[CTC] On trade, it's Trump vs. the deep state

Tue Mar 7 11:17:50 PST 2017

POLITICO

On trade, it's Trump vs. the deep state   http://www.politico.com/agenda/story/2017/03/on-trade-its-trump-vs-the-deep-state-000333 <http://www.politico.com/agenda/story/2017/03/on-trade-its-trump-vs-the-deep-state-000333>
The administration's trade report highlights the fissures beneath the surface—and the contradictions of its trade policy.
By Todd Tucker
03/06/17 09:12 AM EST

Last week the Trump administration released its first formal marker of how it plans to shake up trade policy. The vehicle was an unwieldy annual document that rarely makes much news: the Office of the U.S. Trade Representative's statutorily mandated report to Congress <https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2017/2017-trade-policy-agenda-and-2016>.

At 336 pages, the report is normally a cut-and-paste affair. From Clinton to Bush to Obama, US trade policy objectives haven't changed much, and neither has the annual report. The agency dutifully ticks off the year's accomplishments, from celebrating the job-boosting promise of new trade and investment agreements to broad statements of policy. So Obama's 2012 report <https://ustr.gov/sites/default/files/Chapter%20I.%20The%20Presidents%202011%20Trade%20Policy%20Agenda.pdf> reads a lot like Bush's 2008 report <https://ustr.gov/sites/default/files/uploads/reports/2008/asset_upload_file490_14556.pdf>. 

Enter Donald J. Trump. He moved onto Democrats' historic electoral base <http://www.politico.com/story/2016/11/labor-unions-hillary-clinton-mobilization-231223> in the Midwest with an unrelenting critique of that same Clinton-Bush-Obama legacy trade policy. In the first general election debate <https://www.washingtonpost.com/news/the-fix/wp/2016/09/26/the-first-trump-clinton-presidential-debate-transcript-annotated/?utm_term=.f54b983b8787>, he savaged Hillary Clinton for being part of a political dynasty that used trade deals to subject U.S. workers to grinding competition with Chinese and Mexicans. He promised to walk away from these deals, or upgrade them, and put America first. 

The tension between past and future is everywhere apparent in this report, which is divided between seven pages of Trumpist rhetoric and more than 300 pages of celebration of the older approach. There's a reason for that asymmetry. For one thing, a preponderance of backward-looking stocktaking is inherent in the congressional mandate for the report. In any given year, the US trade representative attends an alphabet soup of meetings, with yawn-inducing names like the WTO's Committee on Trade in Financial Services (CFTS) or NAFTA's Free Trade Commission (FTC). The report is the main outlet where officials report on what happened at these meetings, or more commonly — given the snail's pace of diplomatic talks - what didn't happen.

But another explanation is that the report reflects the profound disconnect that has quickly arisen within the Washington trade apparatus. Trump inherited the career personnel responsible for the old trade agenda. The 200-person staff  <https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2017/2017-trade-policy-agenda-and-2016>of the USTR office has only a handful of personnel slots <https://www.gpo.gov/fdsys/pkg/GPO-PLUMBOOK-2016/pdf/GPO-PLUMBOOK-2016-7-8.pdf> for political appointees, and Trump has been unable to fill those. The Senate has still not scheduled confirmation hearings for Robert Lighthizer, his pick for the head of USTR. Meanwhile, the precise responsibilities of other senior trade officials — Peter Navarro of the new National Trade Council <http://www.washingtontimes.com/news/2016/dec/21/donald-trump-creates-national-trade-council-puts-c/> in the White House, Wilbur Ross at Commerce, and other of Trump's designed trade "reconstructionists <https://www.washingtonpost.com/news/the-fix/wp/2017/02/23/stephen-bannons-nationalist-call-to-arms-annotated/?utm_term=.49cbb786fb55>" — remain unclear.

Much like the intelligence agencies and military on defense <https://www.nytimes.com/2017/02/16/world/americas/deep-state-leaks-trump.html?_r=0>, USTR has effectively carved out a "deep state" role <https://www.amazon.com/American-Trade-Politics-Fourth-Destler/dp/0881323829/ref=dp_ob_title_bk> for itself on international commerce. There are a handful of top-level people who, once they're in place, will be aligned with Trump's trade-skeptical agenda. But just underneath them lies a large bureaucracy stocked with what Eurasia Group's Jonathan Lieber <http://thehill.com/blogs/pundits-blog/international/312843-its-a-new-era-for-the-united-states-trade-representative> calls "free traders." Besides the inherited staff, Trump's non-"reconstructionist" agencies like the National Economic Council have appointed TPP advocates to key positions—over the howls  <http://www.breitbart.com/big-government/2017/03/03/enemy-within-top-tpp-negotiator-now-part-of-trump-administration/>of Breitbart columnists. So before Trump can launch a trade war abroad <https://www.nytimes.com/2016/11/11/business/international/trump-china-us-trade-war.html>, he'll have to deal with an inter-agency turf war at home.

