https://www.politico.com/news/2023/05/25/joe-bidens-economy-trade-china-00096781
The president and his critics agree that the free trade era is over in Washington. They just aren’t sure what comes next.
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Joe Biden wants a 'new economic world order.' It's never looked more disordered
POLITICO illustration/Photo by Getty Images
By GAVIN BADE
The Biden administration has been trying to bury the free-trade era for months.
U.S. Trade Representative Katherine Tai drove a nail into its coffin in January, telling the world’s one percent at Davos that the Biden administration would try to shape a “new economic world order” around protecting workers. And National Security Adviser Jake Sullivan sought to deliver last rites in April, promising the White House would forge a “new Washington consensus” to replace the one that had governed the globe for over a generation.
“I remain convinced that through all of this disruption we’re moving towards a new economic order,” Tai told POLITICO in an interview. “I’d really like to fill that gap with a positive vision that we will be prepared for it.”
The goal is to replace the old paradigms of globalization — free trade and a reliance on markets — with a “worker-centered” trade policy that raises wages not just for Americans, but around the world.
But building a new world economy is proving more difficult than eulogizing the old one. While the pro-globalization consensus has shown cracks for years — from the financial crisis to the election of former President Donald Trump — Biden’s team has struggled to outline how it will shape new rules and institutions to replace those that governed the world for the last half-century.
Biden’s team is moving slowly to transform a paralyzed World Trade Organization, once the premier facilitator of globalization, into a new-look economic club that reflects its progressive values. As those efforts crawl along, Biden has sought to forge new economic partnerships in Asia and Latin America, but the nascent efforts pale in comparison to China’s trillion-dollar infrastructure program for developing nations and risk replicating the corporate-friendly trade policies of the old system. Meanwhile, Biden’s quest to counter China’s technological growth risks sparking a new Cold War and dividing the world into two or more global trading blocs — a fate the White House insists it is trying to avoid.
More fundamentally, Biden’s brain trust has yet to settle on a vision for how the next era of global economics will be constructed. Their initial ideas are abstract at best.
Sullivan, in his April speech before the Brookings Institution, compared the Biden economic vision to a building by avant garde architect Frank Gehry, all flowing lines of chrome and steel resembling nothing less than a roller coaster.
“In the end, the way that we are going to build an international economic architecture is not going to be with kind of Parthenon-style, clear pillars as we did after the Second World War,” Sullivan said, “but something that feels a little bit more like a Frank Gehry — a mix of structures and substances.”
Biden’s critics — from centrist free-trade holdouts to Trump-fueled populists who focus on competition with China — are hardly more concrete in their own ideas. Across the political spectrum, American policymakers are grappling with how to shape a new global economic system to replace the one they built decades ago.
“I don’t know if the administration has clearly outlined what that new world looks like,” Sen. Marco Rubio , the top Republican on the Intelligence Committee, told POLITICO after a Capitol Hill hearing in February when he assailed the old, pro-globalization paradigm. “But I don’t know if anybody else has either.”
Despite the backlash against the globalization era, the shift to a new economic model is not assured. Supporters of free trade are keen to bend the arc of economic change back toward lower tariffs, taxes and regulations. But even they recognize they must change their approach to respond to the inequality and discontent that the globalization era has created.
“I wish we could wish politics away, but we can’t,” Michael Froman, a free trader who served President Obama’s second-term trade representative, said at a gathering of former U.S. trade chiefs at the Center for Strategic and International Studies, a Washington think tank, last fall.
“One thing we’ve all learned over the past few decades is there are groups of people who feel alienated and left out of the system, that the system is not serving them right,” he said.
“If we ever hope to get back to a coalition that can support a more proactive trade agenda, we’re going to have to address that.”
And if Biden fails in his quest to reshape the global economy — and sell his reforms to voters — Trumpian populism is waiting in the wings, ready to assert its own, more nationalistic alternative to the neoliberal order.
“Do I think that the former global order is gone? Yeah, I thought It was bad for America from Day One,” said Robert Lighthizer, President Donald Trump’s former trade chief. “My position is that those institutions didn’t work in the interest of the U.S. for the last 25 years. I would say they did work for China, and they worked pretty well for Europe.”
Leaders of the Trans-Pacific Partnership countries pose for a photo in 2015. Eight years later, much of Washington has abandoned the TPP. | Susan Walsh/AP Photo
A broken — or hijacked — model?
Tai’s call for a “new economic world order” at Davos had a strange echo.
