News: Carter wrote the book on global trade that Trump’s moving to unravel

Thursday, January 9, 2025

Carter wrote the book on global trade that Trump’s moving to unravel

Jan 09, 2025

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QUICK FIX

Most Americans might remember Jimmy Carter for long lines at the gas pump, “stagflation” and successful Middle East peace talks, but probably not for ushering in the modern trade era.

And yet the 39th president oversaw sweeping reforms to the General Agreement on Tariffs and Trade — the precursor to the World Trade Organization — that set the stage for decades of U.S. trade policy and globalization.

Now, President-elect Donald Trump is aiming to end that era and construct a new one of his own — with a focus on deploying tariffs as a means to fortify the U.S. economy rather than on setting global rules for trade.

But the architecture Carter helped build still underpins the world economy, and how he did so holds lessons for a president who’s trying to reshape it.

Your host explored that little-known piece of his legacy in interviews in 2015 when the former president was first diagnosed with brain cancer. He died last month at the age of 100, and his official state funeral will be held today.

Carter got his trade deal through Congress with overwhelming bipartisan support in 1979, after lawmakers had rejected previous attempts by John F. Kennedy and other presidents to update the nearly 30-year-old GATT. The so-called Tokyo Round agreements not only cut tariffs by $190 billion, far more than previous rounds, but also for the first time included rules to rein in agricultural supports and non-tariff barriers to trade — which eventually became basic tenets of U.S. trade deals.

“It hadn’t been a squeaker vote,” Alan Wolff, deputy U.S. trade representative under Carter, told your host a decade ago. “That doesn’t happen by accident, and the president was very active in making that happen.”

Carter also personally pushed for the deal at G7 summits in 1977 and 1978, and both years the group endorsed concluding the round, which Wolff said was significant.

One of the biggest reasons for the success of the round was Carter’s appointment of Bob Strauss as U.S. trade representative, former officials said. Strauss, who passed away in 2014, is widely viewed among trade experts as one of the most successful negotiators to hold the office, although he had no previous trade policy experience.

“He was a consummate politician and negotiator,” Doral Cooper, an assistant U.S. trade representative under Carter, said in 2015. “He always got his way and left both sides relatively pleased with the outcome.”

The conclusion of the Tokyo Round was made easier by the passage of “fast-track” negotiating authority during the Ford administration. But it was Strauss, a former Democratic National Committee chair who later served as ambassador to the Soviet Union under George H.W. Bush, who actually got a deal done.

Despite the Carter administration’s poor relationship with Congress, Strauss clinched a 395-7 vote in the House, and a 90-4 vote in the Senate on the Tokyo deal. Unions didn’t oppose it.

“The profile of trade [later] grew enormously, and I suspected Strauss anticipated that, which is one of the reasons he was interested in trying to finish off the Tokyo Round while the Carter administration was in power rather than let it be delayed into the next administration … and risk losing momentum,” Clayton Yeutter, a deputy special trade representative under Ford and U.S. trade representative for Ronald Reagan, said in a 2015 interview. (Yeutter died in 2017.)

And though media attention at the time mostly focused on Strauss, he couldn’t have accomplished what he did without the president’s support and approval, Yeutter said.

Still, many policy experts fault Carter for putting an embargo in place on exports of grain to the Soviet Union in response to its invasion of Afghanistan in 1979. The move, which was almost universally criticized by the business community, had little effect on the USSR, but it did lead to a drop in commodity prices that led to a farm crisis in the U.S.

For many years afterward, major economies, such as Japan were skittish about relying too much on U.S. agricultural exports for fear that America could prove to be an undependable supplier, Yeutter said.

For Trump, who has threatened to impose a wave of trade sanctions on other countries over some issues that have little to do with trade, there may be a lesson there on unintended consequences.

It’s THURSDAY — To our friends and family in Southern California, stay safe. If you’ve got news tips, suggestions or feedback, you can reach Sam at ssutton@politico.com. For econ news, Victoria can be found at vguida@politico.com.

