Tai Says Import Demand Is America's 'Superpower' to Raise Global Standards

U.S. Trade Representative Katherine Tai said advocates for free trade agreements who argue that 95% of customers are outside our borders are myopic.

Tai, who both gave a speech and participated in a Q&A hosted by the Open Markets Institute on June 15, said: "The issue is, if you look at the profile of the U.S. economy, while we may be only 5% of the world's population, we are 30% of global GDP, all by ourselves. And so, what that means is, if we have a superpower, it's actually not in exporting, and in supplying, it's in consuming. So understand your own power. If that's the case, then we should be focused on: How do we leverage the power of access into our markets ... ? If what's going to move actor behavior is access into this market, then we should be thinking about how to leverage that access to drive standards higher."

Tai, and union officials that followed in the afternoon-long program, argue that raising wages and union power abroad helps American workers. Tai and other panelists also said that focusing primarily on the bottom line leads to exploitation of workers and fragile supply chains, as well as vulnerability to other countries' hostile actions to cut off goods.

Her remarks were billed as a "major speech," but Tai continued the same themes she has focused on for two years -- that the free trade agreements of the past damaged U.S. industry, that a new approach is needed, that lower prices for goods are not worth it if peoples' livelihoods are destroyed or their earning power undermined.

"I hear all the time that, because we are not doing traditional trade agreements, we are not doing trade at all. But if we look at what those agreements did, we see the ways in which they contributed to the very problems we are now trying to address," she said. She said that the rules of origin in FTAs were shaped by manufacturers' desire for "efficiency and low cost."

"Because of it, they allow significant content to come from countries that are not even parties to the agreement -- free riders, who have not signed up to any of the other obligations in the agreement, such as labor and environmental standards. That means these rules benefit the very countries that have used unfair competition to become production hubs," she said.

"We're experimenting in the spirit of innovation. We know that this way of doing things, continuing to do things the way we always had, we shouldn't expect to have different outcomes."

Tai pushed back against critics repeatedly, at one point saying she hears "negativity." She said she feels the Indo-Pacific Economic Framework is one of the most innovative trade initiatives the administration is pursuing, and it's also one "that is running up against the most resistance."

National Foreign Trade Council Vice President for Global Trade Policy Tiffany Smith put out a statement reacting to the speech that suggested that frameworks are not commercially meaningful, and that export-oriented trade deals are needed.

"The vision for U.S. trade policy articulated today by Ambassador Tai outlines admirable goals for workers, SMEs, stronger supply chains, and sustainable and inclusive trade that we can all agree on. At the same time, the Administration’s perspective undervalues the importance of writing new rules for the global economy through trade agreements that level up standards, create certainty and advance American values and interests," she wrote.

"The most important thing that the United States Trade Representative can do to build greater supply chain resilience is to work aggressively to address tariffs and nontariff barriers abroad and unlock new global opportunities to benefit America's families, farmers, manufacturers, workers, consumers, and businesses."

Tai disagreed. She said the administration is not trying for maximally liberalized trade. It's looking to incentivize supply chains with multiple options of sourcing, from more regions, for "production that can more easily and quickly adapt to and recover from crises and disruptions."

Tai never talked about how lowering tariffs or quotas in the U.S. could achieve that goal, but the next speaker, Tim Wu, a Columbia law professor who earlier served in the administration on antirust issues, did point to a brittle supply chain that was entirely domestic -- for baby formula.

She did allude to the fact that most countries want trade policy that would bolster their own manufacturing sectors, which means the negotiators on the other side of the table want access for their exporters, or financial support to build up a nascent sector.

"We're not the only ones who have experienced erosion of industrial capacities," she said. "We have a lot of developing country partners ... whose aspirations are to industrialize in the first place."

Although Tai called out China by name in her speech, saying its rare earth export restrictions a dozen years ago was one of the first instances of its economic coercion, she also suggested that lessening import dependence on China could help U.S.-China relations.

"If we're able to just create more options, or optionality, or places, I think our sense of being backed up against the wall, and that temperature geopolitically, can come down," she said.

Tai's speech was heavily focused on goods trade but she did suggest that the administration will side with voices on the left who say that the digital trade chapters the U.S. has been negotiating are too favorable to "Big Tech."

"Trade policy must respect the space for our domestic policymakers, regulators, enforcement officials, and legislators to debate and determine appropriate frameworks governing the relationship between government, technology, business, and the public interest," Tai said. "What is at stake is the ability of Americans -- as workers, consumers, innovators, inventors, content creators, entrepreneurs, and community members -- to enjoy their rights to privacy and liberty, and their access to democracy and opportunity."