While all major trading entities are concerned now with reducing reliance on foreign countries, the Trump administration is also pursuing strategic multilateralism in the Pacific and increased protectionism in the Americas.
The weekly trade report with L.C.
All the world’s major trade entities are seeking to reduce their reliance on imports and foreign markets in response to pandemic disruptions. Nevertheless, the Trump administration’s protectionist tendencies have begun giving way to multilateral strategic considerations in the Pacific, but not in the Americas.
Autonomy: China
China’s 14th five-year plan, covering 2021-2025, puts it in the self-reliance camp. The plan will focus on domestic investment in advanced technology. It was partially unveiled by Communist Party leader Xi Jinping in May, when he presented the “dual circulation” idea in which China is to beef up its domestic demand and manufacturing in order to cut dependence on imports and foreign markets while still keeping exports robust. The plan calls for devoting massive resources to an all-out effort to develop “third generation semiconductors” in the hope that China will be able to end its current dependence on imported chips.
Autonomy: US
In the US, an important aspect of its re-shoring push is a focus on bolstering domestic production of rare earth minerals, on which the country is currently dependent on China. This week a bipartisan group of House members introduced a companion bill to the “Onshoring Rare Earths Act” that was introduced in the Senate in May. The legislation, which creates incentives for the development of US-based rare earth production, is supported by domestic rare earth producers and is in line with the administration’s objective of reducing foreign reliance.
Autonomy: EU
This week, the EU announced similar plans. The European Commission said it is putting together a raw materials alliance “to increase EU resilience in the rare earth and magnet value chains” because these materials are crucial for important industries that shouldn’t be reliant on foreign sources. The alliance is to begin functioning by year-end. As an EU official explained the motivation, “By diversifying the supply from third countries and developing the EU’s own capacity for extraction, processing, recycling, refining and separation of rare earths, we can become more resilient and sustainable.” Clearly, the worry for the EU, as for the US, is China’s dominance in the sourcing of the rare earths, lithium, and base metals.
Pacific multilateralism: SCRI
This week brought more developments in the effort to build the Japan-India-Australia trilateral Supply Chain Resilience Initiative (SCRI) as well as other activities in the Indo-Pacific.
The three SCRI countries’ trade ministers met in a September 1st video-conference hosted by Japan and said afterwards that they directed officials to work out the details for the initiative so that the envisaged strengthening of supply chains can be launched later this year. They urged other Asian countries to join the group, which is aimed at lessening dependence on China.
Pacific multilateralism: the Quad
In a related development in the strategic realm, the US is pushing for a formal security alliance to be based on the existing Quad group, which is comprised of the US, Japan, India, and Australia. Deputy Secretary of State Stephen Biegun, speaking to the US-India Strategic Partnership Forum on September 1st, said that ministers are expected to meet in New Delhi this fall to further the effort, whose objective is to create an Asian organization resembling NATO. Secretary of State Mike Pompeo has plans to visit the three countries over the next two months.
The beefed up Quad would be expected to attract other countries and act as a bulwark against “a potential challenge from China” by creating “a critical mass around the shared values and interests” of countries in the Indo-Pacific “and even from around the world.” While the SCRI has its eye on expansion first to ASEAN countries, Biegun said the US is looking to expand the Quad initially to South Korea, Vietnam, and New Zealand. He told the forum that the Quad has already expanded informally in that he has been hosting weekly meetings of foreign ministers from the Quad plus these three other countries, now referred to as the “Quad-Plus.”
Pacific multilateralism: changing attitudes toward China
China’s transgressions in the South China Sea, its military clashes with India, and its heavy-handed threats to Australia’s exports as well as its abuses in Hong Kong and Xinjiang have made India and other countries in the region more open to allying closely with the US even if it angers Beijing.
Should there be a change of government in Washington, the current effort to strengthen cooperation in the Indo-Pacific, focused on the challenge from China, likely would not change.
The change in leadership in Tokyo may take some focus off strategic issues, but whoever replaces Shinzo Abe as prime minister isn’t expected to change his basic policies. Abe initiated the promotion of the “Free and Open Indo-Pacific.” However, the fact that the new leader will be in office for at most a year before facing new national elections may limit how involved the government in Tokyo will be in new strategic initiatives.
Indonesia seems to getting aboard as well. An article in the September 4th Australian Finance Review is titled, “New bloc of Australia, India, Indonesia takes shape amid China fears.” It reports that “Shared anxiety over China is driving Australia and Asia’s two biggest democracies, India and Indonesia, together into a new trilateral bloc, with foreign and defense ministers set to meet virtually in coming weeks for a historic summit. Officials say the body could become one of the region’s most important “mini-laterals.” The Hindustan Times quoted an unnamed official as saying, “All three countries have a shared interest in an open and inclusive Indo-Pacific.” While those involved say it won’t be explicitly against China, it is obviously an extension of the Quad.
