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The Jones Act.

The Jones Act (Merchant Marine Act of 1920)70 requires that ships traveling between U.S. ports must be U.S.-built, U.S.-owned, and U.S.-crewed. In practice, this is an “America last” policy that has decimated the American mari- time industry.71 Because of Jones Act regulations, American-built ships cost three to four times more to build than foreign-built ships cost. As a result, the entire Jones Act fleet is down to just 92 ships, many of which are old and obsolete. In fact, Jones Act–compliant shipping is so expensive that it is often cheaper for East Coast ports to import oil from Vladimir Putin’s Russia than it is to send it up the coast from Houston or New Orleans. The national security (to say nothing of energy security) implications of reliance on Russia for oil and gas are obvious. The Jones Act’s original national security justifications are just as dubious. The act’s goal was to guarantee a sizable fleet of American ships that could be pressed into war service if needed. Aircraft carriers and other post-1920 naval innovations have made this argument obsolete. An $800 billion defense budget has plenty of room to maintain a Navy to defend American security interests around the world.

The U.S. Navy would likely prefer not to use Jones Act ships anyway, because they tend to be older and in poorer condition than its own ships or similar foreign-made but domestically owned commercial ships that could also be pressed into service. As with many other industries, U.S. shipbuilding could be the envy of the world if it could operate in a free market, but the maritime lobby prefers a quiet, cozy exis- tence on the dole even as it harms American consumers and national security. The next conservative Administration should unleash American potential by unilater- ally enacting Jones Act exemptions wherever allowed, as currently happens most years during hurricane season, and working with Congress to repeal the Jones Act. Trade and Inflation. The post-COVID inflation spike may be over long before the next Administration takes office, but keeping it under control should remain a high priority. Free traders should not oversell their case by saying that liberal- ization would solve inflation. Inflation is predominantly a monetary phenomenon, not a trade phenomenon, but tariff relief can help at the margin by immediately lowering prices on tariffed goods and slightly boosting long-term growth.72 While this would not affect the money supply, which is inflation’s key variable, even roll- ing back the tariffs enacted since 2017 would likely have a positive effect on the Consumer Price Index.

The easiest way to curb inflation (or to create it) is for the Federal Reserve to work the monetary side of the equation, but the real output side has a similar effect on prices. Lifting trade barriers is one way to boost output. It also has the added benefit of requiring no additional spending. At the very least, this can make the Federal Reserve’s job easier as the spending excesses of Congress and President Biden continue unabated in the coming years.

It is important not to oversell trade’s inflation benefits as a cure-all, but at the margin, it can help. The next Administration should keep this in mind as it tries to cope with this politically volatile issue.

Trade and Foreign Policy. We have seen how trade liberalization would boost the domestic economy and make American businesses more competitive, but conservative trade policies also benefit America’s foreign policy interests. Policy- makers should therefore:

Negotiate multilateral and bilateral trade agreements. Reform the World Trade Organization or build a successor organization with membership limited to liberal democracies. Repeal the Jones Act to replace Russian energy imports with domestic production.

Develop a multifaceted, long-term China policy that takes seriously America’s biggest foreign policy threat and deals with it on several fronts. National Security. The most persuasive arguments against a market-oriented trade policy come from another national objective: national security. Protection- ism and similar progressive policies tend to weaken American security, but trade creates peace. The more countries trade, the less likely they are to fight one another and the more robust their supply networks will be. Going to war with customers is bad for business.

Without a strong economic interest in continued U.S. investment and exports, for example, China’s behavior would likely become increasingly less predictable and more dangerous. Anyone who thinks Chinese Communist Party (CCP) General Secretary Xi Jinping and the government in Beijing are bad actors now—which they are—should consider what would happen if the Chinese convinced liberal countries like the United States to decouple from them, leaving them free to pursue whatever policies they wish without the significant counterweight that America can provide. That is one reason for Xi Jinping’s emphasis on centralization and self-suffi- ciency. He does not like international pressure about his government’s human rights violations and bad-faith trading policies, and decoupling from trading part- ners like America is one way to avoid that pressure. A less constrained China would be poorer but much more unstable and dangerous to its neighbors and to America than it would be if it still had to engage regularly with the rest of the world. Trade Promotion Authority. Trade agreements can take years to negotiate. One way to accelerate the process is for Congress to grant the President Trade Promotion Authority (TPA). It was first granted under the 1974 Trade Act, which contains the Sections 201 and 301 tariff delegations. TPA, then called fast-track, has aided several trade agreements, including NAFTA and the USMCA, which took effect in 2020. TPA has lapsed before during slow periods in trade policy, most recently in July 2021, and remains lapsed today. The President should work with Congress to renew TPA to rationalize negoti- ations for upcoming trade agreements with the United Kingdom, the European Union, and others.

