In a career that began during the Reagan administration, Robert B. Zoellick has been at the forefront of U.S. trade policy, diplomacy and economic thought. He served as U.S. trade representative from 2001 to 2005, deputy secretary of state from 2005 to 2006, and president of the World Bank from 2007 to 2012. I reached out to Zoellick, currently a senior fellow at Harvard University’s Kennedy School of Government, to discuss the effects of the coronavirus pandemic on trade, the economy and America’s view of itself in the world.
“Don’t distract by blaming others,” he said. “Let’s focus on what we need to fix. Eventually Americans do just that. Our greatest leaders recognized that — whether it was the 1930s and the Great Depression, or 1941 and World War II, or 2008 and the financial crisis — you can’t cut off from the rest of the world.”
How has the Trump administration’s “economic isolation,” a term you used in a recent op-ed for The Wall Street Journal, contributed to the U.S.’s slow response in dealing with the spread of coronavirus?
There are a number of factors. First, by having taxes on medical imports the administration is increasing the costs of basic supplies that medical professionals need, such as masks and gloves and goggles and gowns and surgical drapes and breathing masks; and it doesn’t make sense to add to the costs of dealing with a health epidemic.
Second, the large imposition of tariffs — up to 25% on Chinese exports — required a lot of health care suppliers in the U.S. and users to have to hunt for alternative sources, costing time and money.
In fact, the Health Industry Distributors Association warned last year that increasing medical tariffs would increase risks to public-health preparedness. In some cases, it’s not easy to switch to alternative suppliers because with medical products you have to make sure they meet certain standards set by the Food and Drug Administration, and it can take up to a couple of years to get approval. So, at a time when you really want your medical profession to be focusing on the crisis at hand, the administration has created an environment where they’re diverting attention to trying to get access to needed supplies or trying to lower costs.
Sadly, Europe and other countries have started to block some of these exports. What’s needed is U.S. leadership to put a spotlight on this and urge, for example, G20 countries not to implement export bans. Keep in mind, we’re just at the start of this problem. This is going to go on for a while.
This is where, traditionally, the U.S., while it watches out for itself, also gets some recognition around the world by pointing out stupid things that others are doing. For example, according to the World Bank, about 46% of developing countries have tariffs on respirators — ranging from 5% to 25% or higher — that they’re not producing.
Leadership is important to get the world economy through this. There are going to be aftershocks for a long time to come. But in my experience, the U.S. gains friends and supporters — sometimes they come back and help us in other ways — if we simply demonstrate intellectual and policy leadership, as well as do the right thing at home.
Last year, when the Health Industry Distributors Association warned that Trump’s tariffs could put the nation’s public health at risk, did anyone in the administration heed that warning?
HIDA’s warning was part of a cacophony of businesses that tried to point out to the administration and Congress that raising tariffs or taxes was going to impose costs. And keep in mind, about 40% to 50% of American imports are for intermediary goods or commodities. So, these aren’t final products, these are the things we use to make other things.
It didn’t take a genius to recognize if you increase costs of supplies, you’re going to increase costs and, frankly, reduce the competitiveness of your own products. Also, of course, when the Trump administration put tariffs on things that people buy and use, that’s just like having an added sales tax. So that’s going to impose costs. But the problem has always been in trade that the costs — such as higher cost inputs or higher costs for people’s clothes or school supplies or other needs — are distributed more widely. And so those voices get shouted out by narrow industries that want to get the protection.
Now, in Texas and in the Midwest, where you’ve got big farming communities, there’s the other side. Which is when the United States takes protectionist actions other countries take protectionist actions, and so the farm community in the U.S. got hit very badly because we’re a major agricultural exporter.
In his inaugural address, Trump declared himself a protectionist. A number of my colleagues said, “Oh, well, he’s just negotiating.” And then he came out and said I’m a tariff man. So, the reality is we’re going to live with these costs in lots of areas, whether it’s the added cost of inputs for steel and aluminum, or whether it’s medical supplies. But this pandemic heightens, in very direct terms, the costs of protectionism. And also gives you a sense of how, once it’s embedded, it’s hard to remove.
