There’s not a lot of difference between the US candidates’ trade policies, which are populist and protectionist. Meanwhile, the UK and Japan now have a free trade agreement, UK prime minister Boris Johnson has thrown up an obstacle to the previous UK-EU agreement, and Bob Woodward’s Rage features embarrassing trade-related comments by the president.
The weekly trade report with L.C.
The Biden-Harris presidential campaign released on September 8th its trade and tax plan titled, in stilted English, “The Biden-Harris Plan to Fight for Workers by Delivering on Buy America and Make It in America.” The day before, President Trump delivered Labor Day remarks that mostly reprized the trade policies he has pursued since 2017. The populist flavor of both candidates’ trade proposals is strikingly similar.
The seven-page Biden-Harris “Build Back Better” plan features what it claims are “two new bold steps”:
First, Biden and Harris will fix our tax code so that it promotes a ‘Made in America’ future, establishing a Biden Offshoring Tax Penalty and a Biden ‘Made in America’ Tax Credit, and closing the Trump Offshoring Loopholes. Second,Biden will sign a series of executive actions in his first week as president to ensure the federal government is delivering on its obligation to use taxpayer dollars to Buy American products and support American supply chains.
The Biden-Harris plan is meant to appeal to the “working class” and to anti-business progressives. Many of its proposals are similar to policies President Trump has advocated and in some cases implemented. Biden’s criticisms of China are also similar.
Similarities
The most striking Trump-Biden similarities are their support for
- tax incentives to encourage the re-shoring of manufacturing,
- tax penalties to punish offshoring,
- Buy American rules to strengthen federal procurement and for essential products,
- executive actions to build infrastructure and other policies to stimulate jobs.
Both candidates use hard-line rhetoric toward China. Biden signals that he would not quickly remove all the tariffs Trump unilaterally imposed – neither the Section 301 tariffs on China nor the Section 232 tariffs on metals that were levied more broadly.
Biden says that he will differ from Trump in that he will use tariffs as part of a “strategy to win,” not just show toughness.
Biden adds more detail to some of his policies than Trump has done. In particular, Biden spells out what precise changes in tax rates he will seek. The president has said only that he will tax offshoring and incentivize onshoring.
What is driving the similarities
That both candidates are prioritizing policies with assumed appeal to “workers” and heavy industry stems in part from the fact that most of the swing states, those actually in contention in the November elections, are in the Midwest, where there are more people who belong to labor unions and work in manufacturing than is the case in most states.
Trump’s national/populist trade policies are the same that he’s been promoting for most of his life. In fact, they are among the only positions on which he has been consistent. Biden, by contrast, is now reflecting the labor/leftist base of his party. He did, however, when he was vice-president, oppose the Trans-Pacific Partnership (TPP). He was overruled by President Obama, who signed onto the TPP with strong Republican support at the time.
In short, it’s hard to discern daylight between the Trump and Biden trade policies.
Biden favors working with allies vs. China
But Biden correctly points out that Trump’s tariff war with China was very costly to US farmers and businesses but didn’t affect China’s behavior on the issues that sparked the Section 301 action. Both candidates agree that they want to cut any US reliance on critical products from China. The main change Biden says he would make is that he would seek to cooperate with allied countries in putting pressure on China to change, whereas Trump has turned his trade fire directly onto US allies, undercutting the possibility of cooperation. The call to work with allies and tone down the trade attacks on them is not a new idea, of course; there are even many Republicans who have urged the White House to make such a change.
What has always been clear is that he is a mainstream pro-labor Democrat who is more centrist than leftist. He’s not anti-trade but not as pro-trade as most members of the New Democrat Coalition. He is clearly willing to bend his positions as politics demands. And bend he likely will. Right now, Democratic party politics is leaning toward the intransigent leftism of Bernie Sanders, Elizabeth Warren, and Kamala Harris, who is positioned to succeed him.
Some critics of Biden’s trade proposals say it would require a large expansion of government to determine compliance with qualifications for the tax incentives or to figure out what companies to penalize.
Most tax changes and even some changes to domestic procurement rules require congressional action. Hence, Biden’s “plan” to take certain steps his first week in office should be seen as largely rhetorical.
Criticisms of both plans
The plan to punish offshoring could, some critics point out, instead lead to US companies being sold to foreign buyers.
The biggest criticism, which also applies to Trump’s ideas, is that supply-chains are so complex and globally integrated that forcing production back to US soil would render many US companies uncompetitive, including technology and industrial leaders. It could even cause them to shut down or to move more of their operations abroad, while forcing up prices for consumers and government procurement. Also, many US jobs are created when major US companies offshore some of their operations.
Thus, the overall impact of the effort to squelch foreign investment by US corporations would be a loss in US jobs, GDP, R&D capability, and US leadership in shaping rules and standards for the world economy.
