Introduction and summary
The era of trickle-down, laissez-faire, free trade is over. It lasted roughly from President Ronald Reagan’s election in 1980 to President Donald Trump’s election in 2016, reaching its peak in the early 2000s with China’s accession to the World Trade Organization (WTO). But since then, the United States and its partners—as well as economists and trade policy officials—have struggled to articulate a strategy to define and shape the next era of global trade. This is not altogether unexpected. The challenge is significant. In a hypercompetitive landscape, policymakers must shape the contours of global commerce to appropriately address the negative impacts of unfettered, liberalized trade, while maintaining its benefits. And they must do so in a world defined by interconnectivity and shaped by global challenges that cannot be solved without coordinated action with partners around the world.
Like most things, it has proved easier to criticize what came before than to articulate a compelling strategy for what comes next. Yet the latter is precisely what this report attempts to do. It outlines a new progressive trade policy designed to make the post-neoliberal era fairer, more just, and more sustainable. It is a strategy defined by three reinforcing pillars:
- Trade policy should be defined by the simple idea that ambitious standards—including those for workers’ rights, climate action, respect for the rule of law, and a commitment to joint actions to counter the nonmarket practices of others—should be a precondition for preferential access to the U.S. consumer market.
- Tariff rates should be increasingly based on firm-level decisions, allowing individual exporters to receive better rates based on how well they treat their workers, recognize the collective bargaining rights of their employees, protect the environment, and decarbonize their production.
- Trade policy should be closely aligned with a national investment strategy, ideally coordinated with like-minded partners, to ensure that domestic manufacturers—and their workers—remain at the forefront of the industries that will define the future, creating constituencies of workers and companies that benefit from trade rules that incentivize “race-to-the-top” behaviors.
Each of the pillars would be considered a heretical departure from the neoliberal underpinnings of the past 40 years. Taken together, they represent a bold vision for trade policy in a post-neoliberal world— one that is both values-based and, at the same time, broadly pragmatic, aimed at addressing the modern challenges of the 21st century. The strategy is centered on the need to make workers everywhere more prosperous, the world more equal, and the climate more sustainable. It is also built on a foundation of actions already taken by the Biden-Harris administration, albeit actions that should be pursued further and with greater strategic alignment than perhaps when originally considered.
Ambitious standards—including those for workers’ rights, climate action, respect for the rule of law, and a commitment to joint actions to counter the nonmarket practices of others—should be a precondition for preferential access to the U.S. consumer market.
The three-pronged trade strategy is notably not an indictment of the entire rules-based international system. In fact, the strategy explicitly recognizes the importance of rules-based trade—and it recognizes that the impact of the actions called for here will be dwarfed by the impact of those same actions if done in concert with others. The goal is not to change or alter everything associated with the post-World War II era, but rather to offer ideas to update trade policy tools, institutions, and aims, bringing them in line with modern progressive values as well as a desire to have a stronger, more resilient economy.
The importance of getting this right cannot be overstated. Global trade was valued at more than $30 trillion1 last year alone. Trade is a force that can shape markets, generate incredible wealth, move governments, and spread values and customs around the world. But as witnessed over the past several decades, trade is also a force that can devastate communities with important political, social, and cultural ramifications. Any attempt then to modernize trade policy should thus begin with an honest assessment of the previous era—both its positives and negatives within markets and in terms of trade between them.
The neoliberal, trickle-down era of global trade was too often a race to the bottom
The deregulation, tax cuts, and trickle-down economics of the neoliberal era were broadly good for multinational corporations,2 the wealthy,3 and the gross domestic product (GDP) of a number of low- and middle-income countries.4 Billions were lifted out of extreme poverty,5 as rural peasants moved to production centers for factory jobs across the developing world. Low trade barriers created efficiencies that allowed increasingly global supply chains to take root, as firms moved production to ever cheaper locations,6 and consumer goods grew more complicated (using parts and materials from around the world). In many industries, consumer prices declined—even if the products purchased were no longer made domestically. For firms or markets with a competitive edge, it meant the potential to grow quickly, as investors looking for advantage could—and readily did—invest anywhere.
This incentivized a “race-to-the-bottom” approach to trade whereby firms that could produce at the lowest possible cost regardless of their impact on local communities or the environment tended to gain market share at the expense of others.
