This brief outlines three activities that WTO members could undertake to facilitate digital trade: 

• Design an agreement on data for trade that sets clear guidelines for data exchange across borders 
• Establish a governance structure for digital trade that keeps rules updated 
• Create a community of practice that consolidates existing digital trade efforts 

Each of these activities must acknowledge the realities of the digital divide for trade facilitation, the features of which are detailed in the final section. 

Before considering the next steps in facilitating digital trade, it is important to establish the complexities in defining digital trade and the characteristics that differentiate it from traditional trade. 

Gaps in the Definition of Digital Trade 

It is essential that any approach to the global rule regime address the gaps in the definitions of digital trade terminology before diving into new activities. There are several imperfect definitions of digital trade in use today. One that has been referenced in WTO documents is that “all international trade that is digitally ordered and/or digitally delivered.” In practice, a broader definition is often employed: the intentional application of digital technologies at any stage of the trade process. 

From a technology perspective, both definitions are incomplete. They are rooted in the concept of physical trade, which assumes features about trade transactions that do not always hold true for today’s internet-based technologies. Four ways that digital transactions differ from other types of trade are described in detail below. 

Time

Digital trade operates on a different timescale from physical trade. Some internet-based technologies can execute atomic transactions where the contract is simultaneously executed and completed. The definitions of digital trade in use assume a sequential process of ordering and then delivering, which often does not align with the instantaneous nature of digital transactions. This discrepancy poses challenges for creating rules, such as the timing of taxation. A precedent for adjusting infrastructure to respond to increased settlement speeds can be found in the 2023 United States Securities and Exchange Commission (SEC) rule that shortened settlement cycles of most securities from two business days to one. The one-day settlement also allows some trades to be settled instantly. This change offers insights into how institutions and rules can be adapted to digital timelines.

Geography

Digital trade does not adhere to traditional notions of territoriality. There are some internet-based technologies that enable profit-making enterprises to exist digitally without a physical location. The lack of territoriality presents many problems. Can a group that exists only online bring a case to the WTO? What if, for example, an online group represents the citizens of a country that no longer exists? How would customs apply to a non-territory? These questions call for a deeper consideration of the concept of sovereignty that underpins trade rules. Many regulators have taken an approach to the digital economy that focuses on the on- and off-boarding points between the digital and traditional economies. This offers a potential model for the WTO that could consider regulating transactions via intermediaries. 

Essential characteristics

Internet-based technologies complicate the definition of an essential characteristic, which is an attribute that defines a product. Unlike tangible goods, digital products can carry intrinsic information about their processing. This can eliminate the need for third-party verification. This capability underscores a broader transition the WTO membership is managing at the moment: adapting to a global trading system increasingly dominated by digital trade while still accommodating advances in the trade of tangible goods. Since traders tend to forego the sometimes complicated origin and valuation calculations needed to access preferential tariffs, the potential for digital products to increase preferential tariff uptake is clear. The challenge will be to create rules that take advantage of digital products’ ability to validate compliance with authenticity and origin rules directly rather than requiring them to follow rules intended for tangible goods. 

Possession

The concept of possession in digital trade presents unique challenges. Traditional trade rules link possession to the physical act of controlling a product. This assumption does not hold when a product is digital, which complicates contracts. Significant progress has been made in jurisdictions like the United Kingdom, where rules about what it means to possess an intangible product, such as a token or a digital asset, have been redefined. Further consideration based on this progress is recommended. 

These four unique characteristics of digital trade underline the urgent need for new rules that address digital trade’s specific complexities and clearly define its terms. 

Creating a WTO Agreement on Data for Trade

The creation of a new WTO agreement on data—both that which is traded and that which facilitates trade—could be central to supporting digital trade. Expanding and solidifying rules in this area would enable members to simplify regulatory fragmentation and address the elevated security that dataflows require. It would also help members assess emerging trends well into the future. 

Any new data agreement should align with the extensive work that has already been done by WTO committees as well as regionally by member states. The primary objective of this agreement should be to harmonize the tangle of local, bilateral, regional, and sectoral rules that have proliferated in the absence of multilateral guidance. Establishing master data frameworks would not only integrate existing rules but set a baseline for the rules that are needed for digital trade to flourish. This would reduce trade costs and complexity.

