How American Free Trade Can Outdo China

President Biden’s announcement that America is back—ready to engage in the diplomacy that has been a hallmark of our leadership for generations—was music to the ears of those who believe U.S. leadership is essential to global order. Unfortunately, trade didn’t make the cut when the president outlined diplomatic priorities. This merits rethinking.

The U.S. and China are engaged in a strategic competition that will determine the shape of global politics this century. But when it comes to trade, a critical dimension of that competition, America is ceding the field.

In recent years, the U.S. has imposed unilateral tariffs and trade barriers on allies and adversaries alike. Controls on the trade of technology, while important for national security, have been unnecessarily broad and often unilateral. The U.S. withdrew from the Trans-Pacific Partnership (TPP). And it has, through a mixture of negligence and obstruction, hobbled the World Trade Organization. These actions undermined America’s leadership of the global trade system, to the dismay of our allies and partners and to the detriment of our firms and workers.

At the same time, China has expanded its trade footprint. Already the world’s largest exporter, China is rapidly displacing the U.S. as the largest trade partner for much of the world. Ninety countries traded twice as much with China as with America in 2018. Last year China surpassed the U.S. as the largest recipient of foreign direct investment.

As part of its global campaign, China signed the Regional Comprehensive Economic Partnership last year, a trade agreement that includes U.S. allies such as Japan, South Korea, Australia and New Zealand. It signed an investment agreement with the European Union in December and has announced a customs initiative with Eastern European countries. Beijing is planning new trade agreements with countries in the Middle East and Africa, as well as a regional agreement with Japan and South Korea.

When it comes to trade and investment agreements, China isn’t isolated. The U.S. increasingly is. Now we have to make up for lost ground.

Our work must start at home. America’s economic prosperity and the effectiveness of our political system and global leadership are rooted in domestic economic strength. We need

Winning over trade skeptics on both left and right will require Mr. Biden to explain how helping companies compete in global markets benefits American workers and families. The administration should use the new war chest of the U.S. International Development Finance Corp. It should also assess and address any major employment shocks from new trade policies.

America’s open economy and leadership of the global trade system have long been key competitive advantages. The Biden administration should play to our strengths by advancing a strong, modern trade agenda, returning to the balanced, export-friendly policies that helped make us the envy of the world. America can out-compete China, but first it needs to get back in the game.

Mr. Paulson served as Treasury secretary, 2006-09, and is chairman of the Paulson Institute.