Global trade will have to become less efficient to become more resilient, U.S. Trade Representative Katherine Tai said recently, highlighting the continuing transition of U.S. trade policy under the Biden administration.

Tai’s remarks at the annual World Economic Forum in Switzerland were not the first time she has spoken in favor of moving beyond the globalization model of the past few decades. In May 2022 she said a number of developments in recent years have caused her to “wonder whether this vision for globalization leading us to a better, more secure world has run its course and if we don’t need a course correction.”

Among other things, she said, “this ‘free trade equals good, protectionism equals bad” dichotomy is one that I think we need to revisit.” Specifically, policymakers should consider “how we can adapt the rules of trade to incentivize firm behavior to take into account more than just efficiency,” an approach that will likely mean higher costs but will also yield “a more resilient, a stronger, more sustainable future.”

Tai further developed that theme in her remarks last week. “[The current] version of globalization is running into some limitations,” she said, noting in particular that a focus on “maximizing efficiency” has created “enormous amounts of prosperity without an inclusiveness that comes with it.” As a result, the U.S. wants to “lead the thinking around what a new version of globalization might be, what a new economic world order might look like.”

That new model will likely be less efficient than the old one because it will incur higher costs associated with higher labor and environmental standards, diversified supply chains, and other changes. While Tai acknowledged the anxiety businesses might feel about these increases, she compared this situation to paying for health insurance.

“I've got to pay $50 every two weeks, even though I'm healthy,” Tai said. “But the logic is that when I do have that crisis, when I inevitably need more, and run into a health issue, I have paid into a system that will take care of me.” Similarly, she added, the higher costs associated with a less-efficient world economic system are “really an insurance policy to make sure that when we run into problems, whether it's an earthquake, whether it's a tornado, whether it's another epidemic that turns into a pandemic, whether it is non-economically based decision making that erupts in military incursion, that we're not all there to suffer for it, but that we've thought ahead and then we have systems that can help us bounce back.”

However, prospects for developing and implementing the new global trade system Tai favors remain uncertain. There continues to be significant opposition to the idea among some policymakers, both abroad and domestically. In addition, a recent report from the International Trade Commission pointed out that there are gaps in data and analytical literature that could slow efforts in this direction.

For more information on how U.S. trade policy is evolving and how it may impact your business, please contact Nicole Bivens Collinson at (202) 730-4956 or via email.

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