The proposed agreement should address the two distinct functions of trade in data. The first is the process of trading data itself. The second is the movement of trade-related support data accompanying goods and services. It should draw from existing WTO work and regional trade agreements (RTAs), which have included digitally relevant trade rules since 1958. Following are suggestions for how to address these two elements. 

Trade of data

When data are traded across borders, ownership becomes complicated, especially as frontier technologies are more widely adopted. Any agreement on data should provide guidelines for defining ownership of data as a product. This will require an updated classification and measurement system. Close cooperation with other WTO partners will be essential. Looking at how past digital assets integrated, or failed to integrate, into capital markets can help identify the particular issues that need to be addressed. Such issues might include calculating the added value and determining the origin. 

Trade-related data

Trade-related data support trade but are not traded, which is similar to how goods with an intellectual property component function. When addressing trade-related data, the goal should be to establish a regulatory floor that ensures fairness, transparency, and reduced friction in dataflows. Any framework for digital trade rules should consider the three states in which data exists. 

1. Data in use: Data in use are actively processed by applications and include automated requests to buy products or real-time GPS tracking to ensure cargo ships do not make unscheduled stops. Regulatory concerns related to data in use focus on protecting it against unauthorized parties and safeguarding sensitive information. Artificial Intelligence (AI) could introduce challenges if it is used to process data that facilitate trade. Questions of jurisdiction over data in use across borders would benefit from clear regulatory guidelines. 
2. Data in transit: Data in transit actively move from one location to another. Examples of trade data in transit can be found in logistics coordination, such as when shipping details are sent to a fulfillment center in another country after an order is confirmed. Other examples include order placement and payment processing. Regulatory efforts should prioritize encryption and communication protocols. 
3. Data at rest: Data at rest are inactive and stored and could include details of executed trades, historical data, or client information, for example. Given the potential sensitivity of some trade-related data such as contracts, customer data, and payment details, rules should focus on protecting this stored data from breaches. 

To conclude, a WTO agreement on digital trade should strictly adhere to the specific trade implications of data. Many of these issues are already under review by various WTO negotiating groups. This work should inform future agreements’ issue coverage. 

Updating Governance for the Digital Economy 

Because digital trade is fundamentally different from traditional trade, a reassessment of existing governance is warranted to determine what is obsolete and what is lacking. A new digital trade agenda should feature updated governance structures that reflect this reassessment. 

A review of the General Agreement on Trade in Services (GATS), Trade Related Intellectual Property Rights (TRIPS), the Information Technology Agreement (ITA), and the Trade Facilitation Agreement (TFA) reveals several areas in need of improvement. These fall into three categories that should be the focus of legal reform:

1. Rules requiring paper: Several WTO agreements assume the use of paper. Even the term “publication” in these agreements does not explicitly include online publication. The TFA refers to “information or documents” without considering digital forms of this data. The TFA also focuses on streamlining paper processes instead of increasing automation. This should be remedied.
2. Insufficient digital trade coverage: Agreements like the ITA, which lists specific products, underrepresent digital products and services. TRIPS is another agreement that needs to be updated to cover the range of digital products being traded across borders, for example, non-fungible tokens (NFTs). Rules should also reflect that data need to be protected during processing. 
3. Non-acknowledgment of digital trade: Some agreements do not acknowledge digital trade at all. For instance, GATS covers certain data issues but fails to address newer developments like cloud computing and the free flow of data across borders. Another source of inadequate coverage relates to non-tariff barriers (NTBs), which strongly impact digital trade. Any rules regarding NTBs must include a consideration of digital trade. 

In addition to considering legal gaps, a new governance structure could extend the WTO’s influence over RTAs. The WTO already has an RTA governance mechanism through the notifications and review processes in GATT Article XXIV and GATS Article V. This RTA governance mechanism could be extended to establish a model law for RTAs or Digital Economy Partnership Agreements (DEPAs). Such a model law would serve as a standard to ensure consistent and equitable treatment of digital trade issues. 

