William Krist's Blog, page 46

Manufactured Crisis: “Deindustrialization,” Free Markets, and National Security

BEXECUTIVE SUMMARY

Both the American left and right often use “national security” to justify sweeping proposals for new U.S. protectionism and industrial policy. “Free markets” and a lack of government support for the manufacturing

sector are alleged to have crippled the U.S. defense indus- trial base’s ability to supply “essential” goods during war or other emergencies, thus imperiling national security and demanding a fundamental rethink of U.S. trade and manu- facturing policy. The COVID-19 crisis and U.S.-China tensions have amplified these claims.

This resurgent “security nationalism,” however, extends far beyond the limited theoretical scenarios in which national security might justify government action, and it suffers from several flaws.

First, reports of the demise of the U.S. manufacturing sector are exaggerated. Although U.S. manufacturing sec- tor employment and share of national economic output (gross domestic product) have declined, these data are mostly irrelevant to national security and reflect mac- roeconomic trends affecting many other countries. By contrast, the most relevant data—on the U.S. manufactur- ing sector’s output, exports, financial performance, and investment—show that the nation’s total productive capac- ity and most of the industries typically associated with “national security” are still expanding.

Second, “security nationalism” assumes a need for broad and novel U.S. government interventions while ignoring the targeted federal policies intended to support the de- fense industrial base. In fact, many U.S. laws already autho- rize the federal government to support or protect discrete U.S. industries on national security grounds.

Third, several of these laws and policies provide a cau- tionary tale regarding the inefficacy of certain core “secu- rity nationalist” priorities. Case studies of past government support for steel, shipbuilding, semiconductors, and machine tools show that security-related protectionism and industrial policy in the United States often undermines national security.

Fourth, although the United States is not nearly as open (and thus allegedly “vulnerable”) to external shocks as claimed, global integration and trade openness often bolster U.S. national security by encouraging peace among trading nations or mitigating the impact of domestic shocks.

Together, these points rebut the most common claims in support of “security nationalism” and show why skepti- cism of such initiatives is necessary when national secu- rity is involved. They also reveal market-oriented trade, immigration, tax, and regulatory policies that would generally benefit the U.S. economy while also supporting the defense industrial base and national security.

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To read the original policy analysis from the CATO Institute, please click here

Scott Lincicome is a Senior Fellow in Economic Studies, where he writes on international and domestic economic issues, including: international trade; subsidies and industrial policy; manufacturing and global supply chains; and economic dynamism. Scott also is a Senior Visiting Lecturer at Duke University Law School, where he has taught a course on international trade law, and he previously taught international trade policy as a Visiting Lecturer at Duke. Prior to joining Cato, Scott spent two decades practicing international trade law at White & Case, LLP, where he litigated national and multilateral trade disputes and advised multinational corporations on how to optimize their transactions and business practices consistent with global trade rules and national regulations. From 1998–2001 Scott was as a trade policy research assistant at Cato, and he became an Adjunct Scholar in 2013. During that time, Scott authored or co‐​authored several policy papers, as well as numerous op‐​eds on trade and economic issues, and he is routinely featured on TV, radio and print media.

Boeing-Airbus Subsidy Dispute: Recent Developments

On October 18, 2019, the United States imposed additional tariffs on $7.5 billion worth of U.S. imports from the European Union and the United Kingdom (UK) (hereinafter collectively referred to as the EU). The action, authorized by World Trade Organization (WTO) dispute settlement procedures, followed an investigation by the Office of the United States Trade Representative (USTR), under “Section 301” (Title III of the Trade Act of 1974, 19 U.S.C. §§2411- 2420). The USTR determined that the EU had denied U.S. rights under WTO agreements. Specifically, the USTR concluded that the EU and certain current member states and the UK had not complied with a WTO Dispute Settlement Body (DSB) ruling recommending the withdrawal of WTO-inconsistent subsidies on the manufacture of large civil aircraft. In 2011, the dispute settlement (DS) panel confirmed that these subsidies breached the EU’s WTO obligations under the 1994 General Agreement on Tariffs and Trade (GATT) and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

The authorization to take countermeasures against the EU—the largest amount in the WTO’s history—comes after nearly 15 years of litigation at the WTO. The litigation involves the world’s two largest aerospace manufacturers, U.S.-based Boeing and EU-based Airbus, which have competed for years for dominance in the commercial airline supply market. The United States successfully argued that Airbus had received billions of dollars in illegal subsidies, which resulted in a loss to Boeing of significant market share throughout the world. The U.S. action to impose tariffs, consistent with the WTO arbitrator’s finding on the appropriate level of countermeasures, aims to pressure the EU into either ending the subsidies or negotiating an agreement with the United States.

In a parallel dispute case against the United States, the EU also received WTO authorization to take countermeasures against the United States for failing to abide by WTO subsidies rules in supporting Boeing. In November 2020, the EU began imposing additional tariffs on approximately $4.0 billion worth of EU imports from the United States (15% on aircraft and 25% on agricultural and other products). The USTR claims that the United States fully implemented the WTO’s DSB recommendations as of early 2020, and therefore “there is no valid basis for the EU to retaliate against any U.S. goods.” Due to the magnitude of U.S.-EU trade (of which civilian aircraft, engines, and parts are a major component) and ongoing trade frictions, some Members of Congress are closely monitoring developments in the WTO litigation and in U.S.-EU negotiations.

