Joe Biden’s proposal on infrastructure, energy, and technology is among the most far-reaching of his campaign. He would have government invest $2 trillion in advanced manufacturing, high-speed rail, electric cars, universal high-speed broadband, and a lot more. Domestic technology and production would re-shore jobs and supply chains, creating a carbon-free energy economy. All these measures would have explicit Buy American provisions.
It is the kind of thing America did in World War II and through the public investments and military spinoffs of the postwar boom. Biden is at last proposing the full-on industrial policy long sought by progressives, disdained by globalist Wall Street Democrats, and pursued only at token levels by Bill Clinton and Barack Obama.
The complication: This long-overdue strategy is prohibited by the current rules of the global trading system—most of which were deliberately put in place since 1995 by Biden’s two Democratic predecessors. Clinton and Obama designed and expanded the WTO to enforce an ideology of free-market globalism that expressly bars constructive economic nationalism. Codes on procurement and public subsidies prohibit favoritism for domestic producers. Biden would need to reverse not only the rules, but the ideological assumptions and Wall Street interest-group politics behind them.
One early indicator of whether Biden will move this far will be the person he appoints as the U.S. Trade Representative, a cabinet-level position as powerful as it is obscure.
Biden would also need to challenge China, which has its own version of a far more aggressive and state-centered economic nationalism, often at America’s expense. Beijing carries out these policies despite its own WTO membership and commitment to a more open economy, brokered by the Clinton Administration but never truly enforced by either Clinton or Obama.
Biden would need to say, in effect, we are going use public capital to build the world’s best high-speed rail system, with made-in-America steel and railcars; the world’s best solar and wind energy system using made-in-America panels and turbines; and the domestic ingredients for pharmaceuticals and their supply chains. And if China and the WTO don’t like it, too bad. That would be a stunning reversal.
One early indicator of whether Biden will move this far will be the person he appoints as the U.S. Trade Representative (USTR), a cabinet-level position as powerful as it is obscure. Here, as in other urgent policy areas, Biden is weighed down by an undertow of senior strategists and donors from the Clinton-Obama era. Many would prefer a reversion to the pre-2016 trade agenda, picking up where Obama left off, with a few minor tweaks. But progressives, who have long criticized those policies and proposed a dramatically different course, have been vindicated by events. Neoliberal orthodoxy has left America with an ever-larger trade deficit, an ever-smaller industrial base, and an ever-greater vulnerability to China.
Trade is not well understood by the broad public except at the level of misleading slogan (“protectionism” versus “free trade”). Nonetheless, shifting events, most notably the rise of mercantilist China as both a strategic and economic threat, will compel at least some revision, even on the part of the old guard. And politics play a big part.
Though the details of trade policy are blindingly technical, the bottom line was not lost on American voters, especially in the Midwest: U.S. trade policy was serving large corporations, helping them to outsource jobs, and destroying the livelihoods of heartland communities and families. Democratic presidents were prime offenders. In 2016, Trump was deft at exploiting these grievances, defining himself as a nationalist and trade elites as globalists who cared more about Davos than Dubuque. Trade helped Trump defeat Hillary Clinton.
TRUMP AND HIS only first-rate appointee, USTR Robert Lighthizer, have blown up a lot of the old trade system. However, they have not put much in its place. That could clear the ground for a drastic strategic shift, more competent and strategic than Trump’s.
Most of Trump’s policies have been disasters, but his trade policy is a more complex story. For several decades, since he served under Reagan, Lighthizer has criticized presidents for hollowing out American industry, and for allowing China to break the rules. Because of Trump’s impulsivity and penchant for symbolism, some of his trade policies have been purely for show. But two have been serious.
First, Lighthizer and Trump used American trade law to levy 25 percent tariffs against some $300 billion worth of subsidized Chinese exports. The correlation between the tariffs levied on specific goods and the precise location of the subsidies was far from perfect. But as a blunt instrument, the order of magnitude was about right. No previous president had the nerve to do anything like this. But the world didn’t end; trade with China went on, though with less of a deficit, and American industries such as steel, which had been clobbered by China’s practice of selling below its costs, finally got some respite.
