Japan is reportedly resisting being arm-twisted into adopting the same managed trade deal that the US forced on the EU and other countries in lieu of just lifting the dubious Section 232 tariffs on steel and aluminum imposed by former President Trump. Japan, like the rest of the US’s Pacific allies, wants it to join the CPTPP to prevent Chinese economic domination of the Pacific. Commerce Secretary Gina Raimondo loudly says “No!” and is now being targeted by Republicans as a key Beijing-friendly figure in the Biden administration. Meanwhile, the UK and Australia have just concluded a free trade agreement — a big boost to Boris Johnson’s post-Brexit trade plans — and Senator Manchin’s Build Back Better veto may have saved the Biden administration from wrecking the US’s most important trade pact, the USMCA.
The December 20th, 2021 trade report with L.C.
Japan has rejected a US proposal to use tariff rate quotas (TRQs) to settle the Section 232 (“national security”) tariffs on its exports of steel and aluminum to the US, according to a report published in Bloomberg News on December 13th. To no one’s surprise, the US offer of a TRQ system was based on the same arrangement recently accepted by the EU. Tokyo has been resisting, however, because – with backing from the Pentagon – it argues that there is no national security basis for tariffs on the two metals. Japan also doesn’t want to enter a deal that violates WTO rules, as the managed trade agreement based on voluntary quotas reached with the EU appears to do. There is also speculation that Tokyo may be resisting a deal on the tariffs to pressure the Biden administration to reconsider joining the CPTPP.
Unsurprisingly, Beijing strongly opposes US membership in the CPTPP and wants that role instead reserved for itself.
Raimondo conflict of interest raised
But joining the CPTPP has been ruled out by US officials – especially Commerce Secretary Gina Raimondo. Mrs. Raimondo meanwhile is coming under pressure from House Republicans, who have ‘significant concerns’ about her Chinese Communist ties. Raimondo’s husband, Andrew Moffit, is employed in a senior role at PathAI, an artificial intelligence company that is funded by Danhua Capital (DHVC) (丹华资本), a Beijing-backed firm that invests in tech companies as part of the Chinese government’s attempted ‘penetration of Silicon Valley,’” the Washington Free Beacon reports. The Beacon notes that “In addition to throwing a lifeline to Huawei—a Chinese telecommunications company closely linked to the communists’ brutal oppression of China’s Muslim Uyghur population—Raimondo has opposed pressuring companies to boycott the Beijing Olympics next year and called for ‘robust’ economic engagement with the Chinese.”
While Japan’s demand for elimination of the tariffs would be upsetting to other allies who accepted quotas, the legality of the quotas is suspect under WTO rules. Indeed, the WTO itself was inaugurated in 1995 at US initiative after an unhappy experience with previous decades of managed trade heavily reliant on TRQs. That history is well-explained in an important essay, “The False Allure of Managed Trade,” by Chad Bowen of the Peterson Institute for International Economics.
Dubious “Framework” as CPTPP alternative
Instead of joining the CPTPP (as was originally favored by the Obama administration with Republican support but then killed on day one by President Trump), the Biden administration has come up with an ersatz alternative, the Indo-Pacific Economic Framework – details unavailable. Preliminary statements suggest he Framework will reflect US priorities such as climate change, not what partner countries need to combat growing Chinese influence or enhance their own development. According to Secretary of State Antony Blinken and recent comments by Raimondo, the Framework will include provisions on supply chain resilience, the digital economy, cooperation on technology including artificial intelligence, infrastructure development, trade facilitation, export controls, labor standards, decarbonization and clean energy.
Increased US investment in the region has been suggested, but that appears to conflict with President Biden’s domestic priority of re-shoring US companies’ manufacturing and his affinity for Buy American requirements. Moreover, the administration’s related push for industrial policy – through which the government subsidizes favored industrial sectors like semiconductors – also signals a nationalist economic orientation not attractive to trading partners. Nonetheless, Raimondo insists that the Framework “is a priority for the President” and will be the core of US economic/trade relations with the region. Cato meanwhile has put out a paper, “The Top Seven Reasons to Oppose New Semiconductor Subsidies,” that eviscerates the rationale for subsidies to that industry.