Driving the day

Federal offices, the Nasdaq and New York Stock Exchange are closed today for Carter’s funeral … Weekly jobless claims will be released at 8:30 a.m. … Goldman Sachs Chief Economist Jan Hatzius will speak at an Atlantic Council event on Trump’s economic agenda at 10:15 a.m. … Bank of America CEO Brian Moynihan speaks at the Economic Club of Washington at noon … Richmond Fed President Tom Barkin will address the Virginia Bankers Association and Virginia Chamber of Commerce at 12:40 p.m. …Kansas City Fed President Jeffrey Schmid speaks on the economic and monetary policy outlook before the Economic Club of Kansas City at 1:30 p.m. … Fed Gov. Michelle Bowman will speak at a California Bankers Association event at 1:35 p.m.

First in MM: Rubenstein’s thoughts on Carter — Carlyle Group co-founder and Carter administration alum David Rubenstein provided Morning Money with an early look at his reflections on the former president, which will be published in his newsletter this morning. One excerpt that resonated with your MM hosts: “Whether someone with the qualities of a Jimmy Carter could ever again emerge from the current political process is doubtful. Carter was not willing to do what is probably required today to get to the top of the political world. And while his administration was not at the time viewed that favorably by voters, in hindsight he accomplished a great deal—more than current presidents are expected to do…”

Behnam’s crypto warning — It’s been boom times for the crypto market since Trump’s election. But in the absence of a comprehensive legal framework for the industry, outgoing Commodity Futures Trading Commission Chair Rostin Behnam says that potential collapses on par with FTX — and an accompanying wave of fraud manipulation-based enforcement cases — could take place.

“The fact of the matter is in an unregulated environment, the risk of that exists whole without a doubt,” Behnam told Declan Harty in an interview on Wednesday.

All eyes on Bowman — Fed Gov. Michelle Bowman is widely viewed as the most likely candidate to replace outgoing Vice Chair for Supervision Michael Barr. Later today, she’ll be in Laguna Beach, California, for a speech on “pressing regulatory topics” at the California Bankers Association event.

Fed watchers will be, ahem, watching Bowman’s comments carefully for any sign of how she might approach the vice chair role should Trump give her the nod.

The incoming administration has a dim view of Biden-era financial regulation. And Bowman, who was nominated to the Fed by Trump, blasted Barr’s initial Basel III proposal as a “one-size-fits-all approach” that could “lead to harmful, unintended consequences” — particularly with regard to smaller financial institutions. More recently, in a post-election speech at the Forum Club of the Palm Beaches in West Palm Beach, she dinged banking regulators for publishing thousands of pages of proposed rules — which she said limited the public’s ability to provide meaningful feedback — while ignoring “constructive” comments upon finalization.

Prepping for post-Powell — With Barr out as Vice Chair, Bloomberg reports that Trump’s advisers have already started to pull together a shortlist to replace Fed Chair Jerome Powell when his term concludes in May 2026. Candidates include Kevin Hassett, a longtime Trump adviser who’s set to be director of the White House National Economic Council, as well as former George W. Bush aides Larry Lindsey and Marc Sumerlin. Former World Bank President David Malpass, former Fed official Kevin Warsh and Bowman are also on the list.

— The same report says Fed Gov. Christopher Waller may no longer be under consideration after backing a half point rate cut in September — a move Trump and several of his advisers claimed was political.

On the Hill

Hill expected to announce leadership team — House Financial Services Chair French Hill (R-Ark.) is expected to roll out his picks for subcommittee chairs today, three House aides told Eleanor.

The aides were granted anonymity to discuss private conversations.

Reps. Andy Barr (R-Ky.) and Ann Wagner (R-Mo.) are seen as the favorites to remain atop the financial institutions and capital markets subcommittees, respectively. Both were strong contenders for full committee gavels last Congress.

Who will assume the helms of the remaining subcommittees is less certain. Rep. Bill Huizenga (R-Mich.), who chaired the oversight subcommittee last Congress, landed a House Foreign Affairs subcommittee chairmanship Wednesday, which means he would need a waiver to chair a House Financial Services subcommittee at the same time. The same would apply to Rep. Frank Lucas (R-Okla.), the committee's most senior Republican, if he nabs a subcommittee chairmanship on the House Agriculture Committee.

“I believe I have value to add to the [Financial Services] Committee, and if the chairman chooses to use me, then I’d be extremely pleased," Lucas told our Jasper Goodman.

