Globalization is a vision whose promise has not lived up to reality. In the promise, the United States specializes in the products and services in which it has comparative advantage, creating new value, new industries, and higher incomes, while other nations, especially developing ones, gain by importing from and exporting to the United States. In the reality, the global trading system is rife with “innovation mercantilists”—nations that see the rules-based trading system as only a framework to justify their own protectionist and negative-sum actions and who distort global trade. To restore the promise of globalization and ensure it works for the U.S. economy, the next administration needs to lead a fight to save the soul of the global trading system. This means not only putting the fight against foreign mercantilism at the center of U.S. foreign policy, but also leading the community of nations committed to free trade in a coalition against mercantilist practices.
As long as trade policy is a fight between free traders and protectionists, however, it will be difficult to make progress. Holders of the “Washington Economic Consensus,” which transcends party identification, believe in free trade, even if it is one sided (e.g., free trade on our side, protectionism from our competitors) and believe that whatever we lose from ceding one industry after another to other countries, we gain from an array of lower-priced goods and services. Moreover, they worry that robust enforcement of trade rules will ignite a trade war and instead are confident markets ultimately punish countries that break the rules. The opposing side, populated by many on the left, holds that in the face of rampant global protectionism our only choice is to switch, not fight. We should adopt the same measures as the mercantilists, goes the thinking. The next administration must put aside these obsolete and polarizing assumptions and recognize the most important step it can take is to lead nations committed to free trade in a coalition to expand trade and roll back mercantilist practices, thereby saving the global trading system.
