Is America becoming protectionist?

America still has a very open and attractive economy despite the bad press, but still has much work to do with Korea, Australia, and other allies to build a lasting framework for economic statecraft going forward.

Michael GreenThe author is CEO of the U.S. Studies Centre at the University of Sydney and Henry A. Kissinger Chair at the Center for Strategic and International Studies (CSIS). One often hears these days that the United States is becoming a protectionist country. The evidence seems compelling. Donald Trump ran in 2016 against big free trade agreements like Nafta (the North America Free Trade Agreement) and TPP (the Trans-Pacific Partnership). In office he immediately withdrew from TPP and forced Mexico and Canada to renegotiate Nafta. He imposed steel tariffs on U.S. allies supposedly on national security grounds despite the Pentagon explaining that this would only make U.S. military equipment more expensive.

Joe Biden — suspecting that Hillary Clinton was defeated in 2016 because she lost labor union votes to Trump — stayed out of TPP (now called the Comprehensive and Progressive Trans-Pacific Partnership) and kept most of Trump’s steel tariffs in place. Biden then introduced “Buy American” provisions in major legislation like the Inflation Reduction Act and the Chips and Science Act as tax credits and subsidies poured into manufacturing jobs. These subsidies are spurring Europe, Japan, Australia, and others to engage in their own supply side expansions which are inflationary and risk beggar-thy-neighbor next steps.

Both Trump and Biden have retreated from the World Trade Organization. Even Biden’s attempt to build economic statecraft in Asia after the U.S. withdrawal from TPP was hampered by protectionist sentiment as parts of the U.S. Trade Representative Office refused to allow any trade liberalization in IPEF (the Indo-Pacific Economic Framework). The Sydney-based Lowy Institute found in its 2022 Asia Power Index that U.S. economic influence in the region actually declined from Trump to Biden.

But is America really all that protectionist?

Some perspective is necessary. In 2023, the average U.S. tariff on imported goods was among the lowest in the world at only 2.3%. That was below Korea at 5.48% and below the EU average of 4.2%. The trendlines are reversing between the United States and Korea or Japan, however, since U.S. tariffs are slowly going up while Korea’s are going down and Japan’s are now lower than the United States. Those contrasting trends are the consequence of Korea and Japan actively joining free trade agreements and America sitting them out — but they are not really indications that America is a more protectionist country. At least not yet.

What about export controls? The Biden administration’s strict limitations of high-end semiconductor exports to China have received major attention from media and industry in Korea. However, the U.S. Commerce Department estimates these controls will only capture about 1-2% of semiconductor exports to China — which also explains why Beijing’s retaliatory measures have been limited to a few rare earths like Germanium where the U.S. has sufficient supply. It is true that U.S.-China trade is reduced — from close to 15% of all U.S. trade a decade ago to about 8% of all trade today. Rerouting of supply chains is happening, but only part of that is the push of the U.S. government since Beijing’s own decisions to grow out of economic trouble with import substitution, forced technology transfer, and subsidized exports are causing companies to rethink the China market on their own.

Nor is there a groundswell of protectionist sentiment within the United States. In polls, a majority of Americans continue to see global trade as good for them, though it does depend on how the question is asked. When asked whether they support complete decoupling from China, fewer than 20% of Americans will answer yes. Blue collar workers in election swing states like Pennsylvania are more acutely suspicious of trade, which makes it riskier for presidential candidates to advocate free trade, but the public — and especially younger Americans — think trade is a good thing.

Even if America isn’t really a protectionist country, though, doesn’t the shift away from promotion of free trade globally represent a strategic setback for U.S. interests? I used to think the answer to that was an unequivocal “yes.” As a student of history, I understood how much protectionism in the 1930s fuelled the creation of autarkic trading blocs and Japanese militarism. I knew that Bretton Woods and free trade after the war had helped to cement alliances and stop communism from Europe to Asia.

But the strategic case for free trade agreements has grown more complicated not only politically but also conceptually. When we began exploring TPP in the Bush administration, the goal was to align the open economies of Asia and then join those with Europe through the Trans-Atlantic Trade and Investment Partnership (TTIP) so that we had the collective bargaining power to push China to respect the rules. There is now much less logic to integrating China into the global economy given Xi Jinping’s own predatory and zero-sum policies towards Korean companies and those from North America, Japan, and Europe.

In addition, the U.S. economy is now largely a service economy, and the rules of the Bretton Woods system are not quite fit-for-purpose in that regard. The WTO has long since ceased to be a useful vehicle for promoting free trade in ways that resonate with American firms or workers. Nor are American workers being left behind by the global economy since foreign direct investment into the United States has reached record levels over the past decade — particularly in high tech manufacturing. American trade policy is stepping back from the world somewhat, but much of the world is coming to America.

Nevertheless, even if the earlier logic of free trade has shifted, Washington still needs a better plan for integrating economic statecraft into its overall strategy for maintaining a free and open Indo-Pacific and stable Korean peninsula. The American retreat from the WTO has left China in a stronger position to try to rewrite the rules in ways that disadvantage American interests. The Trump and Biden administrations have been foolish to cede that field of competition. The most important pillar of IPEF — trade — is controlled by a U.S. Trade Representatives office that is ideologically opposed to market access in America but continues demanding it in other countries. That attitude undercuts the advantages IPEF could bring to the United States and Korea in terms of rule-making. You cannot make omelettes without eggs and the U.S. side has to put some serious ideas on the table in areas like digital trade. U.S. subsidies are also problematic — not so much because of the “Buy America” provisions but because they are laden with social justice requirements that are anti-business and discourage investment. And while the United States could theoretically use its position as the world’s reserve currency holder to win the subsidies race, that would be foolish for both global growth and the sustainability of U.S. debt. Meanwhile, though semiconductor export control strategy is proportionate right now, the U.S. will need to work closely with Korea, Japan, and the Netherlands to come up with a more predictable framework for business to follow.

Another way of putting all this is that America still has a very open and attractive economy despite the bad press, but still has much work to do with Korea, Australia, and other allies to build a lasting framework for economic statecraft going forward. That is necessary for the sustainability of the new American industrial policy and the security Americans say they want from our alliances.