United States: US Trade Policy In Transition: What You Need To Know
President Biden has set out a sweeping trade agenda designed to restore the U.S. economy, U.S. leadership and U.S. partnerships. A legacy of unilateral action and global tariffs, however, will take time to moderate and require due consideration of the global economic reality, as well as a political balancing act. View the Biden Administration’s full trade agenda. This article discusses what you need to consider right now.
Shift in Tone and Focus
In his first 100 days, President Biden has outlined a trade agenda that diverges markedly in tone and focus from that of the previous Administration. The Trump Administration’s global tariffs on steel and aluminum remain in place, as does the focus on China, but the threats and implementation of dismantling or abandoning agreements are gone, replaced by a call for a common approach with U.S. allies and a strengthening of the World Trade Organization. There appears to be no rush to engage in new trade negotiations, with the Biden Administration indicating that it will move first on economic recovery and infrastructure investment.
President Biden has over the years engaged in a balancing act on trade. He has free-trade credentials, having voted for NAFTA in 1993 and pushed hard as vice president for the Trans-Pacific Partnership. He also acknowledged decades ago, however, that the concerns voiced by organized labor and workers about job loss represented “a genuine fear” that would neither be erased nor exacerbated by NAFTA but rather needed to be addressed through enactment of stimulus investment—a policy he continues to embrace now.
President Biden has presented his trade policy as an integrated component of a broader vision, one designed to end the pandemic, prepare for future ones and invest in clean technologies.
Investments in Workers and Infrastructure Come First
President Biden has made it clear that his economic priorities start with a stimulus and infrastructure investment. As a presidential candidate, Biden promised that he “would not sign any trade deal until we have made major investments in our workers and infrastructure,” and he has kept to that path through the Coronavirus Aid, Relief and Economic Security Act and by promoting massive infrastructure legislation while moving slowly by conducting a review of existing trade policies.
Broader Trade Policy Vision
The Biden Administration has introduced a broader vision than its predecessor of what trade policy can accomplish, embracing ideals long espoused by organized labor such as negotiating enforceable labor and environmental standards, addressing human rights issues through trade policy and considering the impact of trade agreements on global warming, while also making the process more transparent and open to worker input. As part of its pandemic response, the Biden Administration has committed to “promoting long-term supply chain resiliency for equipment and supplies critical to protecting public health in the United States.” Addressing pandemic-inspired trade disruptions has emerged as a serious issue, with many countries responding to COVID-19 by putting in place export restrictions on medical supplies, pharmaceuticals and equipment, as well as on food, resulting in supply-chain disruptions and an uneven global response to the pandemic.
The Biden Administration is more likely than its predecessor to consider the impact of trade actions on the whole economy, including the potential for retaliatory tariffs by U.S. trading partners, the impact on U.S. consuming industries and the potential loss of foreign markets for U.S. exporters. Foreign tariffs put in place in retaliation to those imposed by the Trump Administration, for example, had a significant negative impact on U.S. consumers and farmers, leading to $23 billion of U.S. agricultural bailouts. The Biden Administration spelled this out in its 2021 Trade Agenda, noting that: “Erratic trade actions in recent years taken without a broader strategy burdened America’s agricultural communities.” The Biden Administration pledges to “stand up for American farmers, ranchers, food manufacturers and fishers by pursuing smarter trade policies that are inclusive and work for all producers. The trade agenda will seek to expand global market opportunities for American farmers, ranchers, food manufacturers and fishers and will defend our producers by enforcing global agricultural trade rules.” That would portend a potentially bigger role for the Departments of Commerce and Agriculture, which house the U.S. Government’s export promotion programs. So far, the new administration has taken a cautiously optimistic view of the U.S.-China Phase One trade agreement negotiated by the Trump Administration, through which the Chinese Government has agreed to structural reforms on a range of trading practices and to increase its purchases of U.S. goods and services in 2020 and 2021. The Biden Administration has indicated that it continues to monitor implementation of the agreement.
Forging a Multilateral Approach on China
The Biden Administration has initiated a comprehensive review of U.S. trade policy toward China, saying it “is integral to the development of the Administration’s overall China strategy.” It has promised to use “all available tools to take on the range of China’s unfair trade practices,” and in its first National Trade Estimates Report on Foreign Trade Barriers that was released on March 31, 2021, the Biden Administration spent considerable space focusing on China.
At the same time, the Biden Administration has promised a multilateral approach, noting during the campaign that “on its own, the United States represents about a quarter of global GDP… When we join together with fellow democracies, our strength more than doubles. China can’t afford to ignore more than half the global economy. That gives us substantial leverage to shape the rules of the road on everything from the environment to labor, trade, technology and transparency.”
Taking a Multilateral Approach More Generally
The Biden Administration lists “restoring U.S. leadership around the world and repairing partnerships and alliances” as a trade priority. This would represent a marked departure from the prior administration’s approach, which consisted of harsh rhetoric, unilateral trade protection and an emphasis on bilateral over multilateral agreements that helped undermine an already-weakened World Trade Organization. President Trump further threatened to remove the United States from that organization and blocked the nomination of panelists to the WTO appellate body. The Biden Administration has signaled that it will take a constructive approach to the WTO, focusing more on updating its rules than making it irrelevant. The Biden Administration would like to see the WTO address the challenges of “growing inequality, digital transformation and impediments to small business trade.”
