The Big Economic Shift: Democratic Candidates 2020 Election Trade Report
In Federalist 10, James Madison writes, “Shall Domestic manufacturers be encouraged, and in what degree, by restrictions on foreign manufactures? Are questions which would be differently decided by the landed and the manufacturing classes, and probably by neither with a sole regard to justice and the public good.” He concludes, “It is in vain to say that enlightened statesmen will be able to adjust these clashing interests, and render them all subservient to the public good.”
For the US economy, the clash of trade commerce has gone on since our country began. With trade policy, Madison raises a key question: how does a nation balance out competing interests? Over time, both parties have struggled to achieve a balance and both parties have created policies to protect specific industries, while simultaneously reducing economic growth. Free trade policies have historically been some of the most difficult to enact, as there are always winners and losers. Typically, the losers are more motivated than the winners when it comes to lobbying against these policies. Yet, free trade can generate greater economic efficiencies and growth.
For the election of 2020, this economic conflict over trade policy remains. There are a number of key issues when it comes to trade agreements, most notably their impact on American farmers and workers, carbon mitigation in trade agreements, and specific agreements such as NAFTA and the USMCA.
One of the major areas of conflict is the current trade war escalation between the US and China. The trade relationship between the US and China continues to deteriorate, with the continued imposition of tariffs on both sides. Underscoring this difficulty, there are constant positive signals from both sides that an agreement will take place and frequent negatives signals that there is still much work to do. As of this writing, there is still no signed “Phase One” agreement.
As well, there is broad agreement from both parties in Congress to pass the USMCA or a new NAFTA trade agreement. The bill would pass if it was brought up for a vote. However, the bill is not moving forward due to a combination of currently occurring impeachment hearings and concerns from some House Democrats and Labor over trade enforcement provisions.
Therefore, trade is living up to its reputation as being a difficult and troublesome policy for both political parties in the United States.
With this in mind, this paper reviews the trade policies of the top 5 Democratic 2020 candidates.
Three key takeaways:
- On trade, the 5 top 2020 Democratic candidates are more closely aligned with President Trump when it comes to policies around rebalancing old agreements (NAFTA) and negotiating new agreements (China, EU, etc.).
- As well, Democratic trade policies focus on a wide range of social and environmental issues as key areas for negotiating new deals and reforming old deals like NAFTA/USMCA.
- Democratic policies have a “Buy American” and “Buy Local” component that is supplemented with US R&D funding that would likely benefit US manufacturers.
In Biden’s 2020 plans, his views on trade are spread out across several of his different policies, including plans for rural America, plans for clean energy, and plans for American leadership in democracy and international affairs.
Biden’s support for free trade agreements is longstanding, and historically he has been pro-NAFTA and pro-China being a member of the WTO. He was also in favor of the TPP initially but has stated that he would consider renegotiating it now.
Under Biden’s Plan for Rural America, he would pursue a trade policy “that works for American farmers.” Part of this plan is to stand up to China and renegotiate with allies for a strong trading position.
In his Plan for a Clean Energy Revolution and Environmental Justice he proposes to “rally the rest of the world to meet the threat of climate change” and plans to integrate climate issues into foreign policy and national security, as well as trade.
He notes that he would pursue “strong new measures” to prevent other countries from not meeting their climate commitments. He also believes that places like China are “destination economies for polluters”, which has the result of undermining American workers and America’s climate efforts. Part of his plan is to set up carbon quotas and carbon adjustment fees on carbon-intensive goods from countries that do not meet their climate obligations. The purpose of this is to boost American workers and ensure that they are not at a disadvantage when it comes to trade and production.
He would also prevent China from “subsidizing coal exports and outsourcing carbon pollution.” As part of this, bilateral agreements between the US and China would be made with respect to carbon mitigation. He would require China to stop making “unjustified export subsidies for coal and other high-emissions technologies.”
