Reclaiming Congress’s Constitutional Mandate in Trade Resolution

— 802 — Mandate for Leadership: The Conservative Promise response to four rounds of tariffs plus an attempted Phase One agreement. The Biden Administration has left the tariffs in place and is expanding them to pursue progressive policy goals. The first order of business for a new Administration that is focused on American workers and consumers is to repeal all tariffs enacted under Section 232 of the Trade Expansion Act of 196251 and Sections 201 and 301 of the Trade Act of 1974.52 The President can do this unilaterally, and Congress can do it through legislation. The second order of business requires Congress to pass legislation repealing Sections 232, 201, and 301. The U.S. Constitution places all taxing authority with Congress53 and none with the President. Congress used those provisions of law to delegate some of its taxing authority to the President because it was having trouble passing “clean” tariff legislation in the 1960s and 1970s. Unless and until this constitutional question about delegation is addressed, important reforms are available to the next Congress and the next President. Congress faced a problem of collective action in the 1960s and 1970s. As a whole, Members generally wanted to lower tariffs, but few individual Members were will- ing to remove tariffs that benefited special interests in their districts. Trade bills were invariably watered down through amendments and logrolling. The thinking was that the President, whose constituency is the entire nation, would be less prone to special-interest pleading than Members of Congress would be, so Congress del- egated some of its tariff-making authority to the President in 1962 and 1974 trade legislation. Delegating tariff-making might have worked in the short run, but in the long run, it was both constitutionally dubious and ripe for abuse. That came to pass in 2018. The Section 232 steel and aluminum tariffs, invoked in 2018 against Canada, Europe, and other allies on national security grounds, raised car prices by an aver- age of $250 per vehicle and gave America the world’s highest steel prices. They also harmed the construction, canned food and beverage, and other metal-us- ing industries. While this may have benefited the steel industry itself, each steel job saved cost an average of $650,000 per year that had been taken from elsewhere in the econo- my.54 That is no way to strengthen American manufacturing. The New York Federal Reserve estimated in 2019 that the Section 301 China tariffs cost the average house- hold $831 per year,55 a figure that has likely increased with inflation. The new tariffs have a clear record of failure—as conservative economists almost unanimously warned would be the case. Job number one for the next Administration is to return to sensible trade policies and eliminate the destruc- tive Trump–Biden tariffs. Strengthening American Manufacturing. The decline of American manu- facturing is a common political trope in both parties, typically invoked before a call for more government intervention. This narrative has several problems. One is that — 803 — Trade American manufacturing output is currently at an all-time high. The record was not set during World War II and not during the 1950s boom. Output did not peak when manufacturing employment peaked in 1979 or during the Reagan economic revival in the 1980s. It is actually higher now than it has ever been. American manufacturing is buoyant because each manufacturing worker’s pro- ductivity is also at an all-time high. The key to prosperity is doing more with less. The next President should ignore special interests and populist ideologues who want government to do the opposite through industrial policy, trade protectionism, and other failed progressive policies. It takes surprisingly few people to achieve America’s record-high manufac- turing output—currently about 13 million people out of a workforce of more than 160 million, compared to the 1979 peak of 19.5 million people out of a workforce of 104 million.56 Productivity growth has freed the time and talents of millions of people for other, additional uses. The belief that manufacturing has to shrink for services to grow is the zero- sum fallacy against which sensible economists often warn. It is anathema to the optimism, hope, and confidence that are the natural birthright of conservatives. Growing productivity enables more output of both manufacturing and services. That is why America continues to have sustained booms and record-setting real GDP despite the long-run decline in manufacturing employment. Economists distinguish between two types of growth: extensive and intensive. Extensive growth is the Soviet and Chinese model for manufacturing: If you have more people use more resources, they will create more output. Extensive growth is doing more with more; intensive growth is doing more with less. That is where America’s superpower lies. The story of American manufacturing is one of intensive growth dating back to our agricultural origins. Conservative leaders should draw on this history to position America for continued success. With intensive growth, it is not manufacturing or services; it is manufacturing and services. Retaliatory Tariffs. Raising tariffs on another country almost always invites retaliatory tariffs against the U.S. The latter tend to be directed at politically sen- sitive American exports. Retaliatory tariffs by both China and American allies in response to the 2018 steel tariffs were targeted primarily at American agriculture. According to the U.S. Department of Agriculture, those tariffs cost farmers $27 billion with losses concentrated particularly in heartland states.57 Retaliatory tariffs also targeted U.S. industries that were not protected by tar- iffs. Many imports become inputs into U.S. manufacturing. The motorcycle maker Harley-Davidson was already facing higher production costs as domestic steel producers raised their prices to accommodate the new steel tariff. A retaliatory tariff on its motorcycles imposed by the European Union further raised its prices and hurt its export business. Harm to such innocent bystanders was another unin- tended (though foreseen) consequence.

