For decades prior to the election of 2016, the leaders of both parties differed on many issues but adhered to what came to be known as “the Washington consensus.” Elite Democrats and Republicans bought into the idea that by dropping tariffs and other regulatory constraints to global trade, America would achieve broad prosperity while also securing its geopolitical interests. Imports might dry up U.S. factory jobs, they conceded, but that would allow more Americans to realize their comparative advantage as “knowledge workers.”
Both parties also endorsed the idea that by opening up trade with China and other developing nations, the United States could help spread democracy and secure a peaceful global order. In explaining his decision to support China in becoming a member of the World Trade Organization, President Bill Clinton remarked in 1999, “If you believe in a future of greater openness and freedom for the people of China, you ought to be for this agreement. If you believe in a future of greater prosperity for the American people, you certainly should be for this agreement.”
To be sure, there were some voices in the Republican Party, and more in the Democratic Party, who dissented from this view. They pointed, variously, to mounting U.S. trade deficits; to the hollowing-out of America’s industrial base and the downward mobility of the working class; to unfair competition from deeply subsidized, tax-evading international corporations that flouted even minimal labor and environmental standards. Some of these critics even ran for president (Pat Buchanan, Richard Gephardt, Bernie Sanders). But none were able to convince a majority of their party’s voters.
That changed in 2016 when Donald Trump won the presidency. Trump promised that by tearing up treaties like the North American Free Trade Agreement (NAFTA), which had been proposed by George H. W. Bush and signed by Clinton, he would help restore America to greatness. “Under a Trump presidency, the American worker will finally have a president who will protect them and fight for them,” Trump promised. “We will stand up to trade cheating. Cheating. Cheaters, that’s what they are. Cheaters. We will stand up to trade cheating anywhere and everywhere it threatens the American job.”
Four years later, Democrats, too, elected a president who broke dramatically with the old Washington census. But as President Joe Biden completes his first term, the differences between how he and Trump have used public policy to manage America’s economic place in the world could not be more stark. Trump pursued what can fairly be described as “protectionist,” or “beggar-thy-neighbor,” policies, which favored some domestic industries but hurt others while damaging relations with key allies. His administration operated on the theory that if U.S.-based companies sold more stuff to a foreign country than its corporations sold to us, all Americans, including workers, consumers, and other U.S. companies, would be winners. Meanwhile, Trump’s strategy to bring back manufacturing jobs relied mostly on the idea that a large tax cut for corporations would lead to more capital investment in American factories.
Biden, by contrast, while keeping in place some tariffs imposed by Trump, has operated from very different principles and deployed a much wider range of policies. Biden views trade policy as about more than the narrow, mercantilist measure of whether exports with any one country or another are greater than imports. He also views trade policy as part of a much larger suite of tools that governments should use to structure markets so they serve a broad range of public proposes, ranging from national security needs to the rights of labor and environmental protection. It’s an all-of-government approach that combines large public investments in key infrastructure and domestic industries with checks on monopolistic concentrations of political economic power, whether by foreign or domestic corporations or authoritarian governments.
Congress long ago gave to American presidents the power to impose temporary duties and other trade measures in cases that involve certified threats to national security or the vitality of U.S. industry. This power was rarely wielded in the past, but early on in his administration, Trump used it to slap tariffs on imported washing machines and solar cells as well as on steel and aluminum imports, while also walking away from the big, multilateral Trans-Pacific Partnership deal negotiated by Barack Obama. The administration then used these tariffs as leverage as it renegotiated past deals, such as a replacement for NAFTA and revised bilateral agreements with Korea, Japan, and the European Union. It also provoked a full-fledged trade war with China by imposing tariffs on more than $300 billion in Chinese imports.
Overall, these efforts did not achieve Trump’s aim of lowering the trade deficit, though, measured as a share of GDP, the deficit did decline slightly between 2017 and 2020. Many countries retaliated by imposing tariffs on products made in the United States, to the point that Trump signed off on massive subsidies to keep American farmers afloat. China did eventually commit to buying $200 billion in U.S. exports, but in the end bought none of the exports Trump’s deal had promised. Meanwhile, U.S. companies pulled some production out of China, but mostly shifted it to other Asian countries rather than returning it to the United States. During the first two years of the Trump administration, the number of manufacturing jobs in the U.S. increased at a rate no higher than during Obama’s last seven years in office before slowing sharply in 2019, and then collapsed in 2020 during the COVID-19 pandemic.
While using the language of populism, Trump pursued trade policy that continued to serve elite, corporate agendas. Biden’s approach is informed by an entirely different conception of what went wrong with the Washington consensus.
Another hallmark of Trump’s trade record was his deference to a few, highly concentrated American industries. In negotiating a replacement for NAFTA, for example, Trump did the bidding of large digital tech companies by pressing for provisions that prevent Canada and Mexico from regulating the flow of digital data across their borders. Trump also deferred to the demands of large U.S. oil companies by carrying over provisions in NAFTA that benefited their bottom lines, such as the ability to move refined petroleum products across borders tax free. In general, the Trump administration pressed for trade provisions that limited the ability of both foreign governments and our own to impose restraints on international corporations and their investors, including through enforcement of domestic content or anti-monopoly laws. In other words, while using the language of populism, Trump pursued trade policy that continued to serve elite, corporate agendas.