Every member country is a part of at least one RTA, and RTA agreements have an important impact on the work of the WTO and international trade flows. However, no global governance structure currently guides countries in RTA negotiations. Members’ varying capacities for these negotiations can create unbalanced results. An RTA model law for digital economy agreements could draw on existing agreements like the DEPA as well as models emerging from current negotiations. The WTO is uniquely positioned to develop a model law that utilizes its notified agreements. 

Organizing a Digital Trade Community of Practice

The WTO should establish a thematic group on digital trade. While this may not be central to the immediate progress needed, such a group would mobilize resources and knowledge within the institution, facilitating the adoption of a digital trade vision. The primary objective of this thematic group would be to create a community that advances a multifaceted digital agenda and maintains coherence over time. This approach aligns with how other international institutions tackle cross-cutting issues like climate change and community-driven development. 

By establishing a thematic group, the WTO would highlight its commitment to transparent, inclusive trade and to economic development. Additionally, a thematic group could serve as a unifying hub for the various digital trade clauses dispersed among the existing WTO agreements. It could keep track of the agreements that are directly relevant to digital trade such as the ITA and the Joint Services Initiative (JSI) ecommerce work. A thematic group could pool intellectual resources in the attempt to create the necessary and neutral digital governance framework. 

The thematic group could consider the Bank for International Settlements (BIS) Innovation Hub as a model and include a center for relevant research and experimentation around digital economy issues. It could also function as a center for digital trade advocates, which could unlock additional private sector interest and funding. 

In short, establishing a digital trade theme within the WTO would advance a coherent digital trade agenda and create the environment of certainty needed to facilitate research, to experiment, and to attract private sector participation. 

Digital Divide Considerations 

With the correct set of tools, digital technologies can be used by anyone, anywhere, at any time. Digital trade thus has enormous potential to allow for technological leapfrogging, particularly for states where geography is a binding constraint to development. At the same time, the assistance needed to promote digital infrastructure requires a slightly different approach to trade facilitation and security.

It is important to note that developing economies have exhibited a different leadership dynamic in the digital space than in goods trade. Developing countries are operating at the frontier in several critical digital spaces. Central Bank Digital Currencies (CBDCs) are a prime example. Countries and regions with live circulating CBDCs are all developing economies, such as the Bahamas, China, the Eastern Caribbean Customs Union, Jamaica, and Nigeria. Notably, no advanced economy has yet achieved this. Additionally, countries such as El Salvador and (briefly) the Central African Republic have allowed bitcoin as legal tender. 

Leadership in regional digital trade rulemaking is another area where developing economies have surged ahead. For example, the African Continental Free Trade Agreement (AfCFTA) has a protocol on digital trade. Such rules function as a roadmap for future digitization. The Association of Southeast Asian Nations has the Digital Masterplan 2025, which functions in the same way. 

Given that many emerging economies are already engaged in digital trade, trade facilitation assistance could focus on two key areas: improving financial infrastructure and protecting critical digital infrastructure once it has been built.

Digital trade infrastructure is typically developed through partnerships between the private and public sectors. However, without sufficiently deep capital markets, few developing economies have a vibrant venture-capital environment. Assistance aimed at promoting a domestic financial environment that encourages innovation and supports entrepreneurs will directly enhance the creation and quality of digital infrastructure. 

Equally important is the protection of critical digital infrastructure once it is in place. While support for capacity and infrastructure development has already begun through traditional donor channels, more targeted funding is needed. This funding could be directed toward cross-border simulations of cyberattacks to identify readiness gaps, participation in digital trade sandbox environments to test domestic response mechanisms, and hackathons to assess and improve trade platform resilience.

Conclusion 

Trade is in a period of flux. It is becoming more digital but also more volatile. To date, the need for structure has been met with regional and national rules. This presents the WTO membership with an unprecedented opportunity to consolidate the considerable work that has already been done by the membership into a multilateral rules structure. 

The one caveat is that digital trade, conducted through internet-based technologies, significantly differs from traditional forms of trade. As a result, conventional approaches to regulating trade are often inadequate for addressing digital trade. If the WTO is to remain the leading institution on this topic, it must explore new governance structures that are suited to the instant and non-territorial features of the digital space. By embracing the 1998 work program as a guiding principle, WTO members can create the environment for robust global digital regulation. 

