Trade War! What is it good for?
A plot twist, and unexpected coda for worker-centered trade policy.
Over its four years in office, the Biden Administration pursued what it famously called a “worker-centered trade policy”. Wherever this policy was discussed and debated in Washington, that label was usually followed with a snippy “ . . . whatever that means.”
This always struck me as unnecessarily uncharitable. To me, trade policy “for the workers” was easy to intuit, if observed in historic and political context. In historic context, it constitutes one of two first-generation attempts to articulate a U.S. trade policy for the new era that began once 50 years of full-throttle trade liberalization reached its dénouement.1 (The other first-generation U.S. trade policy from this young era was the unselfconscious “America First”.) In political context, this was a democratic trade policy, so if you swap “worker-centered” with “union-supported” you’ll notice that half the sides on your Rubik’s cube are now solid colors. You really only need one final piece of historic and political context, which is to understand that this trade policy, like many of President Biden’s policies, was Inclusive with a capital “I”.
From my vantage, the biggest challenge confronting Inclusive union-supported trade policy (f/k/a “worker-centered”) wasn’t from snarky (or deliberately obtuse) commentators. The biggest challenge actually just came from the simplest, most natural honest-to-God follow-up question. Which workers?
The answer—obviously—has to be U.S. workers. This is, after all, a U.S. trade policy. But the trouble is, it’s not fully intuitive how a U.S. Trade Representative is expected to deliver benefits to U.S. workers, given the mandate of the job. A U.S. Trade Representative is only empowered to negotiate the terms of new trade agreements on behalf of the United States, or enforce U.S. rights under existing agreements to the extent their boss instructs (or allows). But when you exclude from the outset (as the Biden administration did) the pursuit of more market access for U.S. goods outside the United States, that challenge becomes considerably harder. Expanding the opportunities for U.S. workers to make and sell more goods is, ostensibly, one of the most worker-centered things a U.S. Trade Representative can do. I think that for a lot of folks, they had trouble following the thread once that objective was no longer on the table.
The simple question which workers? is all the more bedeviling once you wrap your head around the fact that most of the actual pro-worker activities performed by the U.S. Trade Representative were done on behalf of foreign workers—at least, in the first instance. This would include all of the U.S. Trade Representative’s enforcement of the rapid-response labor mechanism (RRM) under the U.S.-Mexico Canada Agreement (USMCA), and the attempts to introduce stiff new labor rules that would benefit workers in Indonesia, Malaysia and Vietnam as a part of agreements to export critical minerals to the United States.
My point in saying the quiet part out loud is not to undermine this work. Far from it! Rather, I aim only to highlight that the benefits to American workers under this type of trade policy are second order, at best. Under this model, you have to be successful at notching a labor rights victory for Mexican workers (or Asian workers) before you can look the American worker in the eye and tell them the good news: we’ve enhanced your competitiveness in the world. Also, to put it lightly, this can be a difficult sell in Mexico or Asia. Without the right leverage, it can be impossible to achieve.
I want to be clear that I agree with this work fully, and esteem the goodness of it. The logic is sound, the work is worthwhile, and the benefits are indeed shared. Leveling up the labor conditions in Mexico is mission critical to ensuring that American workers compete on a level playing field. My fear is only that Inclusive union-supported trade policy blurred the distinction between the microeconomy, the macroeconomy and the political economy. Let me explain using an example.
Suppose that household spending in a given economy is getting a little overheated. Consumer debt is rising, and household savings is falling (or nonexistent). And suppose that in order to address this challenge and the risk it presents to the economy, the government decides to send a team of experts to your neighborhood. Their mandate is to speak to your neighbors and explain the importance of saving. Let’s suppose that the program is a wild success, and your entire neighborhood starts saving 10% of every paycheck. Problem solved?
Obviously, no. There is a paradoxical relationship between microeconomic decisions and macroeconomic effects. While macroeconomic impacts are nothing more than the sum of a finite number of microeconomic decisions, if you want to influence the macroeconomic environment, you don’t rely a strategy of door-to-door canvasing to influence microeconomic decisions. You raise interest rates.
But here’s where it can get more complicated. What if your neighborhood is in Northern Virginia, and, in addition to some teachers and lawyers, your neighborhood includes three influential media personalities, and six federal officials, and they decide to use their respective megaphones to talk about how great the government’s new savings-promotion advocacy program is. Problem solved?
Well, no. Obviously. But you might say what’s happened here is that the political economy has been influenced by the program. Important and influential folks are alive to the problem, understand the solution, and have even committed themselves to being a part of it. But inflation could still be on a tear nonetheless.
Back to trade policy, I think my concern is clear. The United States might proudly negotiate labor provisions in several new international trade or purchasing agreements. Those provisions could be high standard, sector-wide and facility-specific. It might bring dozens, or even hundreds of RRM cases in Mexico, and these actions might all be supported by U.S. unions for one reason or another. Problem solved? Let’s just try to remain fully self aware of the distinction between a macroeconomic success and some political economic wins.
I don’t purport that the problem has an easy solution; it does not. But for avoidance of doubt—and because I know there are plenty of doubters out there, especially in industry, though likely fewer today than back in October—there absolutely is a problem here that requires solving. It’s a macro problem, and it requires a macro solution. At some point, (1994? 2001? 2008? 2016?) the successes of the previous era of global trade ticked over into excesses, and the folks running the show swore it wasn’t happening, wasn’t consequential, hadn’t produced a failure, and so kept right on grinding at the liberalization dream. We now know how consequential that miscalculation was, and it’s incumbent on all of us to think hard about the right path forward.
Last week, the Biden administration offered one more idea about that path forward, announcing an investigation using the to use the same statute that the Trump administration used to launch its trade war with China in 2018, but this time to advance worker-centered trade policy. U.S. Trade Representative Katherine Tai initiated a Section 301 investigation against Nicaragua, on account of the Ortega regime’s “labor rights practices, human rights practices and the rule of law”.
This Nicaragua 301 investigation was surprising not only because President Biden has mere days left in office, but also because this is a novel use of Section 301. Section 301 has never before been invoked on the basis of labor rights violations, even though such a use is explicitly provided for in the law, by virtue of amendments enacted in 1988. Less surprisingly, Section 301 has also never been used to penalize a trading partner for human rights violations or violations of the rule of law, because such “violations” are not actually covered by the law.2
Remarkably, the press release from the Biden administration made surprisingly clear that this final act of worker-centered trade policy was not being done on behalf of U.S. workers, but rather, and I quote: “for all workers and people”. This might be the most Inclusive act of trade enforcement in history.
Yet even more interesting is the public response. Industry groups that are consistent advocates for the strong enforcement of U.S. trade laws issued statements urging “careful calibration”, thoughtfulness and caution. Perhaps spooked by the dismal track record of economic sanctions on vulnerable populations, major players in the human rights space who have published extensively on the human rights violations in Nicaragua like Amnesty International and Human Rights Watch appear not yet to have commented publicly on the Section 301 investigation.
In fact, the only statement of support I could find for the new investigation was a tweet from the United Steelworkers X account.
That tweet had three likes.
And so we come to the point of this essay, my 15th and final post for 2024. Trade war! What is it good for?
Thank you for reading! 2025 is gonna be intense. We’ll we’ll be here to .gif you through it.
I consider the previous era to run from the launch of the Kennedy Round (1964) to the death of TPP (2016).
See 19 U.S.C. 2411(d)(3)(B)(iii) (language added to Section 301 in 1988, permitting the President to take actions in response to a “persistent pattern of conduct” to deny fundamental labor rights).