA joint review, should think carefully about how far these tools can take them towards reaching their own goals (especially considering that they are readily available to any administration), about what opportunities they do or do not create, and about who bears their costs and benefits. More on that next time.

The next part in this series outlines some of the major trade issues that will be on the table during joint review, focusing on the Mexico-US relationship, and anticipates Harris’s likely approach to trade policy.

To read the insight as it was published on the JD Supra webpage, click here.

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Whether it’s cars, high-end electronics, or groceries, nowadays, we want things cheap, and we want them now. It is hard to overstate the impact that the rise of e-commerce has had on consumers’ buying habits, and the fashion industry is no exception. The rise of so-called “fast fashion” brands feels like the natural progression of the digitalization of commerce. Yet, in the drive to reinvent the fashion industry and cut costs, Chinese e-commerce sites like SHEIN and Temu are engaging in unacceptable practices and, in many instances, outright abuses of human rights.

The United States and other Western countries should not sit idly by and allow products produced with forced labor to contaminate our markets. To that end, it is heartening to see a new bipartisan effort to investigate the practices of SHEIN, Temu, and other such companies. However, the Biden administration’s proposal to effectively eliminate the de minimis tariff exemptions for all Chinese products drives in a nail with a sledgehammer. Rather than using such a broad policy to address the human rights violations and improper trade practices of some firms, the Biden administration should use the tailored authority provided to it under the Uyghur Forced Labor Prevention Act (UFLPA) and address human rights abuses by Chinese firms on a case-by-case basis.

SHEIN, Temu, and Forced Uyghur Labor

As the market for fast fashion continues to grow, SHEIN and Temu have become household names in the United States, offering ultra-cheap, trendy apparel that appeals particularly to younger consumers. However, behind these rock-bottom prices and overnight delivery lies a disturbing truth—these companies routinely engage in human rights violations and flout American trade laws.

According to a recent interim report by the House Select Committee on the Chinese Communist Party, both brands have been implicated in the exploitation of forced labor in China’s Xinjiang region, where the ethnic Uyghur population endures systemic oppression, forced labor, and detention under the Chinese government. Temu, in particular, has virtually no systems to ensure that its supply chains are free from forced labor and that products comply with human rights and trade laws like the UFLPA. This not only raises serious ethical concerns but also puts U.S. consumers in a position where their purchases may indirectly fund and perpetuate genocide in Xinjiang.

With the evidence against SHEIN and Temu as damning as it is, the obvious question is how have these companies managed to get around the numerous U.S. laws that prevent the import and sale of products manufactured using forced labor? One way these companies get around U.S. trade law is through the de minimis exemption from tariffs and customs enforcement. By shipping products in quantities valued under $800, companies like SHEIN and Temu can avoid import duties and disclosure requirements and skirt U.S. trade laws.

This exemption was never intended to serve as a workaround for large-scale e-commerce operations to flood the market with cheap goods, let alone those produced under forced labor conditions. In fact, according to the White House, “the number of shipments entering the United States claiming the de minimis exemption has increased significantly, from approximately 140 million a year to over one billion a year” over the last decade. The majority of this increase comes from just a handful of Chinese e-commerce companies, including SHEIN and Temu.

The Blunt Instrument of Ending The De Minimis Exemption

In response to the human rights issues connected to SHEIN and Temu’s continued exploitation of the de minimis exemption, the Biden administration recently announced new rules to eliminate the exemption for most Chinese goods. This move presents a strong stand against Chinese exploitation of U.S. trade laws and its own people. However, as with any broad policy, the potential unintended consequences cannot be overlooked.

First, eliminating the de minimis exemption entirely may not effectively stop SHEIN, Temu, and other such companies from importing goods illegally produced with forced labor. As we have seen in the past, companies with the resources and motivation to bypass labor laws often find new ways to evade them. In spite of decades of global efforts to prevent it, imports of coffee from South America, cocoa from West Africa, and precious metals from the Congo are still regularly tainted with slave labor. Without more targeted enforcement, the broad elimination of the de minimis exemption might only incentivize these companies to adopt more sophisticated methods of avoidance while continuing to engage in unethical labor practices.

The ineffectiveness of eliminating the de minimis exemption would likely be exacerbated by the enfeebled state of Customs and Border Protection (CBP). As the “boots on the ground” at U.S. ports and border crossings, CBP is the primary agency charged with enforcing U.S. import and export laws. But, due in no small part to the challenges of patrolling the southern border, CBP resources are spread increasingly thin. By one tally, fully implementing the Biden administration’s proposal would require between $8 billion and $30 billion in additional annual funding for CBP and thousands of new officers for an agency already racked by workforce shortages. Without addressing these inherent problems at CBP, simply repealing the exemption is unlikely to achieve the goal of preventing the import of products manufactured using forced labor.

Second, ending the de minimis exemption for all Chinese imports would likely have a significant negative impact on U.S. consumers and businesses. Many small and medium-sized American companies rely on importing goods from China—legitimate products that have no connection to forced labor or human rights abuses. These businesses would be hit with higher costs and increased administrative burdens, leading to higher consumer prices and disruptions in supply chains, amounting to billions of dollars in welfare losses. Research has shown that changes to de minimis rules will most heavily impact lower-income consumers. At a time when inflation is still a concern and consumers are already grappling with high costs, this broad-stroke policy could backfire economically.

