Joe Biden & Trade – What Can Industry Expect from the New Administration?
Co-Authored by Sharath Patil
Trump’s Trade Legacy
To fully understand the Biden administration’s trade priorities, it’s essential to understand Trump’s U.S. trade actions and the trade environment Biden will inherit. Trump made trade policy a center-stage issue. The administration enacted policies that counter several decades of neoliberal trade policies. The administration also questioned fundamental tenets of the global trading system and the function and purpose of the World Trade Organization. Furthermore, Trump followed through on many trade-related campaign promises by utilizing an array of tools.
For example, Trump:
- Pulled out of the Trans-Pacific Partnership (“TPP”)
- Imposed Section 301 tariffs on China
- Imposed Section 232 tariffs on steel and aluminum imports
- Designated China as a currency manipulator
- Replaced the North American Free Trade Agreement (“NAFTA”) with the S.-Mexico-Canada Free Trade Agreement(“USMCA”)
- Appointed “tough” trade negotiators like U.S. Trade Representative (“USTR”) Robert Lighthizer
The Trump administration’s policies have focused on middle-class jobs, preserving the U.S. manufacturing sector, and pushing hard on China. Interestingly, these policy priorities have become more mainstream for Americans on the left and on the right. During Trump’s administration, the U.S. goods trade deficit with the world has increased 3% in 2019 (the last full year that data is available) compared to Trump’s first year in office despite being an important trade policy priority (see chart below). Furthermore, U.S. manufacturing employment increased by nearly half a million from January 2017 to March 2020 (see chart below). However, since March, the COVID-19 pandemic has resulted in almost 600,000 manufacturing jobs being lost (see chart below).
Source: U.S. Census Bureau
Adjusted for Inflation to base month October 2020
Source: U.S. Bureau of Labor Statistics
Biden’s Priorities & Perspective
Biden’s trade policy priorities are not expected to be a continuance of U.S. trade policies under Obama. This is because the Democrats’ platform is increasingly centered on combating wealth inequality, climate change, and labor rights given the growing influence of progressives. The Biden administration’s biggest trade policy challenge will be squaring an industry-friendly center-left and a social justice-focused farther left. Biden appears to be trying to meet the political demands of both groups. However, some pundits expect at least some areas of trade to return to a pre-Trump status quo (dubbed “Make Trade Stale Again” by NPR’s Planet Money). One key area in which U.S. trade policy is expected to return to Obama-era perspective is with regards to U.S. trade relations with allies. Under Trump, trade wars haven’t been just with China, the U.S.’ geopolitical rival. Rather, a wide array of countries have been implicated by aggressive U.S. trade policies including South Korea, Vietnam, Japan, Mexico, Canada, and the countries of the European Union. Although U.S.-China trade tensions are expected to continue to run high, U.S. trade relations with allied countries are expected to cool down under a Biden administration.
CHINA & SECTION 301 TARIFFS
The future of U.S.-China relations is likely the most important geopolitical issue of our time, and Biden has inherited a massive trade war that has no clear sign of ending. Despite differences between Trump and Biden on nearly every trade issue, many experts expect Biden to continue Trump’s policy priority focusing on establishing a level playing field for U.S. and Chinese firms and continue to view China as a strategic threat to U.S. industries. Biden’s economic revival plan includes numerous pledges to combat Chinese trade practices, including state subsidies, surplus production and dumping, currency manipulation, weak IP protection and forced technology transfers, in addition to human rights issues such as the Uyghur minority’s genocide and forced labor, the oppression of Hong Kong’s demonstrators, and the political and religious repression of Tibet. Furthermore, Biden is widely expected to utilize a coalition-building approach in dealing with China. Rather than unilateral actions, the Biden administration is expected to encourage or even pressure allies (such as Japan and EU member-states) to be tough on China alongside the U.S.
Perhaps most important to industry is the question of tariffs. At the time of this writing, it is entirely unclear what will happen to U.S. tariff levels – especially U.S. Section 301 tariffs against China. Critics have frequently expressed concerns that the China 301 and similar tariffs are counter-productive, merely increasing prices for U.S. customers and end users and having no impact on Chinese trade policy. While it is unlikely that the Biden administration will immediately repeal the 301 duties, it is also clear that additional duties will not be the primary tool used by the Biden administration. Currently, there are over 3,500 cases (100+ of which from Diaz Trade Law) that have been filed in a lawsuit at the U.S. Court of International Trade (CIT) challenging the U.S. Trade Representative’s (USTR) imposition of Section 301 tariffs on certain imports from China under Lists 3 and 4A and demanding full refunds. DTL continues to file complaints for tariffs paid on List 4A. To join the lawsuit, contact us at firstname.lastname@example.org.
