Leibowitz on Trade and Politics—Where Are We Now?

This election year, trade is more controversial than it’s been in a long time.  On the Democratic side, the contest for the presidency certainly clarified itself over the last week.  Former Vice President Joe Biden and Sen. Bernie Sanders are the last men standing (literally and figuratively).  One is opposed to trade liberalization of every sort, even those initiatives that the leaders of organized labor support.  The other is not opposed to all trade agreements, but wants more to be done for displaced workers.

As the only remaining nomination contest, Biden vs. Sanders clearly holds the most interest.  Since his tremendous showing on Super Tuesday (only five days ago), Joe Biden has become the front runner; but based on the latest results from California the contest for delegates is still close.  Biden currently has a lead of about 60 delegates nationwide, with nearly 200 delegates still to be awarded in California alone.  Six more states will have contests this Tuesday, March 10.  According to the few polls recent enough to reflect the state of the race since Super Tuesday, Biden looks to widen his delegate lead in the next round of contests (Idaho, Michigan, Mississippi, Missouri, North Dakota, Washington State).  He seems stronger in the six new states, with Michigan a real battleground. 

What does the momentum for Biden mean for international trade policy?  Biden and Sanders have very different views on international trade.  Interestingly, Biden appears more open to trade deals (and, by implication but not expressly, to loosening such restrictions as the Section 232 tariffs and quotas on steel and aluminum and the Section 301 tariffs on China).  Sen. Sanders, by contrast, consistently states a theme that he, unlike Biden, consistently opposed trade deals, all of which he terms “disastrous.”  He sounds more like President Trump than Biden, as well as most other Democrats in Congress, who voted overwhelmingly for USMCA in January (Democrats supported USMCA 38-9 in the Senate; Republicans supported it 51-1). 

Biden has garnered quite a few endorsements in the past week.  Biden’s more moderate position on trade has not seemed to cost him any endorsements, nor does it seem to have gained any. 

Sen. Elizabeth Warren, who has not endorsed any candidate as yet, dropped out of the presidential race last Thursday.  She voted for USMCA.  Kamala Harris endorsed Biden today (Sunday), but did not mention trade as a factor; Sen. Harris, however, voted against USMCA and has generally opposed the Section 232 tariffs, while broadly supporting the China tariffs.  Pete Buttigieg, former mayor of South Bend, Ind., endorsed Biden, as did Sen. Amy Klobuchar.  Sen. Klobuchar has generally supported the Section 232 tariffs and the China tariffs, according to an analysis last year by the Peterson Institute for International Economics. 

Sen. Sanders was one of only 10 Senators (including former candidates Cory Booker and Kamala Harris and Senate Minority Leader Charles Schumer) to vote against USMCA.  Eight other Democrats opposed it, including former presidential contenders Kirsten Gillibrand, Cory Booker and Kamala Harris.

More trade issues are coming to the fore in the next two years.  The Generalized System of Preferences (GSP) expires at the end of 2020.  Trade Promotion Authority expires in June 2021.  The next president will also need to engage on WTO governance issues, including the fate of the WTO Appellate Body.  Sen. Sanders has clearly expressed his position on these issues, which generally resemble President Trump’s positions.  Biden has taken a more nuanced approach. 

As noted above, Sen. Sanders voted against USMCA, citing the failure to address climate change and inadequate protections for workers.  And Democrats generally criticized the president for the Phase One trade deal with China that was signed in January, but this agreement did not need congressional approval. 

I think it was Voltaire who philosophized that, “The perfect is the enemy of the good.”  Those who hold out for perfection in this imperfect world are generally (and understandably) often disappointed. 

The future of the trade deal with China depends on further agreements, which are not likely but possible before the 2020 election. Democrats and Republicans agree generally that more needs to be done on China.  But Voltaire’s admonition remains valid—China is and will remain a process with no clear outcome for some time.

On steel and aluminum tariffs and quotas, the picture is different.  While supporters cite “overcapacity” in steel and aluminum globally, the Section 232 remedies appear to have little relation to fixing that.  Nor is there an obvious benefit to the use of tariffs and quotas to isolate the U.S. market from global overcapacity. 

A recent hearing by the Congressional Steel Caucus on March 5 bears that out.  The hearing featured executives of several steel companies, including Cleveland-Cliffs, which acquired AK Steel last year.  The CEO of Cliffs, Lourenco Goncalves, said that AK facilities in Ohio producing electrical steel faced layoffs and possible closure if Congress does not “do more” than it has already done to protect steel producers.  U.S. Steel has been struggling despite the Section 232 tariffs.  And steel using manufacturers have been operating in a market where more tariffs and quotas will worsen their already precarious situation. 

As the 2020 campaign moves on to the final stages, we need to hear more ideas about how to get government and business, all of business, to work together to achieve better results, knowing that Voltaire is as right now as he was in 1770—the perfect is the enemy of the good. 

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