Third, the administration’s argument for removing the de minimis exemption perversely invokes national security concerns to protect domestic apparel and textile manufacturers. The administration’s press release concludes, claiming that removing the exemption is critical to protecting the American apparel and manufacturing sector because of its importance to the defense industrial base. Programs specifically designed to support and protect textile manufacturing for critical government needs already exist, so any attempt to bolster these capabilities should begin with an inventory of existing programs and their funding. Furthermore, since 2016, when new de minimis rules came into effect, American exports of fiber, textile, and apparel by value have largely remained steady and reached their highest levels in 2022 and 2023. Attempting to privilege domestic manufacturers under the guise of national security dilutes the importance of addressing improper trade practices and undermines U.S. action.

Finally, such a sweeping measure risks eroding public support for more tailored and effective solutions. There is broad bipartisan agreement on the need to combat forced labor and human rights abuses in China, particularly regarding the plight of the Uyghur people. However, a blanket policy that increases costs for American businesses and consumers related to goods that pose little to no national security risk could undermine future efforts to deter the CCP’s malign practices related to trade and intellectual property. Both the Trump and Biden administrations have rightly focused on addressing strategic weaknesses and security threats posed by Chinese control over advanced semiconductors, digital platforms, and critical minerals. Such moves were focused on addressing specific threats in a narrowly tailored fashion. The administration should take a similar approach to SHEIN and Temu.

A More Targeted Approach

Rather than deploying a one-size-fits-all solution, the Biden administration should leverage the existing authority granted by the UFLPA to address the specific problem posed by SHEIN, Temu, and other companies that rely on forced labor. The UFLPA already provides a robust legal framework to prevent goods produced with forced labor from entering the U.S. market, presuming that all goods from Xinjiang are tainted unless proven otherwise. However, enforcement of the law has been uneven, allowing companies like SHEIN and Temu to continue their operations with minimal disruption.

The administration should focus on strengthening the enforcement of the UFLPA by increasing inspections and audits of companies with ties to Xinjiang, particularly those in the fast fashion industry. By ramping up targeted enforcement efforts, the U.S. can more effectively block products made with forced labor from entering the market without resorting to broad measures that affect legitimate trade. Perhaps more importantly, since Congress has determined on a bipartisan basis that both SHEIN and Temu have facilitated forced labor in Xinjiang by creating a market for such products and contravening U.S. trade laws such as the UFLPA, the Biden administration should consider using its authority under Section 5 of the UFLPA to sanction SHEIN, Temu, and individuals known to have facilitated their actions.

The United States has a moral and strategic obligation to prevent the importation of goods produced with forced labor, particularly from regions like Xinjiang, where the Chinese government is perpetrating gross human rights abuses. While the Biden administration’s proposed elimination of the de minimis exemption for Chinese goods is well intended, it is a blunt instrument that risks harming U.S. consumers and businesses without addressing the root of the problem.

A more targeted approach, focusing on enforcing the Uyghur Forced Labor Prevention Act and closing specific loopholes in the de minimis exemption, would be a more effective way to combat forced labor and hold companies like SHEIN and Temu accountable. By adopting a measured and focused strategy, the U.S. can advocate for human rights without compromising its economic interests.

Joshua Levine is the manager of technology policy at the Foundation for American Innovation.

Luke Hogg is director of policy and outreach at the Foundation for American Innovation.

To read the blog as it was published on The National Interest webpage, click here.

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Nonetheless, former President Donald Trump tapped into a growing popular resentment of trade and has continued with his hallmark assertion “that foreign countries . . . have been ripping us off for years” and they “come in and take advantage of our country.” The Joe Biden administration has continued in the same vein, claiming that trade has “contributed to the hollowing out of the American industrial base and vital U.S. jobs, and harmed many of our communities and working families, undermining support for democracy itself.” With such portrayals, it is hard to see how anyone would favor trade.

In a speech at the Brookings Institution in April 2023, National Security Advisor Jake Sullivan cited trade liberalization—together with markets allocating capital efficiently and productively and the notion that all growth is good growth—as assumptions whose limits were laid bare by the “the shocks of a global financial crisis and a global pandemic.” He proclaimed that a new consensus is needed to “build a fairer, more durable global economic order, for the benefit of ourselves and for people everywhere.”

Smart industrial policy to advance national security, address climate change, and promote innovation can have its place. But it is a mistake to give short shrift to markets, trade, and growth, as they are the very mechanisms that raise incomes, a necessary part of addressing the unfairness issues cited by the last two administrations. Two phenomena are at play: a misperception and a misplaced perception.

Misperception

The misperception is the apparent view of Biden administration officials that the usual levers of fiscal and monetary policy were not working properly. During the Great Recession, the prime age employment-population ratio—which tracks the proportion of all Americans between the ages of twenty-five and fifty-four who are employed—tumbled from 80 percent in January 2008 to 75 percent by October 2009 and took nearly a decade to recover. Journalist Matthew Yglesias has suggested than rather than admit the Barack Obama administration stimulus measures were inadequate, the notion took hold that the sluggish labor-market recovery was due to something more “profound and conceptual.” Perhaps this is why officials rolled out a “worker-oriented trade policy” that has maintained the Trump administration’s tariffs, eschewed new market-opening arrangements, promoted onshore production, and expanded Buy American provisions.