Yet too often, those competitive edges were based on factors such as nonmarket subsidies, abhorrent labor conditions, or the destruction of the environment, since exporters had little to differentiate themselves other than price. This incentivized a “race-to-the-bottom” approach to trade whereby firms that could produce at the lowest possible7 cost regardless of their impact on local communities or the environment tended to gain market share at the expense of others. As a result, downward pressure8 was placed on wages and benefits, and investments in decarbonization or environmental protection were too often deferred. U.S. exporters, as well as those from other high-standard markets, tended to fare poorly against Chinese counterparts as a result, both internationally9 and in their own domestic market.10
The neoliberal era proved to be like an addictive drug, with the highs of GDP gains and a growing stock market obscuring the slow but steady decline of middle- and working-class communities, particularly in the United States. Eventually, though, the damage was too much to ignore. In the United States, 1.5 million manufacturing jobs were lost as a result of the so-called “China shock,”11 disproportionately affecting communities with high concentrations of industrial workers. In these places, poverty rates increased, fertility rates declined,12 and social and political norms were upended. Former manufacturing workers were often forced to accept less lucrative jobs with fewer benefits13 and often with less stability.
What trade policy officials must understand is that this was not the fault of the innate human desire to trade, but rather of poor trade policy. It was the consequence of a view that government intervention in the economy was pernicious and broadly negative, and thus did far too little to address the predatory export practices of others and failed to invest in the competitiveness of trade-exposed industries. It does not need to be this way. But in order to achieve different outcomes, governments need different and better policies—and that means a new approach to trade policy that is more reflective of the realities of the 21st century.
Neoliberal trade was bad for American economic resilience
The neoliberal trade era was also a net negative for U.S. supply chain resilience and the country’s national security. Much of the United States’ defense industrial base, for example, now frequently relies on parts made elsewhere, including China.14 Over the past several decades, American manufacturing capacity relative to the rest of the world plummeted and currently accounts for only 17 percent of global capacity, down from 25 percent a generation ago. And in some sectors, the story is even worse. The United States makes roughly 2 percent of the world’s solar panels15 despite inventing the technology, 12 percent of the world’s semiconductor manufacturing16 (down from 37 percent in 1990), and only about 6 percent of electric vehicle batteries.17 The United States’ critical supply chains are now far less resilient as a result, and they are more vulnerable to illegal or unfair nonmarket manipulation, cybersecurity breaches, and other threats.
What comes next? Two different approaches
The transition from the neoliberal policies of old to a newer approach to trade has occurred in fits and starts over the past several years, with the actions taken by different governments largely occurring in response to specific challenges—both domestic and international. Governments have tended to learn from one another and react accordingly, rather than as part of a coherent new approach to trade policy.
In the United States, two different trade policy approaches have been tried since 2016: one by the Trump administration and one by the Biden-Harris administration. And while both used tariffs as a tool far more than neoliberal economists would like, the two approaches are significantly different and should be treated as such. Indeed, both approaches use tariffs because in trade policy there are few other tools available18 to national leaders.
A nationalistic approach to trade policy
President Donald Trump’s election in 2016 serves as the primary endpoint for the neoliberal movement,19 although it could more appropriately be labeled as the culmination of growing working-class resentment20 toward a global system that seemed to abandon their interests, rather than a coherent or even principled embrace of something else. The Trump administration did not offer an affirmative new path, but instead tapped into the anger21 and frustration of many working-class Americans by blaming the free trade ethos of the past for economic hardship and a loss of manufacturing jobs.
But without an affirmative answer to the ills of unfettered, liberalized trade, the Trump administration’s “solutions” largely failed. President Trump did not reorient global supply chains or production patterns. Overall, U.S. manufacturing production declined while Trump was in office.22 His tariffs and corporate tax cuts approach did not lower the trade deficit23 or lead to a resurgence in manufacturing jobs.24 For example, his 2017 announcement25 that Foxconn would invest $10 billion to develop a manufacturing facility that he called the “eighth wonder of the world”26 in Wisconsin never materialized, with Foxconn later abandoning the facility.27 It was a similar story at many manufacturing plants across the country, as jobs were lost28 despite the Trump administration’s continued promises.
Why was the Trump policy agenda so unsuccessful? For one, it failed to invest in American manufacturing or American infrastructure, instead relying only on tariffs and corporate tax cuts to entice global manufacturers back to the United States. This was never going to be enough to dramatically alter global production trends or trade flows. Not surprisingly, the trade deficit exploded during the Trump administration’s time in office,29 and manufacturing jobs continued to be lost.30
If the Trump administration’s means and ways were flawed, its ends were even more so. Too often, tariffs were used to extract bilateral concessions from trading partners, all but eliminating the opportunity to work on common problems in concert with the United States’ closest trading partners. President Trump, for instance, threatened tariffs on Mexico31 to pressure Mexico City into slowing the flow of undocumented immigrants to the United States. And he implemented Section 232 tariffs on steel and aluminum from partners and adversaries alike, famously angering the United States’ NATO allies,32 and then arbitrarily chose to negotiate deals to remove the tariffs with some countries and not others.33
Ideas such as an across-the-board tariff34 on all imports is a further extension of this idea. They are designed to make all nations—allies and adversaries alike—grovel before the United States, offering concessions in exchange for removing tariffs facing their exporters. But this sort of strongman hostage taking rarely works in international relations, and it certainly failed to deliver its intended results.35 The Trump administration’s “Phase I” trade deal with China is a good example.36 It accomplished next to nothing37 because China’s promises were empty. In fact, according to a study38 by the Peterson Institute for International Economics, “China bought none of the extra $200 billion of US exports” that it had promised to purchase as part of President Trump’s trade deal.
