Understanding America's retreat from globalization

By Robert D. Atkinson

U.S. trade policy has turned inward. Since World War II the United States was the leading force for globalization and trade liberalization. Over the last decade, however, America has retreated from that role, and is actually in some ways rejecting increased global trade integration.

The Obama administration failed to get the Transpacific Partnership Agreement to the finish line. The Trump administration not only rejected the TPP, it renegotiated the Korea-U.S. free trade agreement to be more in America's favor, instituted tariffs on steel and aluminum from many nations, and of course, instituted tariffs and other restrictions on China.

And so far, the Biden administration has done little on trade, other than talking about a shift to an ill-defined "middle-class-focused" trade policy and holding off any trade opening until Congress institutes stronger domestic policies to help U.S. workers.

What accounts for this dramatic turn? For many in the U.S. trade policy establishment the answer is clear: Americans are simpletons who never took, or at least never passed, their international economics course in college. If they had, they would know that trade is good for them. Policymakers are even worse: craven politicians interested only in pandering to clueless voters.

Adam Posen, the president of the Peterson Institute (a leading think tank favoring the "Washington Consensus" on trade) reflects this view when he states "I cannot fully explain" (why so many Americans think that globalization and trade deals have hurt the American middle class).

But he goes on to postulate that the reason is that most Americans are simply ill-informed, similar, to "anti-vaxxers, who believe in things that are not true."

In contrast, as the European Commission inks new trade deals, enters into others (e.g., a bilateral investment deal with China), and supports the World Trade Organization, many Washington Consensus trade supporters now look to Europe as the new beacon of light for of global integration. Ah, they ponder, if the Americans could only be as wise, smart, and enlightened as our European colleagues.

Such self-aggrandizing theorizing might feel good, but it won't help solve the problem. If Posen and other pro-globalization advocates want to really understand what has happened they should start by looking at the divergence in how globalization and trade have affected the two regions.

In short, China was much more damaging to the U.S. economy than it was to Europe, and that "shock" was not only real, but from a national psychology perspective, traumatic. Yet they assert that the China "shock" was minimal at best and American's should just get over it and move on. While this hectoring must feel good, it won't fix the problem.

In fact, America did suffer a shock, one that was not only harmful but unnecessary. From 2000 to 2011, the EU-27 nations lost just 11.7 percent of their manufacturing jobs. The United States lost 32.1 percent. And despite what the globalists say, this massive job loss was not due to faster manufacturing sector productivity growth.

EU and U.S. manufacturing productivity growth during this period was almost the same. And U.S. manufacturing productivity growth in the 1990s was equivalent to the 2000s, but manufacturing jobs declined only slightly in the 1990s.

In addition, the EU trade deficit with China is smaller than America's deficit, and the EU's global trade deficit is minimal, compared to America's massive deficit of $782 billion dollars (3.6 percent of GDP).

On top of that, not only is the U.S. currency the global reserve currency, but many countries manipulate their currencies for competitive advantage, meaning U.S. exports are priced too high and imports too low.

Finally China's economic and trade policies have become even more predatory, as if that were even possible, with China embracing systemic "innovation mercantilism" targeted at the kinds of U.S. industries globalization was supposed to help: advanced technology industries like semiconductors and biotech. Yet for years, most of the Washington trade establishment defended a strong dollar and ignored trade enforcement in favor of market opening.

Finally, for decades, the Washington trade establishment dismissed any talk of the need for a national manufacturing strategy as unnecessary at best or harmful at worst. According to Posen, such a strategy is not only about foolish nostalgia; it represents a racially- and gender-biased agenda focused on "macho" white males.

So, no wonder America's political pendulum tilted against further global integration. Americans would be foolish if they didn't have such a reaction. But the answer is not to insult Americans for being paranoid rubes. Rather it is to address the real issues: China's abuse of the global trading system, the dollar as the global reserve currency, and the utter lack of a robust national industrial strategy.

If the globalists want Americans to trust them again, they would be better off stopping the insults and fixing the very real trade and globalization problems facing America today.

Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), an independent, nonpartisan research and educational institute focusing on the intersection of technological innovation and public policy.