Leibowitz: Shaping a New World Economic Order?

It is not clear yet what that means in terms of setting priorities in formulating trade policy and the objectives of a new policy. Critics have charged that the new ideas are simply politics as usual. 

Protecting the jobs of American manufacturing workers is not objectionable, so long as the threats to those workers come from unfair practices and not from advances in technology, which makes everyone’s lives better.

I’ve often remarked that the best way to protect American jobs is to foster a dynamic and innovative economy that creates new jobs and trains workers, both present and future, to succeed in those new jobs. If old and increasingly obsolete jobs (remember firemen on diesel locomotives?) are maintained by government policies, new industries that create more jobs will not rise as quickly as they otherwise would. There has been little in the way of government choosing which jobs should be protected and which should not.

The administration has initiated discussions on a new structure for trade interaction. The Indo-Pacific Economic Framework (IPEF) is a forum including 14 countries (Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand, the US, and Vietnam), is aimed at setting trade and investment rules among countries that historically have been tied to the US in economic and strategic areas. The US does not want to negotiate “market access” (otherwise known as tariff liberalization) with these countries. However, it is not entirely clear what concessions the US is willing to make to these countries and what they will receive in exchange. 

All these Asia-Pacific countries are strategically with the US. Their aim is to benefit their own peoples by increasing interaction with the US and other Western countries while decreasing their reliance on China. Increasing trade generally means identifying obstacles to increased interactions—tariffs and regulatory hurdles—and reducing or eliminating them.

But the US has made clear that it is not interested in trade liberalization as the way to improve ties with these countries. In Europe, the same attitude prevails—the US and UK have essentially taken a hiatus in efforts to negotiate a bilateral trade agreement. In the absence of clear priorities, the process seems to be adrift.

There have been some potentially interesting discussions about the trade pillar of the IPEF. One worker-centric idea is to create a forum for discussing practices in other countries that affect workers in the US and elsewhere. There have been no hard proposals yet, and the proposal may not evolve into another dispute settlement regime. Instead, it may simply be a forum for discussion of concerns about national practices that harm workers in other countries. 

Another topic for discussion is what has come to be known as “supply chain resilience.” Countries are interested in making supply chains more adaptable to threats, a desire that was certainly highlighted during and after the Covid pandemic. Again, a forum for discussion may be all that happens, but sharing ideas is never a bad idea. 

China is uppermost on everyone’s mind. Dependency on China in supplying goods is uppermost on everyone’s mind. Can reliance on China be reduced in favor of increased reliance on the countries of IPEF? Certainly, creation of alternatives to China is a key to weathering the next storm. 

China has already diminished quite a bit as the supplier of choice for a variety of businesses, both in the region and in the US. But, as with other issues, there are no concrete proposals for diminishing reliance on China. Government could in theory impose trade restrictions on imports from China in favor of IPEF countries. But that would need to be accompanied by a growing capability for IPEF countries to replace China in so many areas.

The administration has been criticized for lack of precision and concrete proposals for dealing with very thorny issues such as restricting trade from China in exchange for other countries building up their supply chain capabilities. The eternal question presents itself: Which comes first? The developing of supply chain alternatives, or the imposition of obstacles on China, which would in turn create demand for those alternatives. Perhaps both need to be tried to develop a new reality in Asia to diminish reliance on China. 

As with so many ideas these days, the government wants to invent something new to replace the old systems that have been around for so long. Creating demand for new ways of doing things cannot be just a matter of ruining the old ways through imposing taxes or other restrictions. Creative destruction requires both creation of new ways and restricting the old ways.

So far, the Biden administration has not made a clear case for how to structure the new IPEF initiative, which needs more concrete proposals.

Lewis Leibowitz 

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