Boeing-Airbus Subsidy Dispute- Recent Developments

The United States can return to multilateral economic cooperation. Here’s how.

Many countries around the world are hoping that the incoming Biden administration will take the lead in restoring a cooperative multilateral approach to trade. Yet such a return to business-as-usual (pre-Trump) trade policy, focused on the negotiation of market-opening agreements, is unlikely at the start of the administration, with its stated priority of strengthening domestic competitiveness and workers’ conditions to compete in the global economy.

But trade policy cannot be ignored. An active trade and investment agenda must be part of rebuilding American leadership in the world and holding together coalitions on broader forms of cooperation. In addition, the Biden team will need to undo the damage caused by the Trump administration’s confrontations with US friends and allies. Trade is not a secondary issue to Biden’s pledge to “build back better.” Trade and international investment are critical for recovery of the US and global economies.

In the paper Getting America Back in the Game: A Multilateral Perspective, which we coauthored with Richard Baldwin, Jonathan Fried, André Sapir, and Tetsuya Watanabe, we suggest how to help get the United States back to support, strengthen, and improve a multilateral trading system. The idea is not for each country to pursue bilateral engagements in an effort to outdo others. The plan is for a multilateral approach to reinvigorate international cooperation based on two pillars: working together and formulating initiatives as “trade tracks” in broader foreign and climate policy agendas.

WORKING TOGETHER, WORKING WITH THE UNITED STATES

By working together, multiple countries, large and small, could put forward pragmatic initiatives to strengthen rules-based trade. Initial efforts could focus on the pressing challenges of fighting the pandemic and the economic recession. Membership in these cooperative efforts should be broad and diverse enough to be representative but small and homogenous enough to result in rapid agreement.

“TRADE TRACKS” IN FOREIGN AND CLIMATE POLICIES

President-elect Biden has stated that on the first day of his administration, he will reverse some of the Trump administration’s most damaging actions by restoring US membership in the Paris climate agreement and the World Health Organization, while also calling for a summit of the North Atlantic Treaty Organization (NATO). He should also unblock the appointment of the consensus candidate to lead the World Trade Organization (WTO), Ngozi Okonjo-Iweala. This step would reinstate direction at the highest level at the WTO and revitalize its ability to promote multilateral economic cooperation.

During the first 100 days, trade and investment tracks should be embedded in both the foreign and climate policy agendas. Renewing American leadership to mobilize global action on global threats must start not simply by mending relations with allies but also by moving away from tariff weaponization. The administration must quickly address the unilateral US tariffs—and the retaliatory duties they provoked—and stop continually threatening new tariffs on allies under the misguided claim that imports pose a risk to America’s national security. Trade-related frictions, ranging from taxation to data privacy to food safety standards, will not suddenly go away, but establishing a framework and timetable to negotiate agreements on rules would help build trust.

The fight against the pandemic and recession has both domestic and international components. International cooperation is needed to expand the global supply of, and equitable access to, vaccines, treatments, and other medical equipment. A commitment to not curb exports of key medical supplies and to facilitate the movement of critical medical gear and medicines, while investing in scaling up global manufacturing capacity, would also help protect against future health crises. A pledge by the Group of Twenty (G20) countries to keep markets open could reduce uncertainty and stimulate economic activity.

While trade policy may eventually play a role in supporting the massive policy changes required to achieve the goals of the Paris agreement, early progress on environmental initiatives could come from finalizing a WTO agreement to limit fishery subsidies to avoid overexploitation of fish stocks, as well as resuming negotiation of the Environmental Goods Agreement, which seeks to eliminate tariffs on environment-related products, supporting green industries.

TRADE PRIORITIES

The Biden administration will confront three sets of trade priorities as it pursues its broader foreign policy and economic objectives. The first consists of several that require immediate attention, including developing a strategy for dealing with China. The second set is important but less immediate, including sorting out disputes on Airbus and Boeing, which have been locked for years in fights over government subsidies, and the French and other countries’ efforts to impose digital services taxes. These issues are key to strengthening transatlantic relations. A third category of issues are “under the political radar” but important as signals to reengage with multilateralism. These issues would include reform of the WTO Appellate Body and current negotiations to set up rules on cross-border ecommerce and other initiatives.

The Biden administration may not make reinvigorating multilateral trade cooperation a stated urgent goal. But to achieve its key domestic and international objectives, the administration has no choice but to pursue that objective as essential to its other priorities.

To read the original post by PIIE, please click here. 

Getting America back in the game_A Multilateral perspective

 

The hard work ahead in improving US-India agricultural trade

The United States and India have taken important steps forward in recent years to devote more attention to their trade relationship, which has generally lagged behind the much bigger steps pursued in developing their strategic relationship. However, as both countries know well, an alignment of strategic interests does not always translate into comity in trade interests. One might even argue that a mature and healthy strategic relationship should be able to readily weather the storms arising from occasional trade tensions.

Trade in agricultural products is replete with such examples, and might even be the best crucible for pressing national interests while simultaneously cementing and reinforcing shared strategic ones. Simply consider the history of trade disputes over many years between the United States and its European allies. A large number of these involve agricultural trade—from canned peaches in the 1980s to poultry and corn products today. The same is true with Canada, Japan, South Korea, and Australia, and the list goes on.

