The weekly trade report with LC
Free trade initiatives in medical products are being pursued on at least three continents (Europe, Asia, and Australia / New Zealand), and there are signs that trade may become a point of contention in the US 2020 presidential election.
EU Trade Commissioner Phil Hogan, in an April 16th virtual conference with EU trade ministers, proposed that there be “an international undertaking to suspend tariffs on the COVID-19 related products and facilitate access of medicines to their countries.” EU Director-General for Trade Sabine Weyand said that if the proposal is adopted by the EU, Brussels would then propose to start a negotiation among all World Trade Organization (WTO) members to eliminate tariffs on the targeted medical products.
This is not the direction the Trump administration has been taking so far.
Plurilateral talks more likely
The EU free trade initiative could also lead to plurilateral talks if not all WTO members opt in. That is the more usual way that sector-specific trade agreements have been done.
The idea is in line with the arguments made by many economists and international organizations during the pandemic — that trade restrictions only make less supply available to everyone, raising costs and inefficiencies and creating shortages.
Plurilateral agreements have been successful in other areas. At the WTO, the Information Technology Agreement that zeroed out tariffs on electronics/computer/telecom products for participating countries is considered a success, as is the Government Procurement Agreement. Countries have been working, haltingly, toward similar plurilateral deals in environmental products and in services. Meanwhile, talks for a plurilateral deal on e-commerce are under way at the WTO.
Plurilateral vs. bilateral
Most countries favor plurilateral agreements over the bilateral agreements favored by the Trump administration. Once concluded, plurilateral agreements greatly simplify and enhance the gains from trade, especially for small and medium-sized countries that can’t afford the extensive trade bureaucracy required to navigate a plethora of bilateral agreements. Plurilateral agreements also result in a more equitable give and take between all the trade partners, whereas in a bilateral agreement, the more powerful of the two countries tends to bully and coerce its weaker partner.
Plurilateral accords are only meaningful if the participating countries include those that carry on the bulk of international trade in the covered area. In this case, that would mean that the US, China, Germany, Japan, and perhaps even India and Mexico should be included – which might not be so easy to achieve.
Similar discussions in the Pacific
Discussion of a free trade initiative parallel to the EU one is underway in the East. New Zealand and Singapore have called for removing blockages to trade in medically-needed products. These two countries – along with Chile and Brunei – were the original “P-4” countries that formed the core of what evolved into the Trans-Pacific Partnership, itself a very ambitious free trade initiative. They thus have taken leadership roles in trade liberalization for a long time.
According to a New Zealand government April 15th press release, “New Zealand and Singapore today launched the new trade initiative to ensure supply chain connectivity and the removal of blockages to trade in a list of essential products that includes medicines, medical and surgical equipment.” The declaration lists over 120 products – personal protective equipment, medical equipment, nutritional products, medicines, and hygiene supplies. It also “calls for participants not to apply export restrictions on food and beverage products, and to facilitate trade in food and beverages.”
It remains to be seen if this free trade initiative could link up with Hogan’s push for an international deal freeing trade in these products or if either or both of these initiatives will at least spur countries to pare back new restrictions imposed as the outbreak spread.
Free trade with defense pacts?
Alternatively, the EU, US, UK, former Commonwealth nations, Japan, and Israel could negotiate an open-ended pact that combines free trade with a military security alliance. In an important essay just published in the National Review, military strategist Mark Helprin writes:
The U.S. will fail to meet accumulating challenges abroad unless it repairs its alliances, restores its military strength, and newly secures the Western Hemisphere, none of which is at present a concern of the political parties except to oppose, tepidly endorse, or let die….
President Trump took office schooled in commercial real estate and unaware of the balances of power that determine international latitude of action. He promptly took to whirling about, pressuring and attacking allies, rivals, and enemies alike. Rather than alienating Europe, Canada, Mexico, and every free nation in the Pacific, he might have assembled them in a united front to address China’s rogue behaviors. Instead, he embarked upon a blind lashing-out that, among other things, sabotaged the increase in economic growth he had achieved through tax and regulatory reforms. The U.S. has experienced its greatest successes in winning and deterring wars when substantively allied with other powers, and its greatest failures otherwise, which is not to deny that at times we must stand alone.