But, in fact, the economic machinery of the United States works fine. As the COVID-19 pandemic dropped the prime age employment-population ratio down to 70 percent, the Biden administration’s massive stimulus package and a forward-looking Federal Reserve headed off another slow labor-market recovery. The prime age employment-population ratio popped back up to 80 percent within two years, faster than forecast. Whatever merits the worker-oriented trade measures could have had to create jobs, they are not appropriate in a relatively tight labor market with unemployment at 4.2 percent.

Misplaced Perception

The misplaced perception is that trade has few benefits when they are overwhelmed by other unfavorable economic conditions. Intuitively this makes sense. When Walmart shoppers’ savings on purchases of a tradable items—produced abroad or in the United States—are more than eaten up by rising rent and medical costs, awareness of any benefits from trade quickly evaporates like water on a hot rock.

This dynamic was evident during the Great Recession. Those who believed trade was good for the country collapsed from 78 percent to 58 percent and never fully recovered. When the pandemic undercut the economy, the 79 percent who thought foreign trade presented an opportunity for growth in 2020 slipped to 61 percent, according to a Gallup poll. 

Even though more recent headline data suggest that the economy is doing well, a May 2024 Pew survey reported that only 23 percent of respondents believed that economic conditions in the country were excellent or good. It is no wonder that 59 percent of respondents believe that the United States has lost more than it has gained from increased trade with other nations, a 3 percent increase from 2021.

Pre-distribution

Rather than build policy on the misperception and misplaced perception described above, Washington policymakers should do more to help ordinary Americans by taking measures to increase the supply of goods and services that are currently constrained by regulation or market concentration and contribute to raising costs. Unlike distributional policies, where the government makes direct payments such as unemployment insurance to address unequal growth outcomes, in these so-called pre-distribution measures the government helps raise real incomes in the first instance by strengthening market forces that reduce costs, such as lowering the price of drugs.

The Biden administration deserves credit for seeking to lower costs in some pre-distribution areas such as housing and medical care and for creating the Competition Council to tackle exploitive practices such as junk fees and noncompete clauses. But more could be done. Journalist Derek Thompson has proposed an “abundance agenda” to reduce price pressures in areas of constrained supply by easing regulatory burdens. Vanderbilt University’s Accelerator Program has chipped in, listing forty new ideas to promote competition.

International trade policy also has a role to play to lower prices in pre-distribution areas. For example, under a process known as foreign peer approval, the Food and Drug Administration could address shortages of a drug it has already approved by allowing the importation of the same drug produced abroad and approved by a foreign drug agency. Other examples where trade policy could support pre-distributional policies are by lowering tariffs on housing construction goods; expanding visa extensions for qualified doctors, construction workers, and others; lifting the recent pause in processing new visa applications for international nurses; and signing on to the new Agreement on Climate Change, Trade, and Sustainability providing for duty-free treatment of environmental goods (excluding unfairly subsidized goods).

Dispelling the misperception that the machinery of the U.S. economy is defective would be the first step toward a discussion of more effective policies that embrace trade. Using trade measures to reduce pre-distribution costs would help lift real incomes and improve the economy’s overall performance. When paychecks go further to meet family needs, perhaps the population would have a rosier view of the economy and discard the misplaced perception that trade presents a threat. Politicians would have less of a foothold to exploit trade for populist purposes.

Time to turn the page on international trade.

James Wallar is a former U.S. Treasury official and advisor to the CFR RealEcon initiative.

To read the article as it was published on the Council on Foreign Relations webpage, click here.

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Fast-forward to today: the WTO and its rules are still crucial in helping nations to tap into new opportunities for trade growth, to harness trade to tackle global challenges and de-escalate trade tensions. But amid heightened geopolitical tensions,  some key players’ commitment to economic interdependence has waned, chipping away at some of the fundamental principles of global trade governance and making it harder to achieve sustainable economic convergence, particularly for those still at the periphery of economic development — whether they are people, businesses or entire countries.

Thirty years after the inception of the WTO, it is time to reignite the spirit of economic cooperation that inspired its formation — this time to support so called re-globalization to make trade more inclusive and more equitable. Inaction, complacency, or waiting for a sudden change of heart among those unconvinced by the multilateral trade system will not do the trick. Restoring the practice of collaboration among WTO members requires bold measures: first, the role of trade policy as a catalyst for growth and development must be emphasized; second, national security concerns must be recalibrated; and third, a tangible commitment is needed to rebuild trust among economies and to update the WTO rulebook so that it aligns more closely with today’s realities.

Reclaiming the role of trade policy as a driver of growth

In today’s world, trade policy can all too often be used to achieve domestic goals, including some that may be commendable. However, the effectiveness of using tariffs, subsidies or other trade policy instruments to achieve geopolitical, climate or technological objectives is mixed, at best. One thing is clear: making it more difficult to trade does not make goods less costly, and it is mostly consumers, especially the most vulnerable, who end up paying the highest prices. Evidence also confirms that those on the receiving end of trade restrictions rarely remain idle, and that tit-for-tat measures may rapidly ensue, leading to a risk of trade conflict.