A progressive alternative
Progressives do not view trade in this way—nor do most Americans. Trade policy is not about asserting dominance over others, creating client states, or extracting tribute. It should be about organizing the natural impulse of societies everywhere to trade goods and services in a way that makes the world more prosperous, secure, and sustainable. Countries cannot grow and prosper through tariffs alone. No country can shut the rest of the world out or make enemies of its friends for long. Solving global problems, improving the lives of one’s citizens, and improving the resilience and sustainability of one’s supply chains requires a different, holistic and strategic approach to trade policy.
Trade policy is not about asserting dominance over others, creating client states, or extracting tribute. It should be about organizing the natural impulse of societies everywhere to trade goods and services in a way that makes the world more prosperous, secure, and sustainable.
The record of the Biden-Harris administration demonstrates this type of approach well. Not only did it take important steps to rebuild American manufacturing, making unprecedented investments39 in cutting-edge industries such as semiconductors, electric vehicles, batteries, and solar energy, but the White House paired these investments with targeted tariffs to stop China’s predatory nonmarket practices,40 export controls, and outbound investment restrictions while working out agreements with partners and allies41 to manage trade in key industries and to address supply chain vulnerabilities42 proactively. The administration also implemented regulatory changes, stronger Buy America provisions,43 and a commitment to both invent and innovate the next breakthrough technologies, and to manufacture those products domestically once commercialized.44
The results speak for themselves. To date, the Biden-Harris approach has catalyzed almost a trillion dollars in private sector investment45 in American manufacturing—a number that would have been unthinkable just a few years before. The administration’s comprehensive industrial strategy has thus far spurred the creation of nearly 800,000 new manufacturing jobs46 and has laid a foundation of U.S. industrial competitiveness that will pay dividends for decades. No wonder so many of the United States’ closest trading partners47 are now considering—or already implementing—similar strategies48 to regrow their own domestic industries.
Three pillars of a new progressive trade strategy
U.S. Trade Representative Katherine Tai describes the new U.S. approach to trade as a “worker-centered” trade policy.49 It is designed to affirmatively situate working people and the middle class at the center of the country’s trade agenda. While certainly a welcome and important change, this has too often been about representation and the aims of U.S. trade policy, rather than a defining strategy. Nevertheless, there is an important through line from the Biden-Harris approach to trade and a future policy more in line with the realities of the post-neoliberal world.
Building on the successes of the Biden-Harris administration is thus an important aim of the strategy described here. But importantly, it is a strategy that is not uniquely American. Rather, the three objectives of the strategy would serve well any market-based, progressive government.
Pillar 1: A standards-come-first approach to market access
The first objective of a new progressive trade strategy should be to ensure that preferential market access is made contingent on firms meeting ambitious standards for worker pay, labor rights (including respect for collective bargaining), the environment, and climate action. This may seem like a radical departure from the past several decades of trade policy, but in many ways, it is a return to the original impulses that created the multilateral, rules-based trading system. As President Franklin Roosevelt noted in his welcome letter50 to the delegates at Bretton Woods, “to insure an orderly, harmonious world,” then it is vital to discuss the “basis upon which” countries “exchange with one another the natural riches of the earth and the products of their own industry and ingenuity.”
From the beginning, the rules-based system was designed to ensure that liberalized trade rested upon a foundation of standards and principles that would enable the benefits of trade between nations to accrue widely and to the benefit of all.
That “basis” was never meant to be the destruction of the Earth, the impoverishment of workers, or rampant inequality. Workers were not meant to produce products they themselves could not afford to buy. From the beginning, the rules-based system was designed to ensure that liberalized trade rested upon a foundation of standards and principles that would enable the benefits of trade between nations to accrue widely and to the benefit of all.
Unlike the neoliberal era, which viewed trade as worthwhile in its own right and prioritized corporate profits over common values and the well-being of all but the wealthiest, tariff-free or preferential trade should be viewed as a privilege to be earned through actions that make the world fairer and more sustainable. It is a version of the progressive commitment to aligning policy with values. Put simply, countries should seek not to make trade freer in all circumstances, but to improve the baseline on which liberalized trade between nations rest, and that means ambitious standards should be a precondition for any new market access.