The wild card in all of this is COVID-19 and the potential need for a significant stimulus. Normally, such stimulus would be provided by legislation. If, however, the legislation is delayed, the Biden administration could decide to provide alternate stimulation by eliminating some or all of the 301 duties going forward, and perhaps by negotiating a settlement of the ongoing Section 301 refund lawsuit at the U.S. Court of International Trade. This would allow the Biden Administration to provide a strong stimulation to U.S. businesses without needing to have a stimulus package passed by the U.S. Congress.
Under Trump, the U.S.-China goods trade deficit has decreased significantly. For example, compared the first three quarters of 2020 (latest data available) against the same period in 2017, we find that the U.S.-China goods trade deficit has decreased a whopping 23%. Although increased U.S. exports to China would be beneficial to the U.S. economy (especially American farmers), most experts do not expect Biden to maintain Trump’s focus on reducing the U.S. trade deficit with China. This may have to do with policy disagreements on the importance of reducing trade deficits. While Trump has made reducing trade deficits a fundamental objective of his trade policy, many economists believe that trade deficits are not a meaningful or relevant indicator of macroeconomic health.
Source: U.S. Census Bureau
Adjusted for Inflation to Base Month October 2020
WORLD TRADE ORGANIZATION
The World Trade Organization (“WTO”), the primary global institution for resolving trade disputes, has been the subject of significant criticism by the Trump administration. Trump has taken issue with the Geneva-based institution for slow dispute resolution processes, alleged bias in its dispute resolution against the U.S., claims of improper judicial activism, and permitting tariff and non-tariff barriers that are structurally against the interest of the U.S. In recent years, the U.S. caused a crisis at the WTO that put its Appellate Body at risk of collapsing by failing to appoint judges. On December 10, 2019, the terms of two of the three remaining Appellate Body members expired and the Body now lacks a quorum necessary to hear appeals, grinding the dispute settlement system to a halt. Biden will have to answer a fundamental question: Does the U.S. need the WTO? The U.S. has two options: 1) it can walk away from the global trading institution, or 2) it can work to reform the WTO. Experts widely believe Biden will go with the latter option. However, any process to reform the WTO to “better align with U.S. interests” will likely be an arduous and protracted process.
SECTION 232 TARIFFS
There is also significant discussion among the trade community about the future of the Section 232 aluminum and steel tariffs. Section 232 investigations, administered by the U.S. Commerce Department, are conducted to determine the imports of certain goods on national security. Historically, Section 232 investigations have been conducted regarding U.S. imports of crude oil and petroleum products and uranium, among other critical imports. Under the Trump administration, the Commerce Department initiated investigations of U.S. imports of aluminum and steel on April 27, 2017. The investigation resulted in an affirmative determination that such imports harm U.S. national security. The Commerce Department’s investigation reports found that:
- The United States is the world’s largest importer of steel – with imports four times exports.
- World steelmaking capacity is 2.4 billion metric tons, up 127% from 2000, while steel demand grew at a slower rate.
- The recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption. China is by far the largest producer and exporter of steel, and the largest source of excess steel capacity. Their excess capacity alone exceeds the total U.S. steel-making capacity.
- Aluminum imports have risen to 90% of total demand for primary aluminum
As a result of the investigation’s findings, Trump imposed tariffs on certain U.S. imports of aluminum and steel on national security grounds. An exclusion process was also implemented in which U.S. importers could apply for tariffs to be excluded for certain steel and aluminum product imports.
There are disagreements among the trade community about the effectiveness of Section 232 aluminum and steel tariffs. The U.S. primary steel manufacturing community has largely been in favor of the tariffs. For example, the Chief Executive Officer of Nucor Corporation, one of the U.S.’ largest steel producers, testified before the Congressional Steel Caucus that: “[M]ore aggressive trade enforcement has been effective in keeping unfairly traded imports out of the U.S. market – last year, import market share was at its lowest level since the Great Recession.”