One should expect that the United States and India are no different. Their strategic relationship blossoms anew with each successive US and Indian administration, yet challenges on trade—specifically agricultural trade—persist and, unfortunately, even fester. Both countries are global agricultural powerhouses, and their respective political sensitivities regarding the economic well-being of farm families are well matched.

That said, one should not conclude that trade tensions over agriculture are necessarily perpetual, or immune to efforts to resolve them. Progress can be made, and achievements, even if hard won, can be infectious by inspiring ambition to do bigger things in the trade relationship. One can even point to prospects for new successes. Although US and Indian trade negotiators did not conclude a “mini-deal” during the Donald Trump administration, they got very close. This was unprecedented, and this progress bodes well for negotiations to resume—and soon be concluded—during the Joe Biden administration. Agricultural trade is a key component of this potential deal, and success can offer an important step forward in increasing bilateral agriculture trade that offers mutual and reciprocal benefits.

However, not all engagement on agriculture trade necessarily requires transactional negotiations. While negotiations (and sometimes dispute settlement in the World Trade Organization (WTO)) may be unavoidable for the most intractable problems, there can also be plenty of opportunities for more cooperative approaches. In fact, this issue paper sets out arguments for this kind of approach—to complement the short-, medium-, and long-term efforts to negotiate bigger and more comprehensive trade deals in the future—and a brief roadmap of recommendations for pursuing cooperative successes. While trade negotiators will continue to be stuck with the hard, dirty work of hammering out trade agreements that can help better integrate national economies and provide economic ballast to broader strategic relationships, technical experts can accomplish quite a lot in parallel to encourage and facilitate increased agricultural trade; again, this is in the mutual interests of both countries.

To read the rest of the report by the Atlantic Council, please click here. 

The_Hard_Work_Ahead_in_Improving_US-India_Agricultural_Trade-1

Human Rights in China

Over thirty years after the June 1989 Tiananmen Square crackdown, the Communist Party of China (CCP) remains firmly in power. The U.S. Department of State describes the People’s Republic of China (PRC) as an “authoritarian state.” PRC leaders have maintained political control through a mix of repression and responsiveness to some public preferences, delivering economic prosperity to many citizens, co-opting the middle and educated classes, and stoking nationalism to bolster CCP legitimacy. The party is particularly vigilant against unsanctioned collective activity among sensitive groups, such as religious groups and ethnic minorities, labor organizations, political dissidents, and human rights activists.

The U.S. government employs various policy tools to support human rights in China (see “Selected U.S. Policy Tools” below). Since 2019, the United States has imposed visa, economic, and trade-related sanctions and restrictions on some PRC officials and entities, particularly in response to reports of mass detentions and forced labor of Uyghurs and other ethnic minorities in Xinjiang province. These measures have been implemented pursuant to the Global Magnitsky Human Rights Accountability Act, Section 307 of the Tariff Act of 1930, Export Administration Regulations, and other authorities.

Human Rights in China

THE EU-UK TRADE AND CO-OPERATION AGREEMENT: A PLATFORM ON WHICH TO BUILD?

The new trade deal between the EU and the UK could be improved upon over time, but that is not a given. It could also crumble away.

The EU-UK trade and co-operation agreement (TCA) was negotiated in record time, concluding dramatically on Christmas Eve. But in truth, the negotiations could have been wrapped up by the end of the summer, had it not been politically necessary for the EU to fight the good fight over access to UK fishing waters, and for the UK to leave as little time possible for domestic parliamentary scrutiny. The eventual compromises on the contentious issues of level playing field, governance and fish were both predictable and predicted. The TCA’s late arrival left resource-constrained businesses with only days to adjust to new arrangements, but it should be broadly welcomed as a significant improvement over the January 1st default of no trade agreement. The question that now needs answering is not if the agreement can evolve – it can – but rather if it can endure.

The new trade deal between the EU and the UK could evolve over time into something more substantial, but first it must endure.

The TCA removes tariffs and quotas (conditional on the exported products meeting the agreement’s rules of origin criteria) but does little to facilitate trade in services, or negate the need for new bureaucracy and checks at the border. But this was expected – once the UK government prioritised regulatory autonomy, ending freedom of movement, and gaining a free hand on trade policy, its economic ambition was limited to a trade agreement with the EU similar to what the bloc has with Canada and Japan (at least for Great Britain; Northern Ireland has a deeper trade relationship with the bloc under the terms of the Withdrawal Agreement). Importantly, the TCA does include broader co-operation on issues such as law enforcement and social security, although not on foreign policy. One unexpected benefit is that temporary visitors to each other’s territory can retain access to state-provided healthcare, as is current practice among EU countries.

Yet, even taking into account the UK’s limited ambition, there are notable gaps and omissions in the agreement. The UK failed to convince the EU to include ambitious provisions on the mutual recognition of professional qualifications or match the UK’s ambition on the temporary movement of services suppliers, particularly intra-corporate transferees. Nor did the EU accept broad-brush mutual recognition of conformity assessment (whether UK-based testing labs could continue to certify that UK produced products meet EU requirements) or binding commitments to a reduced frequency of border inspections carried out on food products. The TCA also kicks the can on a number of important issues: it does not include provisions for a financial services regulatory dialogue (unlike the EU’s trade deals with Canada and Japan), instead moving the discussion into a potential future memorandum of understanding. The agreement buys more time for the EU to unilaterally decide whether the data of its citizens can continue to be stored and processed on UK-based servers for up to six months. And it leaves open the possibility of the UK linking its own emissions trading scheme to the EU’s.

