Hill event on trade policy sought to advance more robust trade agenda

Posted by on January 18th, 2013, 6:25 am

On January 16th, the Center for Business and Public Policy (CBPP) hosted a Georgetown on the Hill event entitled “U.S. Trade Policy:  Where We’ve Been and Where We’re Going” in the Rayburn House Office building.  Led by CBPP Senior Industry Fellow, J. Robert Vastine, the panel included Linda Dempsey, VP of International Affairs at the National Association of Manufacturers, Howard Rosen, Executive Director of the Trade Adjustment Assistance Coalition, Bill Reinsch, President of the National Foreign Trade Council, and Brad Jensen, CBPP Senior Policy Scholar.  Together they offered a comprehensive picture of the current state of U.S. trade policy and offer their recommendations to advance a more robust trade agenda.

Linda Demsey opened the discussion with a historical overview of U.S. trade growth from 1948 to 1995 when the General Agreement on Trade and Tariffs (GATT) and the World Trade Organization (WTO), respectively, came into existence.  During this period there was a general growth of U.S. trade, but over time there was an increasing decline in the manufacturing sector.  Currently, services and non-manufacturing makeup a significant percentage of the U.S. trade economy.  In recent years, the U.S. has become less export intensive than Germany, for example, thereby reducing its share of world trade.  Within this context, Dempsey pointed to future opportunities to improve conditions for U.S. trade.  The upcoming WTO meeting offers a change to negotiating customs and trade facilitation.  Furthermore, she emphasized the importance of information technology for ICT producers and consumers and suggested it as a possible new pathfinder.  Outside of the WTO, Dempsey pointed to the Trans-Pacific Partnership (TPP) talks.  The recent entry of Canada and Mexico has been regarded positively for further trade integration. New U.S.-E.U. trade offers the opportunity to address tariffs on U.S. goods, which are currently at 10%, and reducing non-tariff barriers.  Finally, Dempsey emphasized the need for greater Congressional support and initiative to craft a more robust trade agenda.

Looking to the services sector, Brad Jensen reaffirmed the untapped revenue potential of the trade in services.  While manufacturing makes up 10% of employment in the U.S., the service industry, which includes finance, technology, communication, and professional sectors, makes up 25%.  They warrant policy attention, concluded Jensen.  Currently, policy impediments to trade in services does not have to do with tariffs, rather it’s domestic regulation in emerging markets such as licensing requirements in countries where U.S. businesses must have a local presence to practice.  According to the World Bank, these impediments to trade are 7 to 8 times higher than those for working in U.S.

Highlighting the nexus between the labor market and trade, Howard Rosen affirmed that we are in the midst of structural changes similar to those experienced in 1974.  Current trade policy has very little impact on how trade flows and instead affects the composition of trade goods.  The growth in world markets and the exchange rate are more important variables on trade growth or decline.  For example, the depreciation of the dollar in 2010 and 2011 helped exports but since 2012 U.S. exports have slowed below 5%.  He argued the decline has more to do with the fact that U.S. exports are concentrated in low growth markets.  Offering suggestions for a policy agenda, Rosen argued for increasing investment in the U.S., enforce monetary policies particularly with regard to the exchange rate, and lastly diversify the goods and services that the U.S. sells on the world market.

Lastly, Bill Reinsch turned the attention to the changes in the world trade system.  Once policy focused on tariffs, but over the last 10 years a new global supply chain model has emerged creating new problems and issues for crafting policy.  Today consumer goods like the iPhone are manufactured in various parts of the world: Japan, Taiwan, China, and Germany.  The WTO, which regulates by a consensus-based model, cannot keep up with the demands of the new trade context.  Moreover, as the gap between rich and poor countries has narrowed in countries like Brazil, Russia, India, and China (BRIC); these countries have been less willing to comply with the policy-making and institutional procedures of the older trade system, shaped historically by the U.S. and Europe.  Trade agreements among BRIC countries reflect this new economic outlook.  Furthermore, in the new model, the state plays a more active role in trade.  For example, in Brazil and India, the central state selects and promotes the best national products.  Reinsch concluded the event by asserting that we are moving into a world where you see at least a two track WTO.

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