Over the past 30 years, trade has consistently driven income growth, including in many developing countries. Yet heightened uncertainty and tensions have dampened the expansion of commerce in recent years. Global trade growth in 2024 is projected to be well below average rates in the decades preceding the pandemic. Policymakers must reclaim the role of trade policy as a driver of economic growth, starting by fully utilizing the WTO to safeguard openness and certainty in the trading system.

Rebalancing national security and trade

While national security and the increased threats implicit in excessive concentration of production or certain disruptive technologies are a legitimate concern for governments, there is also a risk that increasingly citing national security risks may distort trade and create trade tensions. Professor Daniel Drezner recently argued that as more items are added to the “national security” basket, the harder it becomes for policymakers to focus on what is truly important in foreign policy, adding that a “rightsizing” of national security threats is needed. This, in turn, could ease the way to fostering greater transparency and mutual understanding of the rationale and merits of trade measures driven by security concerns.

Reforming the WTO for today’s world

The WTO needs important reforms to remain effective. One such reform would involve strengthening the disciplines that address trade-distorting policies such as subsidies, including by considering whether special rules might be needed to manage the specificities of different economic systems. Another reform would involve bringing greater flexibility to the way in which the WTO works by facilitating negotiations among group of economies through plurilateral talks that can later be integrated into the global framework. And yet another reform could promote trade initiatives that are growth-enhancing — a topic especially relevant for developing economies — by supporting green, digital and inclusive trade. Finally, for greater certainty and predictability in international trade, the WTO’s dispute settlement system must be restored to full functionality.

From globalization to re-globalization at the WTO

Under Peter Sutherland, the WTO became a platform for opportunity through globalization. Thirty years later, under the leadership of Director-General Ngozi Okonjo-Iweala, the WTO must evolve into a renewed source for opportunity through re-globalization, ensuring that the benefits of trade reach more people, businesses and economies, leaving none behind.

To read the blog as it was published on the World Trade Organization webpage, click here.

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In light of the increasingly contentious nature of the US-China relationship, it is worth examining Americans’ views about economic ties between the two countries. Fortunately, recent Cato Institute polling data (full survey crosstabs (XLS)) covers this very topic. Here are the China-specific results:

• 55 percent of survey respondents agree that “The US trading with China helps increase global stability and peace” versus 45 percent who disagree. Specifically, 11 percent strongly agree and 45 percent somewhat agree; 29 percent somewhat disagree and 16 percent strongly disagree.
• Digging into the crosstabs, it is clear there is a strong partisan split on this question. Sixty-eight percent of Democrats and those who lean Democratic agree that the US-China trading relationship helps increase global stability and peace versus 45 percent of Republicans and those leaning Republican. 45 percent of independents also agreed with the statement.
• The next China-related question asked respondents whether China generally practices fair or unfair trade with the United States. Fifteen percent of those surveyed said China practices mostly fair trade with the US versus 59 percent who believe China practices mostly unfair trade. Another 25 percent said they didn’t know.
• Unlike the previous China question about global stability and peace, there isn’t much of a partisan split on this issue. Twenty percent of Democrats/​those leaning Democratic, 10 percent of independents, and 13 percent of Republicans/​those leaning Republican believe China practices largely fair trade with the United States. In comparison, 52 percent of Democrats/​those leaning Democratic, 53 percent of independents, and 71 percent of Republicans/​those leaning Republican believe China practices mostly unfair trade.
• Cato asked respondents, “based on what you know, approximately what percent of goods imported into the United States come from China?” It turns out the overwhelming majority vastly overestimated China’s share of US goods imports: 5 percent of respondents said less than 5 percent; 13 percent said 15 percent (the correct answer); 31 percent said 25 percent; 28 percent said 50 percent, 18 percent said 75 percent and 4 percent said 95 percent. There’s not much of a partisan split on this question.

The last question is straightforward enough—and the respondents’ overestimates are understandable given US policymakers’ overwhelming focus on China when discussing matters of international economic policy—but the first two are more nuanced, so let’s dig in.

First, there is a large body of scholarly work about whether economic integration tends to reduce conflict and helps facilitate peace and stability between trading partners. This idea can be traced at least as far back as Montesquieu who wrote in the 1700s that peace is the “natural effect of trade.” This belief has been a pillar of U.S. international economic policy—and foreign policy more broadly–since the leadership of Secretary of State Cordell Hull in the 1930s and especially in the aftermath of World War II.

While I’m inclined to think the American public’s instincts are correct and trade does tend to promote peace, it’s also clearly not a panacea given prominent counterexamples (including World War I and Russia’s 2022 invasion of Ukraine). That said, policymakers pushing for a hard decoupling with China risk a greater likelihood of conflict.

On the issue of abusive Chinese trading practices, public skepticism is well-founded. The issue, however, is complicated. Although it’s true Beijing engages in numerous troublesome international economic practices that hurt American firms (which my Cato colleague Scott Lincicome and I documented in a paper last year), a lot of US-China trade is fairly conducted. That said, even though policymakers have (largely) diagnosed the problems correctly, their “solutions” have done little to alter Beijing’s behavior while imposing substantial costs on American citizens. A course change is desperately needed.