Thankfully, the provisions written into the agreement are not the end of the story. Sitting beneath a ministerial level joint partnership council, the TCA includes 19 specialised committees covering near every aspect of the agreement – from sanitary and phytosanitary measures to public procurement – which can suggest improvements. And while it is unlikely that the EU or UK will want to fiddle with the agreement in the immediate future, over time and as the political spotlight moves elsewhere, it is possible that the TCA will be incrementally upgraded. Additional provisions on the mutual recognition of professional qualifications or of conformity assessments are conceivable, for example. You could also imagine the UK seeking to revisit the question of border checks on products of animal origin, simply to reduce the burden placed on traders navigating the new internal trade border between Great Britain and Northern Ireland.

However, substantial improvements to the agreement will not be possible unless there is a notable shift in domestic opinion in the UK. Unlocking a relationship of similar depth to Switzerland’s with the EU, for example, would require the UK to accept free movement of people, regulatory harmonisation, and most probably a role for the European Court of Justice. And while it is conceivable that British public and political sentiment on these issues could soften in the future, in the short to medium term that seems unlikely. This also poses a problem for the opposition Labour party, which will instinctively want to deepen the trade relationship, but fears turning off those potential voters with more eurosceptic inclinations. In the immediate aftermath of the treaty being signed, Keir Starmer, Labour’s leader, has rejected free movement of people and ruled out extensive re-negotiating of the TCA were Labour to come into power. Positions will inevitably change in the coming years, but the built-in possibility for evolution of the TCA does not mean evolution will happen.

Moreover, the TCA also contains many reasons to think it could crumble away. Along with the ability for both parties to terminate the agreement following a 12-month notice period, the TCA is littered with review clauses and dispute settlement processes that could lead to parts of the agreement being suspended. Take the commitments on subsidies, for example. The UK succeeded in seeing off the initial EU attempt to bind it to EU subsidy rules both now and in the future. But the UK still signed up to binding high level principles on subsidies and accepted that benefits of the agreement could be suspended in the event either party breaches them, and those breaches impact trade and investment flows between the two. The same is true of commitments made on the environment and labour rights, where future regulatory divergence could see the re-imposition of tariffs.

The concept of preferences being suspended in the event of the signatories to a trade agreement breaching their commitment is pretty common in trade agreements (although the particular approach taken in the TCA is very much unique), but the political climate, particularly in the UK, makes the TCA uniquely unstable. Those MPs who have long harboured grievances towards the EU are unlikely to ever be satisfied by a treaty that keeps the UK, even loosely, in the EU’s orbit. They will probably agitate for symbolic divergence, no matter the consequences. Some may even want to tear up aspects of the treaty, as they are already doing with respect of the Withdrawal Agreement, to force further confrontation with the EU. While the current UK government is unlikely to pander to the more extreme voices in the short-run, this could change if it feels it is starting to lose voters to parties to its right. And so long as the UK remains geographically proximate to Europe, there will always be someone harbouring a desire to torpedo the relationship.

So long as the UK remains geographically proximate to Europe, there will always be someone harbouring a desire to torpedo the relationship.

There are also a number of events scheduled for 2021 that could create political tension in the EU-UK relationship. The EU still needs to decide whether the UK’s financial services rule book is equivalent to its own, and if so whether to allow certain financial products to continue being sold into the EU from the UK’s territory. Technically speaking, as a recently departed EU member with all of the same rules, the UK should be able to easily meet the EU’s criteria. But the EU’s decision will inevitably be influenced by its political desire to onshore more financial activity and build an integrated European capital market on the continent; it is unlikely that it will grant UK-based firms across the board access, and instead will only grant equivalence in the areas deemed to be of ‘systemic importance’ to the EU’s financial markets. On a separate note, many of the derogations and waivers, currently in place to facilitate trade between Great Britain and Northern Ireland, will expire through the first half of 2021, potentially creating further difficulties for the UK’s new internal trade border. Either of these issues, and many others, could put extreme pressure on the relationship and the sustainability of the TCA.

Whether the TCA stands the test of time is yet to be seen. Much will depend on the nature of UK politics over the coming years, and whether Brexit has put the so-called EU question to bed, or not. Regardless, for better or worse, the EU’s relationship with the UK will not remain static, and in ten years’ time will inevitably look very different from what it does today. 

Sam Lowe is a senior research fellow at the Centre for European Reform.

To read the full brief, please click here. 

The EU-UK trade and co-operation agreement- A Platform on which to build?

Trade Discrimination: The Disproportionate, Underreported Damage to U.S. Black and Latino Workers From U.S. Trade Policies

Executive Summary

The damage caused by the corporate-led hyperglobalization that has been implemented over the past decades by “trade” agreements such as the North American Free Trade Agreement (NAFTA), the World Trade Organization (WTO) and NAFTA-style free trade agreements (FTAs) has been well documented — from mass job offshoring to unreliable supply chains to downward pressure on wages to weakened consumer and environmental protections.

