A Trade Policy to Boost American Competitiveness

Fred L. Smith, Jr., Marc Scribner

President Donald Trump’s early actions on the Trans-Pacific Partnership, North American Free Trade Agreement, and the nomination of avowed protectionists to key roles have shaken the confidence of free traders. There is certainly cause for concern, but there are legitimate problems affecting U.S. trade policy that Trump should address to boost American competitiveness. And he can tend to these while keeping his campaign promise to “drain the swamp.”



For too long, American trade policy has rarely sought to promote true free trade. Recent trade agreements really haven’t been primarily about trade. Rather than work to facilitate win/win exchanges beyond the nation’s boundaries, U.S. trade negotiators have focused on helping exporters and shielding domestic firms from foreign competition—favoring producer over consumer interests, while rarely displaying any sympathy for import-reliant firms. Under such a regime, lobbying clout is what matters for many businesses to survive.
Over the last few decades, U.S. trade policy has only gotten worse. Larded with lengthy provisions governing wide swathes of regulatory matters, trade deals have become regulatory behemoths chock full of special interest favors. The Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership are but the latest examples. The Trump administration has an opportunity to reform this process.
Where to start? A look at recent history provides a clue.
Earlier trade negotiations proceeded under the 1947/48 General Agreement on Tariffs and Trade (GATT), which sought to lower tariffs on products in commerce among countries that were party to the negotiations. In that sense, it was akin to promoting trade within the United States. Domestically, as one nation, we succeeded in creating a massive free-trade area, fueling dramatic economic growth—which alleviated the dislocations such economic change created. But when economic competition crosses national boundaries, political integration and trust become strained, making trade liberalization much more difficult.
A trade agreement can be simple—two parties agree to allow their citizens to buy and sell from the other with no interference, much like New Yorkers can trade with Texans without hindrance. But the voluminous side provisions in trade agreements over the last two decades are more akin to peace treaties between warring polities wielding tariffs as weapons. Trade agreements determine which trade barriers each nation will “give up” in order to gain market-opening “concessions” from the other. For companies, it means whoever has the better trade lobbyist wins.
It’s long past time go back to basics on trade. In that regard, the original GATT provides a guide. It offered little more than a framework for common-sense trade rule changes to benefit each participating nation. Of course, entrenched economic or ideological interests might oppose trade liberalization, but negotiators were free to carry on in the knowledge that trade-driven domestic growth would mitigate opposition to trade deals.
Trade negotiations involved economic issues. But that changed as GATT’s success gave way to calls to “strengthen” it by expanding its scope and granting it additional enforcement powers. That in turn prompted ideological interest groups to work to advance their agendas through trade negotiations that increasingly were bilateral and regional and were more open to special interests.
The first sign of that shift cropped up in the 1990s, in the North American Free Trade Agreement (NAFTA) negotiations. And while NAFTA offered substantial benefits from lowered trade barriers, these newer participants—particularly environmental groups and labor unions—lobbied to attach “side agreements” to NAFTA outlining environmental and labor policy for all three signatory nations. Subsequent trade agreements have gone further, inserting labor and environmental provisions into the agreements themselves, as activists argue that the United States is “falling behind” in environmental protection, labor standards, what have you.
It all sounds quite lofty, but the truth is that embedding developed country standards in trade agreements protects rich countries’ industries, as it undermines developing nations’ competitive advantages during their economies’ takeoff stage—willing and able workers and untapped resources. In the end, American consumers and the foreign poor bear the costs.
The Trump administration should go after the primary threat to American industry—and it’s not foreign competition. It should modify or repeal laws that distort markets and simplify the nation’s trade agenda going forward. Trade treaties should be about trade. Environmental protection, labor regulations, and other issues can be addressed elsewhere in other fora designed for those goals.
Regulatory liberalization, one of Trump’s stated goals, would reduce costs, unleash innovation, and allow American firms to compete in all markets fairly and without politically imposed disadvantages. The end result would be more trade and economic growth—and fewer trade lobbyists. For draining the swamp, that sounds like a good start.