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Issue 4

World Trade and American Leadership

Vital Interests:  In your recent book, Trade and American Leadership: The Paradoxes of Power and Wealth from Alexander Hamilton to Donald Trump, you trace the evolution of United States involvement with international trade. How should the 2020 presidential candidates consider the current disruptions around international trade policy?

Craig VanGrasstek: The most serious question is what sort of international trading system do you want to have? Very clearly, the United States spent several generations building a trading system that one president is now quite devoted to wrecking.

Certainly there's already been a tremendous amount of damage done to the multilateral trading system. There is considerable doubt as to whether it can survive one term, much less two terms under Donald Trump. There's a lot more at stake here, I would argue, than just the trading system itself. It is a mistake to think about the trading system as being in its own silo that is in some sense apart from the rest of international relations.

The one area where I think that the Trump administration is correct is they see and more clearly define than a lot of former administrations, the fact that the trading system is an organic part of the relations between states. It's an organic part of the international community and how we define our relations with the rest of the world is to a very considerable degree defined by the state of our trade relations and how we conduct them.

There is in fact a well-established American practice that I think is unfortunate being both the sponsor of the creation of international institutions to mediate relations between countries on a fair, legal basis and then becoming, over time, the principal critic and spoiler again of those institutions.

Now, the conclusions that they reach from that premise and the approach that they take I think are fundamentally flawed both with respect to its economics and to the security issues. Very clearly the actions that they've taken over these last few years have made much more prominent people's awareness of just how closely connected all of these issues are together.

VI: You make a distinction between power and wealth, between politics and economics. Can you go further into that definition of how power and wealth have been part of the United States’ legacy and development over the course of the American history?

Craig VanGrasstek: There has long been this approach taken in policy making circles and in academia that somehow there is a division between high politics and low politics - between the issues of war and peace on the one hand and the issues of open or closed markets on the other,  between how we end up in wars or avoid wars or win wars on the one hand and how we ensure prosperity and inclusive growth on the other hand. I think that's something of an artificial distinction.

If you take a step backwards and look at how we have the trading system that we have today, it's largely a consequence of the fact that the United States acted most of the time quite responsibly when it took over the role that previously had been executed by the British and established the multilateral trading system that we have. There's a theory that is widely, although not universally, accepted among political scientists like myself, called the theory of “hegemonic stability”. This theory argues that we tend to have open markets only when we have a hegemon.

If you look historically at the years before Britain acquiring hegemony in the 19th century, at the period between the decline of the British and the rise of the United States, when there was not one country that had both the motive and the means to establish an open trading system, you had everyone for themselves and countries tended to pursue beggar thy neighbor policies, which ultimately meant that everyone was being beggared. There was a proliferation of barriers being erected to restrict trade between countries.

If you take a step backwards and look at how we have the trading system that we have today, it's largely a consequence of the fact that the United States acted most of the time quite responsibly when it took over the role that previously had been executed by the British.

If you have one country that has the economic interest in establishing an open trading system, and it also has the political and military power to persuade, but if necessary to coerce other countries into establishing and maintaining an open trading system, then that country can act on behalf of the community as a whole.

That's what the British did in the 19th Century from about 1860 until the outbreak of the First World War. That's what the United States did during and after the second World War. Of course the interwar period was marked by the collapse of international cooperation on trade issues with obvious disastrous consequences.

What we have today is the perception in the United States, both in the general public and among policymakers, that the United States has reached a level of decline relative to others that it has to act in some way.

The Trump administration's response is to say, "What's at fault is the trading system as a whole and we need to revamp it in its entirety.” In the process, it has taken such reckless action that we're in very serious danger not just of revising the trading system but plummeting this country and the world into trade war-induced recession.

I think what we really need to think about is ways that we can adapt the trading system to what obviously has been a redistribution of global wealth and power. Policies need to account for these changes so that there is a reasoned redistribution of burden-sharing between the United States and its partners, but you don't go about that in a way that is extremely reckless and destructive.