In addition, future trade agreements would be conditional on partners’ committing to meet their Paris climate targets. He would also specifically try to procure a “G20 commitment to end all export finance subsidies of high-carbon projects.”
He would reform the IMF and regional development bank standards to push high carbon and high debt costs to the end of the queue when it comes to international debt forbearance, making these kinds of projects riskier.
Under his Plan for Leading the Democratic World to Meet the Challenges of the 21st Century, he also notes that “there is no going back to business as usual on trade.” Representing approximately one-half of global GDP, America and its allies have substantial leverage to shape trade rules. Biden plans for trade rules to reflect America’s interests and values.
He also stated that international trade laws should be rewritten to “protect our workers, safeguard the environment, uphold labor standards and middle-class wages, foster innovation, and take on big global challenges like corporate concentration, corruption, and climate change.”
Under a Biden Administration, he would establish a Clean Energy Export and Climate Investment Initiative, with the aim of becoming the world’s clean energy superpower. This initiative would prioritize clean energy exports and investments around the world and would prioritize trading partnerships with countries that make high ambition targets under the Paris climate agreement. He would also make sure that the “Overseas Private Investment Corporation (OPIC), the Export-Import Bank, and the new U.S. International Development Finance Corporation significantly reduce the carbon footprints of their portfolios.”
Like Biden, Sanders’ policies on trade are spread across several of his policy documents. The most relevant of which is titled Fight For Fair Trade and Workers. He intends to create a “new trade policy that creates decent-paying jobs in America and ends the race to the bottom.” He states several aims in his trade policy, including:
- Eliminating incentives in trade and tax agreements that make it easier for multinational corporations to ship jobs overseas.
- Instead of providing federal tax breaks, contracts, and grants to corporations that outsource jobs, these would be provided to small businesses.
- Expanding “Buy American”, “Buy Local”, and other government policies that will increase jobs in the US.
- Including “strong and binding labor, environmental, and human rights standards” in all trade agreements, as well as rules against currency cheating.
- Supporting communities of color in trade policies.
- Undoing harm caused to family farmers by trade agreements.
- Eliminating rules in trade deals that increase the cost of medicines.
In his plan on the Green New Deal, he also explains that he would “renegotiate disastrous trade deals to protect the environment.” He believes that NAFTA and PNTR with China have “outsourced” millions of American jobs.
Sanders also plans to place a carbon fee on carbon-pollution intensive goods that are being imported into the US, so that these kinds of goods cannot easily undercut domestic manufacturing. He would do this under the World Trade Organization General Agreement on Tariffs and Trade Article 20.
He also notes in his climate plan, when discussing how to ensure that farmers are paid a fair price for their products, that trade policies would be realigned to ensure farmers have good access to markets.
Sanders also discusses trade issues and policies in his plan for Revitalizing Rural America. His belief is that current trade practices “encourage overproduction and push low-cost commodities on foreign countries, effectively undercutting and destroying local agricultural systems while enriching multinational corporations.”
As part of his policy on trade and rural America, he classifies food supply as a national security issue, and notes that he would “safeguard food security at home and around the globe.” He would emphasize fair trading practices that do not “drive down the prices paid to food producers” in America or abroad. Another issue that he discusses is country-of-origin labelling, and that unfair trade policies have meant that foreign countries have been able to avoid or “overturn” American country-of-origin rules. He believes that these rules should be more strongly upheld.
In one of the recent debates, Warren noted that jobs are being lost in the US, and “the reason is bad trade policy. The reason has been a bunch of giant multinational corporations who have been calling the shots on trade. Giant multinational corporations that have no loyalty to America. They have no loyalty to American workers. They have no loyalty to American consumers. They have no loyalty to American communities. They are loyal only to their own bottom line.”
She has two main policies that cover her approaches to trade. First, she includes discussion of trade policy as part of her Plan for Economic Patriotism. Second, she has a more comprehensive trade policy called Trade-On Our Terms.
