How to fight anti-trade populism: long-time trade analyst Richard Katz speaks with C. Fred Bergsten, director emeritus of the Peterson Institute for International Economics and an important voice on global economic policy, about the populist backlash against globalization.

Author:Trump, Donald

In a new report from the Peterson Institute for International Economics, G-7 Economic Cooperation in the Trump Era, Peterson founder C. Fred Bergsten wrote that, "The backlash against globalization represents the central, perhaps existential, threat facing the G-7. It could reverse seventy years of painstaking efforts to create an open and cooperative world economy, with unforeseeable but potentially disastrous consequences." In response, he proposed that, "The G-7 should make an effort to establish consensus around a cooperative (and possibly coordinated) program of 'Supporting the [American/British/Canadian/ French...] Worker' that responds to concerns raised about the impact of globalization on labor." Bergsten spoke to frequent TIE contributor Richard Katz about his proposals.

Katz: How much could trade really be hurt by backlash represented by Donald Trump, Brexit, Marine Le Pen, and so forth? I could make an argument that, with or without trade agreements, globalization is still growing, because that's the way the private sector is moving. While trade agreements help, they are not fundamental. As you pointed out, even the Great Recession did not produce the rash of protectionism that some people had feared.

Bergsten: It depends on whether you believe in the bicycle theory: that, unless you're moving forward on liberalization, you tend to slide backward, due to the omnipresence of protectionist pressures. With Donald Trump in the United States and Brexit, there has certainly been some backsliding, some erection of new barriers. That conceivably could accelerate, particularly when we inevitably get the next recession.

Katz: As least so far, Trump's trade policies have proved to be a loud bark with little bite. Suddenly, Trump says that China is not a currency manipulator. He's no longer talking about putting 45 percent tariffs on imports from China. In his list of proposed modifications of NAFTA, he did not include their value-added tax or currency issues, and he's not moved on the notion of a 35 percent tax of U.S. firms that import from their plants in Mexico. Do you think Trump will eventually carry out a lot of his threats, or just do things which, while problematic, are not disastrous?

Bergsten: That's probably the way to put it: problematic but not disastrous. I don't think he will pursue the very extreme things that he talked about in the campaign such as a 45 percent tariff on China, or a 35 percent tariff on Mexico. However, he has already initiated some steps that turn out to be reasonably significant, for example, possibly restricting imports of steel and aluminum on national security grounds, and the softwood lumber case with Canada. These sorts of steps would affect tens of billions of dollars' worth of trade. And, if you do this for steel and aluminum, that creates a precedent for other industries to seek the same sort of relief.

Katz: One of the biggest steps that some see as protectionist is a proposal from some Congressional Republicans for a border adjustment tax. Companies and retailers would pay taxes on their imports but not on any exports. What are the odds of that coming into...

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