VI: The international trading system the British set up in the 19th century was a part of colonialism where Britain secured resources they needed and established foreign markets for their manufactured goods. Isn't that also what the United States adopted after WWII to make sure that they had access to the resources they needed as well as reliable markets for their exports?

Craig VanGrasstek: There's no doubt that when a country acts as a hegemon, it is  primarily acting in its own interest but also acting in the broader interest of the community. A lot of my book is devoted to a discussion of the sometimes difficult balance that occurs there because you can't have a leader without other countries willing to follow that leader, and that leader is not going to be able to maintain that operation if it is perceived as acting too much in its own interest and not enough on behalf of the community. I examined some episodes in which the first, British, and then American policymakers, have had to make that choice. Sometimes they did it more in favor of the community than in others.

There's a theory that is widely, although not universally, accepted among political scientists like myself, called the theory of “hegemonic stability.” This theory argues that we tend to have open markets only when we have a hegemon.

There is no doubt that the relations between poor and rich states are always going to be an important question in the trading system. There's no doubt that during the 19th Century, when the British were pursuing an open trading system, they were doing so in a two-level division of the world. There was free trade among the more industrialized countries and there was colonialism between the industrialized and the developing countries. This was pursued in a way that would not be politically, legally, or morally acceptable in the world today.

I would say that in American hegemony, the tension between the roles that had once been played by the British and the role that the United States came to play, became perhaps the most interesting aspect of US foreign policy in the latter half of the 20th Century,  That is to say that the original US role had been that of the first ex-colonial country. That is to say the United States was the original developing country. It was the first country to break off from a colonial power.

A point that I make throughout the book is that the interest of the United States from the time of Alexander Hamilton well into the 19th century, was defined very much like those of a developing country today. It was anti-colonialist, it was concerned over the stability of its own political institutions or the fragility of its economic institutions. When the United States instead took on the role that the British had, we still carried over this anti-colonial tradition, and yet in the recognition of the revised global system in which the United States was involved in generations-long struggle with the Soviet Union, there came to be a tremendous amount of conflict and competition at the periphery, within developing countries between the United States and the Soviet Union. Trade policy was a very important part of that.

One of the legacies, however, from the American experience in the latter decades of British hegemony, was a very strong opposition not to colonialism, but to discrimination.

What happened in the British system is they went from a raw form of colonialism, in which the British were calling the shots in their empire on which the sun never set, to one in which they were allowing for a great deal of home rule on the part of colonies and ex-colonies, but they also were establishing discrimination within the British Commonwealth and against outsiders, including the United States. Therefore, the policies of the United States from the 1930s to the 1960s were at least as devoted to combating discrimination as practiced in the British Commonwealth and elsewhere, as they were in reducing trade barriers.

Now one of the important changes that we see, one of the inflection points in US foreign policy and in trade policies, is the gradual acceptance of trade discrimination as a tool of foreign policy. This is most prominently seen in US trade relations with developing countries so that over time, the United States went from opposing British discriminatory trade practices in its colonies and former colonies, to the United States negotiating a large number of free trade agreements primarily with developing countries.

The Trump administration's response is to say, "What's at fault is the trading system as a whole and we need to revamp it in its entirety.” In the process, it has taken such reckless action that we're in very serious danger not just of revising the trading system but of plummeting this country and the world into a trade war-induced recession.

Where we are today is that a great deal of the conflict between the United States and China is being conducted not just in direct confrontations between Washington and Beijing in the current trade war, but in competition over who will negotiate free trade agreements with developing countries. This is something that I think has not yet received enough attention.

If you look at the world today, if you divide the world up into the camps that are Washington or Beijing oriented, the economies that are represented on the one hand by the United States plus its current Free Trade Agreement (FTA) partners, plus the countries with which it is negotiating FTAs, they account for about three fifths of the global economy. If you count China, plus China's current FTA partners, plus the countries with which China's negotiating FTAs, they account for about two fifths of the global economy. There's a little bit of overlap. There are a few countries that have FTAs with both the United States and China, but they tend to be relatively small, the Chiles and Australias of this world.

