The United States should use its tremendous wealth and power to shape a global economic recovery that will help advance middle-class well-being. It should reject a zero-sum mentality and recognize that a collapse in the global economy would be disastrous for all Americans. In supporting a global recovery, the United States should align its foreign policies with domestic ones needed to address the major economic challenges facing Americans at home and ensure that the gains are enjoyed by more than the nation’s top earners or certain population groups. Public investments and tailored policies will be critical to enabling working-class Americans and SMEs to better compete on a fair and level playing field.
Pursuit of these strategic objectives has rarely been more important than it is now, as the country picks up the pieces in the wake of the pandemic and faces a difficult economic recovery. Seven lines of effort offer a starting point for making U.S. foreign economic policy—encompassing international trade, investment, finance, and economics—better serve Americans’ economic interests:
- Design international policies that will stimulate job creation and allow incomes to recover.
- Revamp the U.S. international trade agenda to level the playing field with other countries while pursuing domestic policies that advance more inclusive economic growth.
- Modernize U.S. and international trade enforcement tools and mechanisms to better combat unfair foreign trade practices.
- Pursue other transnational agreements that close regulatory and governance gaps across jurisdictions to improve burden-sharing and address equity concerns.
- Craft a National Competitiveness Strategy to drive policy innovation and better align government resources.
- Spur investment in the competitiveness of a wide range of U.S. businesses and communities to bolster productivity, wages, and economic mobility.
- Deepen support to SMEs to help them compete in global markets.
Shape the Global Economic Recovery in the Wake of COVID-19
The coronavirus pandemic swiftly ended a ten-year economic expansion that finally achieved full employment and delivered solid wage gains for many middle-class Americans. In response, national and international economic policymakers have initiated large fiscal and monetary interventions to stabilize markets, support the unemployed, and create financial lifelines for businesses trying to weather the storm. As these policies evolve, the United States will need to use its leadership in the G20 and international financial institutions to promote an agenda for ending the deep global recession and preventing secondary crises that could imperil the United States’ recovery.
The United States will need to use its leadership in the G20 and international financial institutions to promote an agenda for ending the deep global recession and preventing secondary crises that could imperil the United States’ recovery.
In the short term, the United States needs to foster financial stability. U.S. policymakers must help design international policies that guard against shocks in global capital markets—shocks that could roil the U.S. financial system and threaten the ability of middle-class families to build and preserve wealth, such as retirement accounts and home equity. First and foremost, this will mean continuing commitments to support ample liquidity and credit growth in major markets, including through unconventional tools such as quantitative easing. It will also require regulators to keep a sharp eye on bank capitalization to ensure the banking system withstands the jolts from inevitable bankruptcies and defaults even as the global economy recovers.
In the medium term, the United States must foster a strong and sustained economic recovery that can reconstitute millions of lost middle- and lower-income jobs, create new ones, and allow U.S. businesses to rebuild. Following the 2008–2009 financial crisis, governments took their foot off the pedal far too soon, leading to a slow and jobless recovery. While macroeconomic policies are generally the remit of domestic economic policymakers, international policymakers have a critical role to play in deconflicting those national policy responses. A reinvigorated G20 should facilitate that coordination and initiate collective efforts to enhance financial market supervision in light of much higher corporate and government debt; expand infrastructure investment to boost long-term growth prospects; and deepen cooperation on climate-related finance to increase financial resilience, meet the costs of adaptation, and ease the transition to cleaner energy. Regarding international financial institutions, the United States will need to assess—and decide whether to support—the policy prescriptions advanced by technical experts and other member states to support faltering economies abroad.
Finally, as U.S. policymakers work to promote sound economic policies abroad and safeguard a smooth recovery at home, they must push back against protectionist impulses. Times of severe economic stress can tempt political leaders into scapegoating outsiders and fomenting nationalist sentiment. For example, governments may have trouble abandoning the temporary controls put on various activities in response to COVID-19, such as restrictions on certain exports, travel bans, and vaccine development and distribution activities—all of which could impose new costs on middle-class households.