If Biden is shrewd—to put it more bluntly, if he has a brain in his head—he will keep the tariffs in place as bargaining leverage.
Second, Lighthizer and Trump essentially put the WTO out of business by refusing to approve any new appointees to its highest quasi-court, the so-called Appellate Body, costing it a quorum. Initially, this group of judges was intended merely to correct technical mistakes in rulings by lower-level WTO panels. Instead, the Appellate Body appointed itself the final authority for the rules of global commerce. After Lighthizer shut it down, when China complained about Trump’s tariffs and asked the WTO to authorize penalties, there was nobody home. There is a nice poetic justice there, since China is the champion rule-breaker; the tariffs were a long overdue offset.
The Biden campaign blasted Trump for these actions. But if Biden is shrewd—to put it more bluntly, if he has a brain in his head—he will keep the tariffs in place as bargaining leverage, and not rush to put the WTO back in business until he decides what he wants to do with it. (Some of the people who would like to be Biden’s USTR would reverse both policies in short order.)
The Trump tariffs were advertised as Phase I of a two-part program to re-set the U.S. relationship with China. Phase II was going to be fundamental reform of the aspects of Chinese state capitalism that make it predatory on the trading system. This includes the use of state-owned enterprises to underprice legitimate producers who play by market rules; the outright theft of intellectual property; the coercive technology transfer deals extracted from American firms seeking to operate in China; the mixing of commercial tech companies with data extraction and espionage.
Lighthizer did get tougher about dusting off powers that are seldom used, like putting more China-based enterprises on the Entity List of companies subject to tough export controls. But except for some minor gestures by Beijing, Phase II never happened. In the meantime, China doubled down on its strategy of state-led quasi-capitalism. The Made in China 2025 program targeted and subsidized advanced technologies, while the Belt and Road Initiative expanded its global economic footprint, again using subsidy tactics that flout market economics. For the most part, a serious Phase II will be up to the next administration. Despite Lighthizer’s general hawkishness, America’s overall monthly trade deficit ballooned to 67.1 billion for August, the highest August number since 2006 and 22 percent higher than when Obama was in office.
Lintao Zhang/AP Photo
Joe Biden talks with Chinese Vice President Li Yuanchao at the Great Hall of the People in Beijing, December 2013.
THE DIVISIONS IN THE BIDEN CAMP reflect the split in the Democratic Party about how to proceed on trade. Plenty of corporate Democrats still see the WTO and deals like NAFTA and the TPP as the essence of good policy, and want to roll back the clock to pre-2016. For a long time, the only people making a serious critique were those in or close to the labor and environmental movements: Congressional allies such as Sherrod Brown or Dick Gephardt, or progressive critics of corporate globalization such as Public Citizen and its prodigious trade expert Lori Wallach.
Lately, however, labor, environmental, and consumerist critics have gained a much broader coalition of allies. Mainstream economists now see China’s process of targeting industries and technologies as dynamic rather than static, and the current cheap price of goods as the wrong measure of impact, when compared to displacing whole sectors and destroying entire regional economies. Economists who once said that we should just let manufacturing jobs go now appreciate that much of the service sector is at risk, too. The fact that the entire Chinese economic system is an assault on the assumptions of market economics is now accepted as a mainstream position.
Much of the defense and national-security establishment is in the China-hawk camp. The risk is that much of the hawkery is defined purely in military terms.
The most important new allies, however, are people concerned about national security. The hollowing out of domestic industry has reached a point where the Pentagon has to rely on Chinese manufacturers for basic inputs for a whole range of weapons. Much of the defense and national-security establishment is in the China-hawk camp. The risk is that much of the hawkery is defined purely in military terms. Recently, Michele Flournoy, an Obama veteran who would like to be Biden’s secretary of state or defense, wrote a saber-rattling article calling for a military buildup to prepare America for a possible war with China. Civilian technology policy was mentioned only in passing.
But others in or close to the Biden campaign have a more complex understanding of the challenge that Beijing poses on multiple, interconnected fronts. An intriguing case in point is Ely Ratner, who was deputy national-security adviser to Vice President Biden. Ratner is widely expected to coordinate China policy in a Biden White House, either on the National Security Council or the National Economic Council, or possibly both. He is also a leading figure on the Biden trade-policy task force, though he is said not to want the USTR job.