Trump promises that if he is returned to office he will bring much more of the same when it comes to trade. He is proposing 10 percent across-the-board levies on imports and threatening still higher tariffs on other countries.
President Biden’s approach, by contrast, is informed by an entirely different conception of what went wrong with the Washington consensus and how to fix it. To begin with, during his first term, Biden passed landmark legislation that took direct aim at American industrial competitiveness through public investment. To date, legislation such as the CHIPS and Science Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act has led to the announcement of more than $640 billion in private-sector clean energy and manufacturing investments and over $200 billion in manufacturing construction spending.
These direct, targeted investments in key U.S. industries contrast sharply with the Trump administration’s approach to industrial policy, which mostly involved across-the-board tax cuts for corporations. The other key difference is seen in the way the two presidents have handled traditional trade negotiations between nations.
Biden and his advisers are not just concerned with how the old “free trade” regime shifted production away from the U.S. to wherever wages and regulatory standards were lowest. They are also focused on how it concentrated production geographically in ways that left supply chains vulnerable to shocks from pandemics, climate change, and armed conflict as well as to cornering by monopolistic corporations. And they are focused on making sure that trade policy not only serves the interests of American workers but also advances what Biden’s trade representative, Katherine Tai, provocatively calls a “postcolonial” phase, in which poorer nations share more high-value production and are not forced to earn their living through sweatshop labor.
Taken together, these factors cause the Biden administration to conclude that we need policies that spread production to more places around the world, including but not limited to the United States. Unlike Trump, who focused on re-shoring production, Biden is more about what Treasury Secretary Janet Yellen calls “friend-shoring”—or shifting production away from excessive concentration in China and unstable, despotic countries and spreading it instead among a resilient network of allies who share our political values and market rules.
One expression of this philosophy is Biden’s decision to suspend the 25 percent tariff Trump imposed on European steel, and to pursue instead a new “Green Steel Club.” This trading bloc would require member countries to ensure that their steel and aluminum industries meet more stringent emissions standards and place tariffs on more carbon-intensive steel and aluminum. The plan would box out Chinese producers, who have flooded the market over the past decades and account for about half of the world’s capacity. To date, however, Biden has not persuaded the Europeans to sign on. One challenge with bringing this and other multilateral deals over the finish line is fear among trading partners that their economies will be hurt as investors chase subsidies the Biden administration has put in place for green-energy technology and microchips that are made in America.
Another example of the “friend-shoring” approach is Biden’s pursuit of a trade agreement with various Asian countries known as the Indo-Pacific Economic Framework. IPEF aims to create a standard for policy coordination on supply chains, clean energy, the fair economy, and trade. If enacted, the agreement will result in a club of countries with similar standards on major trade issues, and is likely to exclude China. Currently negotiations are on hold, however, to allow Congress and the administration to deal with demands by Big Tech firms for special protections. Some Democrats are also worried that the administration will not push hard enough for enforceable labor standards in the deal. The administration has managed to sign a smaller deal with Taiwan and Japan.
Meanwhile, Biden continues to use trade policy to take a hard line on China, reflecting a new bipartisan consensus that China’s mercantilist policies, human rights violations, and increasingly aggressive geopolitical ambitions make its continued integration with the rest of the global economy increasingly dangerous. Accordingly, the administration has retained all the tariffs that the Trump White House placed on Chinese imports in 2018 and 2019. It has also taken aim at China’s ability to compete in advanced digital technology by imposing sweeping restrictions on its ability to import semiconductor chips produced with American equipment. Biden has also signed an executive order aimed at restricting U.S. investment in Chinese semiconductors, quantum information technologies, and artificial intelligence. Similarly, Biden signed the Uyghur Forced Labor Prevention Act in 2021, which restricts the import of all goods made with forced labor in the Xinjiang Uyghur Autonomous Region in China. Xinjiang produces nearly half of the world’s solar-grade polysilicon, the key material in solar panels.
As Biden stands for reelection, he can point to one of the strongest economies on record by many measures. This includes a sharp increase in manufacturing employment since 2020, even steeper increases in manufacturing investment, and a trade deficit that in 2023 contracted by the largest amount in 14 years. But many of Biden’s biggest initiatives, including the commitments for massive new spending on infrastructure and green energy, are only beginning to come online. Similarly, the profound changes in trade policy articulated by Biden and his advisers have not yet led to dramatic new trade deals, though they might if Biden gets a second term. One certain accomplishment that Biden can claim, however, and one that could define his place in history, is that he plotted a new course for America’s political economy that broke with failed policies of the past, including the neoliberal orthodoxy of the Washington consensus and Trump’s crude faux populism.