Revamp Trade Policy Objectives and Reform Processes
The unprecedented closures of international borders, shutdowns of national economies, and COVID-related export and import controls have severely disrupted global markets for goods and services. The World Trade Organization (WTO) estimates that global trade experienced a year-on-year drop of approximately 18.5 percent in the second quarter of 2020 and will decline between 13 and 33 percent for the year overall.1 Reviving the global trading system upon which many middle-class livelihoods depend is a daunting but crucial task.
The many interviews conducted in Ohio, Colorado, and Nebraska did not reveal a single common middle-class view on trade, although misgivings about its uneven impacts were fairly common. People’s views largely depended on which industries their communities rely on for employment and whether those industries are export-oriented or import-sensitive. Views also varied depending on the size and flexibility of the community’s economic base, with some communities able to shift to and attract new industries, while others struggle. That said, few believed that the United States should disengage from the global trading system. The majority understood that trade lowered consumer prices, widened product selection, and created jobs in the United States. They also understood that expanding global trade had contributed to economic growth at home and abroad. In a February 2020 Gallup poll, 79 percent of Americans agreed that international trade represents an opportunity for economic growth.2 But they also believed that certain trade developments had caused acute pain and dislocation in some communities across the country and that the government had dealt with those impacts poorly.
U.S. trade policymakers therefore face a difficult challenge: how to expand U.S. trade in a way that benefits all Americans, while understanding that trade will never be distribution-neutral across sectors. Through mechanisms such as the Trade Promotion Authority, Congress and the administration will need to set clear objectives for trade negotiators on policies to advance middle-class interests. But much more importantly, they must ensure that domestic policies address the distributional issues and prepare U.S. workers and companies for a more competitive future (see Chapter 4).
With that strong caveat in place, U.S. policymakers must first prioritize provisions in trade agreements that could strengthen the American middle class. This will require an honest assessment about whether the United States-Mexico-Canada Agreement (USMCA) achieved this goal and whether it can or should be replicated. On this question, opinions are now sharply divided across the political spectrum, as illustrated by the varying views of this study’s task force. Some task force members assert that Congress’s overwhelming support of USMCA’s passage demonstrates that securing concessions long sought by organized labor is the key to rebuilding bipartisan support for U.S. trade policy. They see USMCA—which improved labor standards in Mexico and raised minimum wage requirements to shift production of automobiles and parts back to the United States—as a new baseline.
Others task force members argue that USMCA’s restrictive rule of origin for autos—with the wage and domestic production requirements—benefits only auto workers while it increases costs for all U.S. consumers and diminishes U.S. competitiveness globally. They assert that USMCA was approved with these provisions only because Trump threatened to terminate the North American Free Trade Agreement—risking serious harm to the U.S. economy and to Canada and Mexico, which both depend on the United States for about 75 percent of their exports.3 And they believe many Republicans in Congress only agreed to the deal because Trump negotiated it, notwithstanding that it crossed many of their deep redlines. They never would have done so, and will be unlikely to do so again, if it were negotiated by a Democratic president.
U.S. trade policymakers should next explore—keeping in mind prevailing political realities and urgent domestic needs—whether to focus on negotiating new trade agreements. At their best, trade agreements can foster job creation and investment in growing and competitive industries and rebuild confidence with close trading partners. Yet some argue that narrower sector- or issue-specific deals would be better. Such agreements could offer a quicker way to reach consensus on certain key issues, such as digital trade or government subsidies in certain industries. Their attendant adjustment costs might also be more manageable. However, this approach risks neglecting other U.S. priorities—important to American workers and firms—that a more comprehensive deal could have secured.