Ratner is an emblematic veteran of the Clinton-Obama orthodoxy who is moving toward a more heterodox view. Indeed, there is an entire cottage industry of journal articles written since 2017 revising assumptions about China, though not quite taking responsibility. This might be called the “mistakes were made” school of China revisionism.
Writing in the March-April 2018 issue of Foreign Affairs in a piece jointly authored with another semi-revisionist, former Assistant Secretary of State Kurt Campbell, Ratner wrote:
Neither carrots nor sticks have swayed China as predicted. Diplomatic and commercial engagement have not brought political and economic openness. Neither U.S. military power nor regional balancing has stopped Beijing from seeking to displace core components of the U.S.-led system. And the liberal international order has failed to lure or bind China as powerfully as expected. China has instead pursued its own course, belying a range of American expectations in the process.
That’s mostly right, and a welcome concession—except that sticks were never tried under either Clinton or Obama, and are being applied only willy-nilly under Trump. “Where the hell were these guys when they had power?” asks one critic of China policy.
In a subsequent piece of which he is lead author, laying out elements of a possible China policy, Ratner adds several possible sticks, including tougher measures against intellectual property theft and industrial espionage and forced technology transfer, as well as a complementary domestic industrial policy. He also raises the idea of a club of like-minded nations to contain China:
The United States should work with advanced democratic allies to develop a new intergovernmental body to promote collaboration and coordination on R&D spending, supply chain security, standards setting, export controls, foreign investment screening, and norms for sensitive technology use.
At the same time, Ratner sticks to the orthodoxy when we warns against a “decoupling” of the U.S. and Chinese economies, touting the importance of open capital markets and leaving open the possibility of a successor version of TPP. You can see the balancing act, which addresses China as both a geo-economic and security threat, embraces the need for a national technology policy, but does nothing that would truly alarm Wall Street.
CANDIDATES FOR USTR, going from right to left, include senior veterans of the old guard, such as Jennifer Hillman or Miriam Sapiro. I’ve written about both. They are unreconstructed supporters of the traditional view of trade liberalization, and both have substantial influence. Hillman has served as general counsel at USTR, a commissioner of the U.S. International Trade Commission, and served a term as a George W. Bush appointee as one of the seven judges on the WTO’s Appellate Body. (She regularly ruled against the U.S., and was not reappointed by Obama when her term expired in 2012.)
Patrick Semansky/AP Photo
Biden at a campaign event with steelworkers in the backyard of a home in Detroit last month
Sapiro has been a deputy and acting USTR, and is now a trade lobbyist. Hillman and Sapiro recently chaired an invitation-only Zoom discussion on trade policy sponsored by the Council on Foreign Relations, and both are engaged in Biden’s trade policy panels.
On China, it has hard to imagine either of them proposing a more strategic approach that combined a serious industrial policy with tough measures to contain Chinese mercantilism. On overhauling the WTO or letting it collapse of its own weight, both would likely be defenders of the pre-Trump status quo. So much of the career of a Hillman or a Sapiro was based on mastering the details of WTO procedure and jurisprudence that blowing it up would nullify much of their claim to expertise.
One interesting alternative might be Gary Gensler. He made his fortune on Wall Street as a merger and acquisitions specialist and trader—becoming a partner at Goldman Sachs at age 30—and then switched sides. When Obama named Gensler to head the Commodity Futures Trading Commission, progressives were aggrieved; this was one more Wall Street fox in an important chicken coop. But Gensler turned out to be a pleasant surprise. From his Goldman days, he knew exactly what the abuses were and at CFTC he (mostly) worked with reformers to curtail them, most notably on derivatives trading.
Gensler has let Biden’s top people know that he wants a job. That could be treasury secretary or maybe deputy secretary, or perhaps chair of a major financial regulatory commission such as the SEC. But Gensler is also mentioned for USTR. The fact that he is not a trade expert is, paradoxically, a plus, since he would not come with the preconceptions or loyalties to past perverse trade agreements, and would understand exactly how Wall Street profits from them.
