Ambassador Lighthizer Defends Trump’s Trade Policy

June 22, 2020

Last week featured Ambassador Lighthizer’s spring appearances before the House Ways and Means and Senate Finance Committees. He did a valiant job defending the president’s policies—not the easiest task—and also responded to the usual array of questions on specific matters of interest to the committee members. As always, he was exceptionally good at parrying the committee members, but in his defense of the president’s policy, he was guilty of cherry picking the data, and his responses to some of the questions showed once again the failure of the president’s tactics.

On the data front, his numbers told only part of the story. For example, he said the share of net worth held by the bottom 50 percent of households increased while the share held by the top one percent decreased. The Federal Reserve’s data suggests that during the Trump presidency through the end of last year, the poor did indeed get a bit richer. The bottom 50 percent’s share of wealth went from 5.3 percent to 5.8 percent of the economy. However, the rich also got richer.  Wealth of the top one percent went from 28.6 percent to 29.5 percent.

On jobs, the ambassador said the country lost 15,000 jobs “in the 12 months prior to President Trump’s election,” but more than 500,000 were gained since then (through January 2020). FRED, a database maintained by the St. Louis Federal Reserve, confirms those numbers but makes clear it depends on when you measure. If you look at the president’s time in office, through January 2020, the economy gained 475,000 manufacturing jobs. Lighthizer counted from the election, which does get us above 500,000 (barely) but gives Trump credit for things that happened when Obama was president. As for the 15,000 manufacturing jobs lost, his time period was carefully chosen. If you compare November 2015 to November 2016, he was correct, but November 2016 was a trough. If you compare November 2015 to December 2016, the difference is only 1,000 jobs.

Of course, that misses the main point. U.S. manufacturing jobs peaked in June 1979 and have been declining ever since. The steepest decline was between 2001 and 2010, and we have been recovering modestly since then but will never be back to our peak.

On other matters, the ambassador said a number of sensible things: promising aggressive enforcement of the United States-Mexico-Canada Agreement’s (USMCA) labor rules, expressing some optimism about China meeting its phase one commitments (too early to conclude they are going to fail), and offering a more realistic time table for U.S.-UK negotiations than Prime Minister Johnson has done.

More disturbing were his comments about U.S. withdrawal from the digital services tax (DST) negotiations at the Organization of Economic Cooperation and Development (OECD), the World Trade Organization (WTO) generally and the Appellate Body in particular, and the Generalized System of Preferences (GSP) program, where he said the administration has not yet decided if it would support renewal.

His comments were not disappointing because they were wrong. The DST talks are focusing primarily on U.S. high-tech companies and ignoring other digital services providers. The WTO is under stress, and his criticisms of the Appellate Body ring true. His reputation for identifying real problems remains intact.

Instead, the disappointment comes in the prescription rather than the diagnosis. U.S. policy appears to be that when things are not going our way, we will pick up our marbles and go home. The administration assumes that we are big and important, and other nations will ultimately bend to our will.

The more likely outcome is the opposite. Either the OECD will produce DST guidelines without us, which will legitimize other nations’ taxes, or the countries will go ahead and enact their own taxes, as some have threatened, and some have already done. The president will, predictably, respond with tariffs, and everyone will be worse off.  Our companies will be forced to pay the taxes, our consumers will be hurt by our tariffs, and our manufacturers will be hurt by the retaliatory tariffs the others impose.

Our success in destroying the Appellate Body and Ambassador Lighthizer’s lack of interest in reconstituting it have led to the European Union setting up an alternative body, which now includes 21 WTO members, including the European Union. Our refusal to support WTO funding for it is both petty and useless. The participants will no doubt pony up the money to keep it going. Over time, it will become the de facto Appellate Body, and the system will move on without us. We will not be in it, which means when we lose a WTO panel decision, we will get away with our bad behavior. But when we win, we will not be able to enforce it, except by unilateral action. Once again, more tariffs and everyone is worse off.

Finally, his uncertainty about the GSP program reflects a myopic view of the program. He is concerned about why we are not getting as much out of the program as the European Union is with theirs, but it is not about short-term U.S. exports. It is about helping the poorest nations grow. The premise is that if they do grow, they become bigger markets for our goods and services and more constructive trading partners.

These examples remind us that the administration remains more interested in a trading system based on bullying and leverage rather than on rule-of-law and is still focused on what we can get in the short run rather than on what’s good for everybody in the long run.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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