Trade Economist Shares Recent Surprises, Uncertain Future for International Trade

Professor Alan Deardorff has been a leading expert on international trade for decades, yet even the longtime University of Michigan professor has been stunned at the developments of recent years.

Speaking with University of Virginia Darden School of Business students in Professor Peter Debaere’s “Managing International Trade and Investment” course, Deardorff, the former academic adviser of Debaere and Darden Professor Dan Murphy, shared newfound lessons on the power of the U.S. presidency and what we might learn from trade in a time of a global pandemic.

On President Donald Trump’s actions on trade, Deardorff said he had been stunned by the unilateral actions undertaken by the 45th president of the United States.

“I haven’t seen anyone do on trade policy the things Trump has done,” Deardorff said. “Is it just because other presidents went in more persuaded of the benefits of trade or was it because previous presidents have been persuaded by others in government once they get there?”

While U.S. presidential candidates often express skepticism regarding the benefits of unfettered free trade, they tend to warm to the benefit of global agreements when in office. No such transformation occurred with Trump, who has used what Deardorff described as “loopholes in U.S. law” — specifically, section 232 of the Trade Expansion Act of 1962 and section 301 of the Trade Act of 1974. Those laws give the president far more power than Deardorff previously understood to be possible to enact tariffs in the event of a perceived threat to national security or unfair trade practices.

The result has been what Deardorff described as a messy state of affairs in which tariffs are sometimes threatened and used to try to achieve nontrade related objectives, with individual countries and companies petitioning to be exempt from tariffs and the rules of trade applied in an inconsistent manner. This undermines the rule of law and encourages lobbying and preferential treatment, Deardorff suggested.

Arguably, such behavior on the part of the U.S. in an effort to change the behavior of other countries is nothing new — Deardorff noted that economic sanctions essentially play the same role — but no one has taken to the tactic with the gusto of Trump.

As far as the effectiveness of the measures, Trump clearly managed to get people to the negotiating table, Deardorff said. At the same time, the result has often been an increase in the price U.S. consumers pay for goods, and trade rerouting to other countries to bypass the U.S. tariffs that are imposed.

On Trade in a Time of Pandemic

Deardorff said recent months have led many to raise the question of whether globalization has led to too much specialization in trade, with countries and firms overly reliant on particular sources for necessities, such as the manner in which the U.S. relies on China for much of its personal protective equipment.

While there may be merit to the concerns, Deardorff said, it wasn’t clear to him what the policy response to correcting the current landscape should be. Still, Deardorff said the events of recent months would do nothing to revive already dormant prospects of large multilateral trade agreements.

Prior to the Trump presidency, the U.S. was often the dominant force pushing for “an open and rules-based world trading system.” Now, the U.S. actively impedes the proper operation of the World Trade Organization and its functions by blocking the appointment of judges to key bodies in the dispute settlement process. With the United States having relinquished a leadership role, Deardorff said China President Xi Jinping appears eager to take the baton.

However, said Deardorff, “a President Xi led world trading system is not going to look much like the one the U.S. led the creation of.”

The topic of global trade in a time of pandemic is one taken up by Debaere in a recent article published in Europe Now, a journal of the Council for European Studies.

In “How the Coronavirus Reshapes the Global Economy Is Our Choice,” Debaere says the current crisis has reinforced the fault lines revealed in the 2008 financial crisis and offered another opportunity to address the inequality at the heart of our societies. And while there are many reasons beyond globalization for this increased inequality, including technological change, taxation disparities and access to education, among other factors, failure to do so will likely lead to increased nationalism and continued weakening of international rules of trade.

“The coronavirus hits the global economy at a time when globalization is under fire and inequality is a major topic of debate in many countries,” Debaere wrote. “If we choose to address the inequities that have been at the forefront since the Great Recession, and in an uncertain world find ways to share the benefits of technological progress and globalization, we may make international cooperation possible and improve its rules. If instead we continue to blame our problems mainly on globalization, we will continue to erode global cooperation without finding common solutions.”