What we're seeing increasingly is the extent to which there's a colonial division, if you want to put it that way. A lot of it involves this competition between Washington and Beijing, in the division of the world into rival trading blocks, which is a complete reversal of what the original policies of the United States had been in establishing the multilateral trading system as we know it. That is to say, moving from one system in which discrimination was viewed as being as much of a problem as protectionism, to discrimination being the principal means by which we are opening markets, and using discriminatory trade agreements as a tool of foreign policy.

VI: The multilateral trading system that was created after the Second World War included the creation of international institutions to arbitrate between the developed and developing world, organizations like the WTO.  As current trade policies trend back toward discrimination and protectionism, are these institutions being cast aside as antiquated and no longer relevant in the new trading regimes you described?

Craig VanGrasstek: Absolutely. There is in fact a well-established American practice that I think is unfortunate, being both the sponsor of the creation of international institutions to mediate relations between countries on a fair, legal basis and then becoming, over time, the principal critic and spoiler again of those institutions.

If you look at what happened to the League of Nations after the United States made its first foray into global leadership by entering and deciding the outcome of the First World War, you had Woodrow Wilson creating the League of Nations, but then the US senate refusing to approve the Versailles Treaty as negotiated, first amending it extensively and then ultimately rejecting it.

In the context of American hegemony, the tension between the roles that had once been played by the British and the role that the United States came to play, became perhaps the most interesting aspect of US foreign policy in the latter half of the 20th century.

That was only a very rapid version of what we see happening with international institutions since the Second World War or since the end of the Cold War. Think of GATT, the General Agreement on Tariffs and Trade, as the economic institution governing trade that was created after the American victory in the Second World War.

The WTO, which was created in 1995, performs the same function, but it is a post Cold War institution. One of the reasons that we created the WTO is the United States had soured on the GATT as it was established in part because it didn't cover all the issues that we wanted to cover and also did not resolve the disputes that we were having increasingly with the European Union.

The United States has soured, at least the Trump administration, on the WTO for substantially similar reasons, except the principal conflicts are not with the European Union, but with China. The administration has frequently signaled its willingness to withdraw the United States from the WTO. I think that what it has done, which is even more destructive than withdrawing, is quite brazenly violating WTO norms and rules while still participating in it. I would say the status and future of the WTO right now are very much at issue.

VI: Do you think this may be the result of politicians running trade policy rather than people in the State Department, the Department of Commerce or other departments that have expertise in these areas and have been working with international institutions for years, who know what these norms are and respect them? When politicians take over these roles and push the diplomats aside, don’t you have a totally different kind of agenda?

Craig VanGrasstek: There are a lot of different angles from which to view the problem and one is how we make policy and who is being put in charge of policy. You need to take a step back and look at the structural and long-term problem. We have to consider what the public wants. We have to consider what public opinion demands because ultimately, whether we make policy in the White House, in Congress, or in Foggy Bottom, people have to answer to the electorate.

This is a flaw that I see in a system that fundamentally depends upon the willingness and ability of the hegemon to supply leadership, which is what the United States is not doing right now. The opposite of what the United States is doing.

The problems are the process of creative destruction, which involves a rejiggering of economic power within the country on a regular basis and the law of uneven growth, which dictates that the leading country is likely to grow at a slower rate than its challengers.

A great deal of the conflict between the United States and China is being conducted not just in direct confrontations between Washington and Beijing in the current trade war, but in competition over who will negotiate free trade agreements with developing countries.

These are two sources of economic instability that the world has seen for hundreds of years that was virtually an inevitability, that we would see domestic and international changes in the distribution of competitiveness over time.

Those are the economic facts that underlay the political realities. The argument that I make in my book, is that the challenge that we see arising from Donald Trump is not that he made something out of thin air, but rather he answered demands from a political constituency that no other politician, certainly not the professional politicians, had been recognizing, which is there's been growing over time, dissatisfaction in segments of the American public with how we were doing economically and the relative position of the United States.