Finally, policymakers need to assess the current policy formulation process, which some view as too closed and too pro-business. The current U.S. advisory structure run by the USTR, in close partnership with the Commerce Department, relies on business input, including its expertise on specific, often technical issues under negotiation. Organized labor, nongovernmental organizations, consumer advocates, state and local governments, and other groups have had a larger voice over the years, but more can be done. For example, the president’s Advisory Committee for Trade Policy and Negotiations, which is the highest body in the existing USTR advisory structure, can have up to forty-five members, but only twenty-two seats are filled and there is ample room to appoint representatives from outside the traditional business community.4 The International Trade Commission could contribute by including analysis of regional and local economic impacts, not just industry impacts, into their congressionally mandated reports that analyze trade agreements. And public hearings could be held throughout the country as major U.S. trade policy decisions are being formulated and finalized.
Modernize Trade Enforcement Tools to Combat Unfair Trade Practices
A more targeted and inclusive approach to market-opening initiatives must be married with stronger trade enforcement tools. Interviewees expressed widespread support for pushing back against foreign trade practices that severely disadvantage U.S. firms and workers. Many appreciated Trump’s more confrontational approach but also voiced concerns about the weaponization of trade, which invites retaliation against U.S. businesses and workers and chips away at trading partners’ trust and goodwill. More active enforcement that uses U.S. leverage judiciously would help to rebuild faith in open economic systems.
More active enforcement that uses U.S. leverage judiciously would help to rebuild faith in open economic systems.
First, U.S. trade laws should be modernized to enable earlier, faster, and more effective responses to unfair trade practices, particularly trade-distorting forms of financial assistance such as state subsidies that lead to overcapacity. The United States has an arsenal of trade laws, but many do not reflect today’s new realities, including the magnitude and scope of Chinese unfair trade practices. This body of law merits a comprehensive review, with a keen eye to provisions associated with antidumping, treatment of state subsidies, use of safeguards, and invocation of national security concerns.
For example, the ability to respond more quickly and effectively to signs of manufacturing overcapacity in China could help protect middle-class jobs in key sectors. As it stands now, the overly legalistic process often takes years to conclude, by which time the harm to individual workers, families, and communities has already been done. Taking into account the United States’ international obligations, the U.S. government could explore options to make it easier and cheaper for businesses to initiate enforcement actions, as well as take direct action to save small businesses the costs associated with filing cases. At the same time, Congress should review statutes that grant the president unilateral authority to raise tariffs, particularly to address national security concerns.5 Trump has invoked these concerns with questionable justification, leading other countries to impose stiff retaliatory tariffs on U.S. exports and generating policy uncertainty that weighs on business investment and confidence.
Second, the U.S. government should address the accountability gap in trade enforcement. For historical reasons, trade enforcement authorities are spread across the government, including in the USTR, Department of Commerce, and International Trade Commission. That diffusion of authorities is not easily or wisely unwound, but it makes it harder to project a clear and decisive response to trade infractions to the U.S. public and likely contributes to public doubt about how government protects their interests. The government should seriously consider housing a senior-level enforcement czar in the NEC.
Finally, the United States needs to enhance conflict resolution in the arena of international trade. This includes a pragmatic plan for what can (and cannot) be accomplished through the WTO. Over the past seventy years, the rules-based global trading system anchored in the WTO made enormous progress in reducing tariff and nontariff barriers. In recent years, however, this progress has stalled due to the difficulty in achieving consensus among the WTO’s now 164 members. The organization’s outdated rules also make it hard to address the challenges posed by nonmarket economies, particularly China. The WTO’s dispute settlement system is paralyzed by an ongoing stalemate. As global rule making and trade settlements have ground to a near halt, more plurilateral, bilateral, and even unilateral activities have ensued.
This impasse has led some in Congress to call for a U.S. withdrawal from the WTO. But many others argue that the United States benefits from its participation, including through its powerful influence over the organization’s direction and agenda. A realistic compromise would be to prioritize concrete reforms in a limited set of areas, including addressing the current “free rider” problem of sectoral agreements, new rules on domestic subsidies creating overcapacity, and intellectual property protections, while making it clear that large emerging economies need to put more skin in the game and be willing to consider new approaches.