Alisa DiCaprio is chief economist at the blockchain technology firm R3, where she covers trade, payments, central bank digital currencies, and digital assets. Her previous positions with the Asian Development Bank and the United Nations focused on expanding digital trade opportunities in emerging markets.

To read the policy brief as it was published on the Mercatus Center webpage, click here.

To read the full policy brief, click here.

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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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Wendy Cutler: Please share with us, from an Asian perspective, why it’s so important for the United States to have an active economic agenda with its Asian trading partners?

Minister Han-koo Yeo: There are many countries in the region that want strong, credible, and also predictable U.S. leadership and economic engagement in the region. Let’s think of this as two categories of countries: first, advanced countries and second, developing countries in the region. First, advanced countries, including Korea, Japan, and Australia, have gone through a paradigm shift in the trade environment and have also experienced supply chain disruption, climate crises, and other challenges. These countries need to tackle these global challenges with a strong partnership with the United States. Additionally, China’s economic ride for the past couple of decades has been phenomenal, and I think the United States could play a constructive role of balancing it out in the region.

When it comes to developing countries in the region, e.g., ASEAN (Association of Southeast Asian Nations) countries, India, they need market access to the United States and they want to be integrated into the U.S.-led global supply chain. In fact, many countries in the region, starting with Japan, Korea, and Singapore, have moved up in the industrial and technology ladder through economic cooperation with the United States. So, from the perspective of both developed and developing countries, U.S. economic leadership in the region is critically important. The current U.S. administration should get credit for returning to the region and resuming its leadership, even if the economic and market access engagement in the region is not as robust as many would have preferred.

Cutler: You mentioned that developing countries in the region welcome becoming part of the U.S.-led supply chain network. But, would this not be at the expense of China?

Yeo: No. These countries are being rapidly integrated into the supply chain led by China. But they realize that if there is too much dependence or too much concentration on one country, that becomes a vulnerability and a risk. It’s a matter of overall overdependence on one partner, especially China. So, developing countries want to expand their trade and supply chain integration with China, while also seeking a more active regional role from the United States and participating in these U.S.-led supply chains as well.

Cutler: Under the Biden administration, the United States has basically retreated from pursuing market-opening agreements or free trade agreements. Is there still a hope in the region that at some point the United States will go back to that model, even if not as robustly as it has in the past? Are countries still interested in pursuing free trade agreements with the United States?

Yeo: Obviously, they woke up to this brutal reality that things have changed in the U.S. political environment. In my view, it’s inconceivable to go back to this previous era where the United States played a leadership role in bilateral, regional, and multilateral trade negotiations. But I also think that there’s wishful thinking that maybe four years or even eight years from now, a return to a market-opening agenda could happen.

Cutler: Let’s discuss the Indo-Pacific Economic Framework (IPEF), the cornerstone of the Biden administration’s economic engagement in the region. Many people, both in the United States and Asia, have been skeptical about this initiative. But I note, Minister Yeo, that you have been supportive and have written a number of pieces pointing to potential benefits and the importance of this initiative. Can you share with us your views on IPEF, and in particular do you think it will be able to deliver concrete outcomes and provide benefits to all its members the way it’s constructed now?

Yeo: Yes. We live in a different world right now. For example, Korea has gone through a series of supply chain shocks and disruptions for the past few years. Like others, we quickly realized the absence of a new template for internal cooperation to cope with these new kinds of global challenges. Korea is one of the most wired countries with its extensive FTA network with countries all around the world, including RCEP, and Korea has been aiming to join CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership). But these traditional FTAs weren’t really designed to deal with the new types of challenges that we are facing. That’s why I think that these new types of economic cooperation agreements, such as IPEF, could play a meaningful role to fill the gap left by more conventional types of trade agreements. I believe that we should continue to advance trade liberalization through conventional FTAs (bilateral and plurilateral) but also, we need these new templates for new challenges, such as supply chain resiliency, decarbonization, and so on. Although IPEF is not perfect, it’s a meaningful first step.

Cutler: If Vice President Harris becomes president, there is an assumption that she would continue many of Biden’s policies and initiatives in this space, including IPEF. If you could offer her some words of advice on how to build on the current IPEF to make it more meaningful for Asia, what elements would you suggest could use strengthening?

