Countries’ use of mercantilist policies in recent years has expanded dramatically, particularly in emerging economies such as Brazil, China, and India. These practices, such as forced technology transfer or local production as a condition of market access, intellectual property (IP) theft, compulsory licensing of IP, restrictions on cross-border data flows, and currency manipulation, all distort trade and investment and damage the global economy.
Collectively, these policies represent a major threat to the integrity of the global trading system and they demand a coherent and bold response from both free-trading nations such as the United States, as well as multilateral trade and development organizations, such as the World Bank, the WTO, and the United Nations. Despite this, many choose to turn a blind eye to mercantilism, for instance, the World Bank’s Temporary Trade Barriers Database 2013 Update asserts that protectionism may have peaked, and is now subsiding. ITIF refutes that claim, arguing that mercantilism is indeed still a major concern not only for the U.S. economy but for the entire global economy and trading system. It’s time the U.S. government and its like-minded trading partners get more serious about confronting mercantilism.
In order for the U.S. to take the lead in more effectively combating foreign mercantilism, it is time for Congress to provide the charge and the resources to the United States Trade Representative to develop an annual comprehensive ranking of nations’ mercantilist policies; in other words, a “Global Mercantilist Index”. ITIF's “Global Mercantilist Index” (GMI) uses a new comprehensive method to rank nations on mercantilist policies, while also proposing new policy tools to address the problem.
Summary Policy Recommendations:
Congress should task USTR with creating an annual “Global Mercantilist Index” and provide additional funding accordingly;
The White House should publish a national trade enforcement strategy that reviews the adequacy of U.S. trade enforcement mechanisms with the goal of developing additional enforcement tools and focusing on the worst-behaving countries (Brazil, Russia, India, China and Argentina);
Congress needs to craft an Omnibus Trade and Competitiveness Act, similar to that of 1988, that both institutionalizes a Chief Trade Enforcement Officer and Working Group at USTR and restructures the interagency trade process;
Congress should increase USTR, the International Trade Enforcement Center (ITEC) and the International Trade Administration (ITA) appropriations with those increases targeted to trade and customs enforcement;
Congress also needs to be sure to appoint individuals to the International Trade Commission (ITC) who take trade enforcement seriously and do not simply have a “maximize consumer welfare” mindset;
Congress should require that provision of trade preferences, such as GSP and other development assistance, be tied to the GMI and Special 301 Report findings;
The U.S. Agency for International Development (USAID), the Millennium Challenge Corporation, the State Department, and other U.S. development organizations should advocate for a new approach to development economics not grounded in export led high-tech growth;
The United States should work with our free-trade allies to restructure the WTO to recognize a change in membership toward countries that do not play by the rules so that it becomes a more effective enforcement organization and not just a market opening one;
Trade policymakers should work with the WTO to develop a similar global mercantilist ranking report that applies an international lens;
International development organizations such as the International Monetary Fund, EuropeAid and the World Bank should use the global mercantilist ranking report to inform their funding decisions.