Tariffs are much in the news these days. Mexico averted a threat to impose 5 percent tariffs on everything it exports to the United States by agreeing to stem the flow of Central American migrants northward. China is facing renewed threats of tariffs on its exports if Chinese and American negotiators cannot conclude a satisfactory trade agreement at the Group of 20 summit meeting in Japan later this month. President Donald Trump uses tariffs to punish and coerce trading partners because he believes that past presidents have been too weak and that the United States has been taken advantage of in past trade negotiations. As pointed out in a new CGD policy paper, the evidence is very much to the contrary.
In fact, the US tariff structure, as well as the preferential trade arrangements to which it is a party, overwhelmingly reflect American negotiating preferences. Poor Americans, as well as the poor in developing countries, have gained enormously from the trade opening that has occurred over the past seven decades. Yet US trade policy is not as fair and inclusive as it could be, and policymakers have manifestly failed to adopt complementary policies to compensate workers displaced by trade or to provide others with the skills and resources needed to take advantage of globalization. That, not new tariffs, should be the focus of US policy.
My paper, Developing a More Inclusive US Trade Policy at Home and Abroad, focuses on three areas where American trade policies fall short:
A tariff structure that discriminates against poor consumers at home and poor workers abroad
Unilateral trade preference programs to promote development that have big gaps
Free trade agreements that have become increasingly tilted in favor of business interests
First, while the US market is quite open overall, the highest remaining tariffs—those that are well above the average of around 2 percent—discriminate against poor people. They mostly fall on food products, clothing and footwear products that poor Americans disproportionately consume and that developing countries disproportionately produce. Recent studies also show that the additional tariffs imposed by President Trump over the past 18 months have wiped out the benefits of the domestic tax for low and middle income households and have hit poor countries particularly hard.
Second, the Generalized System of Preferences program for developing countries does not offset the discrimination against their exports because it mostly excludes the high tariff, labor-intensive sectors where they tend to have a comparative advantage. The Africa Growth and Opportunity Act and special preferences for Haiti reduce barriers for clothing exports and have been more effective in promoting those countries’ exports. But even those countries must contend with a list of unilaterally-imposed eligibility conditions—such as providing high levels of protection for intellectual property owners—that reflect narrow US interests, not development priorities. Overall, the US GSP program is among the least generous in the world.
Finally, the so-called “gold standard” template that American trade negotiators use for free trade agreements (FTAs) is generally the same for all trade partners, regardless of their level of development. Moreover, the scope of US FTAs has expanded well beyond traditional market access issues to include high protections for international investors, intellectual property owners, and other business interests that often go beyond what is necessary to level the playing field. Some of these provisions—particularly the special investor-state dispute settlement mechanism, lengthy drug patents, and regulatory harmonization efforts—raise concerns equally in developing countries and among a range of US civil society groups about FTAs tilting too far in favor of business interests at the expense of consumers, workers, and the environment.
Concerns about American trade policy did not originate with Trump, and the challenges to maintaining a relatively open US market will not disappear when he leaves office. The first priority to begin restoring support for trade and migration in the United States has to be an expansive domestic agenda focused on reducing inequality and strengthening American competitiveness. But there also needs to be a rebalancing of trade policy priorities to make it fairer and more inclusive, at home and abroad.