In 1990, on the eve of the first Iraq War, President George H.W. Bush used almost the same words to tell Congress the U.S. would pursue a “new world order” based on commonly held democratic and capitalist values.
“A new world is struggling to be born,” he said, in which “nations of the world — East and West, North and South — can prosper and live in harmony.”
A generation later, American leaders of all stripes have given up on that vision in the wake of multiple crises, from Covid to China’s rise and Russia’s war in Ukraine.
“In the name of oversimplified market efficiency, entire supply chains of strategic goods — along with the industries and jobs that made them — moved overseas,” Sullivan said during his Brookings speech. “The postulation that deep trade liberalization would help America export goods, not jobs and capacity, was a promise made but not kept.”
The economic reappraisal is bipartisan. Consider the trajectory of Rubio, a senior Republican foreign policy lawmaker who sits on the Foreign Relations Committee in addition to his top GOP slot on Intelligence.
In 2015, gearing up for his run for the White House, Rubio labeled himself as “generally very much in favor of free trade” and initially backed U.S. membership in the Trans-Pacific Partnership — the trade pact former President Barack Obama negotiated — saying it would be a “pillar” of his foreign policy.
Eight years later, long after he and much of Washington abandoned the TPP, Rubio delivered a diatribe against the ideas that supported U.S membership in the pact. It came during an otherwise routine hearing of the Senate Foreign Relations Committee, which was questioning the State Department’s No. 2 diplomat, Deputy Secretary Wendy Sherman.
Sen. Marco Rubio (R-Fla.) said the last 50 years of U.S. economic policy and foreign policy has ultimately failed — or at least run its course. | Francis Chung/POLITICO
The U.S. made a “gamble” at the end of the first Cold War, Rubio said: “If we create this international economic order led by the U.S. and the West built on the global commitment to free trade, the notion [was] that trade and commerce would bind nations together.”
That would “lead to more wealth and prosperity, would lead to democracy and freedom — domestic changes in many countries — and it would ultimately ensure peace,” he said.
“Our foreign policy has been built around that,” he added. “Even though it’s an economic theory it basically has been what we’ve built our foreign policy on.”
“I think it’s fair to say that gamble failed,” the Florida lawmaker concluded, calling China and Russia “more authoritarian” and “more violent” than at the end of the last Cold War — a line that Sullivan repeated almost verbatim at the Brookings Institution in April.
Rubio’s monologue was a remarkable admittance for a senior Republican lawmaker: that the last 50 years of U.S. economic policy and foreign policy, inaugurated by Richard Nixon’s visit to China and exemplified by Ronald Reagan and Bush winning the Cold War, has ultimately failed — or at least run its course.
And in that room, Rubio’s comments registered as common knowledge, even with veterans of the U.S. foreign policy establishment on Biden’s team.
“We all hoped for that vision,” said Sherman, with an air of nostalgic regret. “But what changed is that the [Chinese leader] Xi Jinping of today is not the Xi of the 1990s that we all thought we knew.”
The exchange was a striking point of agreement between Biden’s team and Rubio, who had labeled the president’s diplomatic appointees “polite and orderly caretakers of America’s decline” at the start of the administration. But it was just one example of a broad reappraisal of the legacy of an economic model that scholars call neoliberalism — a broad belief in free trade, global democratization, and low levels of regulations, taxes and social services in domestic policy.
Once the mainstream position in Washington, spanning from the presidencies of Nixon to Obama, such “neoliberal” economic policies are now assailed by left and right alike.
Rubio “is a good example” of the rethink among the American political class, Lighthizer said. “He’s someone who’s a thoughtful, smart guy and he’s thought it all through and come out the other end and he’s exactly where I am.”
"The [Chinese leader] Xi Jinping of today is not the Xi of the 1990s that we all thought we knew,” State Department Deputy Secretary Wendy Sherman said. | Greg Baker/AP Photo
Progressives, as well as populists, have noted the shift across the American political spectrum.
“There’s been a serious level of rethink and self-criticism going on among portions of the foreign policy establishment,” said Matt Duss, the former foreign policy adviser to Sen. Bernie Sanders, who helped him sharpen his critique of neoliberalism during his 2020 campaign. “They just can’t deny this anymore.”
The shift has been so profound that scholars and policymakers alike now use the term “new economic order” to describe what’s needed. More than just individual policies, scholars say an economic order connotes a “constellation of ideologies, policies and constituencies that shape American politics in ways that endure” beyond a few election cycles. That’s how historian Gary Gerstle put it in his 2022 book The Rise and Fall of the Neoliberal Order.