Yeo: Vice President Harris is known for her strong advocacy on climate change and her environmental agenda. So, for example, the clean energy agreement in IPEF could be a starting point on which to build. The current text creates a cooperative work program, which is a way in which IPEF member countries can launch concrete projects that are of common interest to these countries and then aim to produce tangible outcomes. For example, they launched a regional hydrogen power project, which is a promising new source of clean energy, with new supply chain development and new ways to trade hydrogen. However, there’s a lot of work to do to develop tangible ways to activate this hydrogen power market. I think that this kind of project could show that IPEF could be useful in bringing tangible outcomes and benefits to these member countries through dedicated implementation.

You may also know that a couple of months ago, Singapore hosted an IPEF clean energy investor forum, and it was reported that about $23 billion of potential clean energy investment opportunities were identified. Of course, what matters is how much of these investment pledges can actually materialize into projects; but in order to do that, IPEF members need to work together to resolve investor grievances, including extensive red tape and bureaucratic hurdles.

Cutler: As you know, the United States has put the IPEF trade pillar effectively on hold through the election season. A lot of progress was made, but we also hear that a number of developing country members of IPEF had concerns about the labor provisions, in particular. Do you think if these talks were resumed quickly after the election that they could be swiftly concluded or do you think that there are larger differences in positions between the countries that could necessitate a lengthy negotiation?

Yeo: I think it’s more of a problem on the U.S. side than for other IPEF members. What I’m particularly worried about is the digital trade component. Recently, the WTO (World Trade Organization) e-commerce plurilateral joint statement initiative was concluded with its text “stabilized.” Although there is a shortage of more ambitious outcomes, I still think this is a meaningful achievement. The digital trade and e-commerce market in the region is exploding. These markets have young populations and growing middle classes, and many are interested in joining the Digital Economy Partnership Agreement (DEPA). China is also showing interest in DEPA, so now the United States is falling behind. There are no rules of the road for digital trade and without globally agreed, high-standard, digital trade rules, I think these countries in the region tend to copy and paste the standards and infrastructure available from China. So, I am afraid that the United States is falling behind in developing new global standards and rules for digital trade.

Cutler: Former President Trump has made it clear that if he is elected, he would, early on in his administration, instruct the United States to exit IPEF, calling it “TPP-2” (Trans-Pacific Partnership). How do you think the region would respond to such a move? My sense is that many countries in the region are still trying to get over the U.S. exit from TPP, so how would such an act by President Trump be perceived in the region?

Yeo: First of all, IPEF is not TPP-2 — it’s completely different. U.S. withdrawal from IPEF is a very undesirable scenario that we want to avoid at all costs. I also think if that happens, the credibility of the United States will be damaged severely. And, I think it’s not just short-term fallout but would impact relations in the more medium and long term too. To have a flagship U.S. economic engagement project and make a 180-degree U-turn would be damaging to U.S. credibility and leadership in the region.

Cutler: Trump also has been very vocal about his intention to increase tariffs against China as high as 60%, but he is also advocating for an across-the-board tariff increase of 10% on all products and for all trading partners. While there may be exceptions, that’s his current proposal. How would these actions be viewed in the region?

Yeo: This is very, very worrisome. If you look at the big picture of what is happening in the region, I believe that U.S. industrial policy has been quite effective, at least up to this point, such as the U.S. Inflation Reduction Act (IRA) and the CHIPS and Science Act. Because of these policy actions, many cutting-edge companies from Korea, Japan, and Taiwan are investing massively in the U.S. market for semiconductors, batteries, EVs, etc. This new trend of diversification and “China plus one” business strategies is providing countries like ASEAN members or India with new opportunities to develop their industries. They weren’t really given such opportunities before because everything was concentrated in China, but now they are being integrated into new global supply chains led by the United States. Against this backdrop, if the United States takes a complete opposite turn in its policy direction and imposes tariffs against the products from its friends and allies, it will be very counterproductive to the momentum building in the region and will damage U.S. national interests in the end.

Cutler: A number of countries retaliated against the United States during the first Trump administration, when tariffs were imposed, particularly on steel and aluminum, and China retaliated with its own sizable tariffs on U.S. imports. Are countries in the region likely to try to negotiate a deal to head off tariffs, or do you think that they are already planning retaliation moves against the United States?