Herein lies an important distinction with past policy. Even progressive governments in the neoliberal era that sought high standards related to the environment or labor in trade agreements often granted lengthy lead times for countries to adopt new laws or new practices in the belief that with more trade, trading partners with questionable practices would eventually adopt U.S. or western economic norms. In the Trans-Pacific Partnership negotiations, for example, the Obama administration agreed to give Vietnam five years51 to implement a new law that allowed unions to affiliate across industries.
The Biden-Harris administration took several important steps to modernize trade policy, emphasizing a different approach that put standards first, as a precondition to market access rather than a hoped-for end state. It launched negotiations with the European Union on a Global Arrangement on Sustainable Steel and Aluminum (GASSA),52 which offers a potentially useful template for a standards-come-first approach to trade. It not only sought to afford preferential access to the U.S. steel and aluminum market on the basis of carbon intensity, but would have required any future signatory of the agreement to meet ambitious standards for workers’ rights, industrywide decarbonization, and a commitment to a joint effort to address China’s nonmarket overcapacity as a precondition before any preferential market access was granted.53
The administration followed a similar course in its consideration of potential critical minerals agreements with Indo-Pacific Economic Framework markets such as Indonesia. It is no secret that Indonesia wants a critical minerals agreement54 with the United States to ensure its producers benefit from Section 30(d) tax credits as part of the Inflation Reduction Act. Yet unlike a previous neoliberal approach, which likely would have signed an agreement to support the country’s foreign policy goals in the region, arguing that eventually Indonesia would develop a better labor or environmental record, the new U.S. approach55 was to demand that standards on worker safety, human rights, and the environment be in place before any agreement is negotiated.
The Uygur Forced Labor Prevention Act56 too could be seen in a standards-come-first light, for it meant that unless importers could first prove their products,57 which included content from Xinjiang, were not produced with forced labor, they were not allowed into the country. The bill did not institute a special tariff on Xinjiang-related products in the hope that eventually Chinese officials would curb their use of forced labor; instead, it put standards first—in this case, standards related to workers and the rule of law.
And while these were important steps to reorient global trade away from the race-to-the-bottom trends that defined the previous era, more is needed. The next administration should therefore:
- Negotiate a Global Arrangement on Sustainable Steel and Aluminum with willing partners that affords preferential market access based on carbon intensity and includes prerequisite requirements for all partners related to industrial decarbonization, a cooperative strategy to address China’s nonmarket overcapacity, and support for labor rights and collective bargaining. As the Center for American Progress has noted previously,58 the precedential opportunity that GASSA provides is immense and too important to let Europe’s disinterest stand in the way of finding other partners more willing to negotiate. Potential negotiating partners include Canada, the United Kingdom, Japan, Australia, Brazil, and others.
- Develop a new model trade agreement, with new disciplines and, importantly, a focus on immediate implementation and facility-level penalties for lax enforcement. That is not to say that issues such as trade facilitation, labor rights, regulatory practices, or other more traditional trade topics should be excluded, but to them should be added a new focus on climate, industrial decarbonization, anti-corruption, protections for collective bargaining, wages, cooperation to address nonmarket competition, and consumer health and safety. The goal should be to reward race-to-the-top behaviors from countries (and companies) engaged in trade, reserving the best trade terms for those that meet the highest standards—and ensuring that the high standards agreed to are enforced from the moment the agreement enters into force.
- Reorganize the Office of the U.S. Trade Representative to reflect a new standards-come-first approach to trade deals, with an emphasis on new disciplines related to climate, workers’ rights, and joint action to address the nonmarket practices of others, as well as on additional trade enforcement at the firm level. This may include adding a new assistant U.S. trade representative for nonmarket practices as well as the creation of a team with significant expertise in carbon accounting and decarbonization strategies.
- Use the African Growth and Opportunity Act59 as an opportunity to require higher standards for tariff-free exports to the United States—particularly those related to rules of origin, environmental protection, and industrial decarbonization—and then couple stronger requirements with significant new investment in the continent’s productive capacity as well as the U.S. government’s on-the-ground personnel. This would be good for both the climate and workers in both Africa and the United States, but also good for Africa’s economic development. A similar effort to update and modernize existing free trade agreements to reflect a new standards-come-first approach to trade should also be considered, particularly those agreements with governments that share the United States’ commitment to high standards and a collaborative approach to trade that brings prosperity to workers, addresses climate change, and mitigates inequality.
Critics will argue60 that higher standards will increase prices for U.S. consumers, as compliance costs will inevitably increase, and that the list of trading partners capable of meeting ambitious standards will be small, pushing those that cannot meet them toward China.61 This may be true to a certain extent, and policymakers should remember that tariffs and other trade restrictions tend to have a regressive impact, particularly if price increases are passed on to consumers.62 Yet equally important to remember is that when imported goods are priced artificially low, the impact is likewise felt disproportionately by working people in the form of fewer jobs, decreased wages, etc. Perhaps it is best to ask what is an appropriate price to pay to make the world fairer, more sustainable, and workers everywhere more prosperous—and, not insignificantly, what is a reasonable price to strengthen democratic institutions and the rules-based trading system, which unfettered neoliberal trade has put at risk?