US-India trade deal prospects
Besides the SCRI and Quad, New Delhi is also interested in finally completing a bilateral trade deal with Washington that has been under discussion for years. It gained urgency when the Trump administration withdrew India’s benefits under the Generalized System of Preferences program. Speaking to the Strategic Partnership Forum, Trade Minister Piyush Goyal reported that the framework for a deal is almost complete and a limited agreement could be signed before the US elections. Goyal told the Forum, “It is in the interest of both countries to deepen our strategic partnership with this immediate trade deal.” President Trump is also interested in securing a deal that can be portrayed as a victory for his trade policy, even though Lighthizer recently denounced the proliferation of bilateral trade agreements.
The US in the Americas
But the US is at risk of being regarded as a bully rather than a partner in its own hemisphere. The US is adding protections against imports from Mexico and Canada that it didn’t obtain through the USMCA negotiation. These include Mexican monitoring of steel exports to the US, a US challenge to the WTO decision against US duties on Canadian softwood lumber, reimposition of aluminum duties on Canada, and a new election-motivated plan to restrict imports of Mexican fruits and vegetables.
On August 31st, Robert Lighthizer’s US Trade Representative (USTR) office issued a formal statement titled “President Trump Continues to Protect America’s Steel-Dependent National Security.” It announced the two actions on steel that were taken last week: the shrinking of the quotas imposed on steel from Brazil and the Mexican creation of a steel export monitoring mechanism – or face the reimposition of 25% steel tariffs.
Mexican vegetables
The next day, September 1st, the USTR announced the administration’s “Plan to Help Farmers of Seasonal and Perishable Fruits and Vegetables.” The threatened produce imports come from Mexico. Farmers in Florida, Georgia, and several other states have long clamored for increased protection from imports of Mexican fruits and vegetables that share the same growing season and thus compete directly with them.
Mexico flatly refused to add such protectionism into the USMCA; the Trump administration subsequently promised to take action unilaterally. US farmers have long called for changing US unfair trade law to make it easier for seasonal growers to file successful anti-dumping/subsidy complaints against Mexican produce. Although USTR didn’t agree to that, it promised to deal with the problem in other ways. The new plan is the result of that promise.
Domestic US opposition
Many US interests – in fact, most of the domestic agriculture industry – strongly oppose restricting imports of Mexican produce. These include importers who process these foods or who sell them in the US, especially in parts of the country where the growing season is complementary to rather than the same as Mexico’s, and retailers, e.g., grocery stores looking to keep down food prices. Those interests are stronger than the southern farmers. They include not only food interests but others worried about Mexican retaliation.
It is no secret that the new plan was announced at this time to affect the presidential election — in which Florida and Georgia are key swing states. (But so is Arizona, where there is strong support for Mexican imports). Members of Congress of both parties from those two states have long demanded action against imports from Mexico.
The opposition, though, is fighting back. The Fresh Produce Association of the Americas (FPAA) – which largely represents importers – released a strongly worded statement blasting the plan:
“This politically motivated action directly undermines the [USMCA], positioning the US as an unreliable trading partner despite any trade agreements they negotiate…. Sadly, partisan politics failed to consider the best interests of American[s]… who will likely see increased food costs and lower overall farm exports. The complaint was based on an intentionally misleading propaganda campaign from Florida and Georgia growers… without data that supports their claims…. Imposing safeguard remedies on top trading partners could result in retaliatory actions.”
Mexican subsidies a fraction of US’s
The FPAA statement included stunning information on Mexican subsidies that, if true (which it presumably is), undermines the basic argument of the southern farmers. “Mexico has consistently honored trade agreements…. As signatories to WTO, the US and Mexico agreed not to surpass certain levels of agriculture subsidies, and, so far, both have honored that commitment…. The US has used up to 41% of its allowable subsidies, while Mexico has averaged just 2%” and this does “not include the recent $28 billion in aid to US farmers” resulting from the tariff war with China, “which could put the US above WTO-allowed limits for trade subsidies.”
Furthermore, it says, Mexico’s subsidy programs “focus on corn, wheat, livestock, milk, dried beans, and other grain commodities for the small and medium size growers in the poorest regions of the country” — not fruit and vegetables bound for Florida.
If the USTR acts, it could lead to tension within the USMCA, especially given that the US is also pushing Mexico hard on labor and steel at the same time as the trade agreement is under stress from US-Canada conflicts over US protectionist actions on softwood lumber and aluminum.
Election considerations
It remains to be seen how the plan will be carried out once the election is over.
Meanwhile, the respected liberal-Democratic policy insider, Robert D. Kaplan, expects a Biden administration will assume power in January and bring back, to his relief, the “Blob,” whose members cycle between the think-tanks and government. This, Kaplan writes, “will mean the return of competence in government.”
Right. Like Libya and Benghazi. Solyndra. ISIS. China’s artificial islands.
Perhaps the Republic will live to find an alternative to Trump’s amateurs and Kaplan’s Blob.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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