Trade
October 17, 2016

The Future of International Trade

By Claude Fontheim

In this era of Donald Trump and Brexit, have we reached the end of the prevailing liberal trade policies we have known for over half a century?  The answer to this question is very much in doubt as populist movements in many countries have turned against engagement with the world.

We at Progressive Economy favor openness and engagement, including through expanding trade, but with a new set of rules and policies.

In light of rising isolationism on the right and the left, we will focus more than ever on exploring a new framework for progressive internationalism.  Building on the important work of our founding Executive Director, Ed Gresser, we will offer analysis and perspective that includes a particular focus on exploring this framework — one that is more effective in producing desired outcomes and is politically viable.  We welcome your thoughts.

It is time to take the next big step toward a new paradigm in which trade policy becomes a tool that is systematically coordinated and integrated with domestic economic and global development policies.  If implemented effectively, and expanded upon during the next presidential Administration, trade policy will continue to be a vital contributing driver for greater inclusive economic opportunity and security.

International Trade and Domestic Policy

Trade agreements are important to America’s economic advancement. But they alone cannot produce broadly shared prosperity. Trade agreements must be pursued in combination with other economic policies, such as expanding education opportunities and access to quality health care, in order to achieve broad support and improved outcomes.

This is not to say that domestic policies and programs should ride on the back of trade legislation.  On the contrary, while some domestic programs, such as Trade Adjustment Assistance, should be integrated with trade policy and legislation, most should continue to travel their own path.  If anything, trade policy in isolation is a secondary driver of American economic policy success.  Greater coordination is needed, and this is currently impeded by the policy silos created by the organization of responsibilities and jurisdictions in Congress and the Executive Branch.  Some reorganization toward the end of better coordination is needed to ensure better results, and the case for expanding trade should rest increasingly on assurances that government will deliver on a strategy for inclusive economic opportunity.

A domestic economic strategy of this kind would involve large improvements in education and training, infrastructure, tax reform, a robust functioning ExIm Bank, expanded funding for basic research, immigration reform and more.  Universal access to quality education (to the level of “high school plus”) will be essential to drive rising wages and inclusive economic opportunity, as will lifelong learning to adapt and upgrade the skills of American workers.  For those going to four year college and beyond, the opportunity to do so for working and middle class Americans, without incurring crippling debt, will also be essential, as will improved transition assistance and safety nets.  New trade agreements to expand global opportunities for American businesses and workers must be part of this strategy, but the prospects for future trade deals will be dim without the rest.

Trade and Global Development

International trade has been a powerful driving force behind inclusive development and the dramatic decline in global poverty.  This not only supports the moral case for expanding trade, it serves American economic and national security interests.  But we can and should do better.

Better outcomes will depend upon our ability to integrate global development programs, international trade policy and diplomacy in a single strategy and policy agenda.  The notion that trade policy should exist in isolation has been slowly eroding since the 1990’s in any event, with trade agreements fortunately being co-mingled with policies and programs addressing capacity building for developing countries, labor rights, environmental standards, trade facilitation assistance and more.

The Trade Promotion Authority and omnibus trade bills passed by Congress and signed into law by President Obama in 2015, and the currently pending Trans-Pacific Partnership (TPP) agreement, are important steps forward toward such a new policy framework.  For example, making transparent governance and the rule of law in developing countries legally mandated goals of trade agreements, and coordinating capacity building assistance toward these ends, is very significant.

Trade agreements and capacity building that support transparent governance and the rule of law are essential to inclusive development.  And rule of law is a necessary building block of labor and human rights, intellectual property rights, enforceable contracts, religious liberties, gender equality, minimizing corruption and more.  These outcomes, in turn, are vital to advancing American values, national security, and the economic interests of American businesses and workers.

In the case of labor norms, for example, Vietnam and Mexico are preparing now to bring their labor laws and practices into alignment with internationally recognized labor rights as required by TPP, and the US government is planning capacity building assistance to support these changes, based upon the premise that TPP will take effect. Without TPP these reforms and many others will not happen.  The long term success of these reforms will also depend on constant vigilance, a willingness to use TPP’s enforcement provisions if needed, and greater responsibility on the part of global businesses for the conditions in their supply chains (following a trend that is steadily growing already).

A major long term commitment to rule of law and governance capacity building and diplomacy, with the active support of the business community and civil society, will be vital to the success of TPP, and TPP’s mechanisms for coordinated capacity building programs should make this possible.

Beyond the TPP process, programs for developing countries to advance transparent governance and the rule of law will require US government reforms and reorganization to integrate the work of trade and development agencies, business and civil society.  Expanding centers of excellence to provide technical assistance and thought leadership, and improved coordination with international institutions and other governments will also be needed.

New Realities

In addition to focusing on the integration of trade policy with programs and policies to drive inclusive development abroad, and inclusive economic prosperity at home, an integrated policy framework should effectively address changing realities.

New technologies call for new trade rules and policies:  TPP, for example, has rules intended to preserve the free flow of information by forbidding national firewalls that would balkanize the internet, while also providing protections for the public interest in privacy and intellectual property rights.  However, rapidly advancing technologies and applications will be an ongoing challenge to the rules-based trading system given that setting new trade rules is a gradual process.1

Businesses should meet rising expectations that they provide solutions to societal challenges, from environmental sustainability to inclusive economic opportunity and fair wages:  Businesses must evolve, and many are evolving, beyond Milton Friedman’s formulation that businesses should focus solely on maximizing profits.2 These expectations are widely shared, including among a growing number of business leaders.  Progress to date has been substantial and is ongoing.  However, the efforts of most businesses to meet these expectations remain largely aspirational.

Localization is an opportunity and a threat:  Localization is the phenomenon through which businesses are relocating manufacturing, services, and even research and development to the countries of their customers.  Localization across many sectors is driven by several powerful forces:  the business advantages of being closer to one’s customers, mercantilist policies through which governments require or incentivize localization in exchange for market access, and (for Americans in particular) shortcomings in public programs and policies needed to make this country a more competitive magnet for investments and good jobs (which is likely to drive jobs and investments out of the United States unless these shortcomings are corrected).3

At Progressive Economy we have long focused on the impacts of international trade on global poverty and development.  Our analysis has repeatedly led us to the conclusion that expanded trade and investment in a rules-based system decreases poverty and spurs more inclusive development.4

Progress requires us to recognize that there have been losers as well as winners resulting from expanding trade, rapidly advancing technologies and new business models.

Unless the benefits of openness and free enterprise are widely shared beyond our elites, the populism driving isolationism will continue to grow.  International trade and much more will be caught in the fallout.

The answer to this danger lies in a new approach that provides opportunity for all and security for the most vulnerable.

 

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  1. The recent Washington International Trade Association publication on how 3D printing will change international trade provides one interesting example.

 

  1. See, for example, the recent op ed by the Chairman and CEO of Allstate Corporation. Forward thinking business leaders understand not only that their organizations have responsibilities to the broader society, but also that changing their strategies and performance in this way will greatly strengthen their businesses.

 

  1.  This year’s NYU business school commencement address by GE CEO Jeff Immelt provides an important perspective on localization.

 

  1. See, for example, our analysis of how expanding food trade helps developing countries feed themselves; how trade facilitation reduces hunger and poverty; and how reducing barriers to food trade and ensuring land rights through rule of law reform can improve food security in Africa.