Both supporters and critics have questions regarding TPA’s implications for the constitutional separation of powers, and policymakers should take those questions seriously. As things currently stand, Congress has some oversight powers over the President’s negotiations under TPA, but they are limited. Congress can increase its oversight by passing new legislation superseding relevant provisions of the 1974 Trade Act. However, that is a double-edged sword. A Congress that largely favors free trade could exercise oversight to keep the President on the straight and narrow in trade negotiations. A progressive Congress would instead insist that the President negotiate for as many trade-unrelated provisions as possible to benefit labor and green constituencies while pushing progressive policies on the U.S. and its trading partners.

On balance, a single voice at the negotiating table that is subject to congressional oversight is the best posture for American workers and consumers. A fractious Congress has yet to demonstrate the capacity to negotiate with other nations, but it can help to hold the Administration accountable. Trade Agreements with the United Kingdom, European Union, and Others. Even with a renewed TPA, trade agreement negotiations will likely take years. The Trump and Biden Administrations were not inclined to start the process, so that job may well fall to the next Administration. In that sense, the delays may end up being worth it.

If there is one lodestar to follow, it is to restrict these agreements to trade issues only. Ever since NAFTA, trade-unrelated provisions have taken on a greater role in trade agreements. These create sticking points and are routinely hijacked by rent-seeking special interests and progressive ideologues who demand subsidies, carve-outs, and economically distorting labor and environmental standards that have nothing to do with trade. If governments are to negotiate these issues, they should do so in separate agreements so they do not torpedo efforts to liberalize and engage with allies. Trade agreements should lighten burdens, not create new ones by attempting to address non-trade issues. Policy leaders in the United States and the United Kingdom, including experts from The Heritage Foundation and the Competitive Enterprise Insti- tute, have prepared a model trade agreement along these lines.73 Along with TPA renewal, this would greatly reduce negotiating costs. This template is also readily adaptable for agreements with Europe and any other allies that are willing to

liberalize their economies and build a stronger alliance with America. The draft U.S.–U.K. agreement includes an accession chapter to allow others to join on the same terms.

Restoring or Replacing the WTO Dispute Resolution Process. The World Trade Organization as we know it may be mortally wounded. This deprives the U.S. of the WTO’s dispute resolution process, under which the U.S. it won 85 percent of the cases it brought. The WTO’s slow death began under the Obama Administra- tion, which refused to allow appointees to the WTO’s appellate board, which as a consequence is now nonfunctional. Both the Trump and Biden Administrations have continued the Obama Administration’s approach. That means that every case in the dispute resolution process will sputter to a halt as parties file appeals that cannot be heard. If the WTO is no longer fit for that purpose, it may be better to look in a different direction. More than 20 years ago, a Heritage Foundation senior fellow proposed that America and other free economies should form a Global Free Trade Alliance that is open to all countries that adhere to a truly free market system with appropriate safeguards such as property rights, lack of corruption, and enforcement of contracts.74 Alongside a general agreement on low to zero tariffs, the alliance would move to reduce the effect of nontariff barriers (such as the previously noted baby formula ingredient and labeling barriers) by basing trade around the principle of mutual recognition. Such an alliance could be started by a trade agreement between the United States and, for example, the United Kingdom with an accession chapter allowing others to join if they meet the criteria.

It would be essential for a Global Free Trade Alliance to avoid the WTO’s most serious problem: the exemptions from its rules that are granted to developing countries. When China joined the WTO in 2001, it was granted developing-na- tion status, which it continues to use to dodge rules that should apply to it. Other countries have used that status to delay needed reforms. Rule exemptions give some countries a perverse incentive to remain poor and autocratic. A Global Free Trade Alliance would allow the U.S. to enjoy the benefits of a rules- based international trading system without the WTO’s shortcomings. Negotiation costs would be lower because the countries would already be allied on many issues. In addition, there would be no separate tiers with different rules, and this would give developing countries an incentive to liberalize. In addition to being good for its own sake, liberalization would give them entry into a prestigious club that tilted toward America’s orbit and away from China’s.

Closing the Export–Import Bank. The Export–Import Bank (EXIM) is an unusually clear example of how vulnerable trade protectionism is to being hijacked by special interests.75 In most years, about half of EXIM’s business benefits a single company, Boeing. Their relationship is so cozy that EXIM’s nickname around Washington is “the Bank of Boeing.” — 812 —Trade lIt has a long record of deals with authoritarian governments. lIt subsidizes direct foreign competitors of domestic businesses.

It has been hijacked by progressives to advance their climate and other preferred policies.

Unlike most other agencies, EXIM has a charter that expires. Congress must renew it periodically, or else the agency will permanently close. Its current charter expires at the end of 2026. Closing this New Deal–era legacy agency would be a conservative victory on a number of fronts. It is also a winnable battle: Congress just needs to do nothing.

Conservatives have both foreign policy and economic reasons to oppose EXIM. EXIM has a long history of providing financing for authoritarian govern- ments in China, Russia, and the Middle East that often oppose U.S. foreign policy interests, and its deals often oppose U.S. economic interests. EXIM financing also harms domestic airlines. Many EXIM financing deals enable foreign state- run airlines to buy Boeing jets at a discount. These foreign airlines, subsidized by the U.S. government, then compete directly with U.S. airlines on interna- tional routes.