Trade a presidential campaign issue?
Now that it’s clear who the two presidential contenders will be this year, trade policy is entering the US electoral campaign. How it develops will be interesting. This is hardly a traditional election year for trade policy, given
- how different the Republican candidate’s positions are from the orientation his party took on the issue over the last few decades before his election,
- the recent shift in popular opinion toward a much more favorable view on trade, and
- the effects the economy is experiencing from the president’s unilateral nationalist policies.
The Trump campaign released this week a video ad going after the former vice president for favoring trade agreements – NAFTA and the Trans-Pacific Partnership (TPP) – that previously enjoyed strong support from almost all Republicans in the House and Senate as well as President Ronald Reagan (for NAFTA) and were opposed mainly by the left wing of the Democratic Party and organized labor. Free-trade-oriented Republicans, those who oppose the Trump policies, saw the attack as weak.
Trump-Sanders agreement on trade?
That is especially so since Sen. Bernie Sanders (I-VT) had used the same attack against Biden in the Michigan Democratic primary. Sanders charged Biden with supporting “disastrous trade agreements.” Sanders hoped this would appeal to the working-class base in Michigan, but Sanders lost big. If such a populist appeal to workers doesn’t work in organized-labor-heavy Michigan, it may not be effective anywhere. The fact that Biden has a history of being pro-union and has had a cordial relationship with organized labor throughout his career may enable him to withstand such attacks as the campaign moves ahead.
In the video, the Trump campaign’s PR director declared that “Joe Biden was the lead cheerleader in the Obama Administration for the disastrous, globalist, trade deal that TPP would have been, and President Trump rightly got us out of that.” It also denounced Biden for voting for NAFTA in 1993. NAFTA was an important free trade initiative joining the US, Canadian, and Mexican markets. Biden also voted for joining the WTO and for granting PNTR (permanent normal trade relations) status to China. Those votes will also no doubt be ammunition for Trump attacks.
Republican, Reagan support for NAFTA
Yet NAFTA passed the Senate by 61-38, supported by 34 Republicans and 27 Democrats. It passed the House with 132 Republicans and 102 Democrats voting for it. It was a major policy achievement of Democratic President Bill Clinton. Former Republican President Reagan called NAFTA “an investment in America’s future.” So the video is a direct attack on regular Republicans and mainstream Democrats. Moreover, using a highly questionable figure put out by leftist organizations, it claimed that NAFTA resulted in 683,000 job losses to Mexico between 1994-2010 (a period when the US economy added 17 million jobs). Biden says now that he supports the final USMCA, as revised by incorporating Democratic demands. In any event, the USMCA is so little changed from NAFTA that it is easy to see how this demagogic attack could be countered, though that may not be the tack Biden takes.
On the TPP, Biden promoted it strongly while he was President Obama’s vice president and has since said he would support it in a revised version that tightens labor and environment provisions. Biden explained his position in a candidates’ debate: “I would insist that we renegotiate [the TPP]. Either China’s going to write the rules of the road for the 21st century on trade or we are. We have to join with the 40% of the world that we had with us, and this time make sure that there’s no one sitting at that table doing the deal unless environmentalists are there and labor is there.” More generally, Biden has stressed (as did most of the Democratic candidates) that the US must restore good relations with allies, on trade and other strategic matters, and repair global institutions. He has said he would first stress boosting investment in the domestic economy before turning to new trade agreements, but he has generally been among the less protectionist of the Democratic candidates — in the debates, in interviews, and on the campaign trail.
Biden’s support for TPP could be a campaign plus
Since scuttling US participation in the TPP, the Trump administration has been scrambling to win back some of the benefits it would have gotten through the deal, beginning with the US-Japan Trade Agreement. But even that didn’t quite give the US all it would have gotten through the TPP regional pact. US-favored provisions on digital trade that the TPP included and that the administration inserted into the USMCA are an example. That leaves the president vulnerable to the charge that exiting the TPP was a bad decision.
