The year 2024 witnessed a number of meaningful anniversaries for the United States and its allies: the 80th anniversary of D-Day, when Allied forces landed on the beaches of Normandy, heralding the beginning of the end of World War II; the 80th anniversary of the Bretton Woods conference, which began less than two months after D-Day and resulted in the creation of the World Bank and the International Monetary Fund; and the 75th anniversary of the founding of NATO, the alliance that eventually enabled Washington and its partners to triumph in the Cold War.
Marking these anniversaries offered an opportunity to reflect on a familiar list of triumphs—not just the defeat of fascism but also the creation of a U.S.-led postwar order built on the NATO alliance and the United Nations, as well as a global financial system that paved the way for an era of economic growth, including through trade liberalization. But the last item is often misunderstood. The victors believed that the path to a durable peace was grounded not in trade liberalization itself but in a broader vision of global governance designed to provide economic security for working people.
That belief grew out of experience. In the spring of 1933, Germany’s fledgling democracy fell. Around the same time, Franklin D. Roosevelt took office as president of the United States. Roosevelt was deeply troubled by the rise of autocracy in Germany and felt that economic hardship had contributed to the demise of constitutional democracies. The German middle class had suffered that kind of hardship, especially after the stock market crash of 1929 and the austerity measures that followed. Deprivation provides fertile ground for the appeal of a strongman. “Hunger and political instability go hand in hand,” Christian Herter, the first American trade representative, later wrote. “And who can say that people who have always been slaves to hunger will not put food before freedom?”
World War II globalized the risk of totalitarian dominance, and Roosevelt recognized that similar threats existed at home, from fascism on the right and communism on the left. In his January 1941 State of the Union address, Roosevelt famously identified four essential freedoms: freedom of speech, freedom of worship, freedom from want, and freedom from fear. That summer, he and British Prime Minister Winston Churchill signed the Atlantic Charter. Recognizing freedom from want, they stated that international economic cooperation was for the purpose of securing “labor standards, economic advancement, and social security.”
By the 1980s, the liberal dream of freedom from want had devolved into a neoliberal quest for freedom from regulation. The United States had almost completely lost sight of Roosevelt’s original postwar vision of shared prosperity. The Biden administration set itself the task of recapturing it. The three pillars of the president’s economic agenda—targeted investments, the empowerment of workers, and the promotion of competition—have also been core aspects of his trade agenda. By working to build the U.S. economy “from the middle out and the bottom up,” President Joe Biden moved the country closer to Roosevelt’s vision of durable peace and prosperity.
COLLECTIVE AMNESIA
As an Allied victory grew likely in 1944, plans emerged for the Bretton Woods conference, where 44 countries met to map out international financial and monetary governance. That conference led to the creation of the World Bank and the International Monetary Fund. Negotiations to create the third prong of the system, the International Trade Organization (ITO), did not begin until 1946. The ITO, whose first objective was to increase incomes and demand, required members to pursue full employment and provided for enforceable fair labor standards. The State Department, which at the time had jurisdiction over trade negotiations, made clear that countries should not pursue employment for themselves by exporting unemployment to others.
The ITO also recognized that a globalizing economy needed protections for the environment, and it included certain exceptions from the rules for conservation purposes. In addition, it included provisions on economic development and reconstruction that benefitted both formerly colonized countries and advanced economies devastated by the war. And the ITO included antimonopoly provisions, which were critical to the democratic project. The Gilded Age, the robber barons, and the Wall Street crash of 1929 had driven home concerns that concentrated economic power resulted in concentrated political power, which in turn threatened democracy itself. The antimonopoly provisions were also intended to address problems associated with Germany’s use of cartels ahead of and during the war, as well as the fear that the Soviet Union would likewise use monopolistic practices to undersell market-based competitors.
When the negotiations on the ITO Charter concluded, in April 1948, President Harry Truman described it as embodying principles of “fair dealing” and as a “code of economic ethics.” In addition to the United States, signatories included Australia, Canada, France, Sweden, and the United Kingdom, as well as countries in the global South such as Brazil, Egypt, India, Liberia, Mexico, Pakistan, and the Philippines.
But the ITO Charter never entered into force. In 1947, the Democrats lost majorities in both houses of Congress. That year, the passing of the Taft-Hartley Act rolled back protections for organized workers that had been established by the New Deal. Republican Senator Robert Taft, one of its co-authors, had been a vocal opponent of the entire Bretton Woods project. Big business lobbied against the charter, objecting to its departure from laissez-faire principles and the inclusion of the New Deal’s more democratic approach to capitalism. By 1950, Truman had given up on the ITO.
Biden moved the country closer to FDR’s vision of durable peace and prosperity.
All that remained was a subset of the charter that had been negotiated on a separate track: the General Agreement on Tariffs and Trade (GATT). The GATT was narrowly focused on cutting tariffs, with a limited set of related rules. Recognizing the comparative strength of its economy in the postwar environment, the United States made greater cuts to its own tariffs than others did to theirs, to spur the reconstruction of countries devastated by conflict.