To read the trade report carefully, and to follow the coverage of its development, is to see just how those fissures are opening. Leaks of earlier drafts reported on by Politico <http://www.politico.com/tipsheets/morning-trade/2017/03/democrats-trumps-trade-agenda-short-on-solutions-219010> indicate that the most belligerent denunciations were cut from the final version. So "Ever since the United States won its independence, it has been a basic principle of our country that American citizens are subject only to laws and regulations made by the U.S. government—not rulings made by foreign governments or international bodies" became the more technocratic "WTO reports are not binding or self-executing." And unlike previous versions <https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2016/2016-trade-policy-agenda-and-2015-Annual-Report> of the annual report, the 2017 installment opens up with a reassertion of USTR's primacy, complaining that the document "is normally prepared" by USTR. In case the subtlety was missed, the agency breaks out the law book to school Trump, citing statutory provisions that the agency "shallhave 'primary responsibility for developing'" U.S. trade policy, and "shall 'act as the principal spokesman of the President on international trade.'" While this normally might be left unsaid, this year is different: Reportedly, Ross at Commerce will have considerable sway over how the Trump Administration prosecutes its trade goals, and the new responsibilities of Navarro, while undefined, are expected to be significant.

The report opens with the seven pages of Trump directives, noting that "In 2016, voters in both major parties called for a fundamental change in direction of U.S. trade policy." Americans did not "see clear benefits from international trade agreements. President Trump has called for a new approach." The section ends with denunciations of trade's drag on wages and jobs, and celebrations of Trump's pulling out of the Trans-Pacific Partnership. 
While such Trumpish denunciations of the global trading order have drawn the most attention, the report's "new" agenda is more conventional than it would seem at first glance. The document commits the U.S. to enforce the trading rules, national and international, that are on the books. They commit to make bilateral treaties to go after our trading partners' national policies that limit U.S. exports. In substance, although not in tone, this is the Clinton-Bush-Obama trade agenda.

Even if the Trump administration manages to navigate the fractious bureaucratic politics visible in the report, it will still be struggling with its own policy incoherence. Steve Bannon has called for an aggressive approach with our trade partners overseas, but reductions in taxes and a deconstruction of the administrative state <https://www.washingtonpost.com/news/powerpost/wp/2017/02/23/bannon-trump-administration-is-in-unending-battle-for-deconstruction-of-the-administrative-state/?utm_term=.6534f47a4df0> here at home. This anti-governmental tone is echoed in the USTR report, which in both its Trumpist preliminaries and its longer stocktaking decries foreign subsidies as "unfair" and foreign domestic regulations as "unnecessary." If the goal is to take on China, this isn't how to do it. China is raising and spending money aggressively to overtake the U.S. in areas that should be America's comparative advantage, including $360 billion  <https://www.nytimes.com/2017/01/05/world/asia/china-renewable-energy-investment.html>for green energy technologies and $100 billion for advanced semiconductors <https://www.nytimes.com/2017/02/10/business/china-computer-chips-globalfoundries-investment.html>. In contrast, U.S. senators had to agree to eliminate <https://www.nytimes.com/2016/09/16/us/politics/flint-michigan-water-senate-aid.html> a $300 million advanced vehicle manufacturing grant to repair Flint's water pipes. While China is spending hundreds of billions on its future, the U.S. can barely muster hundreds of millions to fix its past. 

Given the way our competitors are investing, better rule enforcement and more exports may not dramatically improve U.S. economic prospects. In a pending case, the WTO appears set to greenlight <https://www.ft.com/content/5b5cd5d0-c14d-11e6-9bca-2b93a6856354> China's non-market-oriented industrial policy, not by substituting its judgment for that of negotiators (as the USTR report introduction worries), but by faithfully applying the rules as written. As the report concedes, without calling out China by name, "WTO rules, and those of some bilateral and plurilateral trade agreements, are often written with the implicit understanding that countries implementing those rules are pursuing free-market principles." So the WTO rules won't be much help here. And as economist Brad Setser has noted <http://blogs.cfr.org/setser/2017/02/22/u-s-manufacturing-exports-excluding-nafta-are-surprisingly-small/>, the U.S. is an outlier among major economies for its low level of exports outside its home region. Even strong growth from a low base will not have huge impacts, certainly not compared with bigger-ticket items like the kinds of infrastructure and labor market policies that Democrats have championed.

Success in trade ultimately isn't built on the language of deals: It comes from how the domestic economy is structured. Rather that bashing foreign countries' successful use of active state policies to compete globally, Trump and USTR might consider emulating them. But where industrial policy has succeeded, it's been through firewalls between policymakers and private sector influence—and here too Trump's cabinet of billionaires <http://www.cbsnews.com/pictures/donald-trumps-14-billion-cabinet/> will be operationally challenged. As sociologist Peter Evans has documented in his case studies of Korea, Brazil, and other countries, civil servants executing successful manufacturing upgrading must be capable of deftly alternating between protection, subsidies, and ultimately ripping off the band-aid through trade opening. Some of this will inevitably go against firms' short term interests, and all of it requires a willingness to demand firms share their gains through paying taxes—something a captured state cannot do.

As Elizabeth Warren reminded us, personnel is policy. If Trump wants a policy shift on trade, he'll have to overhaul personnel and bureaucratic organization. The latest USTR report, and the subtle and not-so-subtle subversions within, suggests that if that hard work hasn’t nearly begun. More importantly, to convert on his promised, he'll have to have a high-road domestic agenda that will demand more resources than austerians <https://krugman.blogs.nytimes.com/2015/04/29/the-last-austerians/> in his party seem likely to give.

Todd Tucker is a fellow at the Roosevelt Institute <http://rooseveltinstitute.org/todd-n-tucker/>, where he leads work on international economic law and politics. Follow him @toddntucker.
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