El Mercurio de Chile On Line | The perfect test for Elizabeth Warren’s trade intentions

Piloto, Avion, Aviones

So far, the hard-working staff here at Spoiler Alerts has been depressingly accurate about the position of most 2020 Democratic presidential campaigns on trade: it is de facto protectionist and out of step with the broad mass of Democratic public opinion.

Last Thursday’s third debate conformed to my theory of the case. There was an entire segment on trade and China, and not even Andrew Yang said he would lift the economy-weakening tariffs on his first day in office (though I hear he did offer some lovely cash prizes to some). With the laudable exception of Sen. Cory Booker (N.J.), all the candidates during this section said they viewed the tariffs as leverage and therefore would not necessarily remove them.

Consistent with her trade plan , Sen. Elizabeth Warren (Mass.) sounded the most like Trump on this point:

So our trade policy in America has been broken for decades, and it has been broken because it works for giant multinational corporations and not for much of anyone else. These are giant corporations that, shoot, if they can save a nickel by moving a job to a foreign country, they’ll do it in a heartbeat. …

And you asked the question about leverage. If I can just respond to that one, the leverage, are you kidding? Everybody wants access to the American market. That means that we have the capacity to say right here in America, you want to come sell goods to American consumers? Then you got to raise your standards. You’ve got to raise your labor standards. You’ve got to raise your environmental standards so our companies can compete on a level playing field. We can use trade not to undermine American workers and not to undermine American farms and not to undermine small businesses in this country. We can use trade to help build a stronger economy.

The only difference between the quoted passage above and Trump’s 2016 campaign rhetoric is: a) Warren’s focus on labor standards; and b) better grammar. It is hard not to share Jonathan Chait’s concern that on trade and other policy issues, too much of the Democratic field is too far to the left of the party.

I have said time and again on this page that I don’t believe Warren’s trade plan would really work, but over the weekend, two smart folks have made interesting counterarguments. Both Georgetown University’s Abe Newman and the Roosevelt Institute’s Todd Tucker pushed back on my Warren criticisms. Furthermore, to do so, they have weaponized my past writings! How dare they read my prior work!

Are they right, though?

Let’s start with Tucker, who compiled his thoughts on Medium . He offers a variety of reasons for why leading Democrats seem more protectionist than the current polling of Democrats on this issue. Many of the reasons proffered are garden-variety interest group politics that I do not dispute. The thing is, those are not good normative reasons, in the same way it is unhealthy that the National Rifle Association appears to control the GOP position on gun control.

Instead, let’s focus on Tucker’s 2020-specific arguments. First, according to Tucker, “another reason is substantive, and it’s what Warren herself has offered by way of explanation. Trade agreements are no longer primarily about tariffs, but about a view of regulation that conflicts with her own.” Second, “Democrats do have to win states back from Trump, and there is at least some evidence that this [message] would help or at least not hurt.”

Neither of these arguments is terribly persuasive. Right now, as the Peterson Institute’s Chad Bown demonstrates, trade with China is pretty much about tariffs! That was the question put to Warren in the debate, and she demonstrated little willingness to give them up. Given the cost of these tariffs to the U.S. economy, this is a disturbing position to adopt.

Furthermore, there is a lot of evidence that Trump’s trade wars have undercut much of the protectionist sentiment in the key Rust Belt states :

Pennsylvania has lost 8,300 manufacturing jobs this year, while Wisconsin has lost 4,000. Factories are slumping in the Midwest and that is bad news for President Trump's reelection chances

Businessweek (@BW) September 15, 2019 As Bloomberg’s Shawn Donnan notes, the trade war has forced a lot of Americans to appreciate the ways in which manufacturing is positively associated with trade: “If China is often viewed as the bogeyman that stole America’s factories, the current reality is that many U.S.-based manufacturers’ fortunes are more linked to China, whether as a market or as a supplier, than Trump or his hawks are prepared to admit.” Why in the hell Warren thinks it is a good idea to echo one of Trump’s worst policy ideas is beyond me.

Newman makes a different argument in his Twitter thread. He suggests that Warren is embracing an idea akin to the argument I made in ” All Politics Is Global ” and one that Newman has made in his scholarly work as well: that the United States can use its market power to set regulatory standards consistent with domestic policy preferences. As Warren puts it in her trade plan , the United States has “enormous leverage because America is the world’s most attractive market.” Newman suggests that “it is time for US foreign economic policy-makers to think seriously about policy objectives and then put our market power to good use.”

This is both Newman’s and Warren’s theory of the case, one that I made back in 2007 as well. So why am I pessimistic about it now? Because things looks very different in 2019. As I noted in this column about the Boeing 737 Max , the United States has less market and regulatory power than it did last decade. If the European Union and China agree on a standard, that is pretty much the ballgame: “The United States still retains significant reservoirs of structural power. But in the arena of regulation, the United States is not even first among equals.” This is what happened with the grounding of the Boeing 737 Max, and it also explains why U.S. efforts to boot Huawei from the creation of 5G networks have foundered .

Alas, the longer Trump’s trade wars go on, the less U.S. market power will matter. There is a reason China is fostering trade with everyone besides the United States. There is no good reason Trump is prosecuting a multi-front trade war and even less good reason for Warren to continue to prosecute Trump’s forever trade wars.

As Newman well knows, the United States needs to build more state capacity to do this kind of thing properly — a fact that goes unmentioned in Warren’s policy framework. So as a matter of policy sequencing, starting with trade threats seems like a backward way of going about this.

Let me close with a simple policy proposal that should suss out whether Warren is a protectionist in the Trumpian mold (as I fear) or someone who genuinely just wants better trade deals (as Tucker, Newman and a lot of Warren fans insist). We live in a world in which regulation matters a lot and there are three large trading jurisdictions: the United States, the European Union and China. While I am unconvinced about the potency of U.S. market power alone, a transatlantic trade partnership would have significant market sway.

If Warren is serious about trade and regulation, she should announce that her first two trade moves would be to lift most of Trump’s tariffs and to seriously negotiate a transatlantic trade and investment partnership. That would eliminate the current counterproductive policies. It would also lay the groundwork for a common regulatory zone with a jurisdiction that largely shares our societal preferences on labor and the environment. A transatlantic trade area puts much greater pressure on China, India and other countries to adopt U.S.-negotiated standards.

If Warren cannot get behind a transatlantic trade negotiation, then she is not serious about her plan. She will continue to sound like Trump with a human face on the campaign hustings. If Warren makes more positive-sounding noises on this, I promise to look at her policies anew.

Correction: A previous version of this article said Abe Newman works for George Washington University. He works for Georgetown University.