In addition, since a second point of attack by the Trump campaign is that Biden is soft on China, going after him for support of the TPP could backfire. Most strategic analysts from both political parties believe that a key motivation of the TPP was to contain China, give the US more clout in the region, and undercut China’s abusive economic policies. In fact, China (and Russia) were understandably gleeful when Trump pulled out, easing their fears of strategic and economic isolation.
Of course, it remains to be seen if Biden is up to the task of explaining such concepts to the electorate, but on the China question he has the benefit of myriad statements and actions by President Trump that can in fact be portrayed as appeasement of China, such as his unnecessarily effusive praise of dictator Xi Jinping.
Interest increases in decoupling from China
A push to loosen economic ties with China has been picking up steam outside the US government. In Japan, Prime Minister Shinzo Abe’s government plans to provide subsidies worth over $2 billion to manufacturers who bring production back to Japan, as well as somewhat smaller subsidies for diversifying supply chains. China is the obvious place that companies are being encouraged to exit. Abe declared, “We should try to relocate high-added-value items to Japan, and for everything else, we should diversify to countries like those in ASEAN.” Such an initiative will be facilitated by Japan’s participation in the TPP, as well as the Japan-ASEAN free trade agreement (FTA).
In India, New Delhi has issued new foreign direct investment regulations aimed at neighboring countries (those “sharing a land border”) to “curb opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic.” Clearly here too China is the target. Fear of China has been the main impediment to India pursuing free trade initiatives among its neighbors.
Boris’s “no thank you” to China’s coronavirus
Along the same lines, this week some Australians expressed concern that China was looking to buy an airline that had come under economic pressure due to the pandemic. Worry about China moving in on its economy (as well as its politicians…) has been on Canberra’s radar screen for some time, intensified now by the economic crisis.
In the UK, the government is doing an about-face on letting Huawei into its 5G network. It appears that Prime Minister Boris Johnson, recovering from a bad bout of COVID-19, is not looking cordially on China.
Republicans continue strong anti-Chinese bent in Senate
The pandemic has been negative for China in other ways, too. In Congress, members of both parties, who have long been more upset about Chinese economic and strategic behavior than the president has been, continue to call for legislation restraining and penalizing Beijing.
Cruz
On April 14th, Sen. Ted Cruz (R-TX) unveiled a bill called “Ending Chinese Medical Censorship and Cover Ups Act.” It would enable the US to slap sanctions on Chinese officials who clamp down on citizens who try to publicize information about new diseases. Cruz noted the “catastrophic” consequences that ensued from Beijing censoring of medical personnel early in the pandemic. Other legislation to sanction Chinese officials has been introduced by Sen. Tom Cotton (R-AR) with companion bills in the House.
Hawley
The same day, Sen. Josh Hawley (R-MO) introduced the “Justice for Victims of COVID-19 Act” that would enable US citizens hurt by the virus to sue China (the Chinese Communist Party) for “any reckless action” such as not alerting the world early in the outbreak. The bill would do so by removing China’s sovereign immunity so that the government could be sued. It would also call for the State Department to lead an international investigation into Beijing’s actions as the pandemic broke out.
Homeland Security Committee
Also relating to the origins of the pandemic, the Senate Homeland Security Committee has launched an investigation into how it began, why the US stockpile of relevant material was ill-prepared, why important medical supplies must come from abroad, and what the WHO did early in the crisis. The committee will hold a hearing on the question, and members have already written to the head of the World Health Organization to request information on its actions.
Rubio
Sen. Marco Rubio (R-FL), with bipartisan support, has introduced a bill to support lowering the dependence of the US medical supply chain on China. This is similar to legislation introduced last week by Sen. Hawley.
Pressured within and without, Beijing doubles down
Beijing is concerned about these combined European, Pacific, and American developments to which it may not be invited. But within China itself and Hong Kong, it has been doubling down on repression of a restive, increasingly critical population.
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