Trade policy is likely to change if Joe Biden is confirmed as president-elect but probably not as much as free-trade advocates had been hoping.
The weekly trade report with L.C.
On Saturday morning, Nov. 7th, the Associated Press took it upon itself to declare Biden to be US president-elect. The AP, a left-wing news organization, has no constitutional or legal standing to make such a declaration. Predictably, however, it was immediately seconded by a chorus of co-partisans in the major media. While the Trump campaign faces a steep climb to prove that it prevailed in a critical number of swing states, this possibility cannot be ruled out. For the political health of the US it is important that the challenges and court cases proceed until the official – not the AP’s – winner has been declared. That said, it is not amiss to describe the likely trade policy a Biden administration would pursue if Biden is officially confirmed as president-elect and sworn in on January 20, 2021.
Trade policy is certainly expected to change. However, there are still an unusual number of unknowns on the political side that could affect decisions on trade. Furthermore, candidate Biden during his campaign left his trade plans conspicuously unspecified and likely undecided.
Those qualifications noted, we expect that he would approve the candidacy of Ngozi Okonjo-Iweala, a dual Nigerian-US citizen, as the new director-general of the World Trade Organization. She is a protege of the strongly pro-free trade Robert Zoelick, a former World Bank head and US Trade Representative. Her nomination has been a red flag for the protectionist Trump administration. But given the support for her by most of the WTO membership, including the EU, African nations, and China, it is unlikely a Biden administration would go against their choice and support the veto of her by Trump and Lighthizer.
The TPP question again
While Biden played a significant role in foreign policy while in the Senate and as vice president, he wasn’t directly involved in trade policy, and his own record is mixed. He did not vote to approve some free trade agreements — in line with his closeness to organized labor — but did vote for others, including NAFTA and China’s WTO accession.
As President Obama’s VP he strongly promoted the Trans-Pacific Partnership – which Trump exited – but on the campaign trail he refused to commit himself to a US effort to rejoin the TPP.
Biden and his campaign have signaled that they don’t feel in a rush to deal with trade matters. They have already laid out other priorities. They have no incentive to tackle the controversial trade area quickly, since it divides Democrats. Trade splits the party between progressive populists and moderate centrists. The latter, largely found in the New Democrat Coalition, are strongly pro-trade.
For the moment, the Democratic party is having enough trouble unifying around a legislative focus and whether the tenure of their present Senate and House leaders will continue in the wake of a disappointing electoral performance — the landslide that wasn’t.
The UN’s “Build Back Better” slogan
During the campaign, candidate Biden was vocally populist. His tongue-twisting “Build Back Better” theme included a particularly strong push for Buy American provisions, especially for government procurement. The government can encourage but in no way require the private sector to buy domestically. It can, however, within the rules of the WTO Government Procurement Agreement, require domestic content for government projects.
According to Breitbart,
“Build back better” is actually a United Nations invented phrase and what it actually means is more world government, more green taxes and regulation, more expensive energy, more identity politics, more corporatism — and, of course, less freedom and entrepreneurialism.
Biden’s Build Back Better slogan and Buy American themes were paired with a call for a “pro-American-worker tax and trade strategy” that would include some way to penalize off-shoring and reward on-shoring. A trade policy that is pro-worker and for bringing back manufacturing sounds very much like what President Trump’s Trade Representative, Robert Lighthizer, has been pushing. Lighthizer hasn’t been too successful in putting it into effect, and it isn’t clear if Biden can or will want to keep his campaign rhetoric on this subject, given how it would clash with an effort to enlist allies in trade cooperation. But Biden’s rhetoric to date has certainly mirrored Trump’s and Lighthizer’s.
Biden has said he will differ from Trump in having an actual strategy behind any specific trade actions he takes – whatever that means.
One change from the current administration is that Biden likely won’t use the bilateral trade deficit as the key metric for determining if trade is fair.
A significant continuity with the previous administration is that he would likely continue to push for a deal on global excess steel capacity. That’s something Tokyo and Brussels have been promoting. He would also try to stoke domestic steel demand, through his Buy American initiatives and his infrastructure program. But China’s excesses would remain a problem that even a rise in US demand can’t cure.