Yeo: I think China will definitely retaliate, but it’s a more complicated picture for other countries in the region. In terms of security cooperation, I think many of these countries are under the U.S. “nuclear umbrella” or under some sort of security arrangement, so countries will take into consideration economic aspects as well as security aspects when deciding on the appropriate response.

Cutler: Under the Biden and the Trump administrations, the United States has retreated from its leadership role in the WTO. How do you see the WTO operating in the coming years, particularly as issues like supply chain resiliency, export controls, and advanced technologies become more and more prominent? Do you think the WTO risks becoming sidelined or irrelevant? Or, in light of the recent announcement on a digital trade agreement between many of the participants in the Joint Statement Initiative (JSI) on E-commerce, do you think that there is hope for the WTO to take on some of these challenging issues?

Yeo: Yes, obviously there’s a leadership vacuum at the WTO, and because of all these global challenges that we have discussed, today, more than ever, we need an organization like the WTO. But obviously, the WTO is not living up to the needs of the time. However, what is encouraging, despite overall difficulties that we are facing, is that recently middle-power countries have stepped up and have been playing a constructive leadership role. For example, the negotiations for the Investment Facilitation for Development (IFD) were led by Korea and Chile. The JSI e-commerce agreement that you mentioned, which was concluded recently, was led by Japan, Australia, and Singapore. I think, more and more, these middle-power country groups need to step up to fill the void left by the superpowers at the WTO. I also think that the WTO needs to tackle these newly emerging global challenges. For example, while there are widespread concerns with Chinese export surges and overcapacity issues, there is no global dialogue on this issue. I think the G7 is probably the only dialogue raising its voice on this issue, but its approach is more confrontational than collaborative.

If you look at WTO data on ongoing anti-dumping and countervailing duty investigations which were reported to the WTO after 2020, actions against China have comprised 30% to 40% of the total actions. This means that there is a structural issue, not just a case-by-case temporal matter. This also means we need more evidence-based, objective discussions on the extent and nature of the problem, and how it is impacting not just U.S. and China relations but also third nations including the EU, Korea, Japan, and the Global South. We need to explore global solutions to address these global issues. But there is no such global discussion underway right now. I think the WTO will need to play a more authoritative role as the only global trade body that is supposed to discuss and find solutions to these international trade issues. Also, as you mentioned, we have all of these newly emerging national security arguments regarding export controls, investment screening, and so forth. We have to decide whether to bring these matters into the realm of the WTO.

Cutler: How realistic is it though for the WTO to have a reasonable conversation on the overcapacity issue when top officials from China are denying that there actually is a problem?

Yeo: It is a difficult issue. I understand that some Chinese scholars acknowledge the need to have a global dialogue, but it’s very challenging to expect the WTO to have an effective role in taking up these very sensitive and difficult issues. However, if we were to find any place where we could have these kinds of conversations, I can’t see any other venue than the WTO.

Cutler: My final question is that if you had the opportunity to go into the Oval Office and brief our next president on these issues with very little time, what points would you highlight with respect to policy actions that they should or should not take? As the United States contemplates some of the policy measures we’ve been discussing, how would you urge the president to think about the region?

Yeo: It’s a very difficult question. If I had 30 seconds, I would make three points. First, U.S. trade and industrial policy can have a significant impact on shaping the economies and supply chains in the Indo-Pacific, as we have witnessed for the past few years. Second, nevertheless, sometimes the U.S. policy goal of strengthening U.S. leadership in the region and encouraging diversification and friendshoring of allies and partners doesn’t match its policy actions to achieve that. Third, therefore, it would be critical for the United States to step up its economic engagement in the region by providing tangible incentives for allies and partners with market access, industrial policy benefits such as the IRA tax credits, and digital trade rule-making leadership.

Han-koo Yeo is a Senior Fellow at the Peterson Institute for International Economics and Former Korean Trade Minister.

Wendy Cutler is Vice President at the Asia Society Policy Institute and the managing director of the Washington, D.C. office.