Explore Ways to Close Jurisdictional and Regulatory Gaps
Reviving national economies and the global trading system is a critical first step to recovery, but it is not sufficient for delivering long-term inclusive growth. Of course, the latter will require significant policy innovation on the domestic side, but it also means capitalizing on opportunities to close regulatory and governance gaps across national jurisdictions and address various equity concerns related to them.
A more open and competitive global economy—a long-held goal of U.S. foreign policy—has created countless openings for businesses around the world to expand and innovate. It has lifted millions from poverty, spurred technological innovations, and improved productive efficiency. In the process, a set of international institutions have been built to promote collaboration while respecting national sovereignty. While advancing the interests of the middle class, strengths of the current system must be preserved.
At the same time, close attention must be paid to the cracks in global economic governance that now undermine the overall fairness of the system, especially the absence of mechanisms to ensure reasonable burden-sharing across segments of society. Gaps in national tax frameworks, for example, provide loopholes for large multinationals to shelter profits, reduce tax liabilities, and erode tax bases at home. Gaps in regulatory frameworks enable large, dominant firms to exploit their growing market power and engage in anticompetitive practices, which constrains economic dynamism and opportunities. Gaps in labor and environmental protections allow domestic firms to move production (and jobs) into low-standard and low-enforcement environments, diminishing the bargaining power of labor and shifting negative externalities into less regulated regimes. Left unaddressed, these gaps eventually undercut the rationale for economic openness.
The goal is not perfect harmonization across all these problem areas, which would prove unworkable and highly controversial. But it should be possible to find some common ground, as many of the United States’ economic partners face similar challenges. A renewed push within international fora—such as the G7, the G20, and the Organization for Economic Cooperation and Development (OECD)—to agree on core principles in a few areas could close the more egregious gaps, enhance the sense of fair play, and demonstrate the potential power of international policy cooperation.
In the area of global taxation, reenergizing discussions on offshore tax havens will be critical. Companies use these jurisdictions for elaborate tax avoidance and transfer pricing schemes. While reducing their tax burden, they erode public finances and trigger popular resentment among other companies and ordinary taxpayers who must make up the difference. By some estimates, the U.S. government loses nearly $70 billion in revenue annually, which amounts to nearly 20 percent of annual corporate tax revenue.6 The United States should more actively support the OECD in its efforts to develop new global standards to address base erosion and profit-shifting practices.7 There will be significant resistance to such an effort by multiple tax haven countries, including U.S. allies, as well as by some of the world’s largest corporations. Closing the loopholes will involve serious, lengthy diplomacy by senior-level U.S. foreign economic policy officials, particularly from the Departments of State and Treasury.
In the area of competition policy, curbing the market abuses of large firms at home and abroad will help healthy SMEs to succeed. A more level playing field allows for greater innovation, lower prices, and higher product quality. To date, globalization has tended to reward companies with scale advantages, including serious brand recognition, access to cheap capital, proprietary technologies, logistical prowess, and platform and network models—effectively turning some companies into global titans. In some product areas, large firms may simply be more globally efficient than small producers. In other areas, large firms may have erected artificial barriers to keep new competitors at bay. Each case requires a different solution and will benefit from cooperation with major trade partners. So far, the European Union has been the most active in this arena, pushing back against what it sees as anticompetitive practices by large U.S. firms, especially in the technology sector. The United States’ reflexive response might be to defend these firms regardless of their business practices, but the bigger long-term picture should be kept in focus—as there may be common ground to address anticompetitive behavior that ultimately hurts the American middle class too. A set of agreements with Europe on the guiding principles or competition policy in different sectors could improve, not impede, business dynamism and job creation. And it could limit the ability of third-party countries, like China, to play states off against each other.