We’ll look at the Plan for Economic Patriotism first. Under this plan she would create a new department called the Department of Economic Development, which would incorporate the Commerce Department, Small Business Administration, and the Patent and Trademark Office, and would include authorities like the Office of the US Trade Representative.
Under this plan she would aim to more-actively manage the value of the US currency to promote exports and domestic manufacturing. She would also leverage more federal R&D to create more domestic jobs and make sustainable investments in the future, with the aim of growing the US domestic economy, with the note that “if taxpayer investments in R&D lead to new ideas and products, those products should be made here”. This R&D funding would also be allocated throughout the country geographically, to ensure that there are “economic opportunities in every region and that funding is targeted at solving regional problems.”
Warren would also expand export promotion to match the efforts of competitors, including China. She would change the Export-Import Bank’s focus to be more strongly focused on smaller and medium-size businesses, rather than big companies alone. She notes that “We must spend more to boost American exports so we can level the playing field for American workers.”
Many of her ideas in her Plan for Economic Patriotism also focus on Germany as a model, pointing to German economic approaches as having produced successful economic results. In particular she notes the German worker training programs as leading to successful post-secondary apprenticeships and jobs, and the huge German funding for their export agency.
She would also focus on using the power of the federal government to support and purchase American-made products, particularly through federal procurements. This would help to create more demand for American-made goods and develop domestic industries.
Under her Trade-On Our Terms plan, Warren carries on her ideas for economic patriotism, and applies them specifically to trade issues. Her plan is to “create and defend good American jobs, raise wages and farm income, combat climate change, lower drug prices, and raise living standards worldwide.” She notes that free trade deals are not necessarily good just because they open up markets, and instead she believes that trade deals should always be focused on helping American workers and families.
She states that as part of her plan she wants to “invest in American workers and to use our leverage to force other countries to raise the bar on everything from labor and environmental standards to anti-corruption rules to access to medicine to tax enforcement.”
Under a Warren administration, trade deals would be required to be negotiated publicly, with drafts provided to the public so that they have an opportunity to comment. Trade advisory committees would also be required to prioritize the needs of workers and consumers when considering trade deals. The US International Trade Commission would also provide regional analyses of the economic impacts of trade agreements.
She would only seek expedited Congressional approval of trade agreements “when every regional advisory committee and the labor, consumer, and rural advisory committees unanimously certify that the agreement serves their interests.” This is with the aim of allowing the public and elected representatives to shape trade agreements.
Another aspect of her proposal is to use the leverage of the US to demand more for American families and workers in trade deals. As part of this, Warren has released a 9-point plan as a set of preconditions or standards for any country to negotiate with the US on a trade deal. These preconditions are:
- Recognize and enforce the core of labor rights of the International Labour Organization, like collective bargaining and the elimination of child labor.
- Uphold internationally recognized human rights, as reported in the Department of State’s Country Reports on Human Rights, including the rights of indigenous people, migrant workers, and other vulnerable groups.
- Recognize and enforce religious freedom as reported in the State Department’s Country Reports.
- Comply with minimum standards of the Trafficking Victims Protection Act.
- Be a party to the Paris Climate agreement and have a national plan that has been independently verified to put the country on track to reduce its emissions consistent with the long-term emissions goals in that agreement.
- Eliminate all domestic fossil fuel subsidies.
- Ratify the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
- Comply with any tax treaty with the United States and participate in the OECD’s Base Erosion and Profit Shifting project to combat tax evasion and avoidance.
- Not appear on the Department of Treasury monitoring list of countries that merit attention for their currency practices.
She would also “go beyond” these standards in certain areas to promote the interests of American workers. For example, with regard to labor, she would ensure that trade agreements protect Buy American, and would also enforce strong rule-of-origin standards. She would also include standards that promote “equal pay for equal work” for women and prohibit violence against workers.
