Dems’ Better Deal on Trade: Some Good Ideas, None Radical

Yesterday, Senate Democrats published the international section of their Better Deal agenda to help America’s Middle Class.

It was not met to universal acclaim. Over at Vox, Monica de Bolle of the Peterson Institute and Ted Alden of the Council on Foreign Relations lamented that it would politicize international economic policymaking. Rob Howse at IELP called himself “saddened and furious that the Senate Dems have jumped on the protectionist bandwagon so fully,” and predicted a “devastating trade war” that is “beyond Trump’s wildest fantasies.” Cato’s Dan Ikenson riposte was to the point: “Dumbocrats.”

I’m more sanguine. The Democrats’ platform has some pragmatic and sensible proposals that are not dramatically out of step with their past positions or international precedents.

Indeed, I would have thought there would have been a warmer reception from fans of legacy policy. The new agenda does not vilify trade agreements as the root of all evil, and attempts to shift focus away from no-win trade pact fights and towards domestic policy tools. But then again, I expected that reception for Trump’s NAFTA renegotiation, which has taken on board most of what advocates for past trade agreements had wanted to see in the Trans-Pacific Partnership (TPP).

Here’s my operating assumption: after an election season in which all four major candidates left standing criticized legacy trade policy, there was going to be a course alteration. That is politics in a democracy. The direction — towards a deeper local and national embedding of markets — was always clear. The question was rather: what’s the scope, depth, and pace of those changes? By that measure, the latest Senate proposals are not the outer bound of what is out there.

Let’s explore each of the seven planks in turn.

1. An Independent Trade Prosecutor. Far from politicizing trade enforcement, this is aimed at doing the opposite. The Schumer plan wants to sever enforcement from diplomatic politics and put it in the International Trade Commission — an independent bureaucracy beyond the direct control of the Trump administration (or any other). Versions of this idea have percolated for years, including from the non-radical Hillary Clinton campaign (as Howse notes) and Obama administration. In contrast, the legacy approach is to house international trade enforcement in the Executive Office, under the U.S. Trade Representatives’ general counsel office, which has been criticized for politicizing the World Trade Organization (WTO). I don’t fully buy this critique, but the IDP would not make it worse. And the language in this part of the plank about strategic calculations as to whether and how to comply with WTO rulings? That already happens, and is explicitly an option within the WTO’s framework.
2. An American Jobs Security Council. This would supplement the current national security evaluations of foreign takeovers of U.S. companies with a review as to the takeover’s net economic benefits. This idea comes from none other than our neighbor to the North, Canada, where a series of liberal and conservative governments have used such a method for decades. While not universally beloved, takeovers have only been rejected twice in the last count I’ve seen. The more common outcome of the review is rather that the government has discussions with incoming investors about ways to boost the job multipliers of their investment. There are other ways to get to the same place (changing anti-trust reviews, having an industrial policy), but the Dems’ idea has precedent.
3. NAFTA renegotiation. A focus here is improving the living standards of Mexican workers, long a priority of members of Congress like Sandy Levin (D-Mich.). Then, there are recommendations of moving NAFTA to or beyond the TPP template in digital trade, agricultural market access, and labor/environmental rights. There is no per se rejection of investor-state dispute settlement, with language instead limiting advisory access for firms that have “used or sought to use the investor-state dispute settlement mechanisms to undermine U.S. sovereignty or regulatory standards.” The U.S. hasn’t lost cases, so it’s unclear if any companies would be blocked from participation. (Moreover, the “undermine” language is in-apposite for a system where the remedy is cash payments). In short, the change from legacy policy here is at the margin, unclear, and not all in one direction. No other trade deals are even mentioned.
4. Procurement preferences for non-outsourcers. There will probably have to be some changes in labor law, as current case law is not too favorable to major changes in procurement that take labor practices into account. Yet this is unsurprising proposal, and consistent with a whole line of Obama era procurement policies.
5. Buy America preferences. This is a long-standing policy orientation, and tightening it is unlikely to throw a major wrench in the economy. According to researchers from the OECD, under the current fairly liberal regime, less than five percent of U.S. procurement is of foreign products. Nonetheless, there is a strong emotive appeal of using tax dollars to buy national. This is not limited to the US: Cross-nationally, research shows a public preference for local (and even more) green purchasing by the government. Still, it’s unclear how the senators’ policy will deal with the hurdles posed by the WTO and trade deal rules, which require that our trade pact partners’ goods be treated as “U.S.-made.” Notably, the proposal does not explicitly address this issue, and seems to leave the door open to negotiating reciprocal access to our trading partners’ procurement markets.
6. Combating currency manipulation. An old proposal, one long embraced by think tanks like the Peterson Institute, and very inexpensive at the moment, since no countries would qualify.
7. Closing offshore tax loopholes. The subject of hundreds if not thousands of paid ads for Democrats over more than a decade.

At the end of the day, I think what makes some folks uncomfortable is the rhetoric more than the substance of these proposals. Targeting bilateral trade balances seems misguided; I agree, and the numbers indicate it isn’t a major problem anyway in the NAFTA region. Calling negotiated terms of WTO accession “cheating”? Ditto. We agreed to those.

But that’s part of what I find compelling about this proposal. Much less so than other documents over the last decade, the “rules” and “cheating” rhetoric is lessened. In its place, we have tough questions about what to do with fairly powerful but entrenched legal regimes that have difficulty confronting new problems and are tough to renegotiate. Luckily for observers of all persuasions, the Democrats’ plan to dramatically expand public access and consultation will allow a chance for all views to be heard.