However, because the U.S. steel consuming industry (i.e. those industries which purchase steel to produce other goods) is significantly larger than the primary U.S. steel production industry, some analysts and politicians have asserted that the Section 232 aluminum and steel tariffs have not meaningfully addressed the national security concerns which the tariffs sough to address while posing heavy economic costs. The Peterson Institute for International Economics found, for example, that rather than specifically targeting China, the 232 tariffs primarily hit imports from allies such as Taiwan, Japan, and the European Union.
The Congressional Research Service describes how the tariffs have imposed higher costs for consumers and end-users. Senator Pat Toomey (R-PA) stated: “Tariffs on steel and aluminum imported into the United States are taxes paid by American consumers. The imposition of these taxes, under the false pretense of national security (Section 232), is weakening our economy, threatening American jobs, and eroding our credibility with other nations. I’ve seen, first-hand, the damage these taxes are causing across Pennsylvania,” said Senator Toomey. “Over recent decades, Congress has ceded its constitutional responsibility to establish tariffs to the executive branch. This measure reasserts Congress’s responsibility in determining whether or not to impose national security-based tariffs. I urge all of my colleagues to join this bipartisan effort.” Similarly, Senator Mark Warner (D-VA), criticized the national security benefits of the 232 tariffs: “We need to be tough on China’s unfair and illegal trade practices. But we need to work with our allies to do it. President Trump has strained our relationships with key allies and partners by abusing the authority that Congress granted him and stretching the concept of ‘national security’ beyond credulity.” Despite concerns that the Section 232 duties have not achieved their policy objective, the Biden administration likely will not change or remove the duties overnight. Instead, a significantly “loosening up” of the exclusion process and eventual removal are to be expected.
Biden trade policies are expected to be embedded in a larger geopolitical context of global cooperation. Biden will likely rebuild global coalitions on issues such as China, climate change, and labor rights. These multilateral instincts may also ensure that environmental and gender equality issues are further embedded in U.S. trade policies and coalitions (the Inclusive Trade Action Group is an example).
U.S. relations with the European Union are also expected to improve during the Biden administration. Although U.S.-EU trade disputes on topics such as steel and Airbus are ongoing, U.S.-EU trade relations are expected to be characterized with increased trade and investment, and greater cooperation on China. The EU and U.S. account for almost 30 percent of global merchandise trade, close to 40 percent of world trade in services, and about half of global GDP.
TRADE PROMOTION AUTHORITY
Trade Promotion Authority (“TPA”), also known as fast track authority, refer to a set of U.S. trade laws which empower U.S. presidents to pursue trade agreements with foreign markets by more freely negotiating. Under TPA, Congress retains the authority to review and decide whether any proposed U.S. trade agreement will be implemented. TPA is currently authorized up to July 1, 2021. It’s unclear whether TPA will be extended to cover much of Biden’s presidential term. Some analysts believe that TPA extension during Biden’s administration will largely depend on how things go with U.S.-UK negotiations. The need to finalize a U.S.-UK trade agreement may provide sufficient bipartisan support to extend fast track authority to Biden.
The U.S.-Mexico-Canada Agreement was considered a pivotal agreement in U.S. trade policy. It enjoyed broad bipartisan support which met the demands of many different political interests. The agreement ensured a liberalized trade regime across North America, but also granted important victories for labor rights. For example, the USMCA includes the first mandatory minimum wage of any trade agreement in the world. Check out our article on USMCA’s labor chapter to learn more. Joe Biden said in an interview that he supported the USMCA after it passed in the U.S. House in December 2019. Biden said, “What I’ve seen change is that the vast majority of the labor movement supported it.” He said it eliminated some loopholes for drug companies and strengthened the enforcement of labor and environmental standards. No serious changes to U.S. trade relations with its North American partners is expected under the Biden administration.
GENERALIZED SYSTEM OF PREFERENCES
The Generalized System of Preferences (“GSP”) is the largest and oldest U.S. trade preference program. GSP provides opportunities to many of the world developing countries. GSP empowers these countries to use trade to grow their economies. The GSP Guidebook provides basic information on the program. The current GSP will expire on December 31, 2020. GSP’s renewal is expected to be held up by Democrats who will advocate for gender equality to be included in the next iteration of the GSP.
It’s hard to speculate on what will happen over the next four years, but the current complex trade environment characterized by higher tariffs, greater restrictions, and increased enforcement is likely here to stay. No matter what happens to U.S. trade policy under the Biden administration, Diaz Trade Law is here for you. If you have questions on any customs or international trade matters, please reach out to us at email@example.com.