In his 2016 presidential campaign, Donald Trump hijacked progressives’ critique of corporate globalization and job offshoring, but reframed it into a narrative of resentment with racialized appeals to target white working-class voters.

This followed on the “China Shock” research conducted by Massachusetts Institute of Technology Professor David Autor and others that showed the lasting impact on specific regions of the country from the loss of millions of U.S. jobs related to trade with China. Prominent press coverage of Autor’s work and Trump’s 2016 election focused on white non- college educated workers as the main victims of corporate-led hyperglobalization.

That conventional wisdom is challenged by the data presented in this report. The trade-related decline of U.S. manufacturing had a dire impact on racial minorities, particularly African Americans. In many ways, the damage has fallen disproportionately on people of color in the United States.

As Donald Trump failed to deliver on his promises to stop job offshoring or to create a “manufacturing boom” by “bringing back” or creating millions of new manufacturing jobs, in 2020 a surge in union voters and voters who earn $50,000 or less in key swing states ousted Trump, initial exit poll analyzes show. Whether these working-class voters of diverse races and ethnicities will stick with the Democratic Party depends on whether their lives and livelihoods measurably improve over the next four years. And that relies on the Biden administration enacting economic policies designed to do just that, which means breaking from the trade policy supported by Republican and Democratic presidents alike over the past few decades.

While decades of such corporate-rigged trade policies have harmed many American workers of all races and ethnicities, Black and Latino workers who lost jobs and experienced wage stagnation from NAFTA, the agreements enforced by the WTO, and the “China Shock” following China’s entry into the WTO — all policies enacted during the Clinton administration — have assumed a disproportionately large share of the harm inflicted by these deals. U.S. government data — despite shortcomings as to the recognition of the complexities of race and ethnicity — show that these two groups were overrepresented in the industries and concentrated in the regions that were hit hardest.

The findings in this report on relative wage levels and wealth also show that U.S. structural, race-based social and economic inequities that undermine the economic and social welfare of people of color have been further exacerbated by dislocations caused by U.S. trade policies. This report expands on the U.S. aspect of the research we published in late 2018 about NAFTA’s negative impact on working people in Mexico and on U.S. Latinos and the grim scenario facing the many Mexicans who migrated to the United States for work after NAFTA destroyed their livelihoods to now face increasingly precarious work conditions and racist, hateful attacks from Donald Trump.1 This report shows that among U.S. workers hurt by decades of corporate-designed trade policies, Black and Latino workers have suffered disproportionate injury:

Black and Latino workers were disproportionately represented in nine out of the 10 manufacturing industries that have been hit hardest by import competition. While Latinos comprised 8.9% of the labor force, they represented 12.3% of workers in the manufacturing of fabricated metals, 11.4% of furniture and 10.5% of plastics and rubber. While Black workers comprised 10.6% of the overall labor force in 1995, they represented 13.5% of the workforce in paper manufacturing, 11.4% in chemicals, 11.3% in transportation equipment and 11.1% in primary metals. African Americans and Latinos represented 13% and 15.4%, respectively, of the workforce in the beverages industry.

According to the U.S. Bureau of Labor Statistics, Black workers have lost nearly half a million manufacturing jobs (494,000) during the NAFTA-WTO era. Black workers’ manufacturing losses were evenly spread across many subsectors that suffered significant trade-related job loss. For instance, in the automotive sector, by 2010, in just the first 15 years of NAFTA, Black workers had lost 56,524 jobs. Black workers were disproportionately represented in the primary metals manufacturing sector hit by the NAFTA-WTO era with a loss of 53,800 jobs. Black workers have also lost 22,100 jobs in the paper manufacturing industry and 18,600 jobs in the beverages and tobacco industry during the NAFTA-WTO era, two more sectors where Black workers were overrepresented relative to their general share of the workforce.

Latino workers also experienced job losses in sectors where they were overrepresented when the NAFTA and WTO went into effect. Latinos lost 123,000 jobs in the decline in the U.S. electrical equipment and appliances industry, and during the last 25 years, 182,700 Latino jobs in the United States have been lost in textiles, apparel and leather manufacturing.

The explosion of deficits in highly trade-impacted manufacturing industries — along with the offshoring threat — also contributed to the stagnation of wages in sectors employing significant numbers of Black and Latino workers. Whereas earnings in highly trade-impacted industries have remained virtually flat (0.02% average growth rate on real terms), workers’ earnings in all manufacturing and hospitality and leisure had less than impressive but at least some degree of average yearly real earnings growth, with rates of 0.54% and 0.92% respectively.

Black and Latino workers are also disproportionately represented in call center and customer service jobs that have been subject to mass offshoring. People of color (Black, Asian and Latino Americans) account for 43% of U.S. workers engaged as customer service representatives but are 36.4% of the U.S. workforce. Over the past 25 years, 71,788 U.S. jobs are TAA-certified as lost to trade with the Philippines, which has been the country of choice for call center offshoring. Some 58,220 of the U.S. jobs certified as lost to the Philippines are designated as explicitly lost to offshoring.

The 20 U.S. states that are least racially diverse had only 20% of all government- certified trade job losses during the NAFTA-WTO era. Those states also represent less than 10% of total of U.S. manufacturing job losses during the NAFTA-WTO era (only 300,000 of the total 4 million) according to the U.S. Bureau of Labor Statistics.