Finally, in the labor and environmental areas, recent trade deals could provide a springboard for broader international cooperation. For example, U.S. trade agreements now include strong, enforceable labor rules as well as requirements to clamp down on illegal wildlife trade and excessive logging and fishing. Some of those provisions—plus those pioneered by other countries—could be considered during G7 and G20 discussions on inclusive and sustainable growth. And longer-term negotiations on labor rules and best practices could begin to deal with the social costs of automation and offshoring, like job losses linked to stress-related illnesses and out-migration from economically depressed towns. Meanwhile, reinvigorated climate change negotiations could focus on how to transition away from fossil fuels without placing additional burdens on lower- and middle-class households and increasing energy poverty. Environmental policy will likely intersect more with trade policy in future years. For example, the European Union is designing a carbon border adjustment mechanism that will favor imports produced with low carbon footprints. U.S. trade negotiators will need to pay more attention to the convergence, if not harmonization, of regulatory standards related to climate change measures.
Craft a National Competitiveness Strategy to Drive Policy Innovation
By 2025, the world economy is expected to top $100 trillion.8 Across the globe, governments, businesses, and workers will strive to capture some of those gains for their countries and communities. Some governments will take a hands-on approach, while others will exert a lighter touch. Either way, the risks and opportunities of participating in this sprawling global economy merit attention.
America’s economic future and security depend on its ability to compete globally. Millions of middle-class livelihoods across the United States already depend on the global economy. U.S. households rely on trade for many essential goods. U.S. businesses increasingly rely on globally integrated supply chains and transportation links. And U.S. communities need skilled and flexible workforces—immigrant labor is especially crucial in places with declining demographics.
Government, at all levels, must play a more active role in ensuring that American workers and businesses can thrive in the twenty-first-century global economy. To this end, a National Competitiveness Strategy (NCS) should be developed and executed to (1) broaden the notion of national competitiveness and create supporting processes, (2) scale up ambitions and retool government agencies for a new age, and (3) align efforts at the federal, state, and local levels.
Too often, competitiveness is seen through the lens of reducing the costs of doing business in the United States—primarily labor, regulatory, and tax costs—rather than through enhancing U.S. workforce productivity via education and supportive infrastructure at the local level.
First, an NCS would force a deep rethink of the concept of competitiveness and how to strengthen it. Too often, competitiveness is seen through the lens of reducing the costs of doing business in the United States—primarily labor, regulatory, and tax costs—rather than through enhancing U.S. workforce productivity via education and supportive infrastructure at the local level. The World Economic Forum’s Global Competitiveness Index 2019 reflects this lopsided approach.9 Out of 141 countries, the United States ranks first in costs of starting and closing a business, second in entrepreneurial culture, and second in market size. But it ranks twelfth in digital skills among the active population, fourteenth in the future workforce, twenty-ninth in labor tax rates, fifty-fourth in healthy life expectancy, and eighty-first in workers’ rights. The index also noted that U.S. public investments in active labor market policies have declined relative to other countries. Meanwhile, a separate analysis found that U.S. spending on active labor market policies is the second lowest in the OECD—at about 0.24 percent of GDP—and is perhaps half of what it was in 1985.10
An NCS could seek to identify and rectify these deficiencies. It would rely on a recurring Quadrennial Competitiveness Review—similar to the Quadrennial Defense Review done within the Department of Defense—to help devise, execute, and sustain a competitiveness agenda for the digital and globalized age. The NCS together with ongoing reviews could help set broad, ambitious goals or “moonshots”—for example, harnessing emerging technologies to deliver dramatic improvements in Americans’ health or accelerating the development of low-cost and clean nuclear fusion to cure cancer. In this way, an NCS could serve to bolster research partnerships among national laboratories, federal agencies, universities, and companies. It would require boosting funding for basic pre-commercial scientific research. It would also mean enhancing initiatives—such as the American Technology Preeminence Act and the federal Cooperative Research and Development Agreement—that stimulate R&D partnerships, equitably allocate intellectual property rights, reinvest tax dollars in the U.S. economy, and help maintain U.S. technological leadership. It could take into account the needs of local communities and ensure that a diverse group of Americans benefit.