Over time, a collective amnesia has taken hold, and the GATT is often presented as the only set of rules that the architects of the postwar peace, including Roosevelt himself, believed were necessary for peace and prosperity. The Soviet Union had the option of joining the Bretton Woods system, including the trade negotiations, but declined. As the Cold War intensified, Truman suspended trade concessions made to communist countries. In essence, two different economic spheres emerged, one governed by market principles, the other governed by communist principles.
The Americans believed that economic policy focused on achieving full employment would allow both the United States and its trading partners to benefit from a growing global economy, and that the risk of one country exporting unemployment to another would be mitigated. Unfortunately, that tenet—full employment as the driver of broader economic policies—has been neglected. Washington came to believe that tariff cuts alone had fulfilled the promise of greater prosperity, and so no broader code of economic ethics was considered necessary.
By the mid-1980s, when the Reagan administration launched the negotiations leading to the World Trade Organization, the original postwar vision, which had linked democracy with economic security for working people, had been lost. The safeguards of the ITO Charter had fallen by the wayside, and the so-called Washington consensus imposed a doctrine of rigid trade liberalization on developed and developing countries alike. Economics came to be dominated by thinkers such as Milton Friedman and other adherents of the so-called Chicago school. The more pro-democratic approach to capitalism, much of which had been embraced by President Dwight Eisenhower, fell out of favor. The laissez-faire ethos of the 1920s—the model that led to the 1929 crash and the Depression—came roaring back.
The effects of those trickle-down policies have become all too clear. They have left working people behind all over the world, pitting those in one economy against those in another as the private sector prioritizes short-term profit over inclusive, sustainable, durable growth. Along the way, the private sector has been able to exploit labor and environmental rules internationally, as inequality widens and the world experiences a global democratic recession.
HARD LESSONS
Laissez-faire globalization has left the United States and other democracies vulnerable and less secure. The shocks triggered by the pandemic and by Russia’s unprovoked invasion of Ukraine have exposed the flaws in relying on free markets alone to ensure safety and security. The private sector did not adequately consider the dangers of having supply chains concentrated in autocratic regimes. Democracies were left dependent on autocracies, which were empowered to engage in economic coercion. Interdependence led to overdependence. The creation of chokepoints led to choking. In the meantime, both China and Russia have backtracked on their commitments to basic market principles.
China, in particular, is actively intervening in the marketplace to dominate key sectors and to strengthen its ability to coerce others to leverage more favorable political and economic decisions. Beijing’s behavior recalls the concerns that drove the inclusion of not only the ITO Charter’s antimonopoly provisions but also its labor provisions. Churchill had warned that the Soviet Union’s practices of state trading and slave labor would drive competitors under. Today, Chinese authorities, policies, and actions permit and encourage the use of forced labor in Xinjiang.
The effects of artificially cheap Chinese exports and labor on American workers—the so-called China shock of the 2000s—are well documented. They call to mind the State Department’s admonition during the ITO negotiations: trade should not be used to export unemployment. There are those who continue to contend that automation, not trade, contributed to the decline in well-paying jobs in the industrial heartland. If that were true, however, the United States would not have experienced the extreme supply chain shortages that resulted from dependency on China when that country shut down during the pandemic. When I took office as U.S. trade representative, in 2021, I asked the independent U.S. International Trade Commission to study the distributional effects of U.S. trade and trade policy on Americans. The results of that study found that communities of color and workers who had not gone to college, including white men, were hardest hit.
The increase in economic inequality in the United States and abroad is concerning. In his 2020 encyclical, Pope Francis recognized that rising inequality is threatening the fabric of society, and he challenged the neoliberal assumption that the market will solve every problem. Economists, most notably Angus Deaton, have also expressed skepticism about the benefits of free trade for American workers and have questioned whether it is correct to credit globalization with the decline in global poverty over the past 30 years.
In Europe, former Italian Prime Minister Mario Draghi, who served as president of the European Central Bank from 2011 to 2019, has acknowledged that the older neoliberal version of globalization weakened labor power in advanced economies, giving rise to social and political consequences. He now advocates “radical change” for the European Union, recognizing that it has not fully executed its goal of becoming a single market and calling on Europe to integrate and adopt affirmative policies in furtherance of prosperity and security. Daron Acemoglu, Simon Johnson, and James Robinson won the 2024 Nobel Prize in Economics in recognition of their work on the role of inclusive institutions in delivering prosperity.
Shortly before he died, the economist John Maynard Keynes praised the U.S. proposals for the ITO negotiations, celebrating them as the “first elaborate and comprehensive attempt to combine the advantages of freedom of commerce with safeguards against the disastrous consequences of a laissez-faire system.” Now that the world has once again experienced those disastrous consequences, American policymakers must do what they did not in the 1990s: draw on the wisdom of those who delivered the postwar peace.