A key aspect of any political or economic order, he wrote, is its ability to “bend the opposition party to its will.” Think of the New Democrats, led by President Bill Clinton, embracing free trade, welfare reform and welcoming China into the WTO during the neoliberal era — against the wishes of their traditional constituencies in labor unions and inner cities. Now, picture mainstream Republicans like Rubio trashing their free trade commitments and embracing protectionist rhetoric in the wake of Trump’s election, China’s growth and rampant inequality.
Lighthizer, Duss and others point out that the now-common calls for economic reform have roots in arguments that they and other critics of globalization have been making for decades, dating back to the anti-WTO protests in Seattle around the turn of the century. They’ve argued that the trading system ultimately benefits global elites at the expense of workers, exacerbating inequality without delivering prosperity to most people. That was the anti-trade sentiment that helped fuel Trump’s rise in 2016.
“The promise that was made is that globalization is going to make corporations rich, but it’s also going to lift people out of poverty,” Duss said. “And it turns out that leads to massive growth in inequality, and powers corruption and authoritarianism and environmental disruption.”
“The U.S. passed NAFTA, it granted most favored nations treatment to China and then everything went to hell for 20 years,” said Lighthizer. “We lost jobs, we had communities break up, we had opioid addiction, and maybe the worst part of it was — we had the rich here get very rich and the middle class and lower middle class get screwed. So it was a disaster.”
Over decades, pro-globalization policies saw many U.S. supply chains outsourced to China, from lower-end microchips to the critical minerals used in electronics. | Zhang Tao/Xinhua via AP
China as cheater and competitor
Those internal contradictions in the neoliberal order were widened by the rise of the world’s second largest economy — China.
Despite nominally agreeing to global norms of free trade when entering the WTO in 2001, Beijing poured subsidies into its strategic industries as part of its Made in China 2025 strategy, using its self-ascribed distinction as a “developing country” under WTO rules to skirt rules against state support that typically constrain industrialized nations. The behavior has infuriated American policymakers who once welcomed Beijing into the world of free trade.
“The irony is that the open, fair, and rules-based global economy that the United States is calling for is the very same international order that helped make China’s economic transformation possible,” Treasury Secretary Janet Yellen said in an April speech at the Johns Hopkins School of Advanced International Studies in Washington. “And the inefficiencies and vulnerabilities generated by China’s unfair practices may end up hurting its own growth.”
Lawmakers on Capitol Hill are irked as well — so much that they have begun to consider calls from former Trump officials to revoke China’s permanent normal trade relations with the U.S., though any legislation is still in the early stages.
“I was one of the people who took Chinese representations at face value, and voted to get them into the WTO,” Rep. Earl Blumenauer (D-Ore.), the top Democrat on the House Ways and Means subcommittee on trade, said during a recent hearing with Tai. “Watching now 20 years later, they’re doing this dual track, playing the developing country when it suits their purposes — it’s maddening.”
As Beijing subsidized its factories, Western governments were encouraging globalization and outsourcing to lower consumer prices and juice corporate profits. The two policies worked in tandem, producing industrial development in China at a pace never before seen — moving 800 million people out of poverty over 40 years — while hollowing out the American Rust Belt and other industrial areas around the developed world. Supporters of globalization often cite the poverty statistics to illustrate the benefits of freer trade, but its critics say that is largely due to China cheating the system.
“You have people who will say, ‘oh hundreds of millions of people have been lifted out of poverty’ and then you realize that virtually every one of them is Chinese,” Lighthizer said. “Since when is alleviating poverty in China a top American objective? Do you think they want to reduce poverty here?”
As Beijing subsidized its factories, Western governments were encouraging globalization and outsourcing to lower consumer prices and juice corporate profits. | Chinatopix via AP; Spencer Platt/Getty Images
Over decades, pro-globalization policies saw many supply chains outsourced to China, from lower-end microchips to the critical minerals used in electronics. As Beijing increases its military aggression and takes a harder line on trade — sometimes setting embargoes against nations that defy it — policymakers left, right and center have concluded that Washington should temper its free trade desires to answer national security risks posed by the Chinese Communist Party.
“This version of globalization — focused on low costs and weak regulation — is responsible for how economies like the People’s Republic of China came to control a number of key industries,” Tai said during remarks at American University in April.
