I recently attended a talk by Katharine Tai, currently the United States trade representative, at the University of Chicago.  After she issued her indictment of the global trading system where imports have led to a “race to the bottom,” she laid out her vision of a “worker centered trade policy.”  A student then asked her, “At the University of Chicago, we are taught that exports are the price we pay for imports. Why do you say that imports are a terrible thing?”

The student was repeating the first lesson in any class in economics, that we export so that we can import, in the same way that a family saves so that they can spend in the future. The beneficiaries of trade are consumers and firms that get access to better and cheaper imports, and the cost of these gains is that some firms need to export.

But Tai was genuinely puzzled by the question.  She asked the student to repeat the question, and then replied that she had never heard that argument before, that it made no sense to her.

This hostility to imports also runs through a recent book by Tai’s predecessor, Robert Lighthizer.  In “No Trade is Free,” Lighthizer describes how he fought China as the U.S. trade representative under President Trump. By the end of the trade war, the U.S. had imposed tariffs as high as 25 percent covering about 75% of everything China sold to the U.S.

Lighthizer’s book then lays out an agenda to finish the job started under President Trump.  He proposes to hike tariffs on China to astronomical levels, end China’s permanent normal trade status in place since the Clinton administration, and entirely cut off investment between the U.S. and China.  These proposals would entirely sever ties between China and the U.S., with disastrous results for the world economy.

Lighthizer argues that his extreme proposals are an appropriate response to the unique threat posed by China, to how much China has changed under President Xi.  “China remains the largest geopolitical threat the United States has faced, perhaps since the American Revolution,” he writes with only a little dash of hyperbole (really, a bigger threat than the American civil war?)

But a closer reading of the book suggests Lighthizer’s antipathy to China is not so much about China but rather his deeply held belief that exports are good and that imports are bad.

Lighthizer criticizes China’s mercantilist policies, which he describes as “a school of nationalistic political economy that emphasizes the role of government intervention, trade barriers, and export promotion in building a wealthy, powerful state.”

What is ironic is that Lighthizer’s description of Chinese mercantilism describes exactly what he believes the U.S. should do.

The threat to America, in Lighthizer’s view, is not so much China but any country that exports to the U.S.  As a young trade official in the Reagan administration, Lighthizer cut his teeth negotiating deals to limit Japan’s exports of cars and memory chips.  After Japan’s economy went south, he shifted his attention to China.  But it was never about China per se but rather about limiting exports to the US.

The view that imports are bad also explains Lighthizer’s inaction on Taiwan.  Lighthizer canceled low level talks on trade and investment with Taiwan.  He opposed a free trade pact with Taiwan, primarily because he views Taiwan as just another Asian exporter that subsidizes its industries and steals American jobs. (The view that TSMC is vastly subsidized by Taiwan’s government is surprisingly taken as gospel in the U.S.  Nobody believes me when I say that other than through cheap electricity, TSMC does not get subsidies from Taiwan’s government.  The irony is that TSMC will likely soon receive large subsidies from the U.S. government.)

Surely things are better under the Biden administration?

It is true that Biden administration officials have toned down the China-bashing and replaced it with a “new trade model” focused on worker rights.

The best example of the “new” worker-centered trade agenda is the updated North American Free Trade agreement signed in 2020 under President Trump.  The agreement was negotiated by Lighthizer and Tai in her former role as a key staff person in the U.S. House of Representative Ways and Means Committee.

The new trade agreement mandated, among other things, minimum wages in Mexico’s car industry exporting to the U.S.  It also allows each country to file challenges to labor and environmental practices in the other country.

In theory the updated NAFTA agreement could be a model for a “progressive” worker-centered trade agenda.  Yet, the Biden administration has not been willing to negotiate similar agreements with other countries.  It also shows no appetite for trade pacts and multilateral agreements that could be structured along the lines of the new NAFTA.  The Biden administration has refused to join the successor of the TransPacific Trade Partnership, and recently killed the modest Indo-Pacific Economic Framework.

And as far as a free-trade pact with Taiwan, it is clear that the Biden administration, like the Trump administration, has no interest in such an agreement, despite how much it would mean to Taiwan.

The Biden administration has not removed trade restrictions that only hurt American consumers and do nothing to advance a worker-centered trade agenda. The Trump tariffs on China are still in place, despite the overwhelming evidence that American consumers have borne all the costs of the higher tariffs. 

Tariffs on iron and aluminum from Western Europe, imposed by Trump ostensibly because of the “national security risk” posed by America’s European allies, are still in place.

The core issue is that the center of the Democratic Party fundamentally agrees with Lighthizer’s worldview that imports are bad.  Yes, it would be good to raise worker wages but the way to accomplish that is through less imports.

So the Democrats know what they do not want – more imports – but can not articulate a positive vision for what they do want.  Jake Sullivan, the U.S. national security advisor, defended this lack of vision by saying “the way we are going to build an international economic architecture is not going to be a Parthenon-style, clear pillars as we did after the Second World War, but something that feels a little bit more like a Frank Gehry – a mix of structures and substances.”

At the talk at the University of Chicago by Katharine Tai, after she deflected the student’s question about why imports are bad, she talked for a few minutes about how when she negotiates with other countries, the main thing that she has to offer is access to the U.S. domestic market.

Then she came back to the student’s question and said, “I would say that imports are the price we pay to get exports, not the other way around.”  And so we come full circle to Lighthizer’s world view, that exports are good and imports are bad, which unfortunately is now the mainstream view in the American political establishment.

About the Author

Chang-Tai Hsieh is the Phyllis and Irwin Winkelried Professor of Economics and PCL Faculty Scholar, University of Chicago Booth School of Business

Have you read?

• The hidden beauty of Taipei
• Does TSMC need more financial discipline?
• Fuzhou pepper buns and the failure to scale

Uploaded by Ian Huang