April 27, 2015 | By

Cities and Trade


Last week, the battle to gain trade promotion authority (TPA) began in earnest in Washington. It was interesting to note that an opening salvo came about a week earlier when the White House published a list of mayors speaking out in favor of its trade liberalization agenda.

This was an unusually constructive role for local politicians. They are naturally constrained in what they can do by the US Constitution. Article 1 Section 8 reads:

“The Congress shall have power … To regulate commerce with foreign nations, and among the several states.”

Thus, it is Congress, not states nor local governments, that has the right to set trade policy. This clause was a source of economic strength for the United States as it developed. The United States did not really emerge as an economic power until the 20th century. The fact that it had a relatively uniform external commercial policy and few barriers to trade between states helped maximize its potential, though not without cost. There were protectionist periods when unfortunate policies were adopted by the entire country. It was a source of tension on the eve of the Civil War, when the industrial North and the agricultural South had distinctly different interests in trade policy (the North was more interested in protection).

In more recent times, cities that looked to stake out a position on trade generally took one of two approaches. The first would be to lodge a protest vote, as the Seattle City Council did in March of this year. It voted 9-0 to oppose TPA. It followed New York, Los Angeles, and Bellingham, Washington in its stance. In none of those cases was the opposition anything more than symbolic. Nor was it necessarily as unanimous as it seemed; Seattle’s mayor opposed the City Council’s action and the mayor of nearby Tacoma was one of those cited on the White House’s web page.

The second means of throwing a wrench in the works involved some of the “behind the border” aspects of modern trade regulation. While trade policy generally concerns itself with border measures such as tariffs and quotas, modern trade negotiations extend further into agreements on matters such as government procurement. The European Union has made the opening of US procurement programs a top priority in the Trans-Atlantic Trade and Investment Partnership (TTIP) talks. Some of this occurs at the federal level, but a substantial amount is state and local. A 2002 OECD study estimated that potentially tradable state and local procurement study accounted for over 5 percent of US GDP.

The catch is that the federal government cannot compel state and local governments to abide by the commitments it strikes in trade agreements. According to the United States Trade Representative’s office, “It is up to each state to decide whether to participate, which agreements to participate in (and) the level of its specific commitment.” While all EU member states are part of the WTO’s Agreement on Government Procurement, only 37 US states signed on. Even then, the commitments of the states did not extend to city or county governments. Thus, a more trenchant means of opposing globalization is to refrain from undertaking these local aspects of liberalization.

Of course, the fact that cities play such a limited role in explicitly setting trade policy does not mean that city-dwellers have no voice. Just the opposite. They produce many of the goods and services that are traded. Further, local policymakers can work to create an environment conducive to trade flows through informational and infrastructure programs.

And cities have a say in policy after all. Coming out of the 2010 Census, more than half of US congressional districts had populations that were 86 percent or more urban. If we used a looser criterion, such as 2/3 urban population, then 323 out of 435 congressional districts qualify as urban (almost 75 percent). Cities have a loud voice in trade policy; they just speak through their elected representatives in Washington, DC.

About

Phil Levy is senior fellow on the global economy at The Chicago Council on Global Affairs. Previously he was associate professor of business administration at the University of Virginia’s Darden School of Business. He was formerly a resident scholar at the American Enterprise Institute and taught at Columbia University’s School of International and Public Affairs. From 2003 to 2006, he served first as senior economist for trade for President Bush’s Council of Economic Advisers and then as a member of Secretary of State Rice’s Policy Planning Staff, covering international economic matters. Before working in government, he was a faculty member of Yale University’s Department of Economics for nine years and spent one of those as academic director of Yale’s Center for the Study of Globalization.

His academic writings have appeared in such outlets as The American Economic ReviewEconomic Journal, and theJournal of International Economics. He is a regular contributor to Foreign Policy magazine’s online Shadow Government section and writes on topics including trade policy, economic relations with China, and the European economic crisis. Dr. Levy has testified before the House Committee on Foreign Affairs, the Joint Economic Committee, the House Committee on Ways and Mean, and the US-China Economic and Security Review Commission. He received his PhD in Economics from Stanford University in 1994 and his AB in Economics from the University of Michigan in Ann Arbor in 1988.

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