The US and China trade a lot with one another, but, ultimately, two-way trade (imports and exports) with China is just 11 percent of all US trade. As Lincicome recently noted, “contrary to so much of the protectionist spin you read these days … the vast majority of US trade (goods and services; imports and exports) involves countries other than China.” Indeed, too often China is invoked as a pretext for old-fashioned protectionism against other countries. Yet the American public largely supports more trade with the rest of the world (55 percent of poll respondents had a positive opinion of international trade compared to 12 percent unfavorable), particularly allied countries.

More broadly, Cato’s poll results demonstrate that Americans generally do not worry too much about international trade and globalization. A mere 1 percent of respondents said that international trade was in the top three most important issues facing them (perhaps surprising given the rhetoric from Donald Trump’s presidential campaign, which has focused heavily on across-the-board protectionism).

Yet Cato’s polling shows that aggressive protectionism is not popular with the American public, especially if it comes with higher prices and other tangible costs (spoilers: it does). Politicians hoping to appeal to Americans on the issue of international trade should focus their efforts on boosting trade ties with friendly nations not pushing unpopular protectionism.

To read the blog as it was published on the CATO Institute webpage, click here.

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A future Harris presidency would likely maintain much of the Biden administration’s trade policy, including import barriers on specific technologies and sectors, paired with preferential market access for geopolitical allies – a policy to counter Chinese global trade and supply chain dominance. Trump favors a broader policy of global universal tariffs to reduce goods trade deficits and address alleged unfair trade practices, which would dramatically impact global markets and disproportionately harm smaller countries. 

Now is the time for global companies and investors to assess the risks and supply chain vulnerabilities that are possible for their businesses in each scenario and to determine the proactive measures necessary to mitigate their impact. 

Trade under Harris

As a former US Senator and California Attorney General, Harris would enter the White House with limited trade policy experience. Harris’ agenda will be more clearly defined in the coming months, but as both vice president (2021-25) and senator (2017-21), she strongly supported strengthening multilateralism with US partners, supply chain resiliency (against China in particular), and placing environmental issues and protecting US workers at the forefront of trade policy. For these reasons, a Harris administration would likely continue many of Biden’s trade policies, which include maintaining the targeted high-tariff barriers in place against various countries to protect strategic US industries, targeting China with additional duties (in pursuit of reducing supply chain dependencies and preserving US technology leadership), and continually expanding export controls in a range of high-technology sectors.

Strong political support for protectionism and distaste for free trade with allies and adversaries alike began under the Trump administration but has permeated both political parties – a trend likely to continue in the coming years regardless of the 2024 election results. 

However, the Biden-Harris administration diverged from Trump’s protectionist vision in that they were far more willing to offer preferential US market access to geopolitical allies in pursuit of other priorities, such as creating resilient supply chains.  

This is most evident in the Inflation Reduction Act (IRA), which offers lucrative investment subsidies to countries with which the US has either free trade agreement (FTA) or a specially negotiated deal—such as that agreed with Japan and currently proposed for the UK and EU. The Biden-Harris administration has offered similar incentives to rebuild the US domestic chip manufacturing industry and has also worked to enlist countries to join his multi-pillar Indo-Pacific Economic Framework (IPEF).  

All these policies have been designed to incentivize third countries – preferably close allies – to decrease trade and supply chain dependencies on China in exchange for the US. This multilateralist aspect of US trade policy would continue in a potential Harris administration.

Trade under Trump

Trump’s priorities are more singularly focused on reducing goods trade deficits and punishing countries for alleged unfair trade practices. During his campaign, he and his advisors have proposed high import barriers on both allies and adversaries of the US, with especially high import taxes – 60% – reserved for all Chinese imports.  

It is important to note, however, that Trump does not have a clearly defined trade vision. His policymaking is highly transactional and has often depended on the nature of his personal relationship with the leader of the country in question. 

Former US Director of the Office of Trade and Manufacturing Policy Peter Navarro and former US Trade Representative Robert Lighthizer – the architects of Trump’s first-term trade policy – are likely to return to a potential second Trump administration. Navarro favors reciprocal tariffs as a remedy to US trade deficits, while Lighthizer prefers an increasing universal tariff on all countries. In recent interviews Trump has promised to implement both policies.

Reciprocal tariffs – a policy to mirror import taxes that other countries have in place against the US – would benefit companies from countries that already have low import duties, such as New Zealand or Japan. Universal tariffs would disproportionately harm smaller and less wealthy countries that are not a threat to US economic security, as was the case with the 25% Section 232 tariffs on steel imports under Trump.  

These universal tariffs would create significant market distortions. Exports from countries like Canada, for example, would suddenly be much more competitive relative to other non-FTA countries, like the EU or New Zealand (both close US allies). Such a scenario would have significant impacts on companies from countries that do not have an FTA with the US. 

There is a legal debate to be had as to whether Trump could implement universal tariffs against free trade partners. While the president can do so in limited cases – such as on a specific import over national security grounds – tariffs across all imports would clearly violate the terms of a Free Trade Agreement.  

