The June 14th to 20th, 2021 roundup of major trade developments, with L.C.
The US-EU Summit held in Brussels on June 15th had a welcome trade truce as its outcome. But the strategic commentariat in the US was less complimentary regarding the whirlwind of conferences (G7, US-EU, NATO, Putin) that President Biden attended. Walter Russell Mead, in his weekly Wall Street Journal column, wrote that the G7 communique
sounded very impressive and was certainly a greater display of unity than former President Donald Trump ever managed to produce. Yet China and Russia appear unimpressed, as does Iran…. The harsh reality is that the US and its allies are losing ground to their adversaries, and the balance of power is moving sharply against us.
Other commentators, like Mead, thought that Biden gave Europeans an undeserved free ride. Senior Fellow Doug Bandow’s commentary for the libertarian Cato Institute began “President Joe Biden is visiting Europe, spreading hugs and kisses to lovelorn European officials traumatized by Donald Trump’s oft‐expressed disdain.” The article ran under the headline, “Another NATO Summit, Another Endless Subsidy for Europe.”
The US-EU summit
Those complaints duly noted, the US-EU meeting had five potentially useful trade outcomes:
- Movement toward settling the US-EU aircraft subsidies dispute,
- A pledge to resolve the dispute over the Section 232 steel and aluminum tariffs this year,
- Creation of a high-level US-EU Trade & Technology Council,
- Pledges of broad cooperation in tackling challenges posed by China and Russia,
- And a reaffirmation of US-EU cooperation on WTO reform
The White House fact sheet on the aircraft deal tied it directly to cooperation on the China challenge. The US and EU have long been concerned that other countries might begin to produce large civil aircraft that could compete with Boeing and Airbus. The countries of concern have included China, Russia, Japan, and Brazil, but it is China that has emerged as a real threat. Rule-setting won’t be easy, however. Developing the capability to produce large aircraft is seen as something no country can do from scratch without massive government aid – as shown by the fact that even the US and EU had to supply such aid to Airbus and Boeing.
Different ways to subsidize
The US and EU’s aircraft subsidies have, historically, taken very different forms. The US, according to the EU’s accusations, subsidizes through the Defense Department’s financing of R&D in the aircraft sector and through certain specific tax breaks (such as those given by Washington State to Boeing), whereas the EU has mainly financed through “launch aid” for the development of new Airbus aircraft. All were ruled WTO-illegal, but the two sides haven’t entirely complied or indicated they don’t intend to continue such aid. The new agreement doesn’t force them to change – it may, but the details, as noted, are yet to come.
The US and EU trade negotiators were asked by reporters to explain just what the agreement means… and they punted. So the tariffs are suspended for five years, but the dispute itself has not been settled, and neither side has vowed to end all aircraft subsidies. Despite the ambiguity, getting this far toward an agreement and extending the tariff suspension is an important development. Had a deal not be reached, it would have spurred an escalation in transatlantic tensions and disturbed efforts to cooperate on broader strategic matters.
The June 15 US-EU summit also, as expected, announced a commitment to end the US Section 232 tariffs on steel and aluminum this year and the EU’s counter-tariff, but there were no further details. It also remains unclear whether the two sides aim to reach an agreement that would include ending the metals tariffs imposed on other US trading partners – and allies – including Japan and the UK.
Steel safeguards continue
The US must be concerned that lifting the tariffs would lead to a quick import surge. So too the EU. Its safeguards were put in place in July 2018, largely in response to the Trump Section 232 steel 25% tariff that Brussels said had diverted foreign steel from the US to the EU market, flooding it. The EU slapped a 25% tariff on certain steel products when imports exceeded a set quota it allocated to each country.
Earlier this year, when the EU announced it was reviewing whether to allow its own steel import safeguards to expire, a coalition of European steel-using manufacturers urged that they not be extended, saying they were facing surging input prices. From the other side, the European Steel Association (EUROFER) warned that its members could be decimated by cheap imports if the measures were lifted.