Those national security concerns have created an uneasy alliance between the old critics of neoliberalism — both progressive and populist — and the establishment figures of the national security state. Now, often for different reasons, both camps are pushing a rethink of the unfettered globalization and advocating for more support for domestic industries. That was the coalition that came together to pass the CHIPS for America Act last year, and — to a lesser extent — the massive clean energy manufacturing subsidies in the Inflation Reduction Act.
But even in the face of those victories, progressives like Duss are wary of the shift against the neoliberal order. Should Trump or another right-wing populist win the White House, they worry that the argument will bend away from a “worker-centered” trade policy and toward nationalistic and nativist aims.
“There are certainly elements of the populist right wing economic argument — like the opposition to corporate power — that are important and are shared between the left and right populists,” Duss said. “But unfortunately … I see some liberals and Democrats being drawn into this idea that we can get democratic renewal at home through competition or conflict with China, and I think that’s very dangerous. And certainly, there will be no brakes on that [agenda] under a right-wing administration.”
Already, Trump has vowed to supercharge the separation of the world’s two largest economies, saying he would bar Chinese investment in a vast swath of American industries, including farmland, energy, technology and medical supplies. Lighthizer says the plan is more than campaign rhetoric.
“It’s a very bold, specific proposal and it’s something that in my opinion hasn’t gotten the attention it deserves,” he said. “How does Biden react to it? How do other Republican candidates react to it?”
Beijing already knows how it will respond — by painting the U.S. as the pariah of the global economic system, instead of China.
“China has pointed out multiple times that China-U.S. economic relationship is mutually beneficial and win-win in nature, and should not be a zero-sum game where one side out-competes or thrives at the expense of the other,” said Liu Pengyu, spokesperson for the Chinese Embassy in the U.S., saying that economic decoupling “has no support and will not lead anywhere.”
The U.S.' new policy looks to support the interests of workers, regardless of nationality, over the elites and business owners. | Joe Raedle/Getty Images
Biden’s answer: an internationalist trade policy
Tai and Biden’s answer to both neoliberalism and right-wing populism is their oft-cited worker-centered trade policy. In a phrase, it seeks to flip globalization on its head.
For decades, as Tai tells it, global trade has been a “race to the bottom”: corporations seeking greater profits by moving to nations with lower wages and fewer regulations. While many workers — particularly in China, with state support — moved out of poverty under this model, Tai argues it contributed more to inequality and environmental degradation. That, in turn, has fed the populist backlashes to the neoliberal era that led to Brexit, Trump’s election, and the rising tide of populism seen around the world.
Tai and Sullivan frame their task as reversing that dynamic. Instead of allowing corporations to decamp to countries with lower wages and regulations, they envision forming a club of nations that adhere to higher standards for workers’ rights and environmental protection. If trade is facilitated between high-standard nations, and discouraged with nations that do not abide by them, the U.S. can encourage a “race to the top,” Tai has said, in which economic activity that pays well and protects the environment is incentivized.
Put another way: If neoliberalism has been labeled globalist — or supporting the interests of a global elite — Tai and Biden’s policy could be described as internationalist — supporting the interests of workers, regardless of nationality, over the elites and business owners. It’s a decidedly left-wing economic perspective that progressive trade voices have pushed since the dawn of the neoliberal era, but it’s the first time that the leaders of the world’s largest economy have embraced it.
“That’s the question: how do you reform a global economic system that was essentially designed to privilege the interests of capital over labor?” said Duss. “I don’t know if you can. But I do know that the approach we have to take, and I do see evidence that the Biden team is moving in this direction, that the answer is to further empower and support labor power, both domestically and internationally.”
Tai’s “worker-centered” agenda shares many aspects with the “America first” policies pushed by Lighthizer, who says he “admire[s]” Biden’s trade chief and has generally supported her efforts. But Lighthizer’s perspective focuses less on identity politics — eschewing Tai’s focus on women and minorities in trade — and prioritizes domestic workers over those in other nations.
U.S. Trade Representative Katherine Tai (left) signs a World Trade Organization Agreement on Fisheries Subsidies with WTO Director General Ngozi Okonjo-Iweala on April 11, 2023, in Washington. | Alex Brandon/AP Photo
“I’m a total domestic guy,” Lighthizer said. “I want to help the world and all that. But what I care about is the guys and women that put on the hardhats and come back filthy.”