The US president already has well-established authority to formulate and implement tariffs over national security grounds and on individual countries over unfair trade practices. However, Trump’s proposed reciprocal and universal tariffs are much more extreme in scope than anything proposed during his first term. Such policies, if implemented, would almost certainly be contested in court. 

Regardless of any limits on Trump’s power, he will pursue a far more aggressive tariff policy than what has been seen under the Biden-Harris administration.

Scenario-based risk assessments: the best preparation

Whether it’s Trump or Harris in the White House in 2025, the most well-prepared organizations are conducting scenario-based risk assessments on the various outcomes of the election and running crisis simulations to ensure supply chain resilience and business continuity in all contingencies.

To read the full analysis as it was published on Control Risks, click here.

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One could choose to agree or disagree with either position, but the positions were clear and, more importantly, they were firm. In less than a decade, a seismic shift has occurred that not only creates ambiguity over economic policy but also narrows the distinction in party platform on matters of trade. The choice is no longer between open trade and trade protectionism, but rather between trade protectionism and … more trade protectionism.

Indeed, since the initiation of Washington’s trade war with China, U.S. consumers have been forced to dole out about $215 billion in extra costs associated with the duties importers have to pay. What started out as a strategic move by the Trump administration to renegotiate the terms of NAFTA quickly morphed into a series of protectionist escapades, including a 25% tariff on almost all goods coming in from China and a comparable tariff on imports of steel and aluminum.

These practices were maintained by the Biden Administration. In addition, Congress allowed the Generalized System of Preferences (GSP) – a program that offered preferential duty to developing nations – to expire during the final days of the Trump administration. Since then, there has been tepid impetus by members of Congress on either side of the aisle to resurrect the program. In addition, a host of non-tariff barriers have been imposed by the current government in the form of various safety checks, domestic production quotas and barriers to entry in the U.S. market. Not only did the Biden administration choose not to reverse the Section 301 tariffs against China, but recently it doubled down on them by multiplying the rate as much as four times on some items and allowing pre-existing exceptions to the tariffs to expire.

Refusing to allow itself to be outdone, the Trump campaign has suggested imposing even more tariff barriers in the form of a universal 10% tariff on all imports irrespective of origin and using far broader strokes of tariff increases on goods coming in from China.

As noted above, these extra costs are summarily passed along to consumers who bear the brunt of these protectionist practices. But for each action, there is an equal and opposite reaction. America’s trading partners have expectedly reciprocated with tariffs of their own, making U.S. goods more expensive abroad. The outcome has been a meteoric rise in tariff barriers globally. In 2018, the first full year of the U.S.-China trade war, there were about 750 trade barriers on merchandise goods. In 2022, there were just shy of 3,000. That means it’s much more expensive to do business globally, which is precisely the effect the protectionists are looking to generate: Do more business domestically; less globally.

But there are still thousands of U.S. based businesses that source critical supply inputs from overseas providers. Many of these businesses are also looking to court consumers in international markets. What are these global businesses to do when policymakers in Washington continue to enact legislation and put forward policies that create barriers to trade?

Diversification

Much has been written to date about the virtues of trade diversification. Whether it’s the China+1 strategy, nearshoring, re-shoring, friend-shoring or something entirely different, U.S.-based businesses have awoken to the fact that the status quo is no longer a valid option. A 2024 report by the American Chamber of Commerce in China shows 50% of respondents intend not to expand investment or scale back investment with 12% looking to shift investment outside the country. That’s not surprising given that only 19% stated their EBITDA in China was higher than it was globally, down from 26% before the pandemic.

But divesting from China in favor of greener pastures isn’t clear cut. There are critical questions to be asked about the nature of the product and production process, the time sensitivity around getting product to end markets and the rules, regulations, taxes and tariffs that are going to impact landed costs for imported goods. Take for example Vietnam. Once a beacon of hope for product manufacturers looking to hedge their bets against China in the wake of the pandemic’s production shutdowns, Vietnam is beginning to look increasingly risky. The country’s political leadership has become unstable after a corruption purge saw an exit of the most likely successors to its aging leader. Moreover, Vietnam’s sudden spike in exports to the U.S. has put it on the radar of the United States Trade Representative, the Department of Commerce and U.S. Customs and Border Protection as a potential point of transhipment and circumvention of Section 301 duties and anti-forced labor legislation.

India too has been a darling of the diversification crowd. With its high-skilled labor it quickly became the choice alternative to China for hi-tech manufacturing, particularly consumer electronics goods. But its political stability is also beginning to show cracks in the aftermath of a recent election in which the ruling party saw its support slip significantly.

The Critical Questions

For corporate decision makers, knowing where to direct their investment dollars can often be a game of chance. The trick to success isn’t finding a single alternative, but multiple. Strategically setting up production in multiple locations that offer the ability to scale up or down to meet the needs of the business. To do this successfully, however, critical questions must be asked that go beyond production capacity. For example:

• Is the skill of the workforce commensurate with the requirements of production?
• Is the country’s road, energy and port infrastructure able to support a spike in volumes?
• Is there political, geopolitical, geographic or climatic risk?
• Does the country have free trade agreements with industrialized nations that allow you to integrate production through free trade zones or free trade agreements.
• Is there risk of a trade war or trade barriers between this country and the end market?
• Is there flexibility in modes of transport (e.g., can you ship via air instead of ocean, if necessary)?