THE RETURN OF INDUSTRIAL POLICY
Trade policy must work hand in hand with domestic economic policy, not be placed in a separate silo. The Biden administration has crafted an inclusive trade policy responsive to the needs of people today. Just as Roosevelt sought to internationalize New Deal principles in support of democracy, Biden has sought to internationalize “middle-out economics,” where the goal is to grow the economy not through policies that favor the wealthy but through policies that favor working people and the middle class.
In the 1970s, industrial policy enjoyed bipartisan support in the United States. The postwar project of rebuilding economies in Europe and Japan had succeeded so well that the United States needed to plan in order to compete. But the demise of the New Deal economic paradigm at home and Reagan’s assertion that “government is the problem” made industrial policy a taboo topic.
While the United States abstained from pursuing an affirmative industrial policy, China did not. Since the 2008 global financial crisis, China has intensified an aggressive strategy built on widespread and significant state subsidies, labor rights suppression, weak environmental regulations and enforcement, and, at times, currency manipulation, to create artificial competitive advantages that put market-oriented competitors out of business. Beijing’s unfair policies have contributed to overcapacity in steel, aluminum, glass, solar, batteries, and electric vehicles, among other sectors. China seeks to flood international markets with those exports, just as it once flooded other countries with cheap manufactured goods. A second China shock is in the offing, and the Biden administration has pursued an investment agenda to prevent that outcome.
Part of that agenda has been creating well-paying jobs at home and supporting a just transition to clean energy. Those opportunities help correct for decades of deindustrialization resulting from trickle-down globalization and seek to begin the process of repairing American democracy by demonstrating that economic governance can deliver for working people. Many U.S. trading partners already have industrial strategies or are developing them. A shared recognition of the need for diversified supply chains, including in clean energy sectors, has created opportunities for Washington to work more closely with them.
Trade policy must work hand in hand with domestic economic policy.
Biden’s trade policy has recognized that workers are the engines of the U.S. economy and American democracy. In 2019, when the U.S.-Mexico-Canada Agreement was sent to Congress, Democrats in the House and the Senate recognized a need for a new approach to ensuring that trade agreements deliver for working people. The agreement’s Rapid Response Mechanism (RRM) creates a process for interested parties to allege labor rights violations, providing a more effective way to address the problem than the traditional method of having one government sue another. Under the Biden administration, the United States and Mexico have used the RRM more than 30 times, benefiting more than 30,000 Mexican workers and their families, and resulting in remedies that include back pay, reinstatement, and free and fair union elections. American workers also benefit, because empowering workers in Mexico to exercise their rights reduces one set of incentives for U.S. companies to outsource. In this way, the Biden administration has attacked practices that pit American workers and Mexican workers against each other. The RRM is an example of how a trade agreement can work for the common good by allowing partners to grow their middle classes together.
Competition has also been central to the president’s agenda. Biden’s 2021 Executive Order on Promoting Competition in the American Economy recognizes that excessive market concentration, including concentration of industry, threatens basic economic liberties and democratic accountability. The order also recognizes that American firms face unfair competitive pressures from foreign monopolies. And it states that the way to reduce those pressures “is not the tolerance of domestic monopolization, but rather the promotion of competition and innovation by firms small and large, at home and worldwide.” This has been part of the administration’s approach to “de-risking” in response to the consequences of China’s practices.
As Roosevelt knew well, too much economic power in the hands of too few exposes everyone to coercion and limits freedom. Trade rules should not be used to lock in the dominance of those at the top. At home, some of those incumbents are members of the very same trade associations that helped Taft stymie the ITO Charter back in 1950. Abroad, it is not only companies but also governments that can engage in monopolistic practices.
FREEDOM FROM WANT
Executing a fair competition agenda after decades of laissez-faire policies is not a simple task. In some cases, it means investing domestically, so that American workers and businesses are competing from a solid foundation. In other cases, it means deploying tariffs to guard against the anticompetitive economic policies of non-market autocracies such as China. All of these tools—domestic investments, protections for workers, provisions to foster sustainability, supply chain diversification, and tariffs—play a role in countering economic predation, especially in those sectors that define strategic competition for the future.
Roosevelt understood that internationalizing the New Deal meant that people around the world could all benefit from a globalizing economy. In my meetings with my counterparts over the four years that I have served as United States trade representative, I have seen how much we have in common. They, too, have experienced deindustrialization. They, too, want to build their economies from the middle out and the bottom up. They, too, want to expand their middle classes.
Trickle-down trade will not deliver the results that the United States or its counterparts are looking for. That is as true today as it was the day I took office in 2021. The world is moving past the paradigms of the Chicago school and the so-called Washington consensus, and that gives the United States the chance to shape trade and international economic policy so that it is more equitable for the underserved at home and abroad. Only that kind of order can foster the freedom from want that Roosevelt sought for all.
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