This is something that no serious presidential candidates, certainly no winning

I think it would be a serious shame if we end up with a Democratic nominee whose approach to trade is more 'Me too' than anything else.

presidential candidate has been taking on for generations, and I try to explain how the actions of American presidents and the consideration of issues in Congress have really led to virtual neglect of trade policy, virtual neglect of demands in trade policy for the 10 or 15 years that preceded Trump's arrival.

The problem is not that the United States adjusted to its relative position, but rather it jerked into place demands that had been welling up for quite some time. The resulting chaos is the consequence. The issue is not who we had selected to deal with the problem, but rather neglect of the problem and allowing it to build up in a way that let Trump do what Trump is very good at, which is identifying unmet demands in a segment of the market, in this case, a segment of the political market. Because of this he was able to hijack a great American political party, whose direction is now quite contrary to what its other leaders would have wanted and through that have control in this country.

VI: When you say what we see today is the result of neglecting of trade policy, is neglect really the right word?  Trade policy is actually formulated by interest groups in Washington that have clear economic agendas - the big multinational corporations and financial institutions that control global markets and global connections. Didn't they get the trade policies they wanted at the expense of the American people - this whole impact of globalization?

Craig VanGrasstek: Let me define more precisely what I mean by neglect. The political saliency of a trade, that is to say, the perceived value on the part of elected officials in addressing the topic, is something that underwent a very rapid decline over the last generation.

The administration has frequently signaled its willingness to withdraw the United States from the WTO. I think that what it has done, which is even more destructive than withdrawing, is quite brazenly violating WTO norms and rules while still participating in it. I would say the status and future of the WTO right now are very much at issue.

In a very political science way, one of the things that I do in my book is I quantify the attention paid to trade by members of Congress, as shown by the bills that they introduce in Congress dealing with this and other topics and the attention paid to trade by presidents as exemplified by the speeches they give, the meetings they hold, the documents they sign and so forth.

You can see that the political saliency of trade increased at a very rapid pace between the early 1970s and the mid-1990s, then it reaches a peak around the time of George H.W. Bush's presidency, which is also about the same time that we see the first serious threats of protectionism coming from the challenge that  Bush faced in the 1992 primaries from Pat Buchanan.

The Pat Buchanan role, which fails, ultimately, is taken up by H. Ross Perot, which fails ultimately. The Buchanan and Perot positions are inherited by Donald Trump. The assumption that was made by most politicians, I think, when Buchanan failed and when Perot failed, was that the trade protection is a losing issue.

The challenge that we see arising from Donald Trump is not that he made something out of thin air, but rather he answered demands from a political constituency that no other politician, certainly not the professional politicians, had been recognizing.

You reach this peak around 1991 or so, in the early 1990s where trade accounts for a substantial share of the bills that are being introduced in Congress, for a substantial share of presidential facetime. Then it undergoes just as rapid a decline as it had risen over the previous 20 years to the point where when Trump announced his candidacy, Barack Obama was surprisingly spending 1% of his time dealing with trade policy and the role of trade as share of bills introduced in Congress that were related to trade was a tiny fraction of what it had been in the early 1990s.

This is what I mean by neglect. The neglect is that politicians had shown by the investment of their time, which is our most precious resource, that they thought that trade was a losing issue with the American public, that they were going to do better by dividing their time on other domestic and foreign issues. In that sense, yes, it was neglect because it was a sleeper of an issue for which Trump perceived that there was a lot of unmet demand.

VI: Fast forward now to upcoming election in 2020, do you see candidates putting trade issues on their agenda, addressing them in the debates we've already seen?  What do you think should be the top trade related challenges to be confronted?

Craig VanGrasstek: Well, this gets very tricky, because trade is the one issue on which people have long recognized that Trump is probably closer to the established and expressed views of officeholders in the Democratic party than in the Republican Party. Here's where it gets really interesting, which is, if you look at the trends in public opinion, over the last 10 or 15 years, it used to be the case that the bases of the two parties were apart on this issue with Republicans being the more pro-trade group and Democrats in the more trade skeptical group. That script flipped over the last decade or so. I think this is part of what Trump recognized.

