Published June 10, 2021
As policymakers in Washington debate legislation intended to bolster the U.S.’s competitive standing against China, we spoke with David Dapice, Ash Senior Economist and recent author of an Ash Center Policy Brief Why the Trans-Pacific Partnership and Immigration Are Needed for the Middle Class, about his thoughts on how Washington can bridge the competitiveness gap. In his paper, Dapice argues that regional trade agreements are critical to maintaining U.S. economic competitiveness and job growth into the future. Specifically, he calls for the U.S. to reconsider its rejection of the Trans-Pacific Partnership, and argues that it presents an important opportunity for countering China’s growing regional economic hegemony.
Ash: Congress is considering legislation aimed at increasing U.S. economic competitiveness with China. Do you think the bill’s proposed large-scale domestic investments in manufacturing and technology—ranging from AI to biomedical research— will be an effective tool in this regard?
Competition with China will be multifaceted. While American-born innovations, like those potentially fostered by the Innovation and Competition Act, are certainly one part, the US’s strong suit is we are a more open society and encourage independent allies, not client states. But if we choose not to engage in reliable trading relations, it is doubtful that any country or business will see our dedication to a far-off region in China’s backyard as credible. Even the EU is wondering if President Biden's successor will return to the politics of President Trump. If we cannot formalize trade relations through legislation, it will be taken as a sign that there is no bipartisan agreement, or even centrist coalition, supporting trade. For other countries and global businesses investing billions in factories, the prospect of being surprised by an arbitrary tariff is not a great business risk proposition.
In your recent paper, you reference China’s strong regional trade network and argue that the ill-fated Trans-Pacific Partnership (TPP) is still the right tool to counter China’s growing political influence in the region. How would the TPP strengthen the U.S.’s position against China’s growing role in the region without leading to further erosion of the country’s domestic manufacturing base?
First, I would not say the TPP is ill-fated. Only our participation in it is. The others signed on and have a “deep” trade and investment pact that sets standards. Second, if we do not have secure and low-tariff access to ASEAN markets as China, Japan, and the EU do, our manufacturers will be at a severe disadvantage. Third, we tried fiscal expansion and tariffs under President Trump and manufacturing output in 2019 was little changed from 2008 – the worst record in decades. The tariffs on steel and aluminum drove up costs for thousands of firms using those metals as inputs, driving production elsewhere. The tariffs on lumber contribute to the housing crisis, which makes it harder to move to regions with new factory jobs. Finally, the fastest manufacturing growth was in the 1990s when we passed NAFTA. The big problem today is that automation has proceeded so rapidly that the share of manufacturing in the labor force is only 8-9% - and there is a labor shortage as it is.
How have other advanced industrial economies, such as those in Japan and Europe, approached the question of whether to seek favorable trading access to regional Asian markets?
ALL of the other major exporters have already gained access to major markets. The world did not wait while we were building walls. That is one reason why we have trade deficits, as a fraction of GDP, about the same as under President Obama after we recovered from the global financial crisis.