State interventionism on rise in West
Another continuity would be continued emphasis on helping US high-tech. Being a Democrat, Biden wouldn’t have any more free-market qualms than Trump has had about giving government support to the advanced semiconductor and other cutting-edge sectors and would likely see that as part of his trade policy aimed at containing China. This could open the US to charges of granting WTO-illegal subsidies. But with so many countries upping their support for business during the pandemic, that allegation may not go anywhere. As the Wall Street Journal reported on Nov. 6th,
Western governments are taking a page from their Asian rivals and moving away from the free-market doctrine that defined their economic thinking for decades, instead embracing greater state control of business activity.
The shift reflects a deep anxiety about the West’s ability to maintain its living standards and technological edge while competing with giant state-backed companies in China and elsewhere in Asia.
Will Biden scuttle Trump tariffs or punt?
More unclear is how Biden regards the Trump tariffs – Sections 232, 301, 201. He has stated that he would review them but not immediately repeal them. No doubt he intends to keep a hard-line stance toward China and would be unlikely to repeal any of the Section 301 tariffs without getting concessions in return. He might have a chance to get concessions from Beijing if he works closely on the matter with allies – Japan, the EU, Australia, UK, etc. He has already declared that he intends to work with allies on trade matters and especially on changing China’s behavior.
If he is serious about working with allies, he has a strong incentive to quickly revoke the Section 232 tariffs on steel and aluminum that most impact – and anger — friendly countries. He’ll also get a warm response from Japan and the EU if he renounces the idea of Section 232 restrictions on autos. This would also please Mexico and Canada because it would relieve them of the threat of voluntary export restraints on autos in the USMCA side letters. Dismissing the Section 301 case against Vietnam’s alleged currency manipulation would boost ties with Hanoi.
Dropping the threat of Section 301 tariffs on friendly countries contemplating imposing digital services taxes would improve ties with them, but it would not be in the US national interest to let itself be rolled on this blatantly anti-US tax. That said, a resolution should be sought that avoids a new tariff war.
Congress not need — for the moment
Section 232, 301, and 201 tariffs can be promulgated by the president without congressional involvement – as they were by President Trump — though they must be preceded by investigations by government agencies. Hence the new president can easily end them. All tariffs, however, have political constituencies that can and will complicate such efforts, despite the numerous analyses showing that tariffs hurt jobs and the economy.
Biden would also have an incentive to reach agreement with the EU that will end the aircraft subsidies tariffs and counter-tariffs and, separately, resolve the US quarrel with the EU and OECD over digital services taxes.
One important constraint either Biden or Trump would face is the fact that the current five-year Trade Promotion Authority granted by Congress expires in July 2021. If not renewed, the president won’t be able, realistically, to enter new trade negotiations or complete any left unfinished until he gets new TPA. The president will therefore have to decide soon if he wants to push Congress for TPA, something that’s been divisive in the past.
It is likely that when the TPA does come up for renewal, Congress will seek to change it, probably to set more congressional requirements for trade agreements. That would likely make it harder to reach the probably WTO-illegal “mini-deals” that the Trump administration has been so fond of. And it would mean that a Phase Two agreement with Japan would have to be comprehensive, not just another narrow list of tariff and regulatory trade-offs.
If, however, Biden were to remember why he and others liked the TPP – that it would bring the US closer to important allies and serve to isolate China – he could seek to rejoin. In that case, a Phase Two with Japan wouldn’t be necessary. But rejoining TPP is not just a US decision. All existing members must agree.
Biden could revive WTO. Will he?
Another crucial trade policy matter is what happens to the WTO. Biden is a strong supporter of the institution, as he is of multilateral institutions generally. If he is serious about saving the WTO, he would have to come up with genuine reform proposals, including for the Appellate Body, that are acceptable to the general membership and will allow the AB to resume functioning. Anything less won’t bring the WTO back from its present weakness.
One area where a Biden White House is likely to provoke new trade friction is his linkage of trade and environmental issues. That’s not new – in fact, the USMCA won Democratic support by this linkage. But Biden will be more supportive of the idea of border carbon taxes, something the EU is developing but which would be extremely difficult to implement, would anger non-EU trading partners, and could be WTO-illegal. US-EU talks on carbon taxes are reportedly going to lead to a deal by next summer, so this is an issue to watch. Moreover, the Biden administration will no doubt put even more emphasis on strong environmental chapters in all trade deals, a push that could complicate any negotiations. A Republican-controlled Senate might also limit his TPA powers to prevent such a tax.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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