States and cities with the largest Black and Latino populations have been hardest hit by the economic and social fallout of failed U.S. trade policies.

Just 15 U.S. states that are home to 85% of the total Latino population account for half of TAA-certified trade-related job losses — 1.6 million of the more than 3.2 million U.S. jobs lost — from the start of the NAFTA-WTO era in 1994 to the latest TAA certifications covering most of 2019. Those 15 states also account for nearly half (47%) of all TAA-certified job losses caused by NAFTA – 480,000 out of 1.01 million. These 15 states also account for 2.4 million of the 4 million total manufacturing job losses documented by the U.S. Bureau of Labor Statistics during the NAFTA-WTO era.

The 15 states that are home to 58% of the Black population account for 2.9 million of the 4 million total manufacturing job losses documented by the U.S. Bureau of Labor Statistics during the NAFTA-WTO era. These states account for 57% of TAA-certified trade job losses — 1.8 million of the more than 3.2 million U.S. jobs. Those 15 states also account for 57% of TAA job losses caused by NAFTA, from NAFTA’s implementation up to April 2020.

Many cities such as Detroit, Chicago, Pittsburgh, New York and Cleveland that were hardest hit by U.S. trade policy failures were locations whose growing manufacturing employment opportunities had drawn six million Black workers fleeing from racial terror and poverty in the Jim Crow South for safety and better economic opportunities in the first half of the 1900s.

U.S. Latino and Black workers who lose their jobs are even less likely than their white counterparts to find a replacement job, according to the Bureau of Labor Statistics. For every 100 white workers who lose their jobs, 14.3 remain unemployed. Meanwhile, for every 100 Black workers who lose their jobs, 21.2 remain unemployed. Similarly, for every 100 Latino workers who lose their jobs, 21.8 remain unemployed.

Increased competition for a reduced number of well-paying jobs available for non- college-educated workers exacerbates underlying structural racial discrimination in hiring, promotions and wages that, even in the absence of trade impacts, have resulted in lower wages for Black and Latino workers relative to similarly educated non-Latino white workers. A study by the Economic Policy Institute estimated that, even in manufacturing and controlling for educational differences, actual wages for Latino and Black workers are, respectively, about 25% and 23% lower compared to wages paid to white workers.

In no small part because of damaging disparities in educational opportunities, Black and Latino workers are overrepresented relative to their share of the overall workforce among the 58% of Americans without college degrees who were left to compete for an ever-diminishing number of quality jobs available for non-college educated workers. Sixty-eight percent of Black Americans and 77% of Latino Americans do not have college degrees as of 2019, compared to 54% of the white population.

After 25 years of the NAFTA-WTO model, large racial wage gaps remain for men and are worsening for women. When NAFTA and the WTO began, Black men earned 75 cents, and Latino men earned 64 cents for every dollar earned by white men. Black women earned 88 cents, and Latinas earned 78 cents for every dollar earned by white women. Today, Black men earn 79 cents, and Latino men earn 71 cents for every dollar earned by white men. Black women earn 83 cents, and Latinas earn 73 cents for every dollar earned by white women.

The wage premium offered by the manufacturing sector relative to other sectors is a particularly important factor, given the racial wage gap that exists across all sectors. Median weekly earnings in 2020 are $786 for Latino workers and $806 for Black workers –compared to $1,018 for white workers. These median wage gaps are further widened by gender. The median Black woman earns $779 per week, and the median Latina earns $717 per week, while the median U.S. woman worker overall earns $913 per week. Meanwhile, white women earn a median weekly income of $930 per week. 

When Black and Latino workers lost manufacturing jobs and found new jobs, they faced disproportionate pay cuts. More than half of Black workers and about 60% of full- time Latino workers earn less than $15 an hour, compared with 42% of full-time U.S. workers overall. While the manufacturing sector lost about 4 million jobs between 1993 and 2019, other sectors with jobs available to those without college education – such as retail and leisure and hospitality – gained 6.8 million jobs. With average wages of $18.11 an hour, these sectors pay two-thirds that of manufacturing. Today, Latino workers make up 24% and Black workers 13.1% of these sectors, percentages greater than their representation in the overall workforce. As increasing numbers of trade-displaced workers have joined the glut of workers competing for these non-offshorable jobs, real wage growth has been extremely modest in these growing sectors.

The states that have large Black and Latino populations also strikingly correlate with those with higher income inequality levels. Five out of the 10 most unequal states in the nation (New York, Florida, California, Illinois and New Jersey) are home to large Latino and Black populations. Additionally, Nevada, Massachusetts and Washington, which are states with large representations of Latino families, are also in the top 10 most unequal states in the country. These same eight states are among the 10 states with the biggest jumps in income share accumulated by the richest 1% from 1972 to 2015. In other words, in these eight states the top 1% increased their share of income by at least 10.7%, leaving less for the rest of their communities.