The issue is not who we had selected to deal with the problem, but rather neglect of the problem and allowing it to build up in a way that let Trump do what Trump is very good at, which is identifying unmet demands in a segment of the market, in this case, a segment of the political market.

As in 2016, there was a substantial increase in the percentage of Republican voters who said that trade posed more of a threat than an opportunity for the United States. At that same time, an increasing share of Democrats were taking the view that trade posed more of an opportunity than a threat.

The interesting thing is that you cannot find a presidential candidate in the Democratic party today, who strongly promotes that view. Of all the candidates, the one who takes the most pro-trade view so far is Joe Biden and not for trade reasons, but because he believes in the rule of law and international cooperation and on that basis, is a very traditional Democrat.

There are issues on which the two parties are divided - no issue is longer standing than their relative respect for international institutions. Democrats have always been stronger internationalists than Republicans have been. 

When it comes to trade, there's been this change over time, Democrats had been the pro-trade party throughout the 19th century, all the way up until the 1960s and then Democrats gradually become the more protectionist party over time.

Republicans were the protectionist party from the time they were founded in the 1860s until President Eisenhower who was the first pro-trade Republican. It is then about the time of Ronald Reagan, that the Republicans, because of their base, become the more pro-trade party. 

The Buchanan and Perot positions are inherited by Donald Trump. The assumption that was made by most politicians, I think, when Buchanan failed and when Perot failed, was that trade protection is a losing issue.

The question now is whether we could see another change in the polarity of a party. It used to be Democrats were for free trade, Republicans were the protectionists, that polarity changed gradually over the '60s to the '80s. If there were a Democrat who wanted to pull a reverse Trump, that is, say, be the one candidate in the bunch who really takes a contrary position on trade, and try to capture the nomination, in part on the basis of that iconoclasm, that would be very interesting.

Trade is the one issue on which people have long recognized that Trump is probably closer to the established and expressed views of officeholders in the Democratic party that in the Republican Party.

I haven't seen it happen yet. It really is the most establishment candidate who takes the more traditional, Democratic internationalist position on these issues. I think it would be a serious shame if we end up with a Democratic nominee whose approach to trade is more 'Me too' than anything else.

VI: As the United States faces a world economy in disarray because of trade rivalries with China and other countries, is this an opportunity for a bipartisan effort to establish a comprehensive and reasonable American foreign policy with respect to trade and global cooperation?

Craig VanGrasstek: More in 2021 than in 2020, I think  anyone who advocates bipartisanship, in the midst of a presidential election, is setting themselves up for disappointment. I would say that in the first year of any presidency, if we're seeing a change in government, if someone wanted to put that forward as a proposal, I for one would be very interested in seeing it happen but I would be much more hopeful for it happening after the election than before the election.

Of all the candidates, the one who takes the most pro-trade view so far is Joe Biden and not for trade reasons, but because he believes in the rule of law and international cooperation and on that basis, is a very traditional Democrat.

 
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“Craig VanGrasstek” according to The Economist (January 22, 2000), “keeps a sharp eye on the politics of trade.” His new book on Trade and American Leadership: The Paradoxes of Power and Wealth from Alexander Hamilton to Donald Trump (Cambridge University Press, 2019) examines the shifting place of trade policy in the grand strategy of the United States, from independence to the struggle with China for global primacy. He also wrote The History and Future of the World Trade Organization (WTO, 2013), as well as numerous other books, articles, and monographs. Dr. VanGrasstek has taught courses on trade policy at the Harvard Kennedy School since 2000, having also taught international economics at the American University School of International Service (1994-2000) and literature at Georgetown University's School of Foreign Service (2006-2009), and has lectured in the diplomatic academies of the United States, the United Kingdom, and ten other countries. He received his doctorate in political science from Princeton University (1995), and a Master of Science in Foreign Service degree from Georgetown University (1983). He has provided advisory, analytical, and training services to numerous international organizations, national governments, and private firms in over four dozen countries.