Despite major election losses, the Biden administration keeps neglecting US farmers and industry — and strategic allies Japan and UK — in order to pursue expensive welfare entitlements and Net Zero climate programs sought by the Democratic Party left.
The November 8th, 2021 trade report with L.C.
There is a split over China policy within the Biden administration, according to press reports. It pits US Trade Representative (USTR) Katherine Tai against National Security Adviser Jake Sullivan. Sullivan wants to move ahead with a new Section 301 case against China, targeting its strategically important industries and technologies, including its heavily subsidized state-operated enterprises, while lowering the tariffs on other products. That approach would hit China where it hurts while alleviating the tariff burden on US companies dependent on imports from China. Tai, on the other hand, wants to follow through with planned talks on the US-China Phase 1 trade deal before taking other action. The press accounts say the administration is siding with Tai for now, but there is congressional support for the Sullivan approach.
Meanwhile, the US is moving by baby steps to settle disputes over the US Section 232 steel and aluminum tariffs with two key strategic partners, Japan and the UK. Astonishingly, the two were left watching as the US lifted its steel and aluminum tariffs on the European Union. This past week, Prime Minister Fumio Kishida and President Biden held their first in-person meeting, and Japanese Trade Minister Koichi Hagiuda met virtually with USTR Tai and Commerce Secretary Gina Raimondo. There has been speculation that both countries would like to have an agreement ready to announce at the virtual APEC Summit that takes place on November 12, but skepticism is in order. That gives almost no time for actual negotiations..
Like Japan, the UK was left out of the US-EU arrangement that substituted quotas in place of tariffs. That was a shock to the British since they see themselves as closer to the US on trade as well as strategic policy than the EU. As with Japan, the USTR office last week announced, without giving any details, that it is “consulting closely” with the UK “on bilateral and multilateral issues related to steel and aluminum, with a focus on the impacts of overcapacity… and the climate impacts.”
Environmentalism before trade
Indeed, subordinating trade to “net zero” climate policy has become an administration obsession.
Last week’s steel and aluminum settlement won praise this week from environmentalists who believe that the agreement, with its suggested commitment to reduce over-production by restricting imports from heavy coal user China, shows that the US is moving closer to some form of carbon border tax favored by the EU. If the US does act on that idea, much of the rest of the world would have to accommodate it in some way.
But the US-EU agreement was devoid of details or specific plans, just USTR Tai mouthing her wishes that the US-EU talks would aim for “a global arrangement that promotes not just fair trade in steel but also pro-climate and responsible trade in steel.”
Meanwhile, others are pointing out that the administration has no authority to use the Section 232 tariffs to win agreement on issues like cutting emissions. The statute allows the tariffs to stay in place only when justified by a national security threat. As Sen. Pat Toomey (R-PA) said, “Using Section 232 tariffs as negotiating leverage to enact concessions on climate change is inappropriate.” And as Cato Institute analysts explained, “These tariffs should not be used as leverage to compel our allies to agree to unrelated US interests, and trying to shift the Section 232 tariffs’ focus from a dubious national security threat to climate change is wholly inconsistent with the statute.”
Big business favored
Other critics noted that implementation of tariff rate quotas can – and in this case will be – onerous, as companies have to watch closely to assure a quota won’t be filled for their product before it arrives, and will have to keep detailed account of where steel and aluminum incorporated into their product was melted and poured. Analysts and industry representatives warn that the TRQs will be especially troublesome for small- and medium-sized companies. Large corporations will have an easier time tracking products and will grab quota allotments early.
Also, the anticipated agreement to curb carbon emissions is likely to not only be very difficult to craft but to do so in a WTO-legal way. As House Ways & Means ranking Republican Kevin Brady (R-TX) said, it is “enormously complex managed trade.” The EU, however, is pushing ahead with its plans for a Carbon Border Adjustment Mechanism, and a number of members of Congress are pushing for the US to implement its own carbon tax/tariff and work with other countries for an international agreement. But US domestic subsidies for lower carbon products, especially E-vehicles, are already being challenged in the USMCA.
Meanwhile, the Biden administration’s fixation on domestic policy and green agreements rather than trade agreements has left US manufacturers and farmers out in the cold and the economically rising Pacific region in default to China.
The largest trade bloc in the world
Australia and New Zealand just confirmed that they ratified the RCEP this week – which means it will enter into force as planned on January 1st, 2022. RCEP will be the largest trade bloc in the world. Though it has less ambitious standards and commitments than most free trade agreements, it is expected to enhance China’s regional influence. That’s a concern to many of its members as they worry about China being in a position to dominate their trade, coerce their cooperation, and bully them. India, fearing domination of its domestic market by Chinese imports, withdrew from the RCEP negotiations near their conclusion. Taiwan wanted to join but China blocked it. Meanwhile, Beijing welcomes the ratification progress, saying in a November 6th statement that it is ready to cut tariffs as required and expects the deal to significantly boost Asian economic integration. It noted that ten countries have now ratified the pact (Australia, Brunei, Cambodia, China, Japan, Laos, New Zealand, Singapore, Thailand, Vietnam) and the remaining countries are moving toward doing so.
APEC summit and the CPTPP
A similar story can be told at APEC. The CPTPP is shaping up to be a factor at its November 11th-12th virtual gathering. Taiwan will use the brief time it is allotted to speak to the group to promote its request to join the trade bloc. Taipei will be represented, as usual at APEC summits, by Taiwan Semiconductor Manufacturing Co. (TSMC) founder Morris Chang, who told reporters on November 3rd that President Tsai Ing-wen asked him to use his remarks to support the accession request. Chang pointed out that Taiwan is already close to adhering to the CPTPP’s high standards. Although Beijing did not block Taipei from joining APEC decades ago, China strongly opposes it joining the CPTPP, which China and Taiwan both formally asked to join in September. Taiwan-based TSMC is the largest chip foundry in the world, a critical asset — along with Taiwan itself — that China would like to seize.
Parts of the US business community are pushing the Biden administration to announce at the APEC Summit that it too is seeking to join the CPTPP. Meanwhile, several Asian American Chambers of Commerce, in Malaysia, New Zealand, Singapore, and Vietnam, have released a joint statement saying the US should move off the “sidelines” and join — because US exporters are losing competitiveness in the growing Asia-Pacific market. While many other parts of the US private sector have similarly expressed support for the US joining the CPTPP, the administration has made it clear it isn’t ready to take bold moves on trade policy before next year’s elections. Instead, it is pursuing bold but unpopular domestic policies — such as the multi-trillion-dollar Build Back Better bill, even though it helped precipitate the administration’s resounding electoral setback on November 2nd.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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