The most emblematic example of Washington’s new trade agenda — and the overlap between Trump and Biden — is the U.S.-Mexico-Canada deal, the updated NAFTA signed in 2020 under Trump.
The rewrite was a victory for progressives and populists alike. Negotiated by Lighthizer and Tai in her former role as a leading staffer on the House Ways and Means Committee, it represents the first rethinking of a U.S. trade deal to prioritize labor and environmental provisions alongside market access and lower tariffs. And it was widely supported, garnering 385 votes in the House and 89 in the Senate — nearly 90 percent support in both chambers.
The updated pact does away with the infamous investor-state dispute settlement provision that used to allow corporations to file challenges against national economic policies. And it went further, allowing each nation to file challenges to the labor and environmental practices in the neighboring jurisdictions — in theory, holding them to the higher standards in the pact.
Tai has wielded the new powers eagerly, filing multiple challenges against union busting in Mexican auto factories. The petitions allege that the factories — in some cases owned by U.S. firms — were pressing workers to vote for unions aligned with management, rather than independent labor groups.
In each of the cases, the Mexican government has agreed to intervene, demanding new union elections and committing to address anti-labor threats through training. The actions represent a turning point for U.S. trade policy — the first time a trade deal has been used to actively support workers’ rights overseas. And Tai rarely misses a chance to point that out.
“This has a real impact on working peoples’ lives,” Tai said at an April speech at American University’s Washington School of Law, “elevating labor standards driving a race to the top and reduces the incentive to ship jobs overseas.”
Biden (left) waves during the Indo-Pacific Economic Framework launch event on May 23, 2022, in Tokyo. The U.S. president has peddled a new type of economic “partnership” that aims to raise economic standards while avoiding the third rail of tariffs. | Evan Vucci/AP Photo
A new form of trade agreement?
Tai, Lightizer and virtually every trade lawmaker in Congress agree that any future trade deals should use USMCA as a model. But that desire is running headlong into the Biden administration’s apprehension toward traditional trade deals.
Since he took office, Biden’s team has not opened any new traditional trade negotiations, fearful in part of a backlash in middle America like the one that doomed TPP — and brought Trump to the White House.
Instead, Biden has peddled a new type of economic “partnership” that aims to raise economic standards while avoiding the third rail of tariffs — the Indo-Pacific Economic Framework for Asia and the Americas Partnership for Economic Prosperity for the Western Hemisphere.
While they don’t include some key elements of usual trade partnerships — tariff reductions and enforceable standards — the administration and its allies have touted them as forums to develop new economic rules and standards that will guide trade among like-minded nations. If done right, Biden’s team envisions them as vehicles to negotiate the values they hope will guide the next chapter of the global economy.
“What we’re looking to form are open societies, open markets where you have confidence in a level playing field and the values that you’re trading under,” Tai told POLITICO, saying that would give other nations “a proposition for growth that is more inclusive, where it’s not just the bigs getting bigger, but that the littles have a chance, too — and that goes for corporations, countries, [and] economies.”
A Mediterranean Shipping Company ship is loaded in Norfolk, Va., in 2021. Since he took office, Biden’s team has not opened any new traditional trade negotiations, fearful in part of a backlash in middle America like the one that doomed TPP. | Steve Helber/AP Photo
Few in Washington would object to those goals, but there’s considerable skepticism that Biden’s efforts can create an enticing alternative to China and its trade agenda, which typically prioritizes commercial ties while ignoring the internal politics of trading partners.
For months, lawmakers from both parties have assailed the administration for not consulting them enough on IPEF negotiations. Meanwhile, progressives and populists alike are concerned that Big Tech and corporate-friendly elements of the Biden administration will recreate some of the worst elements of the neoliberal order in IPEF. Left-leaning lawmakers and groups have sent letters to the Biden administration worried that the IPEF language will ultimately supersede domestic laws in member nations around privacy, monopoly powers and other regulations. A handful of GOP populist lawmakers have chimed in as well, writing to Tai and Commerce Secretary Gina Raimondo about their concerns that tech firms will try to recreate protections like Section 230 in the bill.
Progressives plan to take those concerns public when Asia-Pacific economic ministers are in Detroit this month with a series of rallies and events. While those groups say their events are not opposed to IPEF — only asking Biden to do it their way — they worry that allowing corporate interests to shape Biden’s new economic partnership could lead to public backlash akin to the TPP debacle, exactly the outcome the White House seeks to avoid.
