Op-Ed by Ambassador Katherine Tai: Trade must transform its role in the social contract

Publication: The Financial Times

From data to workers’ rights, we need to democratise economic opportunity

During the peak of the pandemic, the Financial Times wrote of the need for a new “social contract that benefits everyone” and for radical reforms to reverse “the prevailing policy direction of the last four decades”. Poignantly, the piece noted that, just as the Atlantic Charter and Bretton Woods conference had crystallised during the thick of the second world war, leaders must act today to win the peace.

As an integral part of economic policy, trade must also be a part of any social contract; it must undergo its own transformation. Here, the Atlantic Charter of 1941 also provides a guidepost. It stated that international economic co-operation is to be pursued “with the object of securing, for all, improved labour standards, economic advancement, and social security”. This is not a call for trickle-down economic policy, but a call for economic policy to serve the interests of working people. 

Trade policy has long followed the trickle-down approach that has been so common over the past four decades. But if we recognise that deferring to the market has its limits in ensuring that domestic economic policy benefits working people, we must also recognise its limits to do the same when it comes to trade.

A laissez-faire system has allowed short-term profit-driven businesses to maximise their gains, often by partnering with a non-market autocracy to further that goal. While profits and executive pay soared, workers were left behind. Meanwhile concentrated production emboldened monopolistic behaviour by countries such as China. The American economy has been and remains an open one. That, however, has meant that American workers were particularly exposed to the harms from such behaviour. Communities were devastated as trade policy remained isolated from democratic accountability. 

This is why the Biden-Harris administration’s approach to trade has been to democratise economic opportunity. We are breaking out of the technocrats’ bubble to meet working people where they are, redesigning the incentive structure so that communities are not pitted against each other. For example, for a long time, workers in Ohio or Pennsylvania or Arizona have been set against workers in Mexico, where rights have been unfairly suppressed. This is what happens when we blindly believe that liberalising trade rules leads to a gradual improvement in labour standards as countries grow wealthier through trade flows.

We are flipping this narrative on its head, using a trade agreement. Through the United States-Mexico-Canada Agreement’s Rapid Response Labor Mechanism, the US and Mexico have worked together to positively affect the lives of nearly 30,000 workers and their communities in Mexico. That also means many more people in America can compete on a level playing field.

We are drawing on people’s real experiences to best formulate trade rules that support such collective resilience, including on supply chains. For my office, this is about much more than just the movement of goods — it is about reconfiguring the system so that more people can access economic opportunity and justice. It means reaching out to those that have been traditionally left out of trade discussions — not only inviting them to the table, but then incorporating their voices, so that they can thrive in this new global economy. We are also putting people at the centre of our review of digital trade rules. Countries around the world are figuring out how to protect their citizens’ data, and trade rules must support those efforts.

American companies are strong, innovative, and dynamic. When the playing field is level, they can compete and thrive. But whether in digital trade or other sectors, we must be clear eyed that China is not just a trading partner, but is pursuing global dominance across key economic sectors. President Joe Biden, recognising the need to do more to counter China’s unfair practices, including its cyber theft, recently directed me to increase tariffs on a range of products, including electric vehicles and batteries. These tariffs will defend American workers and businesses, as well as our historic investments. Other countries also have growing concerns about China’s non-market excess capacity and are starting to take steps to address it.

The stakes are high. As Oxford historian Patricia Clavin has documented, democracies failed to find common ground on international economic issues in the 1930s, with devastating consequences. As we once again confront uncertainty and fear, we must embrace the opportunity to make the world a safer, more equitable place. And we know it is something that we must do together.