— 811 — Trade contains the Sections 201 and 301 tariff delegations. TPA, then called fast-track, has aided several trade agreements, including NAFTA and the USMCA, which took effect in 2020. TPA has lapsed before during slow periods in trade policy, most recently in July 2021, and remains lapsed today. The President should work with Congress to renew TPA to rationalize negoti- ations for upcoming trade agreements with the United Kingdom, the European Union, and others. Both supporters and critics have questions regarding TPA’s implications for the constitutional separation of powers, and policymakers should take those questions seriously. As things currently stand, Congress has some oversight powers over the President’s negotiations under TPA, but they are limited. Congress can increase its oversight by passing new legislation superseding relevant provisions of the 1974 Trade Act. However, that is a double-edged sword. A Congress that largely favors free trade could exercise oversight to keep the President on the straight and narrow in trade negotiations. A progressive Congress would instead insist that the President negotiate for as many trade-unrelated provisions as possible to benefit labor and green constituencies while pushing progressive policies on the U.S. and its trading partners. On balance, a single voice at the negotiating table that is subject to congressional oversight is the best posture for American workers and consumers. A fractious Congress has yet to demonstrate the capacity to negotiate with other nations, but it can help to hold the Administration accountable. Trade Agreements with the United Kingdom, European Union, and Others. Even with a renewed TPA, trade agreement negotiations will likely take years. The Trump and Biden Administrations were not inclined to start the process, so that job may well fall to the next Administration. In that sense, the delays may end up being worth it. If there is one lodestar to follow, it is to restrict these agreements to trade issues only. Ever since NAFTA, trade-unrelated provisions have taken on a greater role in trade agreements. These create sticking points and are routinely hijacked by rent-seeking special interests and progressive ideologues who demand subsidies, carve-outs, and economically distorting labor and environmental standards that have nothing to do with trade. If governments are to negotiate these issues, they should do so in separate agreements so they do not torpedo efforts to liberalize and engage with allies. Trade agreements should lighten burdens, not create new ones by attempting to address non-trade issues. Policy leaders in the United States and the United Kingdom, including experts from The Heritage Foundation and the Competitive Enterprise Insti- tute, have prepared a model trade agreement along these lines.73 Along with TPA renewal, this would greatly reduce negotiating costs. This template is also readily adaptable for agreements with Europe and any other allies that are willing to — 812 — Mandate for Leadership: The Conservative Promise liberalize their economies and build a stronger alliance with America. The draft U.S.–U.K. agreement includes an accession chapter to allow others to join on the same terms. Restoring or Replacing the WTO Dispute Resolution Process. The World Trade Organization as we know it may be mortally wounded. This deprives the U.S. of the WTO’s dispute resolution process, under which the U.S. it won 85 percent of the cases it brought. The WTO’s slow death began under the Obama Administra- tion, which refused to allow appointees to the WTO’s appellate board, which as a consequence is now nonfunctional. Both the Trump and Biden Administrations have continued the Obama Administration’s approach. That means that every case in the dispute resolution process will sputter to a halt as parties file appeals that cannot be heard. If the WTO is no longer fit for that purpose, it may be better to look in a different direction. More than 20 years ago, a Heritage Foundation senior fellow proposed that America and other free economies should form a Global Free Trade Alliance that is open to all countries that adhere to a truly free market system with appropriate safeguards such as property rights, lack of corruption, and enforcement of contracts.74 Alongside a general agreement on low to zero tariffs, the alliance would move to reduce the effect of nontariff barriers (such as the previously noted baby formula ingredient and labeling barriers) by basing trade around the principle of mutual recognition. Such an alliance could be started by a trade agreement between the United States and, for example, the United Kingdom with an accession chapter allowing others to join if they meet the criteria. It would be essential for a Global Free Trade Alliance to avoid the WTO’s most serious problem: the exemptions from its rules that are granted to developing countries. When China joined the WTO in 2001, it was granted developing-na- tion status, which it continues to use to dodge rules that should apply to it. Other countries have used that status to delay needed reforms. Rule exemptions give some countries a perverse incentive to remain poor and autocratic. A Global Free Trade Alliance would allow the U.S. to enjoy the benefits of a rules- based international trading system without the WTO’s shortcomings. Negotiation costs would be lower because the countries would already be allied on many issues. In addition, there would be no separate tiers with different rules, and this would give developing countries an incentive to liberalize. In addition to being good for its own sake, liberalization would give them entry into a prestigious club that tilted toward America’s orbit and away from China’s. Closing the Export–Import Bank. The Export–Import Bank (EXIM) is an unusually clear example of how vulnerable trade protectionism is to being hijacked by special interests.75 In most years, about half of EXIM’s business benefits a single company, Boeing. Their relationship is so cozy that EXIM’s nickname around Washington is “the Bank of Boeing.”