More recently, the Biden Administration has expanded EXIM’s mission to advance progressive policy goals, including limits on financing for projects that involve fossil fuels or contribute to climate change, preferential treatment for renewable energy projects, and quotas for projects that benefit women-owned and minority-owned businesses. All of these could raise EXIM’s default rates, putting taxpayer dollars at risk.

The strongest argument in EXIM’s favor is that it boosts U.S. exports by financ- ing projects that would otherwise never receive financing. We now have evidence that this argument is false: EXIM does not finance additional exports; instead, it largely substitutes for other forms of export financing that would occur anyway. EXIM’s authorization lapsed in 2014–2015 because of conservative opposition to renewing its charter. During this lapse, EXIM maintained its existing portfo- lio but was unable to take on new business. Boeing reported no trouble finding alternative financing and even reported record profits during EXIM’s lapse while working to fulfill a seven-year backlog of orders.76 EXIM boasts an extremely low default rate, but that is because of selection bias. EXIM overwhelmingly takes on low-risk projects that private banks would be happy to finance, although this admittedly could change somewhat with EXIM’s Biden-era mandates to finance climate and other policy-focused projects. EXIM is also a textbook example of regulatory capture.

Its beneficiaries have proven they can get adequate financing from private banks.

EXIM’s charter expires at the end of 2026. The agency will close automatically unless Congress and the President decide to extend it. Closing EXIM should be one of the next Administration’s easiest decisions.

Adopting a Multi-Pronged China Strategy. An effective American policy toward China needs to take a realistic view of the country, its leaders, their strengths, and the serious challenges they face. It should be comprehensive and flexible. A threatened CCP is dangerous, perhaps now more than at any time since Mao Tse-Tung, as Xi Jinping continues to use strong-arm tactics to consolidate his power and saber-rattling to challenge the international order. At the same time, recent revelations about China’s official statistics overstating its GDP by 30 percent track well with other problems that were already known.77 These include one of the world’s worst demographic aging curves thanks to China’s one-child policy; a population that may already be declining; an unsustainable debt load that is already causing problems; countless failed boondoggles, from empty cities to its underwhelming Belt-and-Road Initiative, that are wasting significant resources; Xi Jinping’s authoritarian turn; increasing state control of the economy; and a zero-COVID policy that has sabotaged the economy and driven away foreign investment.78

America has its problems, but it is in better shape than China on nearly every measure, especially in the long run. While the facts on the ground should inoculate the next Administration against the most strident China fearmongering circulating in the media and in Washington, that does not mean that the government in Beijing is no threat to American interests. The question is: What should we do about it? A serious China policy will require American policymakers to integrate doc- trines, institutional prerogatives, expertise, and realistic objectives. Traditional Cabinet-level bureaucracies like those at the Departments of Defense, State, and Commerce will need to work together to pursue a comprehensive American strat- egy. Scores of incremental, narrowly targeted policies are necessary. They will not make for good soundbites on cable news, and many will operate slowly and out of sight from most news cycles even as progress is made. An effective China policy must also allow for adaptation because the CCP will not sit idly by. As people react to developments, America needs flexible options. Trade isolationism is inherently inflexible because it reduces the number of con- tact points with China.

This is a tougher political sell than loud, simplistic jeremiads, but going the extra mile to solve these difficult coordination problems is vital to America’s interests. Trade and engagement with China are necessary if we are to contain the threats that China poses to its neighbors and to the U.S. The next Administration should:

End China’s developing-nation status in the WTO and other international organizations. China is an advanced manufacturing economy and should be treated as such, even if its political and legal institutions remain those of a developing nation, to prevent it from exploiting its status to gain special privileges. Use a target, not a blanket. There should be actions against Chinese firms that are known to have engaged in unfair trade practices such as intellectual property theft. Rather than blanket tariffs or non-tariff barriers aimed at entire Chinese industry sectors, firms that act in bad faith should be targeted individually. This policy was employed to good effect early in the Trump Administration but was abandoned in favor of a less effective blanket tariff policy.

Rejoining this alliance should be a top priority in the next conservative Administration’s China policy. Accession negotiations are likely to be difficult, given that the CPATPP suspended several clauses that were important to the United States (such as provisions relating to patents and aspects of investor-state dispute resolution) when the U.S. pulled out of the TPP agreement in 2017.

Diplomatic and economic pressure against Beijing will be more effective when its largest trading partners work in concert. Beijing’s diplomats will have a hard time employing a divide-and-conquer policy against a united front of the sort that the TPP offers.

Refocus the Indo-Pacific Economic Framework for Prosperity on trade. President Biden began the process to create IPEF in 2022, but any agreement will likely still be under negotiation when the next Administration takes office. IPEF is similar to the TPP, but its member