In addition, a huge number of US jobs – estimated at over 8 million – depend on foreign direct investment here (including BMW, Mercedes, Toyota). The US has a lot to lose should foreign countries decide to retaliate by penalizing their corporations that invest in America, or that purchase US exports.
Other problems
Some of the Buy American proposals could also run afoul of WTO non-discrimination rules or US commitments in the Government Procurement Agreement. Retaliation by trading partners — by restricting US access to their government procurement — would be painful.
The Biden-Harris plan would increase the tax disparity between US and foreign corporations that was ameliorated by the 2017 tax reform, cutting into US competitiveness.
While Democratic presidential candidate Joe Biden laid out new details of his trade policy should he win, President Trump in his Labor Day press conference repeated his previous allegations about trade, China, and Biden. Many were exaggerations or untruths of the sort now expected of him.
UK-Japan free trade agreement
The UK and Japan announced on September 11th the conclusion of their free trade agreement – the Japan-UK Economic Partnership Agreement. Japan’s Foreign Minister Motegi Toshimitsu told reporters that “The deal will allow for the continuation of advantages that Japan has gained from the Japan-EU free trade deal and will secure continuity for Japanese companies’ businesses.” UK International Trade Secretary Liz Truss said it is a step toward the UK joining the TPP and a broader web of FTAs (free trade agreements).
Japan, next to the US, was London’s priority for concluding an agreement, followed by Australia, Canada, and New Zealand. It was easier with Japan since much of the new accord is copied from the EU-Japan FTA, which Britain will exit at the end of this year. Truss, however, said that the new agreement “goes far beyond the existing EU deal, as it secures new wins for British businesses in our great manufacturing, food, and drink and tech industries,” citing auto workers and shoemakers as particular interests that will benefit. The auto industry will be relieved that imports of Japanese parts won’t be hit with duties.
Boris Johnson move imperils both EU-UK and US-UK talks
But the already stymied UK-EU effort to agree on their post-Brexit trade and security arrangements took another blow this week. Prime Minister Boris Johnson unveiled legislation that would override the arrangement for dealing with the Ireland–Northern Ireland border set out in the Withdrawal Agreement (WA), which both the UK and EU governments approved early this year and which underlies their current negotiations. It raised concern about London’s perceived disrespect for agreements that it has signed, and even many Conservatives, including past prime ministers, denounced the move. And it caused Brussels to warn it will take legal action under the WA for the clear breach.
That this situation could directly affect the ongoing US-UK trade talks was made explicit by House Speaker Nancy Pelosi. In response to Johnson’s perceived threat to the US-brokered Good Friday Agreement that ended Catholic vs. Protestant killings in Ireland, Mrs. Pelosi released a statement on September 10th saying, “The UK must respect the Northern Ireland Protocol as signed with the EU to ensure the free flow of goods across the border. If the UK violates that international treaty and Brexit undermines the Good Friday accord, there will be absolutely no chance of a US-UK trade agreement passing the Congress.” Pelosi’s statement was seconded by House Ways & Means Committee Chairman Richard Neal (D-MA), whose committee would have to pass any trade deal, and Joe Biden’s foreign policy adviser Anthony Blinken.
The WTO and Woodward’s Rage
The big WTO news this week came from journalist Bob Woodward’s recorded interviews with President Trump. These are the basis of Woodward’s book Rage, which is to be released publicly on September 15th. The president, according to pre-release reviews of the book, threatened WTO Director-General Roberto Azevedo that the US would withdraw from the WTO if it weren’t classed as a developing country. That, of course, is an absurd demand. The Trump Administration itself has laid out in detail the criteria it believes should be used for developing-country designation, and the US (surprise!) doesn’t qualify.
During the interviews, the president said he intended to deal with the EU, which he said was “formed to screw the US.” He called his own trade negotiators weak. He threatened to withdraw US troops from South Korea over trade dissatisfactions. He said he was “breaking China’s ass on trade” and that the tariffs he imposed had caused negative Chinese GDP growth, except that it didn’t.
Summing up
Expect, in short, crippled US growth in GDP, productivity, and wages no matter which US presidential candidate wins in November. Rising income levels are based on productivity gains. These in turn are driven by new technologies and their incorporation in an expanded international division of labor. Just as new technologies create new jobs to replace those they made obsolete, so expanded international trade creates new domestic jobs to replace those now assumed by foreign labor. If significant numbers of domestic workers are left behind by either process, which is rarely the case, the answer is not Luddism or protectionism, but addressing the policy failures that are hindering mobility of labor and new job creation.
With Tweedledum and Tweedledee running against each other as far as trade policy goes, the US is going to learn its trade lessons the hard way – through stagnation or suboptimal growth and standards of living. If it doesn’t wake up, it can read its future in the decline of Argentina.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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