A New Trade Policy Has Emerged: CPA CEO Michael Stumo Chats with USTR Senior Advisor Beth Baltzan

A new trade policy isn’t just emerging; it’s emerged.  Six years after former President Donald Trump and his chief trade diplomat Robert Lighthizer imposed tariffs on nearly $400 billion worth of imported goods from China, President Biden has done the same, even going further in some areas such as capital market and export restrictions.  On May 14, the White House not only announced the extension of the Section 301 tariffs from the Trump-era, but even added some new ones — mainly against China EVs and EV battery exports to the United States.  Trump upended the world’s view on China trade. Biden has added his own to those policies. Before 2017, such a consideration was unheard of on Capitol Hill. 

On the same day, Biden was signing the extension of the Section 301 tariffs against China, Michael Stumo, CPA’s chief executive, was sitting down with trade lawyer Beth Baltzan, a senior advisor to Katherine Tai, Lighthizer’s replacement. The interview took place in front of CPA members and others during the annual conference at the Phoenix Park Hotel in Washington.

It has taken a long time for economic and market-thinking consensus to move closer in this direction. Before that, tariffs were the scourge of global commerce and were a surefire way to higher inflation. 

Instead, inflation of the last few years has been greatly impacted by supply chain chaos caused by the pandemic lockdown policies.

“In many ways, people are stuck in days when they studied economics in college, where we were taught that tariffs are distortive. Today, we have to understand that the marketplace itself is distorted. Tariffs are a response to those distortions,” Baltzan said.

Stumo asked her to summarize what she thought Tai and the Biden-Harris Administration meant when they talk about “worker-centric” trade.

“Somewhere in the 70s we moved away from the notion that the worker was important and moved towards a focus on efficiency. We lost the sense that the worker was the center of the economy, and from that point on, we only saw people as consumers,” she said.

This focus on the consumer expanded with the Reagan-era idea of turning the U.S. into one big services economy. Much of that thinking drives the U.S. economy. In fact, the U.S. has a surplus in the services trade and without that surplus, our trade deficit would be even larger. 

The service industry includes the high-paying sectors of the economy like financial services and software. But it also includes foreign tourists going to Disney World, flying in on American Airlines, and foreign college students paying tuition. And, of course, the services industry also includes retail, food services, and healthcare services, mostly all of which are low-paying jobs that usually rely on part-time workers.

“We once thought we could replace all of those outsourced jobs with new services jobs. But even though services jobs increased, they did not restore the salaries and benefits lost from offshoring,” Baltzan said. Here, she mentioned MIT professor David Autor and his work on the labor market effects of important competition from China.

CPA senior economist Andrew Rechenberg recently published updated data on the second China shock — with the first China shock taking place after their entry into the World Trade Organization in 2001 when China exports first flooded the U.S. as companies were fast to outsource there.  It is happening again, only this time China multinationals are doing it from Southeast Asia, and Mexico. 

“Ambassador Tai asked the U.S. International Trade Commission to study the distributional effects of U.S. trade and trade policy. That study shows  what offshoring an entire supply chain can do to a community, the devastation that follows.” Baltzan said. “We have to look at who is being hurt by trade. All of these people who were hurt by it were told they’d turn out okay, and be compensated somehow, and they were not,” she said. “I still see a lot of affinity for the old ways of thinking about international trade, as if somehow everyone will be made whole, or that the benefits to people as consumers outweigh the harms they experience as workers. We know that a lot of people who’ve been hurt don’t feel the benefits have outweighed the costs.”

After at least 30 years of globalization, trade policymakers should have all the evidence they need on what works, and what does not.

Baltzan discussed other trade matters during the Q&A session, including topics like rules of origin and defining what is considered “substantial transformation” of a manufactured good  under the law.  She said there was “increasing awareness” on issues like country of origin labeling for American beef.

Baltzan also agreed that it was one thing to have tariffs and industrial strategy policies like the CHIPS & Sciences Act to build out the domestic semiconductor and other manufacturing industries, but strong trade enforcement is also important.

Baltzan also emphasized the Biden-Harris Administration’s commitment to work with partners and allies.  “We know we have to do things differently, not just for better outcomes for our own workers, but so that we can have better outcomes for workers elsewhere, too. If we do not shore up our own democracy, we are not going to be of much use to other democracies, either. And we know that workers are the backbone of our democracy.”