New View On Globalization Is Drifting Away From Old Consensus On Free Trade

“We continue to value strong trade and financial flows, but we aim to maintain them in a way that no longer undermines workers, that no longer hollows out their communities, that no longer allows unfair trade to capture market share through non-market tactics. We are happy to import disinflation. We will not import deindustrialization.”

“We will not accept deindustrialization” is a powerful statement by Jared,” said Jeff Ferry, chief economist at CPA. “It suggests to me that inside the Biden administration, the worker-centric trade faction has vanquished the free trade faction.”  

Bernstein noted in his speech that cheaper imports were not worth the deindustrialization that spread throughout the country since China entered the World Trade Organization in 2001.

“We cannot afford a China Shock 2.0,” he said. “Widely accepted economic research shows that the shock of the sharp increase in Chinese import penetration in the 2000s led to lasting damage in many American communities, especially those that lost manufacturing jobs and the factories that previously anchored their communities. Yes, cheaper imports lowered costs for consumers throughout the land. But in some parts of the country livelihoods were lost and disinvestments in localities spanned decades.”

Read CPA’s take on China Shock 2.0 and its impact on world markets. 

Bernstein praised the recent extension of the 301 tariffs, and some $18 billion in new tariffs against solar and EV supply lines made in China. Why? Because with the IRA subsidies, and China investments here because of them, the U.S. risks falling far behind in the clean energy space, whether it is in solar or EV batteries. The U.S. does not have any EV battery makers. China leads, followed by South Korean and Japanese corporations. 

“The Section 301 four-year review in strategic sectors, including EVs, EV batteries, solar, critical minerals, and more tracks our ‘both/and’ agenda, as these interventions were narrowly targeted,” he said. “We believe (these tariffs) will protect our investments in key industries and provide our firms the space they need to erect new, diversified supply chains that move us away from single-source dependencies.”

The old consensus embodied some economically positive characteristics, such as less restricted trade flows and privatization of often inefficient state assets. Bernstein said market-driven exchange rates were also a positive, but even with these we have a peso trading at roughly 18 times less the value of the dollar, and a Japanese yen that is worth half a penny.

For the free traders in Congress, Bernstein said Washington must enforce and create trade rules that block “unfair trade” that undermines “key sectors of our workforce.” These key sectors are likely to be steel, semiconnductors and the clean-tech items supported by the IRA. Other sectors not mentioned in his speech, are just as key, such as generic drugs, for example. 

There are many more sectors that are open to debate, leading Congress to wonder what sectors to protect, why are they worth protecting, and which ones to throw to the whims of the big corporate buyers interested in saving a dollar per widget. If that means it is made in Mexico, then so be it.

“It’s great to see Jared saying our citizens are not only consumers,” said Ferry. “They are also employees and producers. How you earn a living is as important to most people as how they spend it.” As far as the climate change-related industries go, Ferry said the surge in new IRA investments is great, “but the jury is still out on how all these investments will play out.”