Also:
*US Trade Representative Tai’s uninformative testimony in Congress;
*Biden’s “Buy American” State of the Union, in lieu of a trade policy;
*US splits EU with its 21% global corporate tax proposal to the OECD;
*Japan, India, and Australia launch supply chain initiative to lessen vulnerability to China;
*Congress proposes bill to take on leadership in setting standards.
The April 26 to May 2, 2021 roundup of major trade developments, with L.C.
David Frum’s short article in The Atlantic, “The Trump Policy That Biden Is Extending,” sums up his disappointment with administration trade policy. The article is unusual in that both US political parties, Republican and Democratic, have largely gone over to protectionism since the 2016 election campaign. Columnists in leading national publications have mostly followed suit. Frum’s article is therefore an “outlier” worth recommending to our readers. His complaints are corroborated by another week of trade floundering and missteps by the new administration.
In testimony before a subcommittee of the Senate Appropriations Committee, US Trade Representative Katherine Tai referred to the various tariffs (Sections 201, 232, and 301) that President Trump had resurrected on China and allies alike as trade policy tools. She indicated an affinity for them and didn’t give any timetable for when reviews of them might be concluded or a decision made on whether to remove any of them.
Tai said that she and Commerce Secretary Gina Raimondo were aware of how unhappy Europeans were with the Section 232 tariffs on aluminum and steel that Trump imposed. Nothing would be done by the Biden administration, however, until the problem of global overcapacity, for which China was to blame, had been addressed, she said.
In response to a question on “how the administration is going to approach” the Section 301 tariffs, Tai replied that this was getting a “top to bottom review.” She was “looking forward” to “being able to come back to you with a thoughtful and strategic recommendation” and that she realized “that time is of the essence.” Yada, yada, yada.
Trade just wasn’t as important as spending six trillion dollars on various well-thought out spending programs in the first hundred days, she might have added.
Administration’s China-favoring energy policy
Asked if she has “looked at the reports of how those solar panel [Section 201 safeguard] tariffs have hurt jobs here in the US,” Tai turned this too into a China-focused matter. She replied, “[T]he story of the solar panel industry… really gets at a fundamental issue that we need to confront in our competition with China…. Given the role that we think these types of products are going to play, this is is actually a very sad story that we are… struggling with the application of these tariffs that are meant to save, maybe the last producer that we have here in the US….I recognize the nuance and the complexity that is presented by the solar tariffs question in particular” – that is, the disagreement among various parts of the domestic industry — as retailers and installers oppose the tariffs but panel producers favor them.
The reality is that the administration is sacrificing the world-class fossil-fuel extraction and refining pre-eminence of the US for dependence on Chinese-dominated solar panels and wind turbines. Tai’s feckless response to this self-sabotaging policy turn is that it would get a “top to bottom review” because “if we don’t keep our eye on the ball, we will continue to experience these types of fights over the last scraps of an industry that we have lost to a competitor, and in particular to the Chinese.”.
Asked about the tariffs on Canadian softwood lumber, she replied, “softwood lumber will always be in my sights in the conversation with Canada. We have a lot of tools, we have traditionally used them robustly. I intend to continue to do so…” I.e., no plans, no action, despite the fact that the US has a major housing shortage with lumber prices a major driver of housing-cost inflation. Instead, the administration boasts about the big, wonderful trade tools it can play with.
Biden’s address to Congress: “Buy American”
Much of President Biden’s April 28th State-of-the-Union speech focused on his $2 trillion dollar American Jobs Plan. He said little directly on trade. What he did say was in the context of his promotion of domestic manufacturing. He did not mention tariffs. His speech confirmed the view that he will try to outdo Franklin Delano Roosevelt and Lyndon Baines Johnson as a big-government, big-spending Democrat who sees government playing a central role in economic planning – just as in Xi Jing-ping’s China. Taxpayer resources will be diverted to government-approved domestic manufacturing jobs at the expense of private investment.
Global minimum tax proposal splits EU
OECD talks to protect countries with high taxes have gained momentum since the Biden administration offered its own worldwide minimum corporate tax proposal to the multilateral body. Germany, one of the high tax states, said last week that they could accept the US-proposed 21% minimum tax even though they had originally proposed a much lower 12.5% rate. But the EU’s position has to be unanimous, and smaller countries, led by Ireland, are objecting.
Irish Finance Minister Paschal Donohoe said this week that he believes “that small countries, and Ireland is one of them, need to be able to use tax policy as a legitimate lever to compensate for the real, material and persistent advantage enjoyed by larger countries.” The Czech Republic and Hungary share Ireland’s concern. Their support would be needed for the EU to accept an agreement.
A Hungarian official said this week that 21% would be unfairly high. “We are of the view that countries should be given the right to make their sovereign decisions on their tax system and on the taxation of genuine activities, taking into account the level of economic development and other relevant factors.”
The Czech Finance Ministry noted that “the minimum tax carries the risk of reducing the sovereignty of countries in the area of income taxation and tax competition. For example, in the Czech Republic, tax harmonization, with the current setting by the USA, would mean an increase in the corporate income tax rate for our companies to 21%.”
Japan, India, and Australia launch a supply-chain initiative
While the Biden administration focused on “Buy American,” Japan joined Australia and India in an agreement to create a Supply China Resilience Initiative (SCRI) to “strengthen supply chain resilience” in the region. It is aimed at decreasing dependence on China. The issue of over-reliance on China has become a major concern of China’s trading partners – and especially of Japan, Australia, and India, given that Japan and India have territorial disputes with China and China has subjected Australia’s exports to punishing restrictions.
Beijing was not amused. It reacted – verbally – quickly and sharply. “The push to enact an artificial supply chain program will not be favorable to the stability of the global industrial supply chain, nor to the recovery of the global economy,” a Foreign Ministry spokesperson declared. The three SCRI countries could justly be criticized for not having included Taiwan, which is an even more vulnerable Chinese trade partner. Beijing would have found that even less amusing.
Standards setting
Congress has been more pro-active on trade matters than the administration. On April 30th, Sens. Catherine Cortez Masto (D-NE) and Rob Portman (R-OH) introduced another bill targeting China. It is aimed at beefing up US leadership in international standards-setting bodies focused on advanced and emerging technologies.
The bill would direct the White House Office of Science & Technology Policy (OSTP) to set up a task force to work to contain China’s growing influence on standards-setting. It builds on legislation – the Ensuring American Leadership over International Standards Act – that the two senators sponsored last year and which became law as part of the National Defense Authorization Act. As Portman said in introducing the follow-up bill, “Standards setting is a critical, if often unsung, aspect to American competitiveness,” but “Unfortunately, the US has fallen behind in terms of participating in many standards setting bodies related to emerging technology, while China’s membership has surged. This bipartisan legislation will help ensure that standards setting processes remain neutral, industry driven, and focused on sound technical decisions, rather than techno-national protectionism.”
L.C. reports on trade matters for business as well as Founders Broadsheet.
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