Moreover, there are ways to make the transition to a cleaner, more just, and more equitable world a bit easier for the average consumer. Revenue generated by tariffs could be provided to lower and middle-income families, providing a bit of relief from higher import costs. Tax cuts on salaries and wages below a certain threshold could help too. But these measures, while potentially necessary, feel small relative to the opportunity at hand. If, for example, the government makes a large investment in helping a domestic firm expand, grow more competitive, or develop the next breakthrough technology, perhaps the taxpayers should receive some of the upside to that investment—offering an incentive to support the research, development, and use of new technologies by ensuring that investment produces an annual dividend for consumers, which in part could help reduce the impact of higher costs associated with higher standards on imported goods.
High-standard trade is good for U.S. workers
A standards-come-first approach also enjoys the benefit of highlighting a comparative advantage for the United States vis-a-vis China and other nonmarket or low-standard economies. In a world of low tariffs, easy movement of goods, and little regulation (such as the one envisioned by the so-called Washington Consensus),63 China and other low-cost markets were able to win on price relative to U.S. suppliers and suppliers from other high-standard markets, since almost no other determining factor held sway in the global market for manufactured goods. This hurt U.S. export competitiveness, but also the ability of U.S. manufacturers to compete within the United States. As a result, the share of world markets captured by U.S. goods exporters declined,64 while at the same time, U.S. imports of Chinese-made goods grew considerably.65 By ensuring that only those exporters that meet the highest standards can sell tariff-free into the domestic market, the opportunity to provide a competitive edge for domestic producers is significant, but so too is the opportunity to create new export opportunities in markets elsewhere—if those markets adopt similar high-standard criteria for preferential market access.
In order to encourage workers to be treated fairly the world over, companies should have their businesses’ success in part determined by whether they meet high standards for worker pay, health, and safety.
What is more, a standards-come-first approach is also better for the world. If the United States wants industry to decarbonize and multinationals to invest in their workers and their environments wherever they exist, then it should have standards in place that incentivize and even require this behavior. In order to encourage workers to be treated fairly the world over, companies should have their businesses’ success in part determined by whether they meet high standards for worker pay, health, and safety.
Pillar 2: Increasingly assess market access at the firm level
Another radical departure from the neoliberal traditions of the past should be in how market access is granted. Currently, tariffs are assessed based on two variables:66 a product’s country of origin and its harmonized tariff system (HTS) code (essentially, what the product is). The only firm-level differentiation in tariff rates is the result of trade remedy actions used to correct the illegal or unfair practices. These sorts of trade enforcement actions are sanctioned by the WTO67 because they are believed to be necessary to correct the market distortions caused by dumped or subsidized products in one’s domestic market.
Yet because all exporters from a particular market that sell the same product receive identical tariff rates (unless otherwise subject to a trade enforcement action), there is no real incentive for companies at the firm level to make investments in anything other than lowering their production costs. This had the deleterious impact of disincentivizing firms to invest in long-term sustainability or decarbonization because the impact could increase the cost of their products and thus cause them to lose market share to their less clean competitors. It does not have to be this way.
Trade policy does not need to be about cutting ties between certain markets or advantaging one market over another. It can be—and ought to be—about creating space for liberalized trade that is reserved for those firms that clearly reflect progressive values.
Going forward, tariff rates—particularly new tariff rates—should increasingly be administered in a manner that allows firms to differentiate themselves based on how well they treat their workers, protect the environment, or decarbonize their production. Trade policy does not need to be about cutting ties between certain markets or advantaging one market over another. It can be—and ought to be—about creating space for liberalized trade that is reserved for those firms that clearly reflect progressive values.
The goal should be to allow firms that meet the highest standards to be rewarded with a meaningful market advantage (e.g., lower tariffs) over firms that have lesser standards, even those firms emanating from the same market. Doing so would mean that firms, many of which have a fiduciary responsibility to their shareholders (and not their workers, the multilateral trading system, or the climate) would have a business incentive that is aligned well with the goal of a fairer, more equitable, and more sustainable global economy.
This is not an argument for governments to grant specific tariff rates to specific exporters—that would be ripe for manipulation and corruption. But it is a call to consider new ways of assessing tariffs that reorient the incentives for those wishing to engage competitively in international trade. One way to achieve this is to create marketwide preconditions that governments would commit to in order for their exporters to potentially receive a better tariff rate (the standards-come-first approach mentioned above), but impose a tariff on each imported product based on that product’s ability to demonstrate that it meets certain standards, such as carbon intensity.
