If anyone thought that showing “Tariff Man” Trump the door in 2020 meant a return to pre-Trump, one world kumbaya globalism, they ended yet another year disappointed. Globalization remains against the ropes as ever. Two immediate examples are worth sharing here.
On Tuesday, Dec. 13, the Wall Street Journal reported that Sen. Marco Rubio (R-FL) and Rep. Ro Khanna (D-CA-17) will be introducing a bill that will force leaders at cabinet-level agencies to identify weaknesses in U.S. supply chains that could hurt national security and domestic manufacturing growth. Leaders would be charged with periodically recommending ways that federal agencies can attract private investment and change federal financing programs to advance U.S. economic development policies.
Under the legislation, the Department of Treasury’s Federal Financing Bank would be given $20 billion, to be invested over 10 years, to execute on recommendations using loan guarantees, issuing securities-backed financing, or by purchasing debt. Rubio and Khanna said they expected money extended as a loan to be repaid.
Although the bill does not mention this, one way to fund the Rubio-Khanna idea is via tariffs.
The new legislation seeks to secure U.S. supply chains and is a nod towards reshoring.
Reindustrialization is no longer a campaign trail talking point. Globalized supply chains continue to get poked following the disastrous disruptions of shipments caused by the pandemic restrictions in China. Those lockdowns highlighted an over-reliance on the region (not just China) for critical goods – whether medication or rare earth minerals used in making GPS systems.
Perhaps more interesting for those who view DC policy from afar was the flaming responses to a Paul Krugman op-ed in the New York Times this week. In his piece, Krugman bemoans America’s move away from free trade. He thinks we should be mindful of our commitments to the World Trade Organization, like good globalists.
“Some of the tariffs Trump imposed are still in place, and on Friday the World Trade Organization, which is supposed to enforce rules for global commerce, declared that the official rationale for these tariffs — that they were needed to protect U.S. national security — was illegitimate. And the Biden administration, in turn, told the W.T.O. — in startlingly blunt language — to take a hike. This is a very big deal, much bigger than Trump’s tariff tantrums. The Biden administration has turned remarkably tough on trade, in ways that make sense given the state of the world but also make me very nervous.”
Actually, most of the tariffs are still in place. Some companies were granted exemptions from the Trump-era Section 301 tariffs, but the rest are all in place. European and Japanese Section 232 steel tariffs were replaced by a tariff rate quota system. Solar tariffs are still in place, with the Commerce Department saying earlier this month that China was using Southeast Asian countries to circumvent tariffs. Rumors of tariffs coming off have been just that – Beltway rumors, mainly coming from K Street and the offices of a few free traders in the Senate feeding off-the-record insights or soundbites to friendly media.
This isn’t the first time the White House told the WTO to pound sand. The USTR did it under Trump, and now the USTR is doing it again under Biden. Good. CPA openly supports ignoring WTO edicts on American manufacturing.
See CPA’s statement against the WTO ruling on steel and aluminum tariffs.
Krugman said protectionism is gaining steam. This goes against the tenets of the high priests of globalization, of which Krugman was once a true believer.
“If the United States, which essentially created the postwar trading system, is willing to bend the rules to pursue its strategic goals, doesn’t this run the risk of protectionism growing worldwide? Yes, it does,” Krugman wrote.
The best part of Krugman’s ode to tariff removal and obeying the WTO was the responses he received from New York Times readers. They were on the side of the Coalition for a Prosperous America, and the hundreds of thousands of American workers that are employed from U.S. manufacturing.
Here are a few quips from Krugman readers snapping back at him:
“The USA, and other developed countries, got low inflation in return for opening one-way flood gates, with tariff protections for ‘weak’ economies including China as part of the deal. Now China and to a much lesser extent, some other formerly less developed countries have changed the relationship. Maybe it is time to move on from WTO. Even a decade ago, the idea of ‘near shoring’ made more sense than sourcing so much from one faraway country.”
Krugman responded to that letter writer saying he likes protectionism, only in the name of climate change and national security matters.
