Healing the Wounds of Globalization

When we decided on trade as the topic for the spring 2023 issue, I knew I had some big knowledge gaps to fill, and quickly. As I made my way through articles, public addresses, and reports, I noticed the term “inclusive trade” kept cropping up. I knew what inclusivity was in many contexts, but could only guess what it meant in reference to global trade. That’s when I turned to Jeffrey Kucik, Canada Institute fellow and associate professor at University of Arizona, who specializes in international trade law, and whose focus while at the Wilson Center is inclusive trade. The more we talked, the more I thought our readers would enjoy learning about this relatively new concept, and how it fits into current global-trade policy discussions. What follows are excerpts of our email exchanges and conversations, edited for clarity.

-Stephanie Bowen

Stephanie Bowen: Let’s start with a brief scene-setter on trade. The last two US presidents broke from decades of pro-trade White House policy by raising tariffs and suspending new trade deals. How do you explain the recent change?

Jeffrey Kucik: There are several explanations. The most common is that we’ve seen a populist backlash against trade. There appears to be widespread belief that globalization’s promise has been broken. Free trade was supposed to make us all better off. In some respect, it has. We can all buy cheaper goods because of greater market openness. But that luxury comes at a cost. Trade has been blamed—rightly or wrongly—for decades of job loss and wage stagnation. And, by 2016, voters’ frustrations ran so deep that candidates as dissimilar as Bernie Sanders and Donald Trump found it politically expedient to criticize trade.

The second explanation is that some governments around the world, including the United States, no longer believe that the rules-based global trading system works. The US has been an especially vocal critic of the World Trade Organization and its system of dispute settlement. Under WTO rules, countries can sue one another when they believe a fellow member’s policies are discriminatory. The US has been the WTO’s most active user of this system, initiating more complaints than any other member. However, it is also the country targeted most often. In response, US trade authorities, dating back long before President Trump, criticized the dispute process for overstepping its mandate and for unfairly targeting US policies.

Inclusive reforms activate old partisan divisions because they raise fundamental questions about the role of government in the marketplace.

Those complaints are part of a broader concern that formal trade deals tie the government’s hands too tightly. The US is prevented, so the logic goes, from protecting its domestic interests. Meanwhile, other countries openly flout the rules. This perception that trade deals are no longer fit for purpose has had a tangible policy impact. It helped motivate the Trump administration’s withdrawal from the Trans-Pacific Partnership, the vetoing of new WTO Appellate Body members, and the renegotiation of the North American Free Trade Agreement.

Taken together, dissatisfaction with trade rules, along with worries about how trade impacts local communities, have both generated demand for policy reform.

SB: Thanks, that was really helpful. One of the words we hear a lot in current policy conversations is “inclusivity.” Can you explain what makes a trade policy inclusive?

JK: Inclusive trade is a broad label for policies aimed at promoting equitable growth and healing the gashes that globalization cut into societies around the world. The idea is that trade policies need to take globalization’s harm more seriously if we want to sustain meaningful, profitable cooperation.

While the term is relatively new, the idea is not. New Deal–era trade officials argued that market liberalization should serve workers, not the other way around. Today’s reformers argue that those lessons from the 1930s and ’40s were forgotten somewhere along the way, and that policy needs to refocus on worker welfare. This idea is sometimes called “worker-centric” policy or, as the Biden administration refers to it, “foreign policy for the middle class.”

The word “inclusive” is worth talking about. In everyday usage, we typically think of inclusivity in our efforts to combat discrimination against underrepresented groups. Inclusive trade can be used that way. For example, we know that trade contributed to some of the manufacturing job loss across the United States in recent decades. But there is also evidence that Black manufacturing workers were hit harder than whites. Statistically, Blacks are more likely to work in lower-skilled positions that are more vulnerable to outsourcing. And, they are more likely to face barriers to reemployment.

So, inclusive trade can refer to those forms of discrimination. Typically, however, it is used more broadly. Inclusive policies are supposed to be just that—policies that promote worker welfare regardless of race, sex, or any other demographic trait.

Importantly, inclusivity also means looking beyond the domestic market. One of the core motivations behind trade reform is addressing social dumping—the exploitation of cheap labor, such as for textiles and sweatshops for apparel. In that sense, inclusive trade overlaps with concepts of fair trade. We want to ensure that coffee growers are paid a reasonable price for their beans or that minerals are not mined by slave labor in conflict zones.

SB: Promoting growth while treating labor fairly sounds like a good idea. How is that best accomplished? Are there specific policy proposals being considered?

JK: Possible reforms are varied and far-reaching. In terms of global efforts, there are calls to end corporate tax shelters, strengthen labor standards, and add more robust environmental regulations to trade deals. These diverse ideas share a common goal: avoiding a race to the bottom in which competitive pressures punish markets that try to protect their workers and their resources.

