Trade Speech at AEI

Mar 30 2017

I. Introduction: Re-opening the Trade Debate

Thank you for that kind introduction, Claude. It’s an honor to be here this morning. Thank you to the American Enterprise Institute for putting this event together. Thanks to our esteemed panelists for your insights and scholarship. And thanks to all of you for being here.

In a way, it’s a wonder any of us are here – choosing to spend an early Thursday morning at a think-tank event about trade policy. Five months ago, I wonder how many of us would have found this very appealing, even with the promise of free food.

But President Trump’s election has – as the saying goes – made trade policy great again, and now it is one of the hottest topics in Washington and around the country. So, here we are.

I think this is a good thing.

In the second half of the 20th century, a bipartisan consensus on trade emerged in Washington, with the establishments of both parties agreeing that the fundamental and long-term objective of America’s trade policy ought to be the pursuit of lower trade barriers at home and abroad. The lower the better.

For decades, this consensus determined the course of America’s trade policy and set the parameters for our trade debates. But over time, those parameters grew increasingly narrow and rigid.

Eventually, defending the conventional wisdom became less about winning a debate, and more about avoiding one. Departing from – or challenging – the bipartisan consensus came to be seen as taboo. Adherence to the conventional wisdom was enforced like P.C. speech codes on a college campus.

Just look at how the campaigns of Bernie Sanders and Donald Trump – and their iconoclastic positions on trade – were ridiculed by the Washington establishment. And we all know how that turned out.

Their skepticism toward our trade status quo might have been the butt of jokes in Washington, but it was warmly embraced on the campaign trail by large swaths of the American electorate.

This isn’t because the American people don’t understand the benefits of liberalized trade as well as policymakers and scholars in Washington, but because they understand the downsides of those policies much better than we do.

And, just as importantly, they had grown distrustful and disdainful of a political class that seemed perfectly happy ignoring their concerns and dismissing any objections to the status quo as illegitimate or illiberal.

Some things in politics are final. As Calvin Coolidge once said, in a tribute to our Declaration of Independence, “If all men are created equal, that is final. If they are endowed with inalienable rights, that is final. If governments derive their just powers from the consent of the governed, that is final. No advance, no progress can be made beyond these propositions.”

But a nation’s trade policy? There’s nothing final about that.

Indeed, President Coolidge himself was a famous – or some might say infamous – champion of tariffs. So, I think Silent Cal would be glad – as I am – that last year’s presidential campaign helped re-open the debate over trade policy in this country.

II. Who’s in Charge of Trade Policy?

But how much actual debate have we seen since the election? So far, not much.

Sure, we’re here this morning. But we might not have been if the election had turned out differently. And trade scholars like Gary, Claude, and Scott are in higher demand than usual.

But on Capitol Hill the silence has been deafening.

Part of this has to do with risk-averse politicians taking a wait-and-see approach with a new, and somewhat unpredictable, president. But there’s more to it than that.

The real reason members of Congress have been reluctant to engage in the trade debate that last year’s election helped resurrect is that, as an institution, Congress no longer sees itself as the lead author of the nation’s trade policies.

And to a large extent, it isn’t – especially in the area where President Trump has focused most of his attention: protecting against unfair practices by our trading partners.

Under current law, the president has ample authority to unilaterally shape and change our nation’s trade policies if his administration determines that the behavior of a trading partner is “unfair” or “unreasonable.”

Without so much as Tweeting at Congress, the president can respond to such behaviors by: (1) raising tariffs, (2) withdrawing from trade agreements with other nations, or (3) using any number of non-tariff mechanisms to restrict imports.

Some of these legal mechanisms available to the president and his cabinet are limited in scope and effect, while others are broad and far-reaching. But what they all have in common is that they give the executive branch – and even the president himself – virtually unrestrained authority to make and change our nation’s trade laws.

You don’t need a law degree to see the problem here. Article I, Section 8 of the Constitution clearly gives Congress, and only Congress, the power to “lay and collect taxes, duties, imposts and excises” and “to regulate commerce with foreign nations.”

Of course, as the nation’s top diplomat and commander-in-chief, the president has a legitimate constitutional role to play as well. The Framers knew that the executive branch, united under the direction of a single individual, would possess unique attributes that are vital to the successful negotiation of international agreements – attributes like “Decision, activity, secrecy, and despatch,” as Alexander Hamilton put it.

But the Framers also knew that our nation’s trade policy was important enough that it should be controlled by those government officials who are closest, and most accountable, to the people.

This stringent accountability is the linchpin of America’s experiment in self-government – it’s what distinguishes a government that truly is “of, by, and for the people” from one that’s not.

It’s also extremely inconvenient for elected officials, which is one reason why Congress has spent much of the past century delegating many of its lawmaking powers to the executive branch. This has happened in just about every area of policy, and trade is no exception.