As for new(er) faces, Reps. John Rose (R-Tenn.) and Mike Flood (R-Neb.) are among those also in the mix for gavels. Rose and Flood have both worked on housing legislation, which would make them strong choices to lead the housing and insurance subcommittee.

There are other leadership roles up for grabs — like vice chair, which wouldn't require a waiver for those also chairing other subcommittees. Hill has said he also wants to create some new positions, like a member "communicator" who can brief the rank-and-file.

Fed File

The Fed is taking Trump literally — Minutes from the Fed’s December meeting show that policymakers still expect inflation to cool but are bracing for the possibility that “potential changes in trade and immigration policy” are one reason that process “could take longer than previously anticipated,” Victoria reports.

– In other words: Trump’s agenda has made the Fed more cautious about the pace of disinflation, which could affect its ability to bring down rates.

Waller on reinflation: Don’t sweat it — Disinflation seemed to stall during the final months of last year. But that’s nothing to worry about — at least for now, Waller said in a speech at the Organization for Economic Cooperation and Development in Paris on Wednesday.

While the core personal consumption expenditures index was 2.8 percent for the 12 months ended in November — well above the Fed’s 2 percent target — the six-month percent change was much lower; just 2.4 percent, Waller said. Critically, the sectors contributing the most to the recent elevated inflation data are housing and service sectors where prices “are estimated rather than directly observed.”

Waller’s commentary is notable for two reasons: 1) he had been a hawkish voice on the Federal Open Market Committee as inflation surged in 2021 and 2022. 2) Even as market participants grow antsy about the prospect that inflation – and therefore, interest rates — will remain elevated if Trump follows through on tariff threats, Waller was relatively sanguine about new tariffs having a substantive impact.

“Tariff proposals raise the possibility that a new source of upward pressure on inflation could emerge in the coming year. Projections of the economic impact of these possible policy changes vary widely. If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy,” he said.

Regulatory Corner

Thompson to step down — Federal Housing Finance Agency Director Sandra Thompson will resign on Jan. 19, she told the staff on Wednesday, Katy O’Donnell reports. Though Trump has yet to name his pick to lead the agency, Thompson’s announcement is an acknowledgement that her days at the helm were numbered.

Yellen hypes Bessent — Treasury Secretary Janet Yellen praised her likely successor Scott Bessent in an appearance on CNBC, Michael Stratford reports. “He's somebody who certainly had a good deal of financial market experience,” Yellen said of the hedge fund executive, who was once George Soros’s chief investment officer. “And for somebody who's going to be managing roughly $35 trillion of Treasury debt and responsible for financing the government and playing a key role in economic policy, I think that's a very helpful background.”

Wait time — Stratford also reports that the CFPB will support updating federal rules to require banks to make funds available more quickly from deposited checks.

Jobs report

Warren taps Donenberg — Senate Banking Committee ranking member Elizabeth Warren (D-Mass.) is bringing back former chief of staff Jon Donenberg to serve as the panel's Democratic staff director, a person with knowledge of the decision told Eleanor.

Donenberg left Warren's office in 2023 for the National Economic Council, where he's since served as deputy director. A key architect of many of her signature policies, he first joined Warren's team in 2012.

Hill hires — House Financial Services Chair French Hill (R-Ark.) has tapped Dan Schneider to serve as the committee’s communications director. He is an alum of the Business Roundtable and previously served as communications director in Hill’s personal office. Brooke Nethercott, Hill’s current communications chief, will serve as the committee’s deputy communications director, in charge of media relations.

Hill also announced Wednesday that Dylan Frost, a longtime staffer in his personal office, will serve as Financial Services’ director of member services and coalitions; Danny Reeves, an alum of Rep. Guy Reschenthaler’s (R-Pa.) office, will serve as deputy director for member services; Larry Seyfried, who served on the committee staff under retired Chair Patrick McHenry, will be deputy director for coalitions; and Grace Tricomi, who also worked on the committee under McHenry, will serve as deputy director for planning and advance.

— Longtime U.S. Chamber of Commerce lobbyist Justin Lumadue has joined the Bockorny Group as a principal to lead the government affairs firm’s efforts on tax, trade and financial policy.

— Laura Epstein has been tapped as the Joint Economic Committee’s Democratic Staff Director under Ranking Member Sen. Maggie Hassan of New Hampshire. (H/t Daniel Lippman)

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