By Yong Kwon
Following talks spearheaded by the Treasury Secretary Janet Yellen, G20 finance ministers and central bank governors agreed to endorse a global minimum tax for corporations of at least 15%. This is a good start. But it is also important to remember that this effort to prevent corporations from spurning their dues to society is only one component of what needs to be done to ensure that the benefits of a globalized economy are shared more equitably with American workers.
In the United States, the intensifying economic insecurity for millions of workers accompanied the rapid growth of world trade. Donald Trump argued that trade was the cause of this dislocation. However, his administration’s efforts to disrupt existing commercial ties only brought greater economic uncertainty – a policy failure that should have been anticipated as trade-dependent jobs had grown four times faster than non-trade related occupations between 1992 and 2017.
The Biden administration’s diagnosis of why American workers have suffered is different. It recognizes the uneven distribution of the trade gains as a major contributor to the problem. In particular, advisors close to the White House have placed a spotlight on the common corporate practice of moving profits from international trade across borders to shield them from taxation. They point out that this kind of behavior contributed to corporate taxes as a share of the national tax income falling by 30% between 1995 and 2017. This means that ordinary Americans today pay a larger share of the national tax income than they did at the end of the Cold War.
The proposal to establish a global minimum corporate tax rate is a direct response to this unequal distribution of the burden. The immediate pushback from countries with lower tax rates and Republicans in the U.S. Congress suggests there is still a long road ahead to implementation. Nonetheless, the agreement between the finance ministers and the central bank governors should be celebrated.
But for this agreement to have a meaningful impact on American workers, the Biden administration must go further.
Foremost, new laws must ensure that firms benefiting from global trade are not actively preventing their workers from taking a share of the gains. The Biden administration wants a trade policy that serves the middle class – but no amount of global demand for domestically produced goods will benefit American workers unless they have the ability to negotiate for better pay. Many states currently maintain so-called “right to work” laws, which thwart unions from effectively mobilizing members and resources to bargain with employers. Until the federal government explicitly prohibits these intrusive laws, employees who work in firms that are enjoying increased exports to foreign markets are unlikely to see this success reflected in their bank accounts.
Simultaneously, the U.S. government should help remove barriers that prevent trade partners from buying America’s best goods, services, and ideas. In particular, Washington should consider removing the onerous debts owed by emerging market economies. American firms currently compete in a global market where demand for their goods and services are suppressed by onerous debt repayment obligations. International lenders often make these loans in bad faith, as officials from the George W. Bush administration representing post-invasion Iraq successfully argued during its negotiations with creditors who had financed Saddam Hussein. Washington subsequently immunized Iraq’s domestic and foreign assets from garnishment by international creditors and delivered a net debt reduction of 89.75 percent.
The U.S. Treasury and its adjoining agencies should repeat this feat to give emerging economies an opportunity to build back their domestic market and strengthen trade ties with suppliers of vital goods and services like the United States.
If these complementary goals can be achieved alongside the establishment of a minimum global corporate tax rate, the Biden administration would not only restore economic security to America’s workers but also build a world that has a greater need for their labor.
Yong Kwon studied economic history at the London School of Economics and moderates the subreddit r/EconomicHistory. He is currently the Director of Communications at the Korea Economic Institute of America. Views in this post are his own and do not represent the official position of the Korea Economic Institute of America.