Defense — and offense — win trade championships

Defense — and offense — win trade championships
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As the Super bowl nears, let’s apply a football analogy to trade: Teams with the best defense don’t always win. A recent study finds that teams with the best offense win championships about as often as teams with the best defense.

Jumping to trade, the United States certainly needs to defend well against unfair, predatory practices, but it also needs a good offense to open and retain markets, so that its businesses, farmers and entrepreneurs can compete freely. As in football, a real champion has a strong offense and a strong defense.

The U.S. administration has big trade decisions on its plate for early 2018 involving NAFTA, China and U.S.-Korea trade, among others. To date, however, the administration has focused on defense.

It has shown no offense to expand overseas markets and improve supply chains that help U.S. business, farmers and workers compete against other global producers. The administration mentions forging bilateral trade deals, but none have been initiated.

The administration is also keeping score largely by trade deficits, rather than counting success by market-distorting practices eliminated and increased U.S. sales. This is widely criticized by economists, leading some to suspect a desire for managed rather than free trade, and it is not what we would apply to successful companies in our economy. 

In football, bad game plans or poor execution can lose a game or season. Similarly, a bad plan and poor trade policy execution can cost the U.S. dearly.

If not careful, the U.S. could, for example, push away the United States' two largest clients and production partners (Mexico and Canada) or start a costly tit-for-tat with its largest trading partner (China). Doing so would harm U.S. sales, jobs and consumer prices. We could also scare away potential partners by the tactics we use.

The U.S. should go after other countries’ bad practices, as the Trump administration is doing with China, but in the context of a strategy that leads to solutions and creates opportunities. Through “Commercial Diplomacy”, the U.S. should be working in other countries to remove barriers American companies face and to help them compete fairly with competitors from around the world.

The U.S. game plan should aim for agreements on norms, rules and good practices that help U.S. companies compete on a level playing field. This is why countries belong to the World Trade Organization (WTO), work in regional groupings (the European Union, NAFTA) and seek bilateral arrangements.

Bilateral agreements alone, as the Trump administration proposes, make it a lot harder to set broader norms and can yield the field of setting standards to others, such as the EU or China.

The U.S. also needs domestic policies that help companies, farmers and workers be more competitive, akin to football training. The U.S. is starting to do this with tax and regulatory reform, but it still has much to do in areas like workforce training, research and development spending and infrastructure investment.  

Unlike football, in trade, the aim is not to win a game. It is to create mutually beneficial long-term commercial relations where buyers and sellers can freely make choices based on the price and quality of the goods and services offered. It is essentially win-win, and two trading partners can help each other prosper by building things together.

In a good international trade agreement, just as in the U.S. domestic market, some countries may end up selling more than others, but that outcome is guided by agreed norms, rules and practices that are fair to all parties.

This is part of what is troubling about the focus on trade balances as proof that a relationship is unfair, and it underscores why we need a trade offense and defense. 

Tackling bad trade practices is good as part of an overall strategy. The U.S. is well founded in using “trade remedies” in response to China’s practices promoting theft and forced sharing of U.S. intellectual property and subsidizing steel, aluminum and solar panel exports.

Such actions can send powerful wake-up messages to Beijing. The U.S. is also working with the EU in the WTO to argue that China is not a market economy because of its practices. 

Yet, punitive steps need to be part of a broader plan for working with China to change practices, taking into account the massive U.S. trade and investment with China, which benefits U.S. consumers, farmers and businesses. Actions should also be part of a broader U.S. economic and political strategy for China and Asia that bolsters America’s commercial and political partnerships. Such a strategy is not yet clear.

Turning to NAFTA, the Trump administration is not accusing Canada and Mexico of unfair trade practices, only of selling us more than we sell them. Yet, the $1.2 trillion NAFTA trade rests on the ingenuity of the U.S. private sector, which built continent-wide supply chains to reduce consumer prices, expand markets and compete with Asian exporters. 

NAFTA is part of America’s trade offense: Canada and Mexico are the largest buyers of U.S. exports and partners in making U.S. manufacturing more competitive against Asian producers. NAFTA supports up to 14 million U.S. jobs and is essential for U.S. farmers.

The president cites the trade deficit with Mexico to show that NAFTA is bad, but factoring in the U.S. content in Mexican manufactured exports, the deficit shrinks or disappears.

The U.S. could lose several hundred thousand jobs if the administration leaves NAFTA and face significant impact in lost exports, higher prices, stock market turbulence and animosity in Mexico. In the negotiations, key U.S. proposals sparked strong opposition from the U.S. business and farms sectors.   

A winning outcome entails modernizing and improving NAFTA so all three countries prosper, and U.S. businesses, farmers and workers can have better outcomes at home and abroad. We can hope for some halftime adjustments in the U.S. game plan to get there.

Earl Anthony Wayne is a public policy fellow at the Wilson Center and a former assistant secretary of state for economic and business affairs and U.S. ambassador to Mexico.