This is how a multilateral carbon-based arrangement, a carbon border adjustment,68 or a “foreign polluters fee”69 might work. If a product comes from a certain destination that has agreed to uphold high standards for broad industrial decarbonization, workers’ rights, etc., then its exporters could receive a lower tariff rate if their products have a lower carbon intensity. In effect, this would help exporters from one market compete more effectively in international markets with fellow exporters from the same market based on something different than price, in this case who can decarbonize faster.
Imposing tariffs in a way that allows individual firms to receive different tariff rates is actually far more reflective of how trade actually works. In today’s private sector-led economy, it is not countries that trade goods and services, but companies.
Importantly, though, a tariff system that rewards exporters at the firm level with lower tariff rates for achieving certain carbon-based standards (or even the economywide standards imposed at the national level) must be backstopped by clear, decisive, and fast-moving processes to revoke market access at the firm or facility level if a foreign producer fails to meet certain basic obligations. The rapid-response mechanism70 (RRM) developed under the U.S.-Mexico-Canada Agreement (USMCA) can provide a useful template, as it allows for individual facilities to be penalized with higher tariff rates (or even an outright ban) if the facility is shown to be in violation of their commitments to workers’ free association and collective bargaining rights. But further improvements to the RRM are needed to address issues outside of workers’ right to associate and collectively bargain, including climate action and broader environmental sustainability. Note too that such an RRM would also need to be paired with a separate mechanism to rescind market access for every exporter from a market if a trading partner likewise backpedals on previously agreed commitments. That is different—and more effective—than the dispute resolution bodies established in earlier trade agreements.
While certainly ambitious, imposing tariffs in a way that allows individual firms to receive different tariff rates is actually far more reflective of how trade actually works. In today’s private sector-led economy, it is not countries that trade goods and services, but companies. And like all things in economics, incentive structures are critical to first understanding and then amending the behavior of individual actors. Providing a market advantage that is different from, or even counteracts, a price advantage caused by poor labor conditions, a lack of benefits, or lax environmental protection no doubt achieves this end.
As previous CAP analysis has argued,71 the existing trade remedy toolkit is outdated and in need of a revamp to reflect the realities of the modern global economy, including the need to consider the supply chain inputs included in a product sold into the U.S. market. Simply put, foreign producers do not have an inherent right to export freely to the United States, particularly if their exports enjoy a price advantage in the U.S. domestic market because of lower wages, lower benefits, lax environmental regulations, or climate inaction.
Tariff levels are already extremely low in the United States and in most developed economies.72 Thus, this is not an argument for increasing tariffs for the sake of it, or worse as a way to extract concessions; rather, it is an articulation of the standards-come-first idea that the United States should reserve its freest trade for those entities that deserve it, using standards and access to the U.S. market to drive the types of sustainable, fair, and ambitious practices that workers and the environment deserve.
Therefore, the next administration should take the following actions:
- Enact a carbon border adjustment that allows firms that can export products with fewer emissions to gain a meaningful market advantage over firms with dirtier production or a dirtier supply chain.
- Develop a new model RRM for climate. Like the RRM for labor rights employed by USMCA, which provides a relatively quick process to suspend tariff benefits or impose other penalties at the firm level for companies found to violate their employees’ collective bargaining rights, a similar mechanism could be used to identify and address violations of new high-standard commitments to climate action, decarbonization, and workers’ rights (beyond collective bargaining).
- Appropriately staff and resource U.S. trade agencies, including the International Trade Administration, the International Trade Commission, and Customs and Border Protection, allowing them to more effectively assess tariffs linked to actions taken at the firm level regarding the carbon intensity of their production (and their supply chain’s emissions), their treatment of workers, and their commitment to environmental sustainability. GASSA provides a useful alternative. As CAP has written previously, tariffs could be assessed for those that meet the preconditions to join the arrangement based on the carbon intensity of the metal when it arrives at the U.S. border, with higher carbon products being assessed a higher tariff and lower-carbon products receiving a lower or preferential tariff rate.73
- Work with Congress to extend antidumping and countervailing duties (AD/CVD) to products that include materials or component parts subject to existing AD/CVD orders.74 Given the world’s highly interconnected supply chains, most traded products are not wholly manufactured in their market of embarkation, but instead include materials or component parts produced in several different markets. Congress should authorize the assessment of AD/CVD duties on finished goods that are known to include component parts subject to existing AD/CVD orders, regardless of whether the imported good is itself subject to a trade remedy action. As CAP noted previously, this would ensure that shipments of finished goods are not vehicles for the duty-free import of products that would otherwise be subject to duties.