“A lot of the concerns around corporate-dominated trade agreements have definitely crossed the aisle in various ways,” said Melinda St. Louis, head of the trade program at the liberal watchdog organization Public Citizen, one of the groups planning IPEF demonstrations in Detroit. “It’s important for President Biden to deliver on a new model — not just on the policy side, but for the politics as well.”
The headquarters of the World Trade Organization in Geneva, Switzerland. The Biden administration said it is committed to reforming the WTO and its dispute settlement system. | Robert Hradil/Getty Images
WTO reform
Ground zero of the battle for the future economy is the wreckage of neoliberalism’s paradigmatic institution — the World Trade Organization.
Despite spearheading the WTO’s founding, the U.S. started undermining the global trade body back during the Obama administration, with the White House temporarily blocking judges to the Appellate Body, the WTO’s top dispute settlement forum. Trump revved up the practice, killing the Appellate Body in 2019 and effectively preventing the WTO from resolving world trade disputes. Biden has not lifted the blockade.
The decision has led to howls from Beijing that it is the U.S. — and not China — that is truly upending the rules-based international system. But to the U.S., that system had long displayed some fatal flaws. Washington argues the Appellate Body has exceeded its authority, issuing decisions that create binding trade policies at the WTO, rather than relying on negotiations to set new rules.
That has led to a system where “less and less will be accomplished through negotiations,” Tai said during a Q&A at American University in April, “and that is certainly something we have seen over the past couple of decades.”
The administration has repeatedly said it is committed to reforming the WTO and its dispute settlement system, hoping to reshape the central institution of the globalization era to address worker-centered trade priorities and contain what it sees as China’s cheating of the global system.
“We are not walking away from the WTO,” Sullivan said at Brookings, “but the WTO needs fundamental reform to account for … the presence of a massive non-market economy that just has a different structure to the way the WTO was envisioned.”
The now-common calls for economic reform have roots in arguments that critics of globalization have been making for decades, dating back to the anti-WTO protests in Seattle around the turn of the century. | Elaine Thompson/AP Photo
The WTO said through a spokesperson that its members have “committed to conduct discussions with the view to having a fully and well-functioning dispute settlement system accessible to all members by 2024.” But so far, the efforts are painfully slow.
After years of stasis, the WTO recently opened a new forum to discuss Appellate Body reform run by a Guatemalan representative, Marco Molina. So far, the WTO says that more than 70 nations have put forward ideas in the forum, officially kept secret to protect negotiations.
The U.S. has quietly contributed to those talks, which Tai’s office calls a “brainstorming exercise.” But they haven’t even gone so far as to make an official proposal. After years of undermining the WTO, American policymakers are concerned that a direct approach to negotiations would get their policy proposals dismissed out of hand.
“If we walked in the room with a list of demands they’d be laughed out of the room because we were the ones proposing it,” Susan Schwab, a U.S. Trade Representative during President George W. Bush’s second term, said at the CSIS event with former U.S. trade chiefs last fall.
Schwab’s perspective is quietly shared by Biden’s team in Geneva, and so American officials are apprehensive about publicizing any policy preferences put forward in the talks. At American University in April, Tai said that the U.S. is “collecting and sharing ideas at the committee level,” but she and her office declined to provide more concrete details.
Tai’s apprehension to outline a policy agenda doesn’t mean the U.S. lacks one. Other WTO members say the Americans have pushed the idea of a two-tiered dispute settlement mechanism, with a voluntary Appellate Body as the highest arbiter. Under the plan, a trade dispute would only advance beyond the first, non-binding judgment and to the legally-binding Appellate Body if both the plaintiff and defendant agree to move ahead.
But the U.S. appears to be fighting an uphill battle. The Europeans favor a binding Appellate Body proposal, and a Geneva trade diplomat told POLITICO in May that it is “U.S. against the rest,” adding that “everyone is strongly interested in having the Appellate Body back.”
Tai’s office declined to say whether it is interested in such a structure, but WTO Director General Ngozi Okonjo-Iweala has indicated that such ideas are on the table, saying in April there is a “strong desire amongst most of the membership for a two-tier system.” And Tai told POLITICO in March that any dispute settlement system “should be accessible to all WTO members” after lamenting that relatively few nations had used the old system.
Veterans of the old WTO say that one route to reform may be working with other like-minded nations — and likely ignoring China and its allies.