III. Passing the Buck to the President on Trade

For the first 150 years or so of American history, our trade policymaking process looked basically like what the Constitution contemplates: Congress was in charge of determining the nation’s trade policies – primarily by setting tariff rates on imported products – while the president and his cabinet took the lead in negotiating individual trade deals.

As intended, this arrangement fostered vigorous debate about trade – in Congress and in the public square – and it ensured that the nation’s trade policy reflected the will of the American people.

But over time, these hallmarks of republican government came to be seen not as features but as bugs. And by the early 1930s, Congress had decided to create a new arrangement, more conducive to the career prospects of its members, that depended less on taking responsibility than on ducking it.

Under pressure from domestic producers seeking relief from competition abroad and collapsing markets at home, Congress passed the Smoot-Hawley Tariff Act of 1930. This raised tariffs to unprecedented heights and helped strangle an economy that was already suffocating under the weight of the Great Depression.

It didn’t take long for the imprudence of Smoot-Hawley to become evident to just about everyone, from the members of Congress who authored the bill to the tariff collectors scattered across the country who enforced it.

But mustering the political will to repeal Smoot-Hawley or reduce its tariffs proved to be far more difficult. Too difficult, in fact, for Congress.

Doubtful of its own ability to stand up to special-interest protectionist pressure, Congress gave up trying and instead delegated to the president the power to reduce tariffs unilaterally under the Reciprocal Trade Agreements Act of 1934.

This was a landmark abdication of trade power. Never before had Congress granted the president such expansive tariff modification authority. And it was motivated largely by the self-preservation instincts of members of Congress who were willing to give up their constitutional powers in exchange for a policy outcome they couldn’t achieve themselves.

As one historian put it, “No longer did Congress give priority to protecting American industry. Instead, its members would give priority to protecting themselves: from the direct, one-sided pressure from producer interests that had led them to make bad trade law. What was required was a system that made the buck stop somewhere else.”

The Act of 1934 was the foundation for that new system, which is still with us today – a system in which the buck stops with the president, not with Congress.

But while Congress may not have wanted to be in the driver’s seat of trade policy, it didn’t want to become irrelevant either. So, under the 1934 Act, the legislative branch retained a few important checks on the president’s new powers.

For instance, while the president had the authority to set tariff rates and to implement them by proclamation, it was up to Congress to determine the range of acceptable tariff levels that would guide and constrain the president’s negotiations. And by making the president’s authority limited in duration, every few years Congress had the chance to decide whether it wanted to reauthorize the trade powers it had delegated to the executive branch.

This sharing of trade authority between the executive and legislative branches established in 1934 became the cornerstone of the modern trade policymaking process and was further cemented in the next major phase of trade reform in the 1970s.

The Trade Act of 1974 created the fast-track process – what we now call trade promotion authority, most recently renewed in 2015 – as a way to strengthen the partnership between the president and Congress. Similar to the system established in the 1934 Act, the fast-track process empowered the president to engage in international negotiations with flexibility and credibility, while also requiring input and consent from Congress.

But there is one area of trade policy where irrelevancy apparently was Congress’s goal.

Throughout the twentieth century and into the twenty-first, when it comes to protecting against unfair practices by our trading partners, Congress has consistently delegated vast powers to the executive branch, deliberately retaining little to no meaningful oversight or involvement.

For instance, Section 123 of the Trade Act of 1974 gives the president broad authority to adjust tariffs unilaterally in some circumstances. The same is true of Section 203 of the International Emergency Economic Powers Act of 1977, which gives the president the power to freeze foreign assets during times of national emergency. Likewise, there’s Section 125 of the 1974 Act, which gives the president “termination and withdrawal authority” over U.S. trade agreements.

There’s also Section 301 of the 1974 Act, which delegates to the president expansive power to retaliate against foreign governments’ import restrictions that unfairly affect U.S. commerce. Unlike similar grants of authority in other trade laws, in its original form, the 1974 Act actually contained a congressional veto procedure, in Section 302, that allowed Congress to restrict the president’s use of retaliatory action.

In fact, if you look at the committee records of the 1974 Act, you’ll see that the version of the bill passed by the House of Representatives would have allowed Congress to veto any actions taken by the president under Section 301. But the Senate Finance Committee feared that this would give too much power to Congress, so the final legislation included a watered-down version of the House proposal.

In the end, this mid-70s renaissance of congressional prerogatives was short-lived. By the end of the decade, the limited congressional veto mechanism created in Section 302 of the 1974 Act had been stripped from the law, leaving the president with the power to impose higher tariffs on a trading partner, via the U.S. Trade Representative, if “an act, policy, or practice of a foreign government is unreasonable or discriminatory and burdens or restricts U.S. commerce.”

And for the past 40 years, this unilateral authority has remained essentially unchanged and unchallenged.

Which brings us back to President Trump, his heterodox trade platform, and the tight-lipped response that we’ve seen from Congress.