Wealth inequality also has worsened over the NAFTA-WTO era with disproportionate damage to Black and Latino families. The median wealth for white families is 41 times that of Black families and 22 times that of Latino families. Median Black family wealth in the United States is $3,500, which represents only 2% of the median white family’s $147,000. Similarly, median Latino family wealth is $6,500, representing 4% of that of a median white family. And racial disparities in wealth have grown more severe over time. From 1995 (when the WTO went into effect and the first year of NAFTA) to 2016 (the latest data available), the median Black family wealth has increased only by $308. During that same period, the median Latino family’s wealth has slightly increased by $1,345. Meanwhile, the average white family has increased its wealth by more than $50,000.

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PC_Trade-Discrimination-Report_1124

ASPI Notes for the Biden Administration

DEMONSTRATE SUPPORT FOR ENDING CHINA’S TARGETING-BY-TRADE

ISSUE

As its diplomatic relations with Canberra have declined sharply since the spring of 2020, Beijing has waged a high-intensity punitive campaign by placing import restrictions on a growing list of Australian products. Australia is hardly the first country China has used its economic power against. Philippine banana exports, South Korean automotive and retail industries, and Japanese rare earths offer recent examples of Chinese trade retaliation against governments who have political disagreements with Beijing.

SIGNIFICANCE

China continues to uses its massive trade leverage (what Xi Jinping has called its “gravitational force”) to enforce its political agenda and intimidate its critics. More specifically, Beijing’s strategy is to pick off America’s allies and to demonstrate to other nations the high cost of angering China.

EXPECTATIONS IN THE REGION

U.S. allies and partners need the political assurance and policy reality of Washington’s support when China imposes trade restrictions in response to actions Beijing disagrees with. However, some allies may also be wary about escalating tensions with China if they are seen to be involving the United States. Therefore, each situation may require a different response in coordination with partners.

DOMESTIC CONSTRAINTS/CONSIDERATIONS

The emergence of a strong bipartisan desire by Congress and the broader public to take a firm stand against Beijing means that early U.S. action to support America’s allies and partners on the world stage is likely to be a popular and unifying proposition at home.

RECOMMENDED COURSE OF ACTION

The Biden administration’s opposition to China’s targeting-by-trade tactic can be communicated forthrightly in early diplomatic interactions with senior Chinese officials. The Australia case can be cited as an obstacle to progress in the re-stabilization of U.S.-China relations. Concurrently, the United States should join Australia and others in calling out China at the World Trade Organization (WTO) for violating the letter and the spirit of the WTO including by joining in potential dispute settlement cases. The United States and the European Union did this with Japan over rare earths. This would demonstrate multilateral unity and signal to third countries that the United States has their back.

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ASPI NOTES FOR THE BIDEN ADMINISTRATION_0

NATURE AND NURTURE: HOW THE BIDEN ADMINISTRATION CAN ADVANCE TIES WITH INDIA

SUMMARY

The state of the U.S.-India relationship is strong, but two critical developments in 2020 have created a new inflection point for the relationship. Growing apprehension in both New Delhi and Washington about Chinese aggression has created the strategic convergence long sought by a U.S. defense establishment eager to enlist India to balance China. On the other hand, devastated by the Covid-19 global pandemic, the United States and India face challenging economic recoveries amid growing protectionist sentiments at home that could diminish the relationship’s promise. Having won the U.S. presidential election, Joe Biden has an opportunity to consolidate and accelerate the relationship by creating a substantive and broad partnership with India, which can undergird U.S. policy in Asia and support U.S. global interests for decades to come. This paper provides a blueprint for how the Biden administration can actualize what previous presidents have deemed a “natural partnership.”

AMID DISCORD, SEEDS OF A NATURAL PARTNERSHIP

Speaking at the Asia Society’s headquarters in New York in September 1998, Prime Minister Atal Bihari Vajpayee deemed the United States and India “natural allies.” Both his message and timing were provocative. India’s leader was framing the relationship in lustrous terms at a time when bilateral ties had hit rock bottom. Months earlier, India had scandalized the world by conducting its first nuclear tests since 1974. The international community swiftly denounced the tests, and the United States, which had not been given advance warning by the Vajpayee government, imposed heavy sanctions on India.

While an official alliance had always been out of the question, nuclear policy had become an impediment even to a natural partnership. The previous months had been characterized by acrimony because of India’s nuclear decision and U.S. fears that India’s actions would spark a dangerous nuclear arms race in South Asia – this was borne out within 15 days of India’s tests when Pakistan conducted tests of its own. The two South Asian rivals fought each other the next year in the Kargil War, forcing the United States into intensive shuttle diplomacy to prevent a full-scale conflict.

Strange as they may have seemed at the time, Vajpayee’s words would prove prescient. The prime minister was cognizant of the structural and institutional forces that made a convergence between the United States and India inevitable. One was strategic (China’s rise), the other economic (India’s growth story), and at the base was a foundation of shared democratic values.

A new generation of U.S. policymakers was also receptive to these possibilities. In March 2000, Bill Clinton became the first U.S. president to visit India since Jimmy Carter in 1978. His visit led to the kind of reset in the bilateral relationship that Vajpayee had sought. Twenty years later, the U.S.- India relationship is stronger than it has ever been. Bilateral trade in goods and services has increased from $16 billion in 1999 to $149 billion in 2019 when India was the ninth-largest U.S. trading partner, while India’s Ministry of Commerce deemed the United States its largest trading partner. Cultural and people-to-people ties between the two nations, driven by the vibrant Indian American community in the United States, are multifaceted and deep. For instance, the number of Indian students in the United States has grown from 81,000 in 2008 to “a record high of 202,000 in 2019.” And in an otherwise polarized country, both major U.S. political parties support strengthening ties with India.