For environmental matters, the U.S. is doing this with its domestic-only EV tax credit. The Europeans hate it that preferential treatment. The WTO will hate it, too. It is unclear if this rule in the Inflation Reduction Act, now a law, will remain. But that rule is a Biden blend of building a domestic supply chain for an entirely new auto sector while also protecting the environment from importing auto parts from countries with weaker environmental rules than our own.
On Monday, Sen. Joe Manchin (D-WV) sent a letter to Janet Yellen in defense of a strong domestic manufacturing view of the Section 45W Qualified Commercial Clean Vehicle Credits in the Inflation Reduction Act, saying it “strengthens domestic manufacturing while ensuring economic and national security through reduced vulnerability to unreliable supply chains.” Foreign automakers are lobbying Treasury to create a domestic sourcing loophole. Sen. Manchin insists that the only path to domestic tax credits is through domestic sourcing, not some relabeling trick.
China is responsible for 60% of the world’s cathode production, 80% of the world’s anode production, and 75% of the world’s lithium–ion battery cell production. These figures were the impetus for the North American assembly pre–requisite and the strong sourcing requirements for the minerals and manufacturing of batteries in Clean Vehicle Credit now opposed by Europe.
“The sooner we can release ourselves from dependence upon China the better. If we were to walk around our own homes, almost all our possessions have a Made in China label stamped or sewn somewhere on them. Enough is enough. Trade has to be more balanced. Look what has happened to Europe with its dependence on Russian oil. Who knows what can occur with this fickle, insecure, and unstable world we live in?”
Another letter writer from Winchester, NY has had a belly full of globalization, too. He is not worried about protectionism as much as Krugman is:
“I think the world is trying to undo some of the things industrial globalization has done. In America, businesses outsourced a great many jobs in manufacturing and in research. We gave up our edge for profits. The obsession with the bottom line to the exclusion of other, no less important factors, has done an immense amount of damage to Americans and America.”
A writer from Michigan says free trade globalism has led to job deserts and caused political havoc nationwide:
“When the globalists were passing free trade agreements in the 1990s, implementing theories that freely trading with partners around the world would be more efficient for everyone, bringing lower prices, I wasn’t so sure. In retrospect, economists were only seeing the economic part of their argument and failing to perceive the social consequences of their actions. China and other southeast Asian countries and the Mexican border towns flourished, but small towns across America were hollowed out. The devastation was so complete that I would argue vehemently that the result was Trump. It forever changed politics and political parties in America. It wasn’t worth it.”
A writer from the Deleware Valley says:
“The worst mistake the U.S. has made in my lifetime was to export our well-paying factory jobs to the Asian sweatshops. We have, in effect, made ourselves into an economic vassal of the Chinese Communist Party.”
Some from Springfield, VA agreed and added:
“There is a case to be made for managed trade which could mitigate some of the adverse effects of free trade.”
Krugman might be coming around.
“Our cost of living would be higher without those Chinese imports, but most of the price you pay at Walmart is actually U.S. distribution costs. I think we are heading for a lot more industrial policy. Security, military, and the environment can’t be compromised,” he told one letter writer.
If that is the case, then free trade won’t save us. (Though it will increase the number of Dollar Stores in the U.S.)
A hyper-globalized supply chain means U.S. trade with Mexico or Germany can be just as tied to Asian production as the U.S. sourcing from Asia directly. What is stopping Mexico from importing a ton of widgets from China, slapping some paint on it, and driving it into the U.S. by the truckload?
For national security and environmental concerns, the best way to handle this issue is to reshore critical items such as essential medicines that are often in short supply (we have one lab in the U.S. that makes amoxicillin, an FDA-listed essential medication) and strategic economic sectors – from high-end semiconductors to energy sources.
The once steady, forward drive of globalization ended this year stuck in the mud. In 2023, free trade globalism – disliked as much by the average New York Times reader as it is by Middle America blue-collar workers – will be spinning its wheels once more.
Comprehensive ITC Study Finds Little or No Benefit For U.S. From Trade Agreements