- Invest in developing a standard carbon accounting methodology that would enable tariffs to be assessed on the basis of carbon-intensity. Note that in some industries such as steel, a common methodology may need to account for different production methods. Several different processes and procedures exist today to help firms understand the carbon emissions associated with their production—and the inputs into their supply chains. But these are not standardized across industries, nor across countries.75 Assessing tariffs based on carbon intensity will require a standard methodology or process that is accepted and adopted by all those engaged in international trade and wanting a preferential tariff rate when exporting to the United States. Developing this should be an important focus of the next administration’s agenda.
Each of these actions would begin the process of transforming the U.S. tariff system from one that is exclusively based on a product’s country of origin and its HTS code to one that allows firms from the same market and selling the same type of product to receive different rates based on the firm-level decisions they make. This may seem like a small update to trade policy, but the implications are enormous. For exporters interested in the U.S. market, such a structure could provide a compelling business incentive to pay their workers well, protect the environment, and decarbonizing their supply chains.
Pillar 3: Align trade policy with a national industrial and investment strategy
One of the fundamental failures of neoliberal trade policy was its consistent belief that with additional trade, other countries would eventually adopt similar economic (and political) norms—a belief so entrenched that when China began distorting global markets with its nonmarket practices, the world was left with few tools to stop it and strong arguments to avoid such corrective actions. Indeed, China’s predatory export policies were shaped by and certainly benefited from neoliberal trade policy in most developed markets, as well as a trade remedy toolkit that was either nonexistent or moved far too slowly to safeguard domestic industries when faced with an onslaught of cheap Chinese goods.76
A smarter, more progressive approach to trade should recognize that the world cannot expect nonmarket competitors to change their ways. The United States (and its partners and allies) must respond to unfair and harmful trade practices—including the use of subsidies, trade barriers, intellectual property theft, and forced labor—by limiting access to its market through strategic, firm-level tariffs. But these are primarily defensive in nature and should be used in concert with national investments designed to transform a domestic manufacturing base, allowing it to do more than just survive against an onslaught of predatory imports but to grow more competitive and more resilient to subsidized import pressure in the future.
The final pillar of a new, progressive trade strategy is thus to align trade policy closely with a national investment strategy. This too will be a jarring proposition to neoliberal economists, but it is an objective now backstopped by the Biden-Harris administration’s success reorienting global production trends and thus could be easier to gain political buy-in.77 Thanks to unprecedented investments in its industrial base through the Infrastructure Investment and Jobs Act, the CHIPS and Science Act,78 and the Inflation Reduction Act,79 the U.S. manufacturing sector is now expanding, modernizing, and growing more competitive by the day, creating a foundation of American industrial competitiveness that will pay dividends for years to come.
Like the first two pillars, the next administration should build on the success of the last four years, taking actions to reinforce the tie between trade policy and industrial strategy. This includes:
- Make a major investment in revitalizing small- and medium-sized manufacturers through new financing vehicles, more coordinated training, and a concerted effort to deploy cutting-edge productive techniques. Small- and medium-sized manufacturers are the backbone of the U.S. industrial base, accounting for roughly 98 percent of all manufacturing firms in the country.80 The United States has a national security, economic resilience, and industrial competitiveness reason to ensure that these firms are as capable, agile, productive, and sustainable as possible.
- Implement a CHIPS-style investment program focused on other sectors critical to the competitiveness of downstream industries. The Biden-Harris administration’s $39 billion investment in domestic semiconductor manufacturing has been wildly successful,81 helping to ensure that all of the major semiconductor firms now manufacture in the United States. By the end of the decade, 20 percent82 of the world’s semiconductor production is now expected to occur in the United States, up from just 11 percent when the bill passed in 2022.83 And while semiconductor production impacts many different industries that use semiconductors either in their own products or as inputs into their own production, so too do other industries such as quantum computing, 3D printing, artificial intelligence, and critical minerals. A similar CHIPS-style investment program should be undertaken to ensure American competitiveness in each of these cutting-edge industries as well.
- Establish a supply chain investment coordinating body of like-minded countries to ensure strategic alignment of industrial policy investments in critical industries and supply chains. The coordinating body should also consider ideas including a common price floor for key industries such as critical minerals to facilitate private sector investment; a common tariff wall to protect emergent strategic supply chains from predatory nonmarket competition; the alignment of standards to facilitate trade between partners, pooled procurements, and joint research and development; and the sharing of strategies for quickly deploying manufacturing and other industrial know-how to industry.
- Develop cooperative investment plans with key partners and allies to limit unnecessary overlaps in industrial policy investments, particularly those in critical industries with global supply chains. An investment strategy that is developed alongside the European Union, Japan, Korea, Australia, Canada and other high-standard markets is likely to be far more effective in addressing China’s nonmarket competition than an investment strategy developed by each country alone.
