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Where to for Biden on the bitter fruits of Trump’s trade wars?

Posted By on February 4, 2021 @ 06:00

Former US president Donald Trump’s unfinished and unsuccessful trade wars with both China and some of America’s allies will be hard for his successor Joe Biden to untangle. Biden won’t want to lower unilaterally the Trump-era tariffs on either China or US allies without getting something in return.

On China, he wants to build a united stand with allies to force changes in Beijing’s economic policy. ‘The best China strategy, I think, is one which gets every one of our—or at least what used to be our—allies on the same page. It’s going to be a major priority for me in the opening weeks of my presidency to try to get us back on the same page with our allies’, he told the New York Times [1] in December.

Biden indicated that the Trump administration’s tariffs on China would remain in place and said, ‘I’m not going to prejudice my options.’

During the era of Trump unilateralism, allies have drifted apart on China. The difficulty of achieving a united stand was exposed in the closing days of 2020 when Biden’s nominee for national security adviser, Jake Sullivan, took to Twitter [2] to make a plea for ‘early consultation with our European partners on our common concerns about China’s economic practices’.

A few days later, the EU handed China a diplomatic coup by sealing a far-reaching bilateral agreement to underwrite both European investment in China and Chinese investment in Europe.

South Korea’s government is preparing for a state visit by Chinese President Xi Jinping, the first such trip since the bilateral tensions over the US deployment of a US anti-missile system in 2017. Two days before Biden’s inauguration, South Korea’s President Moon Jae-in declared that his nation wouldn’t be taking sides [3] in any dispute between China and the US. ‘South Korea–US and South Korea–China relations are all equally important for us’, he said.

Japan’s new prime minister, Yoshihide Suga, is likely to support a strong US security stance towards China, but Japan’s economic integration with China may make it wary of joining a US campaign on Chinese human rights and labour practices.

In Australia, the government has consistently rejected China’s claims that it does the bidding of Washington. Even as it deals with China’s assault on its export markets, the Australian government wouldn’t want to be seen to be the first to join a Biden campaign on Chinese trade practices.

In the meantime, US businesses are left wearing the cost [4] of Trump’s tariffs of between 7.5% and 25% on around US$360 billion of imports from China. The US Tax Foundation estimates that these tariffs represent a US$71 billion tax on the US business sector. US companies also face retaliatory tariffs from China, curbing their sales.

The trade deal with China that Trump struck at the beginning of 2020 has failed to deliver the promised increase in US exports, with China’s purchases of US goods falling short of agreed targets by more than 40%. The US trade deficit with China, which Trump vowed to eliminate, has increased since the trade war began—the 2020 deficit was the highest since 2015.

US businesses are also suffering from increased steel and aluminium costs as a result of tariffs that Trump imposed, invoking national security exemptions, on Canada, Mexico, the European Union, Japan, Korea and Taiwan. The Tax Foundation estimates that these tariffs are raising US$6.4 billion in tax; however, their impact on the input costs for US manufacturers would be greater, as the tariffs have allowed US steel and aluminium makers to lift their prices. Some US manufacturers, including motorcycle maker Harley Davidson, have shifted operations offshore to avoid the tariffs.

While the Trump tariffs on steel and aluminium were seen as an abuse of national security provisions, reversing them would bring howls from the US steel and aluminium manufacturers, which have benefited from the protection. Biden’s electoral victories in the steel states of Pennsylvania and Michigan will make him wary of any unilateral withdrawal of protection.

The best opportunity for the US to build a coalition around its vision for global trade was squandered with Trump’s decision to abandon the Trans-Pacific Partnership as one of his first actions in 2017. The TPP had been negotiated by the Obama administration as a ‘best practice’ trade agreement setting standards on issues like intellectual property protection and competitive neutrality for state-owned businesses that would have been too demanding for China to meet.

There has been speculation that the Biden administration will seek to rejoin the now-renamed Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Biden has argued that the US must engage with global trade negotiations. In his key foreign policy essay [5] ahead of the election, he said:

The wrong thing to do is to put our heads in the sand and say no more trade deals. Countries will trade with or without the United States. The question is, who writes the rules that govern trade? Who will make sure they protect workers, the environment, transparency, and middle-class wages? The United States, not China, should be leading that effort.

However, he has also said that he would seek bipartisan support for labour and environmental provisions to be included in any trade deals that the US concludes and would not be making trade negotiations an early priority.

CPTPP members such as Singapore, Malaysia and Vietnam would resist the addition of the labour and environmental provisions that the Democrats succeeded in inserting into the reworked North American trade agreement during the Trump negotiations.

While the Biden administration would prefer to defer embarking on trade negotiations, it will be forced to declare its intentions early because its authority to conclude trade deals independently of the US Congress is due to expire in July. The trade negotiating authority is a six-year provision, last concluded by the Obama administration. The Biden administration will have to make a case for renewing the authority for a further six years, and it’s possible that Congress may seek to curb the unilateral power of the US executive over trade that was exploited by Trump.

From a global perspective, the Biden administration’s highest trade priority should be the revitalisation of the World Trade Organization. The Trump administration’s refusal to nominate judges to its appeal panel brought the WTO’s crucial dispute-settlement function to a halt while aspects of its trade wars were in open violation of WTO rules.

More fundamentally, the WTO has been unable to advance negotiations for further deregulation of global trade for the last 25 years. Since at least the Obama administration, the US has been chafing at the failure of the WTO to tackle subsidies provided to state-owned enterprises, particularly in China, while it also grumbles about the developing-country status claimed by China and a range of other middle-income countries (including South Korea) which confers some (relatively paltry) trade advantages.

However, developing countries contend that the US imposes excessive restrictions on the use of intellectual property through onerous trademark, copyright and patent provisions that they claim represent barriers to their growth.

These are the earliest days in the Biden administration, but there was no sign ahead of the election of either a strategy or the political will to cut through that thicket.



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URLs in this post:

[1] New York Times: https://www.nytimes.com/2020/12/02/opinion/biden-interview-mcconnell-china-iran.html

[2] Twitter: https://twitter.com/jakejsullivan/status/1341180109118726144?lang=en

[3] wouldn’t be taking sides: https://www.scmp.com/week-asia/politics/article/3118152/moon-jae-says-south-korea-will-not-take-sides-us-china-rivalry

[4] left wearing the cost: https://taxfoundation.org/tariffs-trump-trade-war/

[5] foreign policy essay: https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again

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