Return to the past? Ernesto Zedillo on trade in a post-Trump world

U.S. trade policy is at a crossroads. Will President Biden make a clean break from his predecessor’s protectionist policies and embrace the trading system that Americans helped create last century?

“Trade in the 21^st Century: Back to the Past?” (Brookings Institution Press), a new volume co-edited by Ernesto Zedillo ’81 Ph.D., the Frederick Iseman ’74 Director of the Yale Center for Globalization, and economist Bernard Hoekman, examine the prospects for a return to the multilateral trading order in a post-Trump world, as well as some of today’s other trade-related issues.

Zedillo, a former president of Mexico and a professor in the field of international economics and politics at Yale, recently spoke to YaleNews about the book, the global effects of the Trump administration’s protectionism, and why he believes free trade remains the best pathway for the U.S. and its North American neighbors. The interview has been edited and condensed.  

What inspired the book?

The book is an exercise in brainstorming around the key challenges facing trade. Many chapters concern trade policies implemented by the previous presidential administration. With the recent change in the White House, it is a good time to consider the future of international trade. Our work presents various ideas about how to restore, preserve, and strengthen the rules-based multilateral trading system. It touches on key problems, such as how to deal with China, which is an important and relatively new stakeholder in the international system.

We believe that there are ways to accomplish these goals that will produce win-win outcomes for all parties. We don’t claim to have everything right, but our hope is that the book provides a modest contribution to this discussion.

You and your contributing authors are critical of the Trump administration’s trade policies. What is the basis of your critique?

Our general impression is that the Trump administration didn’t believe in a rules-based system, and that its aim was to unilaterally impose whatever it wanted to do concerning trade. And that presented an existential threat to the entire trading system that the United States was instrumental in establishing. What makes the situation even more interesting is that one analysis after another shows that the Trump trade policies were against the country’s own interests.

What specific measures were particularly damaging in your view?

The very first concrete example was the withdrawal from the Trans-Pacific Partnership, or TPP, which, as we claim in the book, is probably the most advantageous trade agreement the United States has ever negotiated. And yet, soon after taking office, President Trump withdrew the United States from the agreement, probably without asking what the deal contains.

Another example is the renegotiation of NAFTA, which resulted in a revised deal that, in my view, diminishes the global competitiveness of the North American economies.

And of course, there is Trump’s trade war with China. There are important issues with China that pertain to trade policy, but the Trump administration’s aggressive approach was not warranted by the analysis or by strategic thinking. And the proof is in the pudding. What are the results of that strategy? It achieved zero. Now the new administration has a distorted and complicated situation to address in terms of trade with China.

How did the renegotiated NAFTA agreement weaken North America’s global competitiveness?

There are several examples, but a dramatic one involved changing the rules of origin for the automotive industry. The rules of origin are criteria used to define the source country of a product, which helps determine whether it qualifies for tariff-free or reduced-tariff treatment.

With NAFTA, North America was able to compete globally again in the auto industry because the United States, Mexico, and Canada had joined forces. But the Trump administration sought and received highly restrictive and cumbersome rules of origin that, if anything, will make the North American automotive industry less competitive relative to the European and Asian automotive industries.

The next step down this path, and I hope it doesn’t happen, is to react to the reduction in competitiveness by imposing higher tariffs on automobiles from Europe and Asia.

In the end, who would pay for that? The American, Mexican, and Canadian consumers of those vehicles would. It would make industries that rely on the strength of North America’s automotive industry less competitive.

Trump campaigned on protectionist policies in 2016, taking aim at TPP, NAFTA, and China. Why did that message resonate with voters?

First, it is not true that there is widespread opposition to free trade. Of course, trade has never been popular with many special interests that believe that they have something to gain from protectionism. Although globalization is not as widely accepted as it was 15 or 20 years ago in the United States, opinion surveys as recently as last year show a bipartisan consensus among Americans in support of international trade. There are good reasons for that.

What are some of those reasons?

Well, for one thing, trade drives economic growth and innovation. U.S. consumers directly benefit from being able to choose from a wider selection of higher-quality goods at lower prices. A lot of people in the United States benefit from the presence of American products in global markets.

Of course, all advanced economies have lost manufacturing jobs. There are localities, communities, and certainly individuals that have been affected by the change in the composition of trade. The question is whether we should sacrifice the interests of the majority by adopting protectionist policies or implement policy interventions that would protect those who are negatively affected by trade.

Part of the problem is that the general economic and social policies of countries like the United States are not designed to strengthen the social safety net, which leaves many people vulnerable. The consequences of these policy failures are frequently attributed to trade policies when, in fact, the political system is failing to provide everyone a fair opportunity to participate in the modern economy. I think that’s very important to emphasize. Politicians tend to blame scapegoats for their own failures and shortcomings.

You have led the Yale Center for the Study of Globalization since 2002. What do you enjoy about working at the university?

I spent wonderful years here pursuing my Ph.D. in economics and it’s an honor to have a modest position at my alma matter. The academic environment is very stimulating. The university has done an outstanding job over the past two-plus decades engaging with global issues like trade, climate change, poverty, and international security. It’s focused on providing students the opportunity to get involved in addressing these issues, which is very important.

Also, I love teaching. It is a privilege and a very important part of my life.