IV. The Global Trade Accountability Act

Clearly, when President Trump says that he has the authority to raise tariffs on China, renegotiate or withdraw from NAFTA, or retaliate against foreign governments that violate our trade agreements, he’s standing on solid legal ground.

In fact, there are so many possible statutory authorities from which the president can choose – some of which stretch back 100 years – it’s not even clear which statute the administration would use to pursue any given policy goal.

But the bottom line is that the president has ample legal tools at his disposal to implement much of his trade policy platform without any input from Congress.

That’s what the law says. But we have to ask ourselves, “is this a good thing?”

Is it a good thing that Congress is involved only in the lowering of trade barriers, while the president has extensive power to raise them without Congress?

If you believe in the Constitution – if you believe in the American experiment in self-government and the obligations of a government that derives all of its just powers from the consent of the governed – the answer must be no.

That’s why I recently introduced a bill, called the Global Trade Accountability Act, that would help Congress restore its authority over trade policy.

Congress is currently involved in facilitating lower trade barriers, and this bill would allow Congress to reclaim some authority in the raising of trade barriers also, by subjecting those presidential trade-related actions to a congressional approval process.

The premise behind the bill is simple: the role of Congress is not to selectively engage in policymaking based on what is politically convenient. The Constitution is not an à la carte menu. It is an instrument to secure the social compact between the citizens and the government of the United States.

But when Congress pretends otherwise, cherry picking when – and when not – to exercise its constitutional powers, it produces bad policy and undermines the mutual trust on which our entire system of government depends.

Indeed, it’s precisely this kind of evasion of responsibility that has led us to the unhappy political moment in which we find ourselves today. The American people are increasingly dissatisfied with the policy status quo in Washington, and yet too often the response from members of Congress is to pass the buck to the president, acting as if only the executive branch can fix our most challenging policy problems.

But the American people are not fooled by this sidestepping and blame-shifting. They see it for what it is: another reason not to trust or respect their elected representatives in Congress.

As I see it, earning back the people’s trust should be Congress’s number one priority in everything we do in the coming years. And that’s exactly the goal of the Global Trade Accountability Act.

Here’s how it works.

The bill would amend current law to require congressional approval for certain executive-branch actions on trade – actions that include increasing tariffs, duties, and tariff rate quotas.

This process would work just like the fast-track process that the Trade Act of 1974 created to facilitate congressional approval of trade agreements that lower trade barriers. And it would affect multiple trade laws currently on the books, including some of the laws I’ve already mentioned, like the “Smoot-Hawley” Tariff Act of 1930, the Trade Expansion Act of 1962, and the Trade Act of 1974.

If you think about it, this is really quite a modest reform. If the bill were signed into law tomorrow, the president would still lead the United States’ response to unfair trade practices by foreign governments. But before any retaliatory actions covered by the bill could take effect, the president would need to secure a joint resolution of approval from both the House and the Senate.

If the executive branch were to determine that a trade remedy is necessary to address a national emergency or protect against a threat to our national security, the president would have a 90-day window in which he could act unilaterally without receiving congressional approval.

In essence, this bill is about harmonizing the current disparity between the way Congress treats presidential actions that lower trade barriers versus presidential actions that raise trade barriers. If Congress is going to be involved in the former – as I think it should be – then it should also be involved in the latter.

The bill deals only with the distribution of power and institutional arrangements that should – according to the Constitution – obtain in the arena of trade policy. It says nothing about what kind of trade policy we should pursue.

So, to support this legislation, you don’t have to hold a particular view on the ideal trade policy for America – you just have to support the Constitution and the reasons its authors put Congress in the driver’s seat of federal policymaking.

In other words, if this bill were signed into law tomorrow, Congress could choose a protectionist trade policy or it could choose an open-borders trade policy. The point is that, more than today, it would be up to Congress to choose what kind of trade policy we have in America. And even before that, it would be up to Congress to have a real debate about what kind of trade policy we ought to have in America.

This debate is long overdue and sorely needed.

If last year’s election taught us anything it’s that a large, bipartisan majority of voters is fed up with the shallow contest of political slogans that has, for too long, masqueraded as reasoned discussion about trade.

The American people know today’s trade status quo has benefits and drawbacks that confound the conventional “free trade vs. protectionist” dichotomy, and they don’t think it’s too much to ask for their elected representatives to acknowledge both.

And they know that when the power to make policy is held by officials who can be fired by voters, there’s a better chance that those policies will reflect their interests and priorities.

This is what my bill is all about – putting Congress, and by extension the American people, back in control of the nation’s trade policies.

The purpose of our trade policy – just like every government policy – is not to benefit the “global economy” or the “international community,” nor to satisfy the dictates of an economic theory or political ideology.

No, the purpose is to secure the rights and serve the interests of the American people – not just as consumers but as workers and as citizens.

This may not be the way that we’re used to thinking in Washington. But that’s the point.

So, I’m here this morning not just to try to start a debate about trade policy, but to invite you to join me.

Thank you.