Besides blocking export bans, what other ways can this administration or the next mend these fissures in the world trade system?
First, to deal with the immediate. Interestingly, the Trump administration quietly suspended some of its medical tariffs, not a large amount, and they only suspended most of them through the end of this year. Still, this shows their recognition that these tariffs have not been a smart thing to do.
The problem is, if we do encounter a world where exporters have to choose where they’re going to supply things because of limited supplies, if you’re in China and all of a sudden some of the tariffs have been removed, why wouldn’t you pick South Korean or Italian markets where the countries are not imposing tariffs and not saying “Oh yes, you can start to build a business relationship, but in a few months we may cut it off”?
There’s an important congressional element to all of this. The power over trade constitutionally belongs with the Congress. It was delegated to the executive starting in the 1930s after the last round of terrible protectionism. And Trump is the first president to really use the power to add to barriers, not to try to remove them. Sen. Chuck Grassley, who is the chairman of the Finance Committee, is actually out there talking about some of these same issues about reducing tariffs on medical supplies. So, there’s a near-term issue here. At a time when Congress will be spending a trillion dollars or more on stimulus, why not do something that lowers the costs and increases health preparedness that doesn’t cost a dime?
We’ve long used our free trade agreements, which the U.S. has in place with some 20 countries now, to try to set global standards that would also serve U.S. companies. So, one of the big unrecognized shortfalls of protectionism is not only the damage we do to ourselves, but the failure to guide standards for the future.
Our current free trade agreements ... required countries to enforce international environmental agreements, as well as meet a basic set of labor standards. And the USMCA, the successor to NAFTA, picked up on some of this, although the Trump administration put in a number of requirements that are more in the nature of managed trade for the auto industry.
We’re going to encounter similar issues with 5G and a whole series of new technologies that we overcame in the past with standards and rules for internet and wireless technologies. So, the need will be for another administration to reactivate American leadership in building rules and lowering barriers primarily through international agreements.
And the World Trade Organization? How, if at all, has the Trump administration diminished the WTO’s ability to enforce rules and settle trade disputes?
The administration has had a serious onslaught to dismantle pieces of the WTO. Going back to the Reagan, Bush 41, and Clinton administrations there was a strong belief that to back international rules, you needed an impartial body to make decisions. The WTO created a series of panels and an appellate system that would say if a country is violating the rules the country that brought the case could then retaliate. So, it preserved countries’ sovereignty. They could keep doing what they wanted to do, but if they violated the rules the other country could take proportionate action to retaliate.
The Trump administration doesn’t like that dispute settlement system. Indeed, Bob Lighthizer, the current U.S. trade representative, has always opposed it. So, they have figured out a way to try to dismantle the WTO by blocking the appointment of additional members to the appellate body. As a result, what was once a seven-member body, which would meet in three-person panels to rule on cases, no longer has three people. They’ve effectively dismantled it.
The U.S., and frankly other countries, have legitimate complaints about some of the WTO rules, or, as I have suggested, the WTO rules don’t extend far enough in some of the newer areas of importance such as services, e-commerce, intellectual property, transparency and anti-corruption. Canada, Europe, Japan, even to a degree China, have recognized that it has to change some of these things.
But the U.S. has not really participated seriously in changing the rules because the basic mindset of the president and his administration is that they would prefer transaction-by-transaction over rules, because then they can use the weight of the U.S. to try to bully the other party. The problem with that is, there’s a lot of economic activity that goes on in the world, and frankly, investment, that depends on some degree of confidence that there are rules and standards.
You’ll find many economists that were sympathetic or supportive of the president’s corporate tax reform who say he undermined it with his trade policies because he created uncertainty that limited investment. And you can see that while the U.S. had good consumption, the investment was falling off over the past year even before the coronavirus. These are important issues that won’t hit the headlines, but they’re going to be vital particularly when we get through this pandemic and you need to have a healthy economy and confidence in investment return.
