U.S. Trade Representative Katherine Tai made clear in a recent speech that U.S. trade policy is no longer built on “the pursuit of efficiency and low costs” but instead is focused on “raising standards, driving sustainability, and prioritizing the needs of our workers and producers.”
As she and other administration officials have done repeatedly in recent months, Tai asserted that the current global economic environment is highlighted by “fragile supply chains” that were “created to maximize short-term efficiency and minimize costs,” but that this approach “has made us less secure, less free, and less prosperous.” She explained that historically policymakers “designed trade rules to liberalize as much as possible, under the theory that we were facilitating the creation of a free global marketplace” that could lead to “a gradual improvement in labor standards and environmental protection as countries grew wealthier from increased trade flows.”
However, she said, policymakers “did not include guardrails to ensure that would be the case,” and so instead countries were incentivized to compete by “maintaining lower standards, or by lowering their standards even further, as companies sought to minimize costs in pursuit of maximizing efficiency.” Those considerations, in turn, drove production out of the U.S. and eventually consolidated much of it into a single economy, China.
This approach was a central feature of the free trade agreements the U.S. negotiated in recent decades, Tai said, which therefore “contributed to the very problems we are now trying to address.” For example, she asserted, FTAs incorporate rules that “reinforce existing supply chains that are fragile and make us vulnerable” by allowing “significant content to come from countries that are not even parties to the agreement,” another allusion to China.
Now, Tai said, supply chains “need to be redesigned for resilience,” meaning production can more easily and quickly adapt to and recover from crises and disruptions and there are “more options that run through different regions.” This change is needed because the past few years have highlighted how vital resilient supply chains are for “greater national and economic security.” Because traditional FTAs do not promote such resiliency, the Biden administration has effectively abandoned them.
However, Tai acknowledged that achieving more resilient supply chains will require “a fundamental shift … in the way we incentivize decisions about what, where, and how we produce goods and supply services.” Traditionally, she said, U.S. trade policy focused on providing benefits for consumers and big companies that were expected to “trickle down” to workers, “but over time what we have seen is that these benefits do not trickle very far down.” Instead, the U.S. is now adopting an approach that “recognizes people as more than just consumers, but also producers—the workers, wage-earners, providers, and community members that comprise a vibrant middle class.”
One example of how the White House is doing this, Tai said, is its liberal use of a mechanism in the U.S.-Mexico-Canada Agreement that “allows us to bring cases against specific facilities that do not respect the rights of workers to freedom of association and collective bargaining.” These actions are not only yielding “real change and success for workers and independent unions in Mexico,” she said, but are also helping U.S. workers “because raising labor standards reduces the incentive to ship jobs overseas by removing the artificial advantages created through exploitation and abuse.”
Other examples, Tai said, are the new type of trade agreements the Biden administration is pursuing with partners in the Indo-Pacific region and Latin America. These initiatives will seek to remove non-tariff barriers to make it easier for U.S. workers and producers to access foreign markets, develop “additional supply chains to de-risk us from overreliance” on single sources for critical minerals and other important goods, and create a system that promotes “vertical integration so that developing countries are not perpetually trapped in an exploitative cycle.”
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