To read the interview as it was published on the Asia Society Policy Institute 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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The persistent gap between male and female labour market participation is a trend common to all regions of the world. Across the Indo-Pacific region, research shows that women are not benefiting from job growth in new sectors as much as men.

A missing link in the conversation on improving women’s participation in the Indo-Pacific economies is the role of trade. The region, which has an outsized influence on geopolitics and accounts for nearly half of global trade, can be critical for accelerating women’s economic participation and promoting inclusive growth through trade.

The inextricable link between gender equality and trade has become well established in recent years. Trade directly improves women’s lives, by creating better jobs, increasing women’s wages and welfare, and creating opportunities for women to move into higher-skill work and entrepreneurship. Firms that are part of global value chains demonstrably employ more women in developing countries. Women make up 33% of the workforce of firms that engage in international trade, compared with 24% in firms that do not.

The impact of trade on gender equality is wide-ranging – trade enhances women’s access to education, healthcare and technology.

Despite its potential for improving outcomes for women, gender has received little attention in international trade. Globally, only 15% of firms engaged in international trade are led by women. In OECD countries, 27% of women’s jobs are dependent on exports, compared to 37% for men. International trade is not favourable for women who face a wide range of barriers that include social norms and gender biases, mobility constraints, policy and legal hurdles, and restricted access to finance, technology and information.

However, recent trends in international trade present an opportunity for increasing women’s participation. This includes the overall increase in regional and cross-border trade and the dominance of global value chains, the rise of services in trade, and the expansion of green trade and digital trade.

Together these shifts represent the need for a workforce with upgraded skills, creating space for more women to enter the trade sector.

Governments and multilateral and international organisations have more recently started acknowledging that trade is not gender-neutral and seeking ways to address the global gender gaps in trade. This year’s G20 presidency under Brazil has identified boosting women’s participation in international trade as an organisation priority for the first time.

Gender provisions are also increasingly a part of trade policy and trade agreements. According to the World Trade Organisation, as of September 2022, 101 of the Preferential Trade Agreements out of 353 included an explicit reference to gender issues. Very few of these gender-related commitments, however, are enforceable.

Interestingly, the WTO, which has been advocating for gender-inclusive trade, has its own gender gaps to fill. Only 36% of ambassadors and 30% of ministers in charge of decision-making at WTO are women.

Australia has been seeking to elevate the conversation on gender segregation in trade. It endorsed the WTO’s Buenos Aires Declaration on Trade and Women’s Economic Empowerment in 2017, and in February 2024 became a member of the Global Trade and Gender Agreement. A new International Gender Equality Strategy being developed by the Department of Foreign Affairs and Trade will reflect the commitment to reduce gender gaps in trade.

The Indo-Pacific, which includes some of the world’s largest economies as well as the fastest-growing economies, and “mega-regional” free trade agreements, has the potential to propel inclusive economic growth and improve the economic security of women.

There are several ways for the region to work towards this goal. Established regional forums for economic cooperation such as the Association of Southeast Asian Nations and the Asia-Pacific Economic Cooperation forum can play a critical role in engaging governments, the private sector and businesses to promote inclusive trade in the region.

Gender mainstreaming is integrated into newer initiatives, including the Indo-Pacific Economic Framework for Prosperity (IPEF), a regional initiative of 14 governments to build economic integration in the Indo-Pacific, with Australia, the United States, Japan and India as members. IPEF lists trade as one of its four core pillars, and explicitly underlines the need for inclusivity in trade, removing barriers to economic empowerment and encouraging greater participation by women.

Gender equality must be a critical part of building supply chain resilience in the region. Women are under-represented in global supply chains, work in vulnerable and precarious conditions, and are concentrated in low-skilled employment.

The Supply Chain Resilience Initiative (SCRI) between Australia, India and Japan could be another initiative to promote increased employment and entrepreneurship opportunities for women. IPEF, SCRI and the Quad group each list enhancing the workforce of supply chains in critical sectors as a priority, and could have targeted training and skilling programs with gender quotas.

Trade facilitation directly benefits women and enhances their participation in trade-related services. Countries such as India and Australia, leaders in trade facilitation, can work with countries in South Asia and the Pacific to promote gender-sensitive trade facilitation processes in their neighbourhoods.