EUROFER won. The extension will keep the safeguard arrangements for another three years.
The EU’s trading partners aren’t pleased. Already, India asked the EU to discuss the matter at the WTO, saying the measures are an unfair barrier to Indian exports, and the South Korean steel industry has complained of significant injury.
The UK also appears ready to extend the safeguards it imposed on certain steel products in 2018. Those measures, like their EU counterparts, would otherwise expire on June 30th.
What happened to the movement toward free trade?
Chinese overproduction of steel has been a principal source of the breakdown of the post-WWII free-trade regimes originally sponsored by the US through GATT and the WTO. Chinese overproduction arguably inspired former President Donald Trump’s protectionist rampage that began within twenty-four hours of his inauguration when he withdrew from the strategic, anti-Chinese Trans-Pacific Partnership (CPP). Trump subsequently followed this move by imposing a 25% tariff on steel imports and a 10% tariff on aluminum imports. These tariffs still remain, much to the distress of downstream US industrial metals consumers, not to mention the after-effects on the economies of US allies.
Unsurprisingly, Trump’s tariff-minded trade negotiator, Robert Lighthizer, has just joined the board of Oren Cass’s industrial policy think-tank, American Compass.
Biden admin vs. the bipartisan CPTPP group in the Senate
While the Biden administration has usefully concluded a fragile truce with the EU, forestalling a new outbreak of trade warfare between the two major economic powers, his progressive policies are meanwhile severely weakening the US as a leader of the free world. His administration has reduced inflation-corrected defense expenditures when these need to be increased, especially for the navy; it has given Russia a free pass to complete the Nord Stream 2 pipeline; it is wrecking the US economy with unsustainable debt, bad tax plans, and a crackpot climate policy; and it has refused to consider re-entry to the strategic TPP (now CPTPP).
Despite the administration’s stubborn stance on the latter, Congressional pressure is growing for US re-entry into the CPTPP. Senate Finance Trade Subcommittee Chairman Tom Carper (D-DE) and ranking Republican John Cornyn (R-TX) published an op-ed in the June 13th Washington Post arguing that the administration should make the move in light of China’s interest in joining the CPTPP. The senators criticized the Trump administration decision to withdraw, and wrote, “Compromises are made in any trade deal…. But to even have a shot at writing the rules, you need a seat at the table. Right now, the US is waiting in the hallway…. US trade leadership in the Asia-Pacific is an imperative for our economy, our national security and our broader diplomatic efforts. We intend to use our positions atop the Senate’s trade panel… to speak with one voice on the need to re-engage in this region – and get our seat back at the table, once again.”
The US should negotiate a way to rejoin the pact, the two senators wrote, and create multilateral trade agreements to contain China’s growing regional influence.
Carper and Cornyn are important senators even apart from their roles as leaders of the Trade Subcommittee. Although the TPP was originally negotiated by the Obama administration, seeking to re-enter it would be a big step for the White House, given its organized labor and environmental constituencies.
Positive developments from the UK and Australia
Unlike the US, the UK isn’t hesitating to apply for CPTPP entry, an application that is now under CPTPP consideration. Meanwhile, on June 15th, the UK announced that it has reached a framework Free Trade Agreement with Australia. This is the UK’s first FTA it has negotiated with a country with which it hadn’t had a trade agreement when it was in the EU. It is perhaps also a step toward a bilateral FTA with New Zealand that London has expressed interest in.
For Australia, any new foreign market-opening is particularly important given China’s erection of barriers to a broad array of Australian exports, some of which Canberra is challenging at the WTO. Australia’s trade clashes with China have broad implications because they are a test case against Beijing’s efforts to force other countries to not criticize it or interfere with its hegemonic plans.
The Biden administration meanwhile has done nothing to restart the talks for a US-UK FTA that began under the Trump administration. It did, however, agree to resolve the aircraft subsidies dispute between their two countries along the same lines as the agreement that was announced between the US and EU.
Australia meanwhile has become the de facto leader of the free world by standing up to China and opposing the climate crisis hoax.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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