At CSIS last fall, the five former trade representatives said that if the U.S. cannot shape the WTO to its liking, Washington could go out and negotiate “plurilateral” deals — either within the WTO structure, or outside, like Biden’s new “partnerships” — that set higher global trade standards for members, but exclude adversaries like China. If those deals offer growth and wide-ranging prosperity, more nations will be keen to join the Western orbit, and move away from Beijing.
In that situation, “you [would] have a WTO with rules that are not quite as sophisticated as the plurilateral [pacts],” said Carla Hills, a U.S. Trade Representative under President George H.W. Bush. “But if the plurilateral flourishes, people will want to either bring those rules into the WTO, or they will want to join the plurilateral [pacts].”
Biden’s newfangled economic partnerships are still a far cry from “flourishing” pacts, and existing plurilateral efforts at the WTO — like talks on ecommerce and subsidies among a subset of members — have shown little progress. But whether or not any of those efforts can win favor abroad, there is a realization among many American policymakers that the organization that emerges from reforms will be fundamentally different from the WTO that Washington helped shape a generation ago.
“It’s conceivable that people will use those [WTO] buildings to have another organization of people who think like us,” Lighthizer said. But he added: that vision is more like the General Agreement on Tariffs and Trade, the pact between Western industrialized nations that predated the WTO.
Biden’s team is clear that it won’t wait for the WTO reforms to pursue its broader trade agenda and contain China. | Matthias Schrader/AP Photo
It’s an admission shared by trade leaders across the spectrum — that the future of the global trade body won’t live up to the ideal of a global, consensus-based organization that American leaders visualized during the neoliberal era.
“We can’t go back to the way it was before,” Froman said at the CSIS event, arguing the WTO had “lost so much credibility” because it would take too long to arrive at decisions, letting industries undermined by unfair trade go out of business before any resolution.
“If the political consensus was there as to what we wanted out of a multilateral trading system — maybe that’s dispute settlement or an Appellate Body — we would get there,” he said. “It’s not about the institution, it’s about the political consensus among capitals, and that’s where leadership comes in.”
If that political consensus can’t be found, Biden’s team is clear that it won’t wait for the WTO reforms to pursue its broader trade agenda and contain China. At Brookings, Sullivan said that the concept of using “plurilateral” action as an alternative to the WTO is alive and well in the White House.
“We can’t wait for WTO reform,” Sullivan said. “We have to be pursuing a range of other strategies to deal with China as it actually is,” like the Indo-Pacific forum and recent U.S. efforts with Europe and Japan to promote trade in less-polluting steel production, which would cut out Chinese producers and have recently hit a pause.
Those efforts, Sullivan said, will aim for a “plurilateral approach” where the U.S. and allies can “collectively align our approaches to deal with certain non-market economic practices that are fundamentally harmful,” like those coming from China.
Many global players are jockeying for prominence and influence in whatever global economic structure replaces the old. | Andy Wong/AP Photo
A world of ‘blocs’
Even as Biden tries to align nations against Beijing’s economic model, his team insists they aren’t trying to create a new Cold War of dueling economic systems. But that’s exactly where critics think we’re headed.
In place of a unified world trading system, many U.S. policymakers have resigned themselves to the idea that the world is sorting itself into two or more trading groups — one led by the U.S. and one by China.
“It does seem like that what we’re running into is like a set of blocs,” Duss said, “one which calls itself the democratic camp, and the other which the democratic camp calls the authoritarian camp.”
Not every nation will fall squarely into either camp, both he and Lighthizer cautioned. Even during the original Cold War, many nations — led by Josip Broz Tito’s Yugoslavia — described themselves as non-aligned and tried to curry favor with both Washington and Moscow. A similar dynamic may be emerging now, with Beijing taking the lead role as an alternative to the U.S. system.
“It’s not like African nations aren’t going to trade with us if they can trade with China,” Lighthizer hedged. “But having said that, there’s no question in my mind that China has made the decision that it’s time now for them to be the other pole.”
“So we can’t avoid this situation, this new Cold War,” he added. “They have declared it.”
The Biden administration insists that is not the case. A new Cold War is neither inevitable nor Biden’s desire, his team says, even as the White House tries to recruit nations to its new economic partnerships and curtail the growth of China’s technology sectors by cutting off trade in high-end microchips and planning new investment restrictions for American companies in China.
“These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization,” Yellen said in her April speech. “Even though these policies may have economic impacts, they are driven by straightforward national security considerations. We will not compromise on these concerns, even when they force trade-offs with our economic interests.”
