- Bipartisan softballs are lodged at President Biden’s protectionist USTR-designate Katherine Tai during her confirmation hearings.
- A Biden executive order will launch a 100-day US supply chain review.
- The administration’s refusal to follow up on a US-UK free trade agreement begun by the Trump administration smells of petty partisanship and contradicts the present administration’s claim that it will work closely with allies to counter China.
The Feb. 22-28, 2021 roundup of major trade developments, with L.C.
USTR-designate Katherine Tai’s confirmation hearing before the Senate Finance Committee was held on February 25th. Members of both parties, including the top Democrat and top Republican on the House Ways & Means Committee as well as on the Senate Finance Committee, spoke in favor of her confirmation. She has received strong endorsements from labor unions as well as the US Chamber of Commerce. Her experience as China trade enforcer, including leading the team that litigated the successful US WTO complaint against China’s rare earth minerals export barriers, is reassuring to anyone worried that the new administration might soften the US approach to China.
The committee is expected to quickly vote to approve her nomination and send it to the Senate floor, where she will almost surely be easily confirmed with strong bipartisan support. The lack of controversy allowed her to get through the hearing without providing details of her views and plans on specific issues. She was queried about the full range of US trade policy, but often responded – largely without push-back from the senators – by simply saying something was being reviewed, that all options are on the table, that she’d use all available tools to deal with it, that she’ll consult broadly with Congress and stakeholders and collaborate with allies. She also said that tariffs “are a legitimate tool in the trade toolbox.”
Admittedly this is traditional say-nothing-speak practiced at confirmation hearings by candidates from both parties. All the same, one began to wonder whether Mrs. Tai and other Biden administration appointees conduct reviews before taking coffee breaks or going to the toilet.
China Phase One yes, free trade no
Perhaps the most news-worthy thing Mrs. Tai said was that she plans to retain the US-China Phase One Trade Agreement and will seek to hold Beijing accountable for fulfilling its commitments under the deal. She did not indicate that the administration will return to the more traditional free trade, or at least trade-expanding, approach that was overturned by the Trump presidency and the Lighthizer US Trade Representative incumbency. In fact, she made clear that she doesn’t find the economic case for freer trade as compelling as she finds the left-Democrat / organized-labor case for restricting trade to protect domestic interests and jobs and using trade for other than economic purposes.
This indicated that policy changes from her predecessor may not be as far-reaching as many expected. In her opening statement she said,
Our first priority will be to help American communities emerge from the pandemic and economic crisis…. In the longer term, we must pursue trade policies that advance the interests of all Americans – policies that recognize that people are workers and wage earners, not just consumers; policies that promote broad, equitable growth here at home; policies that support American innovation and enhance our competitive edge.
Freedom of trade to yield to special interests
Declaring that trade policy should “recognize that people are workers and wage earners, not just consumers” is a definite nod to the narrow perspective of the labor unions. The prime benefit of trade is that it increases the prosperity of consumers, not just a special interest subset of wage earners. Consumers properly understood is a category so capacious it includes not just consumers of final goods and services but also the consumers of raw materials and intermediate goods and services. All these benefit from diversity and competition in supply. Tai’s anodyne replies to the incurious questions of the House and Senate committees strongly suggests that she favors using trade to achieve equity and job protection rather than the dynamism of free markets. “Equity” is a Democratic Party shibboleth of slippery meaning but generally understood to mean whatever will sound agreeable to Democratic interest groups.
Mrs. Tai was asked by several senators about prospects for rejoining the Trans-Pacific Partnership (TPP). Her responses again indicated that she would not endorse the more free-trade-oriented approach of the Obama administration. While supporting the idea of cooperating with countries to set rules and to rein in China – calling it “a solid equation” – the TPP would have to be renegotiated for the US to join, she said. The past trade approach, she said, should be reworked into a “worker-centric” approach, meaning workers’ livelihoods won’t be traded away for other goals. “For a very long time,” she lamented, “regular people, ordinary Americans and workers, have felt very disconnected from our trade policies.”
Sen. Pat Toomey (R-PA) – the most pro-trade senator but one who will retire in 2022 – picked up on her negativity to traditional free trade. He asked if a US free trade deal with another developed country should have as its basic goals “zero tariffs, zero quotas, zero obstacles” to trade. Tai replied, “I have to confess to you, my dilemma is that maybe [if] you had asked me this question five or ten years ago, I would have been inclined to say yes,” but now “Our trade policies need to be nuanced and need to take into account all of the lessons we have learned, many of them very painful, from our most recent history.” Toomey’s reaction: “I am very disappointed with that answer. That does give me some concern about what your goals would be in a negotiation.”