Next, to support the NCS and guide its implementation, the U.S. government would need to identify an agency with the capacity and expertise to develop the strategy. This agency could be a reconfigured, focused, and well-resourced iteration of the Department of Commerce—perhaps renamed as the Department of Competitiveness. The agency would then design and lead the Quadrennial Competitiveness Review to ensure that the NCS is effectively implemented, sustained, and updated as needed. The secretary of this retooled agency would actively mobilize the executive branch, state and local leaders, and the private sector—as well as provide a much-needed public face to U.S. competitiveness efforts. The White House must play a central role in coordinating the effort and guiding the retooling and reorientation of all departments and agencies concerned. Given the need for high-level attention over several years, the obvious senior official to play that role would be the NEC director, supported by the Office of Management and Budget.
An NCS would not pick “winners” within a given industry but instead broadly align efforts with the needs of society and boost new hubs of innovation all across the country. This should include, for example, supporting the development of U.S. capabilities in biotechnology, artificial intelligence, nanotechnology, and aeronautics. As key pillars of this century’s economy, these areas are likely to enjoy bipartisan support—which is crucial for sustaining long-term investments across electoral cycles. An NCS could help to (1) identify the authorities needed to pursue a competitiveness agenda, (2) justify federal funding for key elements, (3) create greater policy accountability, and (4) sustain the United States’ technological edge. It could also help to identify and address the structural obstacles to helping Americans compete and win in a globalized economy.
Finally, a national strategic framework developed under the NCS would help to further align local, state, and national efforts. It could guide the design of state- and local-level strategies, map out the resources needed, and build a case for dedicating a modest percentage of the federal budget to supporting seed projects around the country that advance the strategies’ objectives. Finally, it could create more certainty for private investors by laying out long-term federal priorities and matching them with sectoral and regional initiatives.
Catalyze Investments in the Global Competitiveness of U.S. Communities
A comprehensive NCS would guide investments in U.S. communities to bolster the long-term economic prospects of the American middle class and create the next generation of high-wage jobs. Public investments would be needed to close the most critical investment gaps. But the bulk of the investment must come from the private sector, and more creative policies are needed to stimulate that investment. Innovative public-private partnerships, for example, could turbo-charge R&D, upskill local workforces, and integrate businesses into global supply chains. In this way, they would strengthen the local economic base, generating long-term dividends for many industries and positive spillovers in many U.S. communities (see Chapter 4).
Innovative public-private partnerships, for example, could turbo-charge R&D, upskill local workforces, and integrate businesses into global supply chains.
Currently, federal, state, and local governments lack many of the policy tools and coordination mechanisms needed to drive this wave of private investment. Federal officials are mostly sidelined—limited to touting the investment advantages of the United States to foreign investors through programs like SelectUSA and perhaps giving a push when a foreign company is on the fence over a specific investment. In comparison, state officials are arguably overinvolved—driving governors, mayors, and local leaders to compete fiercely to snag investors and creating a race-to-the-bottom in which states outbid each other in offering tax credits. Too often, actual job creation falls short of the promise, and the “winning” state is left with a significant dent in its tax base. In addition, the “winning” states are often wealthier and larger, even though it might be smaller and poorer states that could benefit the most. Meanwhile, the numerous struggles facing communities—such as the physical health and well-being of the U.S. workforce, the expensive and uneven educational system, the dilapidated state of U.S. infrastructure, interstate jurisdictional fights, and other, deeper structural problems—remain.
A better approach would be to leverage the federal government’s significant funding capacity to stimulate broad investments in the long-term competitiveness of U.S. communities. Many communities have at least some of the components necessary for success in a modern economy: workers who desire to learn new trades, universities and community colleges to support this learning, and affordable housing. What they sometimes lack is the right mix of scientific expertise, technical training, transportation infrastructure, and community services—and, more importantly, the financial capital to address these deficiencies.