This is by no means an exhaustive list, but it does offer a snapshot of often overlooked considerations. The reference to political risk is particularly critical in the lead up to the 2024 U.S. presidential election where both parties find themselves looking to score points with voters who are increasingly wary of globalism and celebrate reversion to domestication and self-sufficiency. As popular as that concept might be today, its long-term implications may be quite the opposite of what those voters might expect. The International Monetary Fund estimates the spike in trade barriers will ultimately result in a 7% decline or $7.4 trillion dollars in global economic output. In the U.S. specifically, the Tax Foundation estimates the China tariffs will shave 0.21% off GDP and eliminate about 160,000 jobs. Still, politics is a game of emotion, not numbers. And gauging how policy will be shaped by policymakers is never a precise science.

Some U.S. importers hoped Chinese companies setting up shop in Mexico could help them circumvent Section 301 tariffs and also take advantage of duty exemption through the United States-Mexico-Canada Agreement (USMCA). But the recent tariffs being imposed on Chinese EVs coming into the U.S. from Mexico may be a harbinger of more to come. And within days of those tariffs being put in place, the European Union followed suit with the same tariff policy on Chinese EVs. Canada is anticipated to be next in line.

Tariff Engineering

Often likened with “creative accounting” tariff engineering is frequently misinterpreted as a not-so-ethical practice. In reality, there’s nothing inherently wrong with it and many companies employ tariff engineering as a means of reducing their duty spend and optimizing their supply chains.

For the uninitiated, tariff engineering is a process by which a company that sources its product components from multiple points of origin and transports those components elsewhere for final manufacturing, shifts the form of each component to avoid paying more in duty than necessary. For example, a sandal manufacturer might source its leather, rubber and foam cushioning from three different countries and import all products into Vietnam for final production. Vietnam might have a 10% duty on each of these materials individually but might have only a 5% duty on a finished sandal sole and a 3% duty on a finished sandal strap (versus the unfinished leather). In this case, it might make more sense for the manufacturer to assemble the sole of the sandal at one point of origin before importing it into Vietnam, and similarly finishing the strap at another point of origin before import. The result is fewer dollars spent on transport, a reduction in customs paperwork and reduced spend on customs duties. Now multiply that sandal by a million units and the cost-savings potential becomes clear.

Yet, few companies have the capacity or expertise to calculate the various scenarios for duty costs when configuring their supply chains, resulting in overspend. In today’s world, time taken to make these calculations as part of a broader computation on landed costs can have meaningful impact to balance sheets. The trick is doing the calculations correctly and ensuring the products are classified correctly (a practice that is often treated with a degree of apathy until it’s too late).

Doing the math on tariffs and duty spend and running multiple scenarios allows companies to develop practical contingencies that can respond to likely or foreseeable shifts in trade and regulatory policies and coincides neatly with the diversification practices noted above.

No Panacea

For U.S. importers with overseas interests looking for a cure-all remedy to the disruption caused by America’s recent rejection of globalism, the bad news is there isn’t one. That isn’t alarmism or fatalism, it’s unvarnished truth. Every industry and every product will require its own solution because every country places varying degrees of protection against products depending on what serves the political and economic interests of that country. The ideal diversification model for an apparel company is likely never to mimic that of a smartphone maker, which will vary wildly from that of a pesticide producer. Each must evaluate its own production models with careful attention to existing and future costs, risks and, most importantly, agility.

With the outcome of the upcoming election still very much up in the air, and increasingly populist rhetoric from both candidates on the issue of trade, it’s anyone’s guess what the trade landscape might look like a year from now. As any business decision maker knows all too well, it’s what you don’t know that will hurt you. That’s why hedging bets and avoiding too much dependence on any one source or market may very well become the new normal for international businesses.

In the interim, the chess board of global trade is all set up to play. The next move is corporate America’s.

Jill Hurley is Senior Director of Global Trade Consulting at Livingston. As the practice leader, she spearheads U.S. import and export projects, offering comprehensive reviews of clients’ business models for risk assessment, crafting, and implementing import/export compliance programs, conducting audits, navigating export licensing requirements, and providing support in U.S. trade remedy matters.

To read the full article as it was published on Livingston, click here.

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Any call for rethinking, reimagining, or restructuring must begin with an explanation of what is wrong today and a vision of a different world. The current situation is deeply worrying though there is much about the past that was good that we should try to retain or revive. I believe in (original sense) liberal democracy with its personal freedoms, its free markets, and the innovations that came with both. The past three centuries have brought immeasurable increases in human wellbeing, in the ability of people to lead their lives in ways that matter to them, unconstrained by misery, deprivation, and disease. We are enormously wealthier than were our ancestors, and these gifts have come, not just to a few in rich countries but, to a greater or lesser extent, to billions of people around the world. This took a long time, and there were many setbacks, some of them in living memory, and some of which cost millions of lives. History gives no warrant for uninterrupted improvement. Even so, the last thirty years, with its expanding trade and globalization, has seen the largest reduction in global poverty and global disease in world history. The world has become much less unequal; the benefits of wealth and health have been extended from a few to many. I start with this because I do not want the rest of this paper to be misunderstood. I want all of the good things to continue, but I believe that they are under serious threat, and that there is danger of losing them if we continue on the path of the last quarter century. With luck, good judgment, and better policies, it should be possible to turn today’s setbacks into temporary interruptions and not into a major derailment that could set us back for decades, or even centuries. The world is old, and there were many centuries of early death and deprivation before there was any sign of improvement; it is possible that the last three centuries were the exception, not the rule.