Mrs. Tai’s role in USMCA
Her priorities are of course not a surprise. She was perhaps the most important figure on Capitol Hill in crafting changes to NAFTA that enabled bipartisan passage of the USMCA. These changes were in the direction of making the agreement less trade-expanding and more geared toward trade-union goals of restricting wage competition and re-shoring manufacturing.
Sen. Maria Cantwell (D-WA), a pro-trade Democrat from a trade-active state, suggested that, contrary to the views of many in both parties, enforcement may be less important than trade expansion. According to her office after the hearing, Cantwell “slammed the Trump administration’s tariff-first approach to trade and questioned Tai on what actions the Biden administration will take to open up markets and increase exports.”
Tai made clear that negotiating new trade agreements wasn’t on the immediate agenda.
A well-advanced US-UK trade agreement? Needs “review,” of course
Case in point: negotiations for a US-UK FTA. Mrs. Tai stated that there have been many “developments” since they began in 2018, and there is a need to “review the discussions and the negotiations so far, in the light of all of these developments.”
This sparked alarm in the UK because it appeared to signal that the current talks won’t be renewed soon and that the Biden administration isn’t giving them any priority.
This is a blow to London. It had put forward the possibility of free trade with the US as an important justification for Brexit.
For the Biden administration to turn its back on the three-year-old US-UK free-trade negotiations contradicts its claim that it will “organize different alliances… with the groups including most of the G7 countries plus some others.” That plan is a virtual carbon copy of the Democracy-10 (“D-10”) idea first floated by UK Prime Minister Boris Johnson and already endorsed by some on the Biden team.
The callous treatment of a major trade concern of an important US ally suggests that the Biden administration is playing petty politics with the UK. Former President Trump supported Brexit and the Tory-Boris Johnson government. Ergo, the Biden administration must drag its feet, if not negate, an effort started by the other party.
Biden signs executive order to study supply chain threats
Meanwhile, President Biden signed an “Executive Order on America’s Supply Chains” on February 24th, following a meeting on the subject with a bipartisan group of legislators. The EO states that the US needs supply chains that are resilient, secure, and diverse to meet an array of possible threats.
That is hardly a controversial goal and was already under study by the predecessor administration. The rise of China’s control over important minerals (mainly rare earths) and certain manufactured products and technologies raised the issue to prominence beyond the traditional concern and attention the issue receives at the Pentagon. The concern was exacerbated by the pandemic when the US ran into vulnerabilities with its supply chain for medical-related products. The bipartisan desire to re-shore manufacturing and thus jobs meshed nicely with these concerns.
The supply chain reviews will also consider other risks such as weather, environmental problems, and logistical bottlenecks (such as the current shortage of shipping containers). They will “address vulnerabilities in the supply chains of four key products”: active pharmaceutical ingredients (API), critical minerals from rare earths to carbon fiber, semiconductors and advanced packaging, and large capacity batteries such as used in electric vehicles.
China the target
While the EO doesn’t mention China by name, it is clearly the target. The clash between what is now called the Chinese techno-sphere and the Western techno-sphere underlies the EO. The reviews it orders are likely to determine that in some areas, the US is too dependent on China and other adversaries and will advocate for diversifying sources.
Among the industrial products whose supply chain will be studied in the 100-Day review are semiconductors. The current semiconductor shortage has raised particular alarm bells about US reliance on foreign suppliers. But Taiwan, the world’s leading supplier, is a staunch US ally. Taiwan’s sovereign existence is threatened by Chinese invasion. The US should be focusing on how it will defend Taiwan and its sea lanes rather than building domestic US substitutes for allied capabilities.
One official told reporters that the administration expects the solutions it proposes “will vary a little bit by supply chain…. you are going to see is us come forward with a comprehensive suite of recommendations that will be tailored for each of the different critical goods.”
How to reconcile supply chain issues with private sector
A fundamental problem with the EO is that supply chains are controlled by the private sector. Unless there is a profound change in the structure of the US economy, administration efforts will necessarily be constrained. This isn’t a problem faced by statist countries, though they are highly vulnerable to the inefficiencies of their non-market economies.
Beijing responded to the EO the following day. A Foreign Ministry spokesperson said the order “will not help solve domestic problems” in the US, and “artificial efforts to shift these chains and decouple is not realistic.” He added: “We hope the US will earnestly respect market laws and free trade rules and uphold the safety and reliability and stability of global supply chains.”
The admonition by a spokesman for the hyper-statist Chinese communist regime that the US should “respect market laws and free trade rules” rather than try to control global supply chains certainly had a touch of irony that few could have missed.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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