One agreement that President Biden may want to revisit is the Trans-Pacific Partnership. Now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, this multilateral accord lowers trade barriers among 11 signatories from the Asia-Pacific region. Signatories include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, but not the United States. Although the Obama Administration was the motivating force behind the agreement, President Trump withdrew the United States from it by executive order on his first day in office. President Biden strongly supported the TPP as vice president, and as a presidential candidate said it “wasn’t perfect but the idea behind it was a good one: to unite countries around high standards for workers, the environment, intellectual property and transparency.” Once the United States dropped out of the TPP, the agreement that replaced it failed to include intellectual property provisions promoted by the United States during the negotiations. The agreement has increased Asian imports from Canada and Australia of agricultural products that are staples of U.S. exports, but on which those two countries now have a competitive advantage due to lower tariff rates. The agreement was never approved by the U.S. Congress, and the Biden Administration may be reluctant to try to revive it given initial opposition to it by organized labor and a range of influential Democrats, along with the general bipartisan discord on Capitol Hill. On a more-optimistic note, the Senate Foreign Relations Committee is considering the Strategic Competition Act of 2021, which is bi-partisan crafted legislation designed to strengthen and deepen U.S. economic partnerships in the Indo-Pacific region.
Dealing with a Legacy of Tariffs
The Biden Administration must contend with two major sets of tariffs imposed by the Trump Administration.
The Trump Administration tariffs on China started a trade war with China that resulted in a stream of retaliatory Chinese tariffs on U.S. goods and more counter-tariffs by both countries. These tariffs, outside of steel and aluminum, were imposed as the result of an investigation under Section 301 of U.S. trade law, which empowers the President to take trade action in cases in which the U.S. Trade Representative has concluded that “the rights of the United States under any trade agreement are being denied” or a foreign practice is “unjustifiable and burdens or restricts United States commerce.” The Trump Administration’s investigation was focused on, among other things, practices of the Government of China related to technology transfer, intellectual property and innovation. While the United States has the option under U.S. law to use Section 301 in place of WTO dispute settlement, such a unilateral action may be challenged at the WTO.
Although some of these U.S. tariffs on China have been suspended or reduced, as a practical matter, these tariffs will almost certainly remain in place for the time being, until further progress on these long-standing issues is made.
The global steel and aluminum tariffs unilaterally put in place by the Trump Administration, however, represent a potential obstacle to Biden’s vision of renewed multilateralism. Despite candidate Biden’s criticism of the impact of Trump’s tariffs, generally, his administration has so far failed to eliminate them. Secretary of Commerce Gina Raimondo said in an interview recently that the Trump Administration’s tariffs on steel and aluminum have been “effective,” while adding that “What President Biden has said is there will be a whole government review of all of these policies and decide what it makes sense to maintain.” Candidate Biden reportedly told the United Steelworkers union that the tariffs on steel and aluminum would stay in place until a global solution to excess steel production could be negotiated, something that has avoided consensus for decades. Given the electoral politics associated with trade protection for these industries, this issue will be a test of whether President Biden can find a multilateral approach that is not met with a domestic political backlash, a potentially incendiary political issue.
Those tariffs present a particularly sticky issue for the new Administration, as they were highly criticized by U.S. trading partners and steel-consuming industries, but strongly supported by U.S. steel companies and organized labor. U.S. trading partners complained that the United States not only acted unilaterally when a multilateral solution was needed, but also added insult to injury by relying on the rarely used Section 232 of the Trade Expansion Act of 1962, which is more a national security statute than a trade law.
Section 232 empowers the President to impose trade protection when imports of a product are in such quantities or under such circumstances that they threaten U.S. national security. This led to statements of outrage from members of NATO that were hit with 25 percent steel tariffs, many of whom have reciprocal procurement agreements with the United States, have been designated as reliable foreign suppliers of steel products by the Department of Defense and produce steel in the United States. Canadian Prime Minister Justin Trudeau called the tariffs “an affront to the longstanding security partnership between Canada and the United States and, in particular, an affront to the thousands of Canadians who have fought and died alongside their American brothers in arms.” In addition, trade protection under Section 232 does not require a finding of injury by the U.S. International Trade Commission, an independent, bipartisan, federal agency, but rather is decided by the President on recommendation of the Secretary of Commerce, a political appointee. Traditionally, protective tariffs are imposed as a result of an investigation under Section 201 of the Trade Act of 1974, through which the ITC must find that a U.S. industry has been seriously injured or threatened with serious injury as a result of increased imports for trade protection to be imposed by the President.
The Role of the US Congress
The U.S. Congress has an important role in the success or failure of the Biden Administration’s trade policy.
First, the retaliatory tariffs on U.S. products in response to the tariff programs of the Trump Administration hurt a range of U.S. agricultural and manufacturing producers, spawning the recent introduction of Senate legislation that would give Congress a veto of the Administration’s Section 232 decisions.
Second, under existing legislation, Congress will have a say in deciding whether future trade negotiations ever get off the ground. Trade Promotion Authority is a time-limited authority set to expire in July 2021 under which Congress authorizes the President to conduct trade negotiations but maintains ultimate control to implement any resulting agreement. Without renewal of TPA, no trade negotiations can even start.
Key to predicting trends in U.S. trade policy will be the outcome of the ongoing reviews of trade policy toward China and the unilateral steel tariffs, the Biden Administration’s first forays into the multilateral arena and whether the U.S. Congress renews TPA in July.
Source: Shearman & Sterling LLP