This is an arena ripe for policy experimentation. For instance, the federal government could launch a series of competitions for local R&D and workforce development grants. Communities vying for the grants would need to have a comprehensive economic development strategy grounded in their existing strengths, such as thriving business clusters, a skilled workforce, community colleges and universities, or advantageous geography. They would also need to make credible commitments to supplement the federal funds. Unlike a tax-cutting race to the bottom, this healthier form of competition would be based on the community’s assets and a precise development pitch. Such competitions could also be designed to spark breakthroughs in public health and community resilience.
In another innovation, SelectUSA could be folded into a broader InvestUSA initiative that incentivizes domestic and foreign companies to (1) train local residents and develop apprenticeship programs, (2) share best operational practices, (3) integrate existing local firms into global supply chains, (4) improve environmental sustainability, and (5) find ways to strengthen community wellness. The initiative could also oversee an investment arm—a national venture capital fund focused on fostering competitiveness—that co-invests in select ventures, giving the government a small ownership stake in certain businesses. In addition, it could lead an enforcement program that discourages negative practices, including those that unnecessarily restrict labor mobility or bargaining rights, push for local spending of limited value to the community, or promise excessive tax breaks that mean cuts to public services.
When looking at key economic areas, it will be vital to examine U.S. competitiveness in sectors that confer security advantages, such as those identified in the National Security Strategy and National Defense Strategy. Examples would include satellite communications, command-and-control systems, critical components for logistical networks, energy technologies, and artificial intelligence. Conceivably, large foreign firms could amass significant competitive advantages, which impede the growth of U.S. companies in these areas and potentially threaten national security. Some of these situations may warrant state subsidies to help a domestic firm get established and achieve scale. The subsidies may be justified in economic terms, too, if they curb the power of a global monopolist or protect consumers. But government support to private industries is controversial and will require transparency. And the side effects must be carefully considered since subsidies can introduce new disparities at home, set off a lobbying frenzy to gain or preserve rents, and cause long-term economic distortions.
Lower Barriers That Prevent SMEs From Competing Globally
With 96 percent of the world’s population located outside of the United States, U.S. firms and workers have abundant opportunities to sell their goods and services to vast and growing foreign markets. This is why U.S. trade negotiators have spent years pushing foreign counterparts to break open their markets and why the federal government must do more to help its SMEs fully exploit these opportunities. The rewards are substantial: increased production, higher wages, and diversified markets.
Supporting SMEs will require significant public and private efforts. Most businesses face stiff competition and complex challenges in foreign markets. And many SMEs cannot easily absorb the upfront costs and ongoing operational risks associated with global operations. Challenges include identifying markets where demand for their products or services are highest, deciphering applicable trade rules and procedures, vetting partners and counterparties, and navigating foreign rules and regulations. Thus, SMEs are underrepresented in export markets, and larger firms tend to dominate.
SMEs are the primary engine of job creation in the United States, and middle-class Americans own and operate many of them.
Yet SMEs are the primary engine of job creation in the United States, and middle-class Americans own and operate many of them. Understanding this, every administration over the past four decades has expressed a strong desire to help SMEs become better exporters. Unfortunately, these efforts have fallen short, owing to a fragmented approach and anemic funding.
A few crucial steps could improve the situation. First, the federal government needs to shift from a retail model to a wholesale model of helping American businesses. Today, the Department of Commerce oversees local U.S. Export Assistance Centers (USEACs) across the country. The centers offer one-off counseling and technical assistance to firms with tradeable products or services. Yet many SMEs are unaware of the services. The government should increase USEACs’ outreach funding and foster closer working relationships with mayoral, gubernatorial, and congressional offices. It should also supplement local USEACs with a national service center that allows businesses to work online with export assistance professionals. That would increase the availability of detailed information to smaller firms, including on how to make use of trade agreements, foreign laws and regulations, and trade data.