Even so, the administration acknowledges that many global players are jockeying for prominence and influence in whatever global economic structure replaces the old.
“Everyone is vying for position now for when that new global system shakes out,” Tai told POLITICO.
And Yellen’s pledge of economic non-aggression — repeated by Sullivan a week later at Brookings — rang hollow in Beijing and the Chinese Embassy in Washington.
“We oppose defining the entire China-U.S. relations by competition, oppose overstretching the concept of national security to wear down Chinese enterprises, oppose abusing export control measures in the name of outcompeting China,” spokesperson Liu Pengyu said. “The U.S. should meet China halfway and honor its commitment that it has no intention to seek ‘decoupling’ from China by taking concrete actions, so as to bring China-U.S. economic and trade relations back to the right track of sound and stable development.”
Elements of the new competition for global economic influence are visible already. China is the world’s largest lender to developing countries through its Belt and Road Initiative, far eclipsing the combined efforts of Western governments. That’s started to worry even the most stalwart defenders of the old neoliberal order, like President Bill Clinton’s former Treasury Secretary Larry Summers.
“Someone from a developing country told me, ‘What we get from China is an airport. What we get from the United States is a lecture,’” Summers said on Bloomberg TV in April, dispensing an oft-repeated line from developing nations. “It’s looking a little lonely on the right side of history, because people who seem so little on the right side of history are increasingly banding together a whole range of structures.”
Children wave Panamanian and Chinese flags during a welcome ceremony for Xi in Panama City in 2018. China is the world’s largest lender to developing countries through its Belt and Road Initiative. | Arnulfo Franco/AP Photo
The U.S. has experienced the cold shoulder of the developing world in recent months, as it pressed nations in Africa, Asia and South America to condemn Russia’s war in Ukraine. To the alarm of many Western observers, few nations have acquiesced to U.S. demands, while many have said they would continue trading with Russia and accepting its oil. The explanation, say some representatives from those regions, is that those non-aligned nations don’t see an interest in backing either side.
“That is why you see small countries like Uganda and others going to the UN and refusing to make a vote on Ukraine,” Winnie Byanyima, a Ugandan diplomat and director of UNAIDS, said at an economics event in Washington hosted by Oxfam in March. “It’s not because they don’t feel sorry for Ukraine. But they just see a war between two capitalists in one corner and capitalists in the other, but it is not a war where they feel they have a stake, so they abstain.”
Even as Biden’s team pushes away Cold War rhetoric, they are clearly trying to curry favor with nations that for years have been courted by China. In Yellen’s speech at Hopkins in April, she said that Biden’s team is trying to reshape the administration’s reputation abroad, working with allies to “mobilize $600 billion in high-quality infrastructure investments by 2027.” But that would still pale in comparison to the estimated $1 trillion the Chinese have already spent on their Belt and Road Initiative.
The balancing act between promoting trade with China and curtailing its rise is a particularly delicate one for Biden going into his reelection campaign. If Biden pushes China too hard, he risks pushing the U.S. into a recession that could deliver Trump back to the White House. But go too easy, and Trump’s team will hit him for being soft on Beijing. First quarter customs data showed that U.S.-China trade dropped for the first time since the pandemic, and the IMF managing director Kristalina Georgieva has warned against sliding into two global trading blocs, calling it “a dangerous division that would leave everyone poorer and less secure.”
“In our response, it is going to be really important for us to figure out how to adapt to a world with more geopolitical tensions without losing connectivity with those that we share an economic interest — especially around development and industrialization,” Tai said.
Even so, Tai acknowledges that the U.S. is in a competition for global economic influence, even if she tries to lean on the positive aspects of America’s pitch — and not the risks posed by China.
“Mostly what I’m focused on is pitching America as a reliable and positive partner, and there are actually a lot of countries around the world that really want to be economically engaged with us,” she said. “I have really been heartened by how warm the reception is, even when maybe you don’t expect it.”
That decidedly optimistic take on avoiding a new Cold War would be turned on its head if Trump and his “America First” agenda return to the White House, said Lighthizer, who makes no effort to hide his desire to significantly decouple the U.S. from China’s economy.
“I would have tariffs to get us to balanced trade,” Lighthizer said, reiterating his aim to reduce the American trade deficit, “and I would have an aggressive, America-first stance toward China.”
“We should take care of America’s workers first and then worry about building the world order — not the other way around,” he said.
Part of an occasional POLITICO series: The Changing Landscape of Global Trade
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