In addition, she would impose a border carbon adjustment and would also aim to “secure a multilateral agreement to protect domestic green policies like subsidies for green products and preferential treatment for environmentally sustainable energy production from WTO challenges.”
She also speaks to trade and farming, and notes that she would fight for trade agreements that reward American farmers for their hard work,” and all imported food would be required to meet domestic safety standards.
She would also fight for stronger enforcement of trade rules in general. This includes ending “Investor-State Dispute Settlement,” or ISDS. If a company has a problem with a new law and thinks it violates a trade agreement, the company can take this dispute before an international panel of arbitrators instead of going to court. Warren believes ISDS is used to undermine laws intended to benefit the public interest.
She would also strengthen the ability of labor unions to bring claims. Currently they must request that the Federal Government make a claim on their behalf. Instead of this, she would set up independent commissions made up of experts in the area to “monitor potential violations, respond to complaints, and investigate claims.”
Warren would also push to create a new WTO designation called a “non-sustainable economy”. This would allow the US to “impose tougher penalties on countries with systematically poor labor and environmental practices.”
As noted, she would include the Office of the US Trade Representative (USTR) in her new Department of Economic Development. As part of this she would create a new division at the USTR intended to more effectively enforce trade obligations and would embed a labor attaché at US embassies to monitor labor standards compliance. She would also create automatic trigger conditions that mean an investigation into compliance must be undertaken. Finally, Warren would change trade laws to review duties every 6 months, to ensure that the benefits of duties are being passed through to workers (and if not, they would be lifted).
Warren would also renegotiate NAFTA. However, she has also been critical of Trump’s deal with Mexico and Canada.Warren also opposed the TPP.
Harris has no dedicated trade policy on her campaign website.
In her plan for American Leadership at Home and Abroad she notes that “confronting China’s unfair trade practices” is an important step she would take. On the US-China trade relationship, Harris believes the tariffs are hurting consumers and farmers, while benefiting governments and corporations. In August of 2018, she sent, together with Sen. Diane Feinstein, a letter to U.S. Trade Representative Robert Lighthizer, accusing China of engaging in “unfair industrial policies and outright theft of American intellectual property.”
Other than her explicit policies, she has conducted several interviews in which she states parts of her beliefs on trade. In an interview with Jake Tapper from CNN she notes that “I believe that there is no question that, over many decades, the rules have been written in a way that have been to the exclusion of lifting up the middle class and working people in America and working families in America,” and that the US needs a “policy that better protects American workers and American industries.”
She also states that she would not have voted for NAFTA.
Harris has been outspoken against Trump’s tariff threats against Mexico. With regard to whether she would support the USMCA, she responded, “I’m not in favor of the USMCA, what I call NAFTA 2.0.” She also opposed the TPP.
Buttigieg has no trade policy listed on his campaign website, and none of his policies on other topics appear to mention trade at all.
With regard to issues on China and the trade war, he said to NPR that the Trump administration had gone into the “trade conflict without a plan, and it is making farmers worse off. If this next round of tariffs kicks in, it’s going to make consumers worse off.” He has also described the trade war as a “fool’s errand”.
He also believes that the bigger problem with regard to China is “not about the export-import balance,” and is rather about a larger issue of whether the American or Chinese economic model prevails.
On trade issues, the Peterson Institute for International Economics lists Buttigieg under the “Mixed or no positions on trade” category. (PIIE)
Buttigieg is against NAFTA and believes that it led to significant job losses in the Midwest.
With US trade policy, we have swung from the free trade era of the 1990s and 2000s to the protectionist era of the 2010s, which will likely continue into the 2020s. This does not mean the previous free trade policies were the best policies, but merely that the mood of the nation has reverted back to the default position of trade history. Free trade can generate enormous positive economic growth for the nations involved in the negotiations as barriers are reduced and trade can flow more freely. Yet, there are always incentives to reduce free trade to protect and support industries that are negatively impacted by these kinds of policies. The current stage that the United States is in now is reflected in policies that are put forward by both the Trump administration and the top 5 Democratic 2020 presidential candidates.
