Paradigm shifts occur gradually, then suddenly accelerate. This was evident during the previous economic transition in the Reagan-Thatcher era. Although Ronald Reagan became US president in 1980, many of his speeches during the 1976 Republican primary foreshadowed a new post-Keynesian era. In this era, Reagan argued that the potential of private enterprise and animal spirits would be unleashed.
The Biden administration is now following a similar pattern. Several indicators signify the arrival of a new age, from Joe Biden’s address to Congress proclaiming the end of trickle-down economics, to National Security Council director Jake Sullivan’s speech on international recovery, to US trade representative Katherine Tai’s recent remarks in Washington where she emphasized “putting the US back in USTR.”
All of this signals a significant shift in America’s political economy. If the White House has its way, the future will be driven primarily by domestic economic concerns, particularly the well-being of workers.
Similar to the Reagan revolution, this transition will take time to unfold (specifics are still being developed). However, regarding trade policy aspirations, there are three key takeaways from Tai’s speech that both America’s allies and adversaries should pay heed to.
Firstly, while Tai strongly criticized Chinese economic coercion, her speech was not about an “America First” agenda. It was instead a condemnation of concentrated power in all forms. She highlighted the importance of addressing and dismantling “chokepoints,” regardless of whether they stem from Chinese mercantilism (as seen in rare earth minerals), Russian aggression (in food crops and fertilizers), or multinational corporate dominance, particularly in digital trade.
This should be encouraging for Europeans who have worried that their attempts to regulate major US tech companies would face pushback from the Biden administration. Renaud Lassus, the former minister counsellor for economic affairs at the French embassy in the US, expressed this sentiment during an interview, stating that the White House no longer defends Silicon Valley when it comes to regulating Google.
Nevertheless, it is possible that pushback from the White House may still occur. Some individuals in national security circles and the US Department of Commerce believe that Big Tech must grow larger to compete with the Chinese surveillance state, especially in the field of artificial intelligence. However, Tai made it clear that she disagrees. She lamented the growth of concentrated power over the past two decades, partly driven by a trading system that prioritized the interests of major corporations (“the bigs”). To counter this, she emphasized spending more time within the US, engaging with small businesses and entrepreneurs to understand their specific trading needs.
The second takeaway is that the Biden administration believes trade policy must benefit middle America in order to succeed. This entails moving away from traditional free trade agreements that reinforce vulnerable and fragile supply chains. Tai argues that at this juncture in history, diversification and increased resilience are crucial. It also includes advocating for stronger worker protections similar to those found in the United States-Mexico-Canada Agreement, which allows penalties to be imposed on companies that fail to honor collective bargaining agreements.
However, this approach faces challenges in certain parts of the global south where labor standards tend to be lax. Critics from the US express concerns over negotiations involving the Indo-Pacific Economic Framework for Prosperity, fearing that they may lead to digital trade agreements with countries that suppress labor rights, and even imprison or harm service workers attempting to organize. The quid pro quo for establishing higher standards is to offer developing countries a stake in the more secure supply chains that the Biden administration aims to build in strategic sectors like rare earths, semiconductors, pharmaceuticals, and clean energy.
Tai presented an intriguing perspective on this new approach, asserting that they are challenging the colonial mindset by collaborating with emerging markets to establish a floor, rather than a ceiling, for labor and environmental standards. She believes that integrating developing countries into vertical integration opportunities can prevent them from being perpetually trapped in an exploitative cycle.
Naturally, the devil lies in the details, and Tai’s speech did not provide specifics. Nonetheless, paradigm shifts begin with changes in narrative. The intervention of the USTR serves as further evidence that the story surrounding free trade in America is undergoing a profound transformation, even if the full effects will take time to materialize.
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