Those proposals may imply that inclusive trade is all about stricter rules. To the contrary, one of the leading proposals is to make trade deals more flexible.

Recall that one of the criticisms facing trade agreements is that they are too binding, preventing governments from protecting their interests. This argument does not just come from import-competing businesses who seek trade protection. Advocacy groups also claim that trade rules too often prevent governments from regulating the market in ways that protect the public interest. For example, Country A may wish to have standards limiting lead paint in children’s toys or restricting which pesticides are used on agricultural products. But Country B may view these standards as discriminatory and, under a system like the WTO, may sue Country A for violating its trade-liberalizing commitments.

Not all countries agree that the rules-based order is broken. While the US has been a vocal critic of the WTO, the European Union has been more supportive.

Recognizing this problem, a common claim is that governments need more room to maneuver within the rules, regulating their markets as they see fit. This means rewriting trade law to make commitments more flexible.

The idea is to put people ahead of prices. Trade deals already have flexibility provisions, such as safeguards and anti-dumping measures, which provide governments with opportunities to relax their commitments when import competition unduly harms a domestic industry. However, reformers argue that the rules do not prioritize workers. To limit abuse of flexible provisions, escape is only permitted in specific circumstances. Under the World Trade Organization articles on anti-dumping, wages and jobs are last on that list, behind losses to profits, productivity, and market share. Those calling for inclusive reforms say we need to reorder that list, putting workers first, not last.

Of course, trade rules alone cannot address all of globalization’s challenges. Inclusive trade also means domestic policy reforms that work in conjunction with revisions to international law. At home, policy proposals focus on expanding worker retraining programs, strengthening unions, and raising minimum wages. They sometimes also include deeper investments in education and infrastructure.  

SB: That all sounds very ambitious. Given the trend away from trade in recent years, how realistic is it to think reform will make trade more inclusive?

JK: One problem is that shared grievances have not created shared policy preferences. Just because people are disillusioned with the economy does not mean they agree on how to fix the problem.

In the United States, opinion on almost every issue is highly polarized—and economic policy is no exception. Our work at the Canada Institute shows that inclusive reforms activate old partisan divisions because they raise fundamental questions about the role of government in the marketplace. Consider those domestic proposals we just mentioned. Higher minimum wages and worker-retraining programs are forms of government intervention in the economy. Not everyone agrees that is a good idea. A traditional, pro-market point of view would say that state interventions are inefficient and market-distorting. That is why it is a mistake to conflate Trump’s “America First” with Biden’s agenda. Both of them involve tariffs, but the similarities end there. Consistent with traditional Republican positions, Trump argued for looser regulations to allow the market to operate more freely. By contrast, Biden has called for more redistribution and government investment in local communities.

Those disagreements help explain why trade-related policy remains uncertain right now. While both sides of the aisle express dissatisfaction, bipartisan cooperation is rare. Only 24 Republicans in the House voted for the CHIPS Act to invest in semiconductor capacity. Meanwhile, there is very little momentum behind renewing Trade Promotion Authority and, as a result, new trade deals have been sidelined in favor of looser framework agreements.

There are also challenges internationally. Namely, not all countries agree that the rules-based order is broken. While the US has been a vocal critic of the WTO, the European Union has been more supportive. Last year, 20 WTO members agreed to settle dispute appeals through an interim arrangement without US participation.

Disagreements about the WTO aren’t the only problem. Efforts to “friend-shore” production and to secure vital supply chains—two core elements of Biden’s policy agenda—run up against allied countries’ dependence on China and Russia. Asking Western European or Pacific Rim allies to pull away from long-held partners is no easy task.

SB: I was reading that there are concerns that inclusive reform is really just a fancy term for protectionism, and that it may disadvantage smaller and poorer economies. Can you help me understand what that’s about?

JK: That is a valid worry. There are certainly development implications worth considering. For example, critics of inclusive trade policy point out that restricting foreign trade to focus on domestic job promotion can backfire. First, we know that any trade barrier has costs. The US-China trade war showed us that efforts to protect steel and solar manufacturers led to retaliation that hurt soybean farmers.

Second, and more importantly from a developmental standpoint, trade barriers can deprive foreign producers of economic opportunity. Put China aside for a moment and think about America’s smaller trade partners. Many developing markets are highly concentrated in just a few industries, typically raw materials, commodities, and low-skilled manufacturing. These markets depend crucially on exporting to richer nations. When those wealthier trade partners close off market access with trade barriers, it hits developing countries especially hard.

So, we have to strike a delicate balance. Limiting trade may sound like a good idea if we don’t want to support the exploitation of foreign labor. However, there is a massive gray area around this issue, and we do not want to deprive developing countries of economic opportunities just in the name of inclusive trade.

Of course, supporters of inclusive trade understand this problem. It is a thorny issue requiring more attention. Defining “worker welfare” is not straightforward, and devising standards that apply to labor around the world is very difficult.