To read the article as it was published on the Princeton University webpage, click here.

To read the full article as a PDF, click here.

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With barely two weeks until polling day, it is worth exploring why the incumbent Conservatives and their main challenger Labour are both avoiding the topic of trade relations with the EU – and other key areas in international trade that deserve the next government’s attention.

The post-Brexit economy and UK–EU trade

While the UK may have notionally ‘taken back control’ over policy areas such as trade and migration, as campaigners for Brexit insisted it would, empirical evidence suggests that leaving the European Union has negatively affected the UK economy. Slower GDP growth and slower growth in trade than comparable economies are key indicators of this.

The UK is a very open economy and the value of trade relative to GDP is close to 70 per cent. More than one-fifth of UK jobs are directly or indirectly associated with the exporting activities of UK firms. Average wages tend to be higher in exporting sectors and importing offers the country access to a greater range and quality of consumer goods and intermediate inputs. All these factors are important drivers of prices, of UK firms’ competitiveness, and of future investment and economic growth in the country.

Approximately 50 per cent of UK trade is with the EU, and many UK firms’ supply chains are closely linked to the EU. Hence, it is hard to discuss international trade (policy) without mentioning EU trade (Brexit). As such, it is clear to see why parties struggle to discuss international trade without talking about the UK’s trade and trade relations with the EU.

The parties’ recently published manifestos do offer some main approaches to international trade. Broadly speaking the Conservatives seek a continued focus on free trade agreements as well as ‘freeports’. They plan to establish a UK-wide body called InterTrade to promote more internal trade, and they reject any closer relationships with the EU.

Labour seeks improved relations with the EU but is ruling out re-joining the customs union, the European Single Market, and the free movement of labour. It proposes a more judicious approach to free trade agreements, and has committed to publishing a trade strategy.

But both manifestos lack detailed policy on trade. Similarly, their many daily policy announcements (roughly 48 to date) neglect to mention international trade, particularly with the EU. So why aren’t the two main parties talking about trade with the EU?

Don’t mention the EU

It is pretty clear why the Conservatives don’t want to talk about the EU. Brexit, which they championed, has offered few economic advantages, nor have migration levels come down. The government has failed to organize itself to take advantage of sovereignty effectively. Almost all types of firms (especially SMEs) are critical of Brexit, and opinion polls suggest that a majority of the population now regrets it.

Within the Conservative party, the party leadership faces pressure from its Eurosceptic right wing over migration levels and many MPs are strongly against closer alignment with the EU. They are now getting very nervous about rising support for the populist Reform party.

Labour is involved in its own balancing act over the EU. It does not want to appear to override or disparage the electorate’s decision in the 2016 referendum on leaving the EU. Nor does it want to stir up the passions and antagonisms surrounding Brexit.

Closer integration with the EU will come with closer alignment to EU rules and regulations. Such a stance for Labour risks being portrayed as being ‘anti-Brexit’; it fears the (over-)reaction of the UK’s right-leaning press to any suggestion of surrendering sovereignty to the EU.

Labour also recognizes that any Brexit-related promises that involve negotiation with the EU will be hard to deliver, given the EU’s lack of trust in the UK. Added to this, some pro-Brexit sentiment still exists in the Labour Party.

What the parties’ trade policies should consider

Policy detail in the manifestos is lacking on trade as it relates to climate, on other types of agreements beyond free trade agreements (FTAs), and on services trade. The climate crisis is the biggest crisis the world faces, and trade policy is an important part of the toolkit needed to address it. The Conservative manifesto contains no discussion on this, while Labour has only a brief statement in support for a carbon border adjustment mechanism.

Too much discussion of trade policies focuses on FTAs. While FTAs are important, the scope of trade policy is much broader – ranging from bilateral agreements on specific issues such as mutual recognition, to digital agreements, critical minerals partnerships, technology cooperation, as well as multilateral cooperation in the World Trade Organization.

On services trade, each of the manifestos only manage a scant one or two mentions despite the fact that the UK is predominantly a services economy, and services account for around half of UK exports.

Strong arguments have been made in the past in favour of creating an independent Board of Trade. Such a body would contribute to more coherent and consistent trade policy in the UK and would provide independent analysis and assessment. In previous speeches, Labour supported this proposal but it is not in their manifesto. Should Labour get elected, it is to be hoped the proposal will be considered.

Over the course of the next parliament, public pressure for closer alignment to the EU may well grow – which may involve the government considering re-joining the European Single Market. As the pains of the Brexit political traumas diminish, the UK’s trade with the EU is likely to rise up the political agenda. Whoever wins the election, more open discussion of international trade is going to be important to the UK’s future economic success.

To read the expert comment as it was published by Chatham House, click here.

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