* First Group of Seven trade meeting held. UK steps forward as free trade champion;
* China on the outs with EU as well as US;
* Goals of Biden administration’s American Jobs Plan contradict each other and neglect trade growth.
The March 29-April 4, 2021 roundup of major trade developments, with L.C.
The Group of Seven trade ministers met for the first time on March 31st for the inaugural G7 Trade Track meeting. Previously, trade was not a core G7 focus. The virtual meeting was hosted by UK Trade Secretary Liz Truss. World Trade Organization Director-General Ngozi Okonjo-Iweala also participated.
The G7 countries are the US, Japan, Canada, UK, France, Germany, and Italy, with the EU also participating.
Truss, who has been putting herself and her country forward as leading champions for free trade, said in advance of the meeting, “Our G7 alliance of like-minded democracies is united not just in its fundamental values, ranging from freedom and fairness to the environment and innovation. It is also united in its fierce belief that the best way forward for us all lies in trade.”
It was USTR Tai’s first meeting with a group of her counterparts, though she’s been holding virtual one-on-one meetings continually with trade ministers from a diverse group of countries. While there is a lot of good-will and positive expectations for her, even just within the G7, which includes the US’s closest allies, there are serious disputes that the meeting didn’t resolve – and wasn’t intended to.
US could resolve most trade issues if trade were a priority
These areas of disagreement include the US threat to retaliate against digital services taxes, the continued imposition of Section 232 steel and aluminum tariffs on allies, the aircraft subsidies dispute that involves several G7 countries, the US’s continuing refusal to solve the WTO Appellate Body crisis, the US effort to retract some medical-related products from coverage in the WTO Government Procurement Agreement, and US pressure for a bigger break with China than some allies prefer. Nonetheless, the G7 ministerial was by all accounts cordial and didn’t dwell on differences.
Truss herself spoke with the press before and after the meeting and provided more details, focused on China. She said she called for WTO reform to “get tough on China” and in particular on “their behavior in the global trading system but also to modernize the WTO” that is “in many ways… stuck in the 1990s.” Importantly, she said, “The WTO was established when China was 10% the size of the US economy. It is ludicrous that it is still self-designating as a developing country – and those rules need to change.” The Trump administration pushed this point; the Biden administration is likely to pursue it as well.
China on the outs with EU as well as US
Meanwhile, the not-yet-finalized EU-China Comprehensive Agreement on Investment (CAI) faces serious problems in Europe as EU-China relations deteriorate. Members of the European Parliament have been angered by the Xinjiang and Hong Kong abuses and then by China’s retaliatory sanctions aimed at them. Nonetheless, the Chinese press insists the CAI will be implemented, warning the Europeans not to let themselves be influenced by the US. Many in Europe, especially Germany but including France and others, are eager to keep commercial relations with China open and strong.
China was also featured – negatively – in two US State Department reports this week, on Hong Kong’s status and on international human rights abusers.
American Jobs Act threatens trade troubles, environmental conflicts
Any economic program as ambitious as what President Biden laid out in his American Jobs Act would have trade implications. AJA’s “Buy American” requirements and its plans for subsidizing technology could run counter to international trade rules. Whether they do will depend on implementation details not yet made public.
President Biden hopes to spur economic growth by “rebuilding” domestic manufacturing, jobs, and infrastructure; promoting “green” energy; advancing social welfare provisions that have long been on the Democrats’ wish list; and paying for this by raising taxes. The president’s annual budget request to Congress, which will provide more details on his plans, has been delayed. Due in early February, it is now expected to be released later this month.
President Biden makes clear that he intends for his plan to fundamentally change the role of government — by shifting to a big government, more centrally planned system — like China’s. (Suffice it to say, that last comparison wasn’t mentioned by the president.)
“Made in America” will raise prices and taxes
According to a press release, the “plan will require that goods and materials are made in America and shipped on US-flag, US-crewed vessels.” The “investments will use more sustainable… materials… and component parts Made in America.” The plan “will give consumers point of sale rebates and tax incentives to buy American-made EVs.” All these provisions will raise consumer prices or taxes or both.
As Cato observes:
If, as the White House keeps telling us, the Biden infrastructure plan really does target similarly urgent — perhaps even existential — global priorities like climate change and China, one must ask why the president insists on impeding such efforts (and potentially alienating allies) with onerous new Buy American mandates.
Or maybe these threats aren’t as urgent or existential as claimed?
Corporate tax hike will reduce private sector innovation
The White House says that “Alongside the American Jobs Plan, the president is proposing to fix the corporate tax code so that it incentivizes job creation and investment here in the US, stops unfair and wasteful profit shifting to tax havens, and ensures that large corporations are paying their fair share.” As well as increasing taxes on foreign operations, Biden proposes to raise the corporate tax rate to 28% (from 21% now) over 15 years to pay for his program. A 28% corporate tax rate, if enacted, will put the US at a competitive disadvantage to all the other OECD countries, which have been lowering their corporate taxes following the Trump administration’s December 2017 Tax Cuts and Jobs Act.
The Biden administration’s prioritization of CO2 emissions and clean energy clashes with US protectionism. Some of the US solar industry was hurt by the Trump Section 201 solar safeguard tariffs and are calling for the tariffs to be removed so that less expensive solar technology can be imported. The Section 301 China tariffs on other “clean” products (such as upgraded heating systems) also run counter to Biden green policies. US unfair trade tariffs on Indian renewables technology do also.
US credibility threatened
The Biden stress on protection through Buy American rules undercuts US credibility when, out of the other side of its mouth, the administration demands that other countries give up their own local content requirements.
Then there is China. Its solar panels are reportedly to be manufactured by Uyghur forced labor. US trade policy should oppose importing such products, but environmentalists worry about retarding clean energy usage.
The Trump administration had two policies that hurt the US economy – immigration-restrictionism and protectionism – but a tax policy that helped the economy. The Biden administration has three policies – protectionism, anti-CO2 fanaticism, and tax increases – all of which will hurt the economy.
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