Asian allies have made it clear that they are concerned. China is continuing to make inroads into integrating the region under its dominance, and countries find it hard to resist without the US presenting a meaningful alternative. A Singapore official recently made clear that his government thinks the US has to either join CPTPP or come up with something equally effective.
Build Back Better’s demise
Senator Manchin’s announcement December 19th on Fox News that he would not support the Democrats Build Back Better bill is a victory for US trade and relations with allies. Canada vociferously protested that the electric vehicle (EV) provisions of the bill violated US obligations under the USMCA and that, if passed, it would launch a dispute under USMCA procedures and retaliate with tariffs against US products. Mexico also protested. For now, the USMCA can happily proceed.
But the US is continuing to shoot itself in the foot with its tariffs on imports of Canadian lumber. These are adding significantly to US housing price inflation.
Australia-UK FTA is a win for BoJo
Meanwhile, everyone in the world except the US (and India) are advancing the trade interests of their nations by signing up for bilateral or multilateral trade agreements. The big free trade agreement news this week was the signing of the Australia-UK FTA, but the week also brought South Korea’s formal bid to join the CPTPP, the approaching implementation of the RCEP, and the conclusion of a new digital agreement between South Korea and Singapore.
Although the volume of trade is not large, the UK-Australia agreement should help London’s bid to join the CPTPP. That would be a much more significant step for British trade – in economic terms, in terms of the UK’s strategic position in Asia, and in terms of the political benefit to Prime Minister Boris Johnson.
Even this smaller agreement is politically important for the Prime Minister, being the first achievement by “global Britain,” which he and Brexit supporters had claimed would be among the key benefits of leaving the EU. Strategically, the agreement meshes with Johnson’s plan for deeper involvement in Asia, and it complements the new AUKUS strategic alliance that brought London closer to Canberra on the military and technological front. As for Australia, the deal is timely because the UK market can help make up for some of what exporters lost as a result of China’s economic coercion against Canberra.
Australian Trade Minister Dan Tehan said Australian exporters would “benefit from immediate elimination of tariffs on over 99% of Australian goods exports to the UK, valued at around $9.2 billion” upon the deal taking effect. It is, he said, “the most comprehensive and ambitious free trade agreement that Australia has concluded, other than with New Zealand.”
British farmers, Australian labor unhappy
Not everyone is happy. As with many trade agreements, the most unhappy are farmers, in this case, British farmers. The deal gradually enlarges the current UK tariff-rate quotas on Australian beef and lamb (10-year phase-in), sugar (8-year phase-in), dairy (5-year phase-in), wheat and barley, and immediately removes the tariff on Australian wine, particularly important since wine is one of the imports from Australia that China has cut.
It should be noted that British farmers have been expressing concern since Brexit that the government would be so eager to forge FTAs that it would do so at their expense. If talks for the US-UK FTA do resume, agriculture – not just market access but also standards and regulation of farm products – will be a major sticking point.
But the UK will gain as Australia lifts duties on a range of British consumer and other products including cars, whisky, and apparel, and British consumers will benefit from the lifting of duties on a range of Australian goods beyond agriculture.
Also upset are Australian labor unions, who denounced the deal’s provisions on movement of workers as “anti-worker.” The two countries are to allow in each others’ young workers for a long period without requiring the type of work they do or testing to assure there aren’t domestic workers available for the jobs they take. Other workers of any age with high skills in key fields will also have eased visa requirements and no “labor market test” to assure they won’t replace domestic workers.
RCEP is almost here
The Regional Comprehensive Economic Partnership – the world’s largest trade agreement – will enter into force on January 1st, 2022. The RCEP’s level of ambition is comparatively low compared to other trade agreements such as the CPTPP, USMCA, and various bilateral FTAs, but still high enough to lead to meaningful trade expansion and benefits to China. Its 20 chapters cover lowering barriers to goods and services trade, movement of people, investment, intellectual property rights, digital trade, competition, and government procurement. It has a dispute settlement mechanism, provisions for trade facilitation and transparency, and market access provisions that will lead to the elimination of quotas.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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