— 666 — Mandate for Leadership: The Conservative Promise Advisory Committees. Due to the nature of the Department of Commerce’s portfolio, many of its advisory committees are populated by activists from organi- zations openly hostile to conservative principles who use the committees to impede conservative policy. Upon entering office, all such committees should be reviewed regarding whether they are required by statute and abolished if they are not. Mem- bership of the remaining committees should be reconstituted to ensure they are sources of genuine expert advice and productive contributions to the policy-making process. Federal Advisory Committee Act (FACA) compliance and awareness of any ways the committees have been written into regulations should be considered. INTERNATIONAL TRADE ADMINISTRATION The International Trade Administration is centrally placed to craft and implement U.S. trade policy. Core to ITA’s mission is the expansion of trade and investment and the fostering of job creation, innovation, and economic growth, while also providing research and analysis that support USTR’s trade negotiations. ITA carries out this mission on behalf of American workers, ranchers, and families. As discussed elsewhere, historically, conservatives have argued that many fed- eral government trade and investment-oriented functions amount to corporate welfare or protectionism. There is a growing counterargument within the conser- vative movement contending that, in a world in which managed trade is the norm rather than the exception, and in which authoritarian governments, especially China, continually seek to undermine U.S. interests, the U.S. cannot unilaterally disarm. To do so would harm the cause of free trade in the long term, and, in any event, Congress is not likely to drastically change the composition or authoriza- tion of the ITA. Thus, a policy and management agenda that serves conservative priorities is crucial. In a conservative Administration, the ITA should operate with the follow- ing priorities: l Counter the malign influence of China and other U.S. adversaries; l Enforce agreements vigorously and defend against trade violations; l Secure access to critical supply chains and technology; and l Enable the private sector to drive innovation and remain globally competitive. It is important to note that a deeply entrenched set of career Senior Executive Service officials have managed the ITA for over a decade. While most are truly non-partisan civil servants, some are not. Political leadership must manage accord- ingly. Strong political leadership is needed in ITA’s policymaking positions from — 667 — Department of Commerce Day One to ensure the bureau is fully implementing Administration policy. An incoming Administration should ensure that Assistant Secretary and Deputy Assis- tant Secretary positions are staffed by appointees as quickly as possible. Enforcement and Compliance. Strong enforcement of trade agreements is an indispensable function of the ITA carried out by Enforcement & Compliance (E&C). Free and fair trade is impossible without energetic enforcement of exist- ing agreements and without strong defense against dumping and illegal subsidies. Many free trade advocates consider antidumping and countervailing duty laws (AD/CVD) to be protectionist and thus antithetical to the conservative free market position. In their view, AD/CVD laws are overused, abused by certain industries, and harmful to American economic competitiveness by increasing costs to down- stream industries. Other conservatives maintain that AD/CVD tariffs are not conventional tariffs, but rather corrective actions meant to address anti-free market activities by other governments—a scalpel, not a hammer. In the short term, this may mean higher costs for U.S. businesses and consumers on a limited number of products from cer- tain offending countries, but those higher prices correct existing price distortions in the marketplace and ultimately ensure the healthy operation of market forces in the long term and a level playing field for U.S. manufacturers. Whatever the case, improvements to the current system must be made to both protect U.S. consumers and companies from improperly applied duties and defend against trade-distorting actions by other governments. Procedures governing the day-to-day administration of proceedings, as well as policies driving critical deci- sions in proceedings, require a fresh look. Ultimately, E&C’s mandate is to conduct a rigorous but also fair, objective, and balanced review of the record in each pro- ceeding and to make decisions without bias. It is exceedingly unlikely that Congress would abolish or limit the activity of E&C. Therefore, the proposals below are made under the assumption that an incoming Administration will operate E&C within its current legal, institutional, and political confines and set a path forward to wield E&C’s considerable power to achieve the goals of a conservative Administration. These proposals can be broken into three categories: process, policy, and addressing China. Process l Re-establish and expand suspended in-person pandemic-related verifications, particularly regarding the People’s Republic of China. Ensure that verifications are rigorous. l Implement advanced analytics and artificial intelligence to identify opportunities for self-initiation, detect circumvention, and prevent bad actors from gaming the system.