Biden’s ‘middle class trade policy’ requires openness and more honesty

A headline from a recent federal report stated that the U.S. economy got only small positive effects from four decades of trade deals. By 2017, the total gains amounted to only half a percentage point of GDP, according to the 390-page report from the U.S. International Trade Commission, an independent agency. One reporter even said the ITC report was politically damaging to arguments for freer trade rules.

As the Biden administration calls for a trade policy that benefits the middle class, I hope White House officials look beyond this one number. The path forward is still an open economy — what we need is more honesty about the tradeoffs involved.

Most economists were not surprised that the aggregate effect appeared small, mostly because the U.S. economy is large relative to our trade flows. The factors collected in the data reflect efficiency gains for the economy because of greater competition, consumer gains from lower prices and more product variety, worker gains in the form of wages and jobs in some sectors (and losses in others) and producer gains from access to cheaper or better inputs in some sectors (and losses from import competition in others).

There is no one number that can fully capture the effects of trade policy for the middle class. Each of us experiences a different combination of lower checkout prices, new job opportunities in growing sectors, layoffs in contracting industries and changing and upskilling roles in existing jobs.

This reality is not lost on the Biden White House. Many of his economic advisers were authors of a 2020 Carnegie Endowment study on U.S. foreign policy for the middle class, which also focused on trade. The tradeoffs were reflected in the dozens of interviews they conducted across Ohio, Colorado and Nebraska. In a podcast, one of the authors said, “The same people who want to push back harder against China on trade also say we want to invite more FDI [foreign direct investment] from China. …It’s not exactly 100% one way or the other,” said the interviewer Jen Psaki, now White House press secretary.

While many in the Biden White House are well aware of these realities, their actions are trending in the opposite direction. American manufacturers still face higher prices for steel, aluminum and hundreds of other inputs because Biden has yet to lift President Trump’s tariffs — the effects of which have been documented by the hundreds of thousands of U.S. manufacturers that have asked for exclusions.

Just last month, Biden spoke at a Mack Trucks plant in Pennsylvania, touting ineffective “Buy American” rules. Yet Mack Trucks is foreign-owned and relies on imported treated steel from Europe in its production process. Ask any manufacturer and they will tell you that to keep our supply chains resilient, they need access to inputs at globally competitive prices. 

Herein lies the disconnect between the administration’s stated goal for a trade policy for the middle class and its policies and proposals.

Leaning on government subsidies, import protection and federal promises to save key industries does more harm than good. If you don’t want to sift through the vast empirical evidence, then just turn to a recent piece by trade law expert Scott Lincicome that tells the tale of two cities: Youngstown, Ohio, and Greenville, South Carolina. Both towns were crushed by trade and technology shocks. One has come back even stronger, and the other seems locked in a tailspin of stagnation and poverty.

Leaning on government subsidies, import protection and pie-in-the-sky promises from politicians to save its heavy industries like steel has done more harm than good for Youngstown. Meanwhile, Greenville faced the adjustment costs of a changing economy head-on and undertook painful but necessary steps to diversify after the textile industry fled. Residents now enjoy jobs in advanced multinational manufacturing, banking and tech — and consistently high quality-of-life rankings. 

The same pattern appears in a 2018 Brookings Institution report that examined urban counties from 1970 to 2016. The experiences of the 365 U.S. counties show that even as Americans were reeling from severe adjustment pains, they were also rebuilding. 

Progress has always been messy. So be honest with the American people about the limits of trying to shield them from those messy dynamics. Voters deserve better than empty promises on tariffs and “Buy American.”

Christine McDaniel is a senior research fellow with the Mercatus Center at George Mason University.