Now as the United States is set to embark on the administration of Joseph R. Biden Jr., the relationship is facing new tests. Biden, who deemed India a “natural partner” on the campaign trail, will have the task of upgrading a mature relationship already in robust shape at a time of new global dynamics and challenges. A growing convergence between the views of New Delhi and Washington regarding Beijing will continue to facilitate a strong security partnership. At the same time, the coronavirus pandemic has devastated both economies and strengthened support for economic nationalism, which may impede

stronger commercial cooperation and the two nations’ ability to take on China. Moreover, a further weakening of democratic norms in India could raise difficult questions for the United States.

This paper seeks to outline the competing pressures currently shaping U.S.-India ties and provides a blueprint for how the next U.S. administration can substantially advance the partnership, nurturing what Vajpayee, more than 20 years ago, and Biden today consider “natural.” To advance U.S.-India ties to the next level, a Biden administration will need to

• Expand the scope of the relationship to elevate health, digital, and climate cooperation.

• Turn the page to a positive commercial agenda that emphasizes reform and openness.

• Renew U.S. leadership and regional consultation in the face of China’s rise.

• Emphasize shared values as the foundation of the relationship.

Anubhav Gupta is an associate director with the Asia Society Policy Institute (ASPI) in New York. He develops and coordinates ASPI’s initiatives and research related to South Asia, with a particular focus on India.

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Nature and Nurture_How the Biden Administration Can Advance Ties with India

Global Economic Prospects: Subdued Global Economic Recovery

Following the devastating health and economic crisis caused by COVID-19, the global economy appears to be emerging from one of its deepest recessions and beginning a subdued recovery. Beyond the short term economic outlook, this edition of Global Economic Prospects makes clear, policymakers face formidable challenges—in public health, debt management, budget policies, central banking and structural reforms—as they try to ensure that this still-fragile global recovery gains traction and sets a foundation for robust growth and development in the longer run.

Governments, households, and firms all need to embrace a changed economic landscape. While protecting the most vulnerable, successful policies will be needed that allow capital, labor, skills, and innovation to shift to new purposes in order to build a greener, stronger post-COVID economic environment. Some countries already moving toward this type of dynamism and resilience, will need to redouble their efforts. For others, change is especially critical now, when fiscal positions are severely stretched by the pandemic and other drivers of long-term growth have weakened.

Investment, in particular, collapsed in 2020 in many emerging market and developing economies, following a decade of persistent weakness. Investment growth is expected to resume in 2021, but, despite an uplift from advances in digital technology, not add enough to reverse the large 2020 decline. The experience of past crises raises a further concern—without urgent course correction, investment could remain feeble for years to come.

To counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance. These can re-kindle investment and help allocate it more effectively, but unsustainable debt burdens are a major obstacle. Already at record levels before the pandemic, both domestic and external debt burdens have become much heavier due to the devastating contraction in incomes across emerging market and developing economies.

To address the external debt burden, a comprehensive set of policy interventions is needed: broader participation by all private and official bilateral creditors in existing debt service relief efforts; deep debt reduction for countries in debt distress to increase the attractiveness for investment; better debt transparency practices that overcome secrecy and restrictions in debt contracts; legislative reforms to expedite the restructuring of private sector debt; and enhanced sequencing of these processes, which may involve countries running arrears with creditors as they work with international financial institutions to achieve debt sustainability.

Complicating the debt sustainability problem is the possibility that contingent liabilities from soaring private debt may be added to already high public debt. During the pandemic, many governments have supported lending to firms to address liquidity constraints, including loan guarantees, payment moratoria, and regulatory forbearance. These interventions highlight the challenge of balancing efforts to increase the availability of credit while maintaining proper regulatory standards to mitigate financial risks. As the health and economic crisis abates, these policies need to be reassessed periodically to ensure asset quality transparency and avoid undermining bank capitalization.

Policymakers also need to enhance supervisory assessments of loan quality and improve resolution and recovery regimes to address the potential challenges associated with elevated corporate debt levels. With non-performing loans likely to rise, more rapid bankruptcy and domestic debt resolution processes will be important in allowing assets to be relieved of litigation and repurposed for new uses. Adding new investment to productive existing assets will be vital for sustainable development.

In both the external and internal debt resolution processes, transparency is critical to bolster accountability, make future investment and debt more productive, and support the economic recoveries that are crucial for poverty reduction. Left unaddressed, the problem of unsustainable debt, and restructurings that do too little, will delay vital recoveries, especially in the poorest countries.

Mounting climate and environmental challenges add to the urgency of policy action, including on debt reduction and an improved investment framework. As countries formulate policies for recovery, they have a chance to embark on a greener, smarter, and more equitable development path. Investing in green infrastructure projects, phasing out fossil fuel subsidies, and offering incentives for environmentally sustainable technologies can buttress long-term growth, lower carbon output, create jobs, and help adapt to the effects of climate change.

Making the right investments now is vital both to support the recovery when it is urgently needed and foster resilience. Our response to the pandemic crisis today will shape our common future for years to come. We should seize the opportunity to lay the foundations for a durable, equitable, and sustainable global economy.