On the positive side, the Democratic candidates are taking a moderate tone to the China trade war. This approach may help to end it. Biden’s position has been strongly based in rhetoric, with no major policies that explicitly state what he would do. However, one factor is that Biden comes from a faction of the Democratic party that has typically “viewed free trade and cooperation with China as preferable to competition.” A Biden administration would most likely result in a reversal of many of the Trump administration’s tariffs. This could reduce prices for American consumers and help US manufacturers who source materials from China.
Sanders, on the other hand, is much more likely to continue the Trump administration’s tariffs and focus on China’s labor competition with the US. Warren’s “economic patriotism” approach includes a greater focus on US industry, workers, and exporters, that could act as a more effective pushback against China than tariffs alone. Bloomberg’s Noah Smith notes that a Warren presidency would “likely lead to more political conflict with China, as well as continuation of policies to weaken Chinese technology companies affiliated with that country’s military.”
A potential positive from Warren’s proposals is that her plan for economic patriotism would boost the US economy, making manufacturing and R&D stronger on its own account, rather than through direct competition with China.
The Peterson Institute of International Economics notes that there are three aspects to Warren’s Plan for Economic Patriotism in which she focuses on the German model, including worker training, trade policy, and industrial planning or policy.
They note that “on the worker training stuff, she’s right, and I also think that her proposals in this area—apprenticeship programs and so forth—go in the right direction.” However, with regard to trade policy and industrial policy they state that “she’s wrong”, and that there are two other reasons why Germany was successful, “one—Germany got lucky because at that time when China opened up, it just happened to be good at exporting specific goods that China needed during its growth phase … And then the second enormously important factor … is the macroeconomy. So Germany ran a trade surplus over this period mostly by really increasing saving, and consuming and investing relatively little.”
If PIE is correct, Warren’s German focus could mean that her Plan for Economic Patriotism is also misguided and may miss important factors that are different between the US and German economies. Things that worked for one economy in a different time cannot simply be copy-and-pasted onto another economy. As well, size matters. The German economy is significantly smaller than the US and their policies may not scale well.
In addition, her general protectionist approach is noted by the American Enterprise Institute as problematic, because her conditions and strict standards could “undermine current agreements or prevent new ones with many nations, especially developing economies.” In particular they note that there are numerous trading partners with the US that are currently being monitored for currency manipulation by Treasury, including “China, Japan, Korea, Germany, Italy, Ireland, Singapore, Malaysia, and Vietnam.” Warren’s trade rules would prevent these countries from trading with the US.
Her 9 preconditions for doing a trade deal are also potential obstacles to overcome even during the best of economic times for two countries. Her willingness to open up the trade negotiations to the public show a misunderstanding of how trade deals are done and why they are done out of the limelight: winners and losers.
Both Sanders and Warren include a “Buy American” or “Buy Local” proposal in their trade plans. While this provision can support domestic industry, the federal government is the entity that shoulders the costs. These costs can be passed on to taxpayers in the form of higher taxes, thus reducing the positive economic growth from the policy. On the flipside, increasing funding into domestic industries in this way could support useful and world-leading R&D, products, and industries. Unfortunately a report conducted in 2018 by the Government Accountability Office found that current Buy American policies had a relatively minor impact, due to “waivers, exemptions and treaty constraints.” In other words, companies asked for and received the ability to avoid following these policies. This has also been occurring with parts of the Trump administration’s tariffs on steel and aluminum.
With regard to Buttigieg and Harris’ policy positions, they have produced too little policy information to get a solid understanding of how they would tackle trade for the US. This could lead to business uncertainty both domestically and internationally should either rise substantially in the polls or begin accumulating significant numbers of delegates. We should expect more details from both candidates on this critical topic.