The Office of the U.S. Trade Representative recently announced that trade policies justified on national security grounds can’t be reviewed by the World Trade Organization. Furthermore, according to the U.S. Trade Representative: “the WTO has no authority to second-guess the ability of a WTO member to respond to what it considers a threat to its security.”
Which, according to economist and trade expert Bryan Riley, isn’t exactly how the original authors of our present trading system approached the issue. They explicitly refused to include a blanket exemption for national security in trade agreements, because, to quote one early negotiator, the exclusion “would permit anything under the sun.” The new position taken by the Biden administration directly contradicts Congressionally approved WTO language.
This is important. Trade agreements aren’t suicide pacts, and countries will always take into account their national defense when they design trade policies, but, in the past, they did so with the knowledge that there might be a price to pay when the policy was adjudicated by the WTO. It is now the position of the U.S. that trade agreements signed by the President and approved by Congress are meaningless if the magic words “national security” are invoked.
In other news, the usual suspects are in a lather because Nippon Steel has made a tender offer for U.S. Steel. U.S. Steel is only attractive to a Japanese firm because U.S. tariffs on imported steel guarantee US Steel a profit as long as those tariffs remain in place. The tariffs were enacted by the Trump Administration and continued by the Biden administration on the grounds of national security. Who knew that raising prices on American consumers in the name of national security would attract foreign investment, which, according to a bipartisan group of U.S. Senators, threatens national security?
Never mind that Trump’s own defense department found that our defense industries only need 3% of the steel produced in the U.S. each year, that according to the National Review U.S. Steel employs fewer people than the nation’s leading pet supplies retailer, and the U.S Steel company was kicked out of the S&P 500 a decade ago. U.S. Steel is no longer a large company when compared to the U.S. economy, Japan is an ally, and both U.S. Steel and Nippon Steel are publicly traded, meaning that shares in both countries are already widely held around the world. We import only one percent of our steel from China, and the resulting firm, should the merger go through, will quite likely be better able to compete with steel made by China.
As journalist Fareed Zakaria points out in Foreign Affairs, we seem to be suffering from a bipartisan lack of confidence. We no longer have any faith in the ability of American firms or American workers to compete with the rest of the world, and that might help explain our trade policy over the last two administrations. We’ve ignored the requirements of trade agreements that we’ve signed, increased tariffs to levels not seen since the Smoot-Hawley tariffs that contributed to the Great Depression, and we’ve adopted “Buy American” rules that are raising costs and killing important projects. All this at a time when, according to Zakaria, we’re actually in a pretty good competitive position vis a vis our trading partners.
Here’s Zakaria, making his case:
“In 1990, the United States’ per capita income was 17 percent higher than Japan’s, and 24 percent higher than Western Europe’s. Today, it is 54 percent and 32 percent higher, respectively. In 2008, at current prices, the American and eurozone economies were roughly the same size. The U.S. economy is now nearly twice as large as the eurozone.”
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We’re the world’s largest producer of oil and gas. We have twice the number of “globally, systematically important” banks as our nearest competitor. And our population is growing faster than any economically important competitor. These are not the indicators you’d expect from an economy in decline, a country no longer able to compete on the international stage.
We’ve been here before. This isn’t the first time we’ve lost faith in the American economy,
In 1989, a Japanese firm bought Rockefeller Center in New York City. I can remember the news coverage. No doubt, said just about every writer who covered business and politics, the purchase of this iconic symbol of American Capitalism was a perfect metaphor for the advantages of Japanese state directed Industrial Policy over the laissez faire economy backed by the Reagan-Bush Administrations.
In less than a year after the purchase, the Japanese stock market collapsed, and their economy entered a decades long recession. The company who bought the Rockefeller Center defaulted on their loan within a few years, and the Rockefellers repurchased the real estate that bears their family name.
Politicians get elected by telling voters what they want to hear, and voters are definitely not in the mood to hear good news about long term economic trends. But ideas have consequences, and the idea that we are a nation in decline is leading to policies that are particularly harmful to agriculture.
As Riley argues, it will be difficult for the U.S. to argue against Mexico’s ban on the import of genetically modified corn on the grounds of food security. After all, thanks to former trade negotiator Robert Lighthizer, the U.S. Mexico-Canada trade agreement included the following language: ‘Nothing in this Agreement shall be construed to preclude a Party from applying measures that it considers necessary for…the protection of its own essential security interests.”
Of course, Mexico’s security isn’t threatened by Roundup Ready corn. But then, our Republic will likely survive imports of steel from Canada or investments from Japan. Those hardheaded negotiators, finally standing up for U.S. interests, have left a loophole in our trade agreements so large you could drive a 110-car unit train though it. An empty train, of course, because it sure won’t be full of corn from my farm.