- Impose strategic, targeted tariffs on key industries supported by national industrial policy, building on those implemented by the Biden-Harris administration. Industrywide tariffs, including those on steel, aluminum, electric vehicles, solar panels, and batteries, should be used selectively and paired with national-level investments in these key industries. What is more, defensive tariffs should be targeted at those countries or markets that pose a national and economic security threat to the United States. The goal of such tariffs is to provide enough defensive protection to allow these industries to benefit from a large taxpayer investment in their domestic development and to gain the scale and innovative edge necessary to withstand predatory import competition.
- Reimagine and appropriately fund trade adjustment assistance to focus on preparing workers for jobs of the future before their employment is affected by global trade patterns or the predatory trade practices of others. American workers, particularly those in trade-exposed industries, should not need to lose their jobs before the government supports their training needs. Instead, the next administration should work closely with leading manufacturers and through the Manufacturing USA Institutes, in partnership with community colleges, labor organizations, and educational institutions, to develop curriculum and other workforce development strategies to preemptively train American workers, preparing them for good jobs in emerging industries.84
The goal must be to modernize institutions, bringing them more in alignment with the needs of the 21st century, and also to prove that those institutions can deliver positive results for workers, the environment, and the world.
For the United States and many others, a national investment strategy focused on building domestic industrial capacity, as well as the capacity of critical supply chain partners, will require more than just a philosophical change in the role of government in shaping trade—and industrial competitiveness more broadly. It will require a concerted effort to develop the processes, procedures, and culture necessary to develop and implement industrial policy in a comprehensive and effective way. After decades of viewing interventions in the economy as forthrightly bad, agencies that could play an important role in rebuilding key industries may need to be organized differently, resourced more effectively, and tasked with a clearer mandate.85 The goal must be to modernize institutions, bringing them more in alignment with the needs of the 21st century, and also to prove that those institutions can deliver positive results for workers, the environment, and the world.
What is more, given the nature of interconnected global supply chains, it is important that policymakers create new forums to ensure that the individual country investment strategies of like-minded partners do not overlap, but rather mutually support one another. No one country can make, mine, or grow everything. A national investment strategy that is too singularly focused on reshoring everything will fail. But one developed in concert with others has the potential to be broadly transformative, providing investors and trading partners alike a reason to make the types of investments needed to counteract the nonmarket principles of others, and make the global trading system more just and sustainable.
Conclusion
It is now evident that the era of neoliberal trade that defined the last several decades is over. National Security Advisor Jake Sullivan86 and U.S. Trade Representative Katherine Tai87 have stated as such, as have other academics and policy experts.88 And the fact that no major American political party is suggesting a return to an era of traditional free trade agreements seems to justify the conclusion.
The challenge for policymakers, economists, and companies alike is to understand, embrace, and then shape the future, rather than long for the past. Trade policy can no more return to an era of neoliberalism than it can to earlier eras such as mercantilism or economic colonialism. Why? Because in democratic societies, voters matter, and a return to neoliberal trade is not what voters want, nor is it what the modern, interconnected, hyper competitive world demands.
What is needed instead—both in the United States and elsewhere—is to create a new era of trade that accentuates the benefits of global commerce, which can be significant, while ensuring that trade policy improves inequality, increases supply chain resilience, brings prosperity to working people everywhere, and incentivizes broad industrial decarbonization. This is possible, but not without a clear rethinking in how trade policy is conceived.
The debate in the next era of global trade should not be about free trade versus managed trade. Those are terms too entwined in neoliberal discourse, with the former being the goal and the latter an obvious path toward economic ruin. Nor should the future of trade policy be defined as an ongoing struggle between those in favor of trade restrictive measures and those who seek greater trade facilitation. There is no need to pick between the two. There are degrees of both.
Instead, trade policy should reflect a spectrum of access and protection, understanding that the goal of trade policy should not be to lower tariff rates or market access barriers in all cases, but rather to use tariffs and other means to achieve a particular outcome. Transportation officials do not congratulate themselves for decreasing the speed limit; that is the tool they use to make drivers and pedestrians safer.89 They judge themselves based on how many deaths or injuries their decision on the speed limit prevented. Trade policy officials must learn to do the same—to judge themselves not on how low tariffs can reach, but rather did the tariff rate incentivize the type of behaviors that make the world better, more sustainable, more just, and more equal.
The trade strategy described here is meant to do just that—to create the conditions by which trade can be a force for good. For too long, corporate profits have been prioritized in global trade over the environment, workers, and the climate. If we want a different outcome—one that is fairer to workers, brings prosperity to the middle class, and supports a freer, fairer world—then a different approach to trade and industrial policy is needed, both in the United States and elsewhere. And that starts by making ambitious standards a prerequisite to gain preferential access to lucrative consumer markets; a commitment to writing new rules that reward the highest standard firms with a market advantage over others; and a willingness to align strategic investments with trade policy (and with the investments of other partners) to bolster critical domestic industries and address the nonmarket practices of others.