A prime progressive candidate for the job is Mike Wessel, a former chief adviser to former Rep. Dick Gephardt, one of the early mainstream Democrats to challenge the trade orthodoxy. Wessel has gone on to immerse himself in trade law, representing unions and companies that get undermined by the unfair trade practices of other nations, notably China.
Wessel has also been a longtime member of the U.S.-China Economic and Security Review Commission (appointed by Nancy Pelosi), an independent bipartisan body created by Congress, which has assembled encyclopedic documentation of the practices and costs of China’s state-directed mercantilism. Wessel has long been the go-to expert and strategist for Congressional Democrats on the entire range of trade issues. Of the several candidates, Wessel’s view of trade and manufacturing is closest to the conception expressed in Biden’s industrial policy manifesto. As a lawyer and consultant, Wessel has had corporate as well as labor clients, and he serves on the board of Goodyear as the representative of the Steelworkers.
Progressive list-makers have also mentioned Public Citizen’s Lori Wallach and Economic Policy Institute president Thea Lee, neither of whom are actively campaigning for the job. Like Wessel, both have close ties to leading Democrats in Congress, who are the most potent counterweight to the pressure on Biden to stick with the orthodoxy. Either would probably take the post, if asked. Biden has committed to appointing women to leading positions.
An intriguing wild card would be the incumbent. “Lighthizer is far better for us than any Democratic USTR was,” says one progressive trade activist. A concern is that Lighthizer has been more aggressive on investor rights than labor rights. His version of Phase I did nothing to harm Wall Street. He also allowed a liability release for Big Tech firms into the U.S.-Mexico-Canada Agreement (USMCA), the successor to NAFTA. This will make it extremely difficult to reform the get-out-of-jail-free card that has enabled platform monopolies to avoid scrutiny.
An intriguing wild card would be the incumbent.
One scenario would be for Biden to reappoint Lighthizer for a year or two, with instructions to be far more strategic on China, and then have Lighthizer succeeded by a more progressive deputy. One such person could be Katherine Tai, the Democrats’ chief trade counsel on the House Ways and Means Committee.
Trade is one of the few areas that still has a semblance of bipartisanship—in this case Democratic and Republican economic nationalists versus their bipartisan globalist rivals. Naming Lighthizer, a Republican, would reinforce the desirable brand of bipartisanship. But most progressives would be much happier with Wessel.
WHAT MIGHT A PROGRESSIVE trade policy look like under a Biden administration? On the China front, the U.S. would use tariffs or their equivalent to offset China’s extensive state subsidies. American policy would prohibit U.S.-based companies from acceding to coercive terms of technology sharing. The government would bar Chinese state-owned companies from acquiring American ones. It would take a much tougher line against China’s habit of mixing promotion of Chinese tech companies with data mining and espionage. The goal of these polices would not be to make China into an international pariah but to arrive at a modus vivendi with Beijing on more symmetrical terms. China could still have its own unique approach to economic development, but not at the expense of the West.
As the world’s largest market, the U.S. still has a great deal of leverage—less than it once had but far more than it uses. If Beijing keeps breaking the rules, we could shut China out of our domestic market. But obviously, before we can act on that threat, we need other sources of supply. That’s why industrial policy and trade policy must go together. Otherwise, most of the leverage belongs to Beijing.
What about the WTO and the broader trading system? Clyde Prestowitz, who served with Lighthizer under Reagan and has gone on to be one of the leading critics of U.S. trade policy, has a new book on China policy coming out in January, The World Turned Upside Down. In it, he calls for a new World Economic Organization to replace WTO. The new organization would be comprised of democratic nations that operate market economies and respect basic labor and human rights. (Under Biden, the U.S. might even qualify!) There would be room for national industrial policies. But countries that were chronic violators of basic economic and democratic norms would be subject to tariffs, quotas or fines.
The old trading system has collapsed, partly of its own weight, partly because China has made a fool of its architects, and Trump has given it a push. Once we get past November and January, it will be up to President Biden to devise something that works better, both for working people everywhere and for the national interest.