Second, export promotion efforts need stronger internal coordination within the federal government. Currently, these initiatives are dispersed across an alphabet soup of agencies, which coordinate through the Trade Promotion Coordinating Committee (TPCC). But the frequency of TPCC meetings varies with the administration in power, rendering it unable to lead any sustained effort on export promotion. To remedy this problem, oversight responsibilities should be moved to a standing, consolidated agency, which includes civil society representatives and professional experts. Keeping the TPCC function—embodied in the form of a new agency—at the Department of Commerce would provide the easiest access point for American businesses.
Need for Concerted Action
No single action—such as a new tax reform, trade agreement, or reorganization of the federal government bureaucracy—will deliver broad-based prosperity for the American middle class. Rather, it will take steady and concerted policy attention across many fronts. It will demand engagement across all the economic agencies and skillful coordination from the NEC and other entities at the White House. It will require bridging deep partisan divides in Washington to make the necessary fiscal resources available and ensure that policy solutions enjoy sufficient, sustainable broad-based support across the political spectrum. And while domestic policies will be the key to solving the distributional challenges affecting the middle class, U.S. national security strategy and foreign policy need to adapt as well, as elaborated in the next chapter.
1 World Trade Organization, “Trade Falls Steeply in First Half of 2020,” June 22, 2020, https://www.wto.org/english/news_e/pres20_e/pr858_e.htm#:~:text=PRESS%2F858PRESS%20RELEASE-,Trade%20falls%20steeply%20in%20first%20half%20of%202020,pandemic%20upended%20the%20global%20economy.
2 Gallup, “U.S. Position in the World.” Also see Gallup, “Foreign Trade: Opportunity or Threat to the U.S. Economy.” Note that support for trade is negatively correlated with the domestic unemployment rate, and February 2020 could end up representing a cyclical high-water mark for trade support.
3 Canada and Mexico monthly trade data from the World Integrated Trade Solution (WITS), World Bank Group; see https://wits.worldbank.org/countrysnapshot/en/CAN and https://wits.worldbank.org/countrysnapshot/en/MEX.
4 Advisory Committee for Trade Policy and Negotiations (ACTPN), Office of the United States Trade Representative, accessed September 10, 2020, https://ustr.gov/about-us/advisory-committees/advisory-committee-trade-policy-and-negotiations-actpn; and Charter of the Advisory Committee for Trade Policy and Negotiations, Office of the United States Trade Representative, August 24, 2018, accessed September 20, 2020.
5 Policymakers have introduced legislative measures to this effect, which have failed to gain traction. See, for example, “S. 1284—Global Trade Accountability Act of 2019,” 116th Congress (2019–2020), retrieved from https://www.congress.gov/bill/116th-congress/senate-bill/1284/text?q=%7B%22search%22%3A%5B.
6 Gabriel Zucman, Thomas Tørsløv, and Ludvig Wier, “€600 Billion and Counting: Why High-Tax Countries Let Tax Havens Flourish,” November 2017, http://gabriel-zucman.eu/files/TWZ2017.pdf.
7 Brad W. Setser, “The Trump Tax Reform, as Seen in the U.S. Balance of Payments Data,” Follow the Money (blog), Council on Foreign Relations, July 3, 2019, https://www.cfr.org/blog/trump-tax-reform-seen-us-balance-payments-data. A related line of effort should work toward an agreement on the taxation of digital services, which is currently the source of major trade tensions between the United States and France.
8 “$100 Trillion by 2025: The Digital Dividend for Society and Business,” World Economic Forum, January 22, 2016, https://www.weforum.org/press/2016/01/100-trillion-by-2025-the-digital-dividend-for-society-and-business/.
9 Klaus Schwab, “The Global Competitiveness Report,” World Economic Forum, 2019, http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf.
10 OECD Stat, “Public Expenditure and Participant Stocks on LMP,” accessed August 6, 2020, https://stats.oecd.org/Index.aspx?DataSetCode=LMPEXP#.