One of the other lessons here is that the U.S. is not an island. One of the big battles that you’re going to see come out of this pandemic, this year, next year and beyond, is there will be people, and some of them in the administration are already saying this, who say “Look, this shows we have to cut America off from the world.”
In a speech launching his presidential campaign in 1979, Ronald Reagan said it’s important that we think about Mexico and Canada as partners — and we want them to be stronger not weaker. We’re together here in North America. People in Texas understand this. If hostile actions undermine Mexico, make it weaker, we won’t see the benefits of economic integration. But also, what’s going to happen over the long term if you have a weaker Mexico?
My belief is that the policies we had to try to integrate North America economically — and frankly, with some of the violence and corruption issues in Mexico, rule of law issues — are important not only for America but important for America’s future role in the world. There’s 1.3 billion people in China. But with 500 million people in North America, three democracies with integrated economies, energy self-sufficiency and the ability to export, all while recognizing our environmental connections, we could have a much stronger leverage point in the world if we worked with these two countries as partners.
In his 2018 address to the U.N., President Trump said, “We reject the ideology of globalism and accept the ideology of patriotism.” Does it seem that, in regard to trade, that’s a healthy worldview?
Well, I adamantly reject that you pit one against the other. And I have the Founding Fathers on my side. Because from the very start of America, there was a belief that our nationalism was one side of a coin with our internationalism, that what we were doing here in America, was also a light and an influence around the rest of the world. And, in particular on trade.
In the 1780s, John Adams actually was writing about how the United States’ foreign policy would be defined by a trade policy that would lead to — and he used a reference to the Reformation — a Protestantism challenging the imperial, mercantile order. From the start, Americans have realized they want to have a strong, continental country. But the idea that patriotism meant that we stopped at our own shores, and we didn’t do things that are in our interests and other’s interests around the world, would make everybody from George Marshall to Eisenhower, Truman to FDR, all into non-patriots. And that certainly is an odd reading of history.
Why have so many embraced this idea of globalism versus patriotism? We’re seeing an anti-globalization backlash. Why do you think that is and how should our leaders address it?
Well, that’s a big question of our era. It’s natural that under disruptive economic conditions, as we had in the 2008 financial crisis and for a period afterwards, that people get fearful; they try to bond together through their community, often starting with their local community, then at a national level. They want to hunker down. So, in that sense, the notion of “protecting” — economic protectionism — at first sounds like a good thing.
Then there’s another component, which is when people get scared or angry, they need to know who to blame. And it’s always easy to blame foreigners. We had anti-Chinese movements in the 19th century; we’ve had movements against lots of different people. So, it’s easy to point the finger at others.
Historically, what has made the U.S. successful is we’ve had leaders that can rise above that and start out by saying, look, our ultimate strength is making us better at home. Rather than point fingers at the “Chinese” virus, let’s try to figure out how we can have better testing and health care systems and manage this problem at home. Don’t distract by blaming others. Let’s focus on what we need to fix.
Eventually Americans do just that. Our greatest leaders recognized that — whether it was the 1930s and the Great Depression, or 1941 and World War II, or 2008 and the financial crisis — you can’t cut off from the rest of the world.
At this time of crisis, we need to remember that the U.S is a strong country that built alliances and trade agreements and partnerships that moved the world in our direction. During times of crisis there is anxiety and fear, there is a struggle for a sense of identity. You see this on immigration issues, you see it on trade issues, you see it on security questions. But what’s important, I think, for people who want the U.S. to have a leadership role in the world, is to recognize that those anxieties and fears are real. It’s a mistake to dismiss them.
We need leadership that helps us get through this difficult period together. We need to care for our fellow Americans, whether it’s in our local communities or nationally. But also point out, as our discussion has, that we’re not going to be more successful if we do dumb things. Raising costs, making it harder to get things, not influencing the shape of the world, has not been the formula for America’s success.
This Q&A was conducted, edited and condensed by Michael Judge, a former deputy editorial features editor at The Wall Street Journal, and a contributing editor at The Dallas Morning News.