SB: We’ve been talking a lot about the United States, especially given how important its trade policy decisions are for other countries. What role does the US have as we look forward?

JK: Inclusive trade policy is something that many governments are thinking about, including Canada, the EU, and numerous countries across Africa and Latin America. So, this is certainly not just a story about US interests. However, the US can have an important role to play.

The US helped design the current global trade regime and that, while its track record is not perfect, its patronage was and is important to upholding the rules. As frustrations grew amongst US policymakers and citizens, and uncertainty clouded US trade policy, we have already seen economic costs. Early in his administration, President Trump famously stated that trade wars “are good and easy to win.” But there are limits to America’s leverage over its partners. In recent years, traditional allies have forged new trade routes and signed new treaties in which the US is not involved. This will have longer-term implications for US companies and their workers who are not guaranteed market access under these new deals.

There are also security risks associated with turning inward. Commentators have been quick to point out that retreating from multilateral and regional institutions was a strategic mistake that left a vacuum for other countries to fill. This argument was especially prevalent when the US withdrew from the Trans-Pacific Partnership, leaving room for China’s Regional Comprehensive Economic Partnership agreement involving many of the same countries.

Of course, when talking about inclusive trade we are not just concerned with old notions of “soft power” and “spheres of influence.” But we should be concerned with the contents of trade deals around the world. While existing trade rules are far from perfect, the fact is the US had been a world leader in core areas like government transparency and labor standards in its trade deals. By opting for framework agreements instead of traditional trade treaties, one danger is that these standards are less clear—and much less enforceable.

That is why it is important to keep a seat at the table. No one argues that the current rules are absolutely perfect. The WTO is painfully silent on this and contemporary trade issues like e-commerce and crypto. Even more recent deals like the US-Mexico-Canada Free Trade Agreement face criticism for omitting any mention of climate change, and for some key labor provisions, which were seen as thinly veiled protections. But imperfect rules are all the more reason to keep thinking about new solutions.

SB: In light of the challenges, what should our priorities be? And what are the prospects for meaningful reform?

JK: There are at least three things the US and other countries should do to address some of the political frustrations with globalization.

First, we need to focus on market stability. For too long, trade policy has been concerned solely with trade promotion. But recent events, such as the COVID-19 pandemic and the war in Ukraine, provide daily reminders that global instability hurts local communities around the world. Bringing greater stability to the marketplace should be a core priority, and this cannot be done by turning away from cooperation. Instead, we have to revisit the rules-based system.

Second, and relatedly, we have to take trade law reform seriously, including WTO reform. Currently, there is very, very little momentum in Washington behind fixing the WTO. That is a mistake. Not least because there is strong evidence that the rules-based world order, as imperfect as it has been, did not just promote trade—it also added predictability to the marketplace. That stability, as we see every day, has benefits for firms—and for workers—who depend on the ability to build long-term trade relationships.

Naturally, part of that conversation has to focus on reforming dispute settlement. The virtues of dispute settlement are frequently misunderstood. Dispute settlement processes don’t exist just to punish countries with discriminatory trade policies. They also exist to limit that punishment. Much like a domestic legal system, the idea is that you don’t shoot someone for stealing a loaf of bread. Dispute settlement mechanisms built into the WTO, and agreements like USMCA, endeavor to take trade relations out of an economic Wild West and place them in a more controlled, predictable environment. This helps avoid trade wars and the kinds of market disruptions that leave workers on all sides worse off.  

Third, we need more careful consideration of how domestic and international policy efforts support one another. There is always a danger that trade partners see investing in domestic capacity as an unfair subsidy. That is why countries have kept a keen eye on the Inflation Reduction Act, the CHIPS Act, and other efforts to bolster US manufacturing capacity and re-shore production. Getting countries to accept one another’s industrial policies—and not sparking more trade wars—is probably the single biggest policy challenge facing reform right now.

The good news is that reform is possible. Commentators who were quick to eulogize the neoliberal world order have overstated public opposition to trade. It’s true that voters appeared frustrated with the status quo in 2016. However, public opinion data from Gallup and the Pew Research Center shows historically high support among average Americans for trade. That means there is an opportunity to continue this conversation about how to realize the gains from trade while still taking its risks seriously. That balance may never be struck perfectly but, if we claim to care about workers, it is worth trying.

Jeffrey Kucik, PhD, is associate professor in the School of Government and Public Policy and the James E. Rogers College of Law at the University of Arizona and a fellow at the Canada Institute. He researches the politics of international trade and investment, and is interested in developing more sustainable, more robust trade rules. His work explores the conditions under which countries comply with international economic law. He also investigates how free trade helps or harms domestic workers. Both lines of research seek to better understand the local consequences of doing global business.

Stephanie Bowen is the editor of the Wilson Quarterly.

Cover photo: Outside of the World Trade Organization in Geneva, Switzerland. Shutterstock/Martin Good.