The Indo-Pacific region, most often cited as a geopolitical flashpoint for trade, can be at the forefront of advancing a gender-inclusive trade agenda.

The post Breaking Barriers: Enhancing Women’s Participation in Trade Across the Indo-Pacific appeared first on WITA.

It won’t be easy. Ambitions to broaden and deepen the transatlantic marketplace suffer from past disappointments. The Transatlantic Trade and Investment Partnership foundered in disputes over hormone-treated beef and investor-state dispute settlement. The current EU-US Trade and Technology Council has produced only narrow benefits. In the absence of coordination, both Washington and Brussels have resorted to unilateral measures, such as the US Inflation Reduction Act, national security-related tariffs on steel and aluminum, and the EU’s doubling down on its long-proposed carbon border adjustment mechanism. In the future, the need to take urgent unilateral measures will only increase as the dire consequences of failing to act become clear.

A comprehensive transatlantic economic agreement—not a traditional trade agreement—could avoid relitigating the issues that have sunk past US-EU trade and investment initiatives. Rather, learning from the lessons of past efforts, Washington and Brussels must accept that, despite their shared interests, Europe and the United States have decidedly different economic cultures and polities. And any new comprehensive agreement should accommodate these differences while coordinating parallel approaches to the rapidly evolving global economy.

One pillar of such an agreement should be addressing third-country practices. Both the EU and the United States are currently implementing a lengthening list of defensive trade measures—tariffs on electric vehicles and solar panels and investment screening—to protect their domestic industries and workers from subsidized Chinese competition. Unless Washington and Brussels can agree on mutually reinforcing defensive measures, Beijing will simply exploit differences in future US and European market openness. Recent experience with US duties on Chinese subsidized steel and aluminum production painfully demonstrates that unilateral defensive trade measures can adversely impact European producers. Washington and Brussels have spent more time and effort fighting each other than jointly confronting China’s nonmarket practices.

A bilateral comprehensive agreement could identify a set of policies—the types and levels of state subsidies, the use of stolen intellectual property, state regulatory and other protectionist measures—that Washington and Brussels agree lead to “unfair” competition and thus merit parallel defensive measures that do not distort transatlantic commerce.  

The second pillar of a comprehensive agreement should be improved regulatory cooperation. Regulations often seem esoteric, but they set the rules of business behavior. In a world in which market-based economies are in competition with state-driven economies, the United States and the EU need regulations that reinforce each other, do not conflict, and do not inflict unnecessary collateral damage.

Regulatory cooperation is not about adopting identical rules (the United States and the EU have tried and failed before). Nor is it about forcing US and European regulators to sit down and talk with each other (which has produced little in the way of results). Rather, Washington and Brussels need to first agree that in a deeply integrated transatlantic economy, regulations should achieve their objectives without unnecessarily undermining bilateral trade. Second, they need to agree on joint pre-regulation research and information-gathering so that regulators are each working with a common set of facts. And the US and EU regulators need to offer each other’s stakeholders a meaningful opportunity to provide pre-standard-setting and pre-regulation input to minimize business friction.

Finally, successful coordination of external measures and future regulation will not be possible without a third pillar—greater ongoing input from the business, labor, consumer, environmental, and political communities. It is a fundamental principle of democracy that those affected by governmental actions have a right to participate in such decision making. But it is also practical. As the ones directly affected, these stakeholders can ensure that the issues addressed are of practical significance. In this regard, it is particularly important that the US Congress and European Parliament are fully involved as negotiations proceed, to ensure that whatever is agreed upon has a chance of entering into force.

As both Brussels and Washington face an uncertain and challenging 2025 and beyond, they cannot afford to allow past failures to constrain future ambitions. They face too many shared challenges. Going forward, the EU and the United States can either row together in increasingly turbulent waters, or they will most assuredly sink separately.

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. He was chief negotiator for comprehensive trade agreements with the EU and the United Kingdom, as well as trade lead for the US-EU Trade and Technology Council.

Bruce Stokes is a visiting senior fellow at the German Marshall Fund, a former senior fellow at the Council on Foreign Relations and the former international economics correspondent for the National Journal.

To read the blog as it was published on the The Atlantic Council 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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