Global Corporations and Economy
Can Joe Cut Deals? What Are We Learning About Biden’s Commercial Policy?

There may be grounds for qualified optimism, writes Simon J. Evenett, Professor of International Trade and Economic Development, University of St. Gallen, and Founder, the St. Gallen Endowment for Prosperity Through Trade. While traditional big picture trade deals are out, other consequential initiatives involving trade cooperation with America’s trading partners are possible—especially if those initiatives can be linked to restoring President Biden’s plans to restore America economic and public health.

Unless they’ve inherited a big trade policy project that needs shepherding through Congress, we are not used to first term Democratic Presidents of the United States doing much on trade policy. Long a source of division among the Democratic Party and its supporters, trade policy initiatives are usually put off for a second term, safe in the knowledge that the President in question does not face re-election. Is President Biden likely to break the mould? What should America’s trade partners expect?

Recent events suggest this matter is not as cut and dried as one have thought maybe a month ago. One way to judge an incoming US administration is to examine the quality of the President’s nominees and their stance on key issues, such as trade relations with China. On that score, President Biden’s pick for United States Trade Representative was both impressive and revealing.

Ambassador Katherine Tai was plucked from a senior role in the US Congress and is steeped in the defensive logic of Democratic officials elected there, a reality that in no way detracts from her credentials. Her confirmation hearing was successful precisely because she didn’t rock the boat. In fact, a close examination of her answers is that they dwelt much more on process than on detailed substance.

Worker-centric US trade policy

Where Ambassador Tai has laid down some markers was on the need for a worker-centric US trade policy. What has become clear is that this amounts to a significant—almost extreme—reluctance to sign any trade deal that cuts tariffs on products that would expose more Americans to competition from imports.

I have been told by reliable sources that US officials have rebuffed suggestions to cut tariffs on medical goods, even though there is no case for taxing soap, disinfectant, or medical equipment during a pandemic.

Even the perception of being willing to negotiate tariff cuts is being avoided. If these instincts take hold, they don’t speak well for a traditional trade deals, except perhaps one between the United States and the United Kingdom (although such negotiations are likely to be more fraught than some appreciate.)

Relations with China: trade policy subordinated

But what of trade relations with China? Here the new Administration is at pains to show that it is not soft on China, or rather softer on China that President Trump was. The latter had a transactional approach to dealing with Beijing. In a nutshell, the last US administration had no problem doing trade deals with Beijing so long as the terms were favourable.

That is not so clear for the Biden Administration, which has reframed trade relations with China in terms of greater geopolitical rivalry and the strong desire to join with allies to confront Beijing. Central to the alliance building strategy of the Biden Administration is alignment on key values that, in principle, have little to do with trade. If statements by senior Biden Administration officials are anything to go by, trade policy is being subordinated to foreign and security policy, and those policies seek to advance US geopolitical interests, including promotion of cherished values.

Under these circumstances a transactional approach to US trade relations with China is untenable. A more principle-based approach must follow, rhetorically at least. This will lead to clashes with Chinese officials, who tend to be very sensitive to any commentary on governance matters they regard as internal. Seen in this light, the disagreement on display at the recent Sino-US senior officials meeting in Alaska makes sense. How much of that spat was for domestic consumption remains to be seen.

How Will Economic Relations Between the United States, Russia and China Develop under the New American Administration? An Online Conference (in Chinese)
09.03.2021


Withdrawal of MFN to China not a temporary aberration

Even if no new deals between Washington, D.C. and Beijing on cutting trade barriers can be expected, what of the tariffs imposed by President Trump on Chinese imports? The Biden Administration has signalled its intention to keep these tariffs in place. This is not necessarily because they admired President Trump’s trade war—from what I have heard and read, these officials think that confrontation ranged between being ineffectual and to being counterproductive in terms of inducing China to reform its economy.

Rather, President Trump’s tariffs are to remain in place as leverage, or so we are told by current US officials. Here two comments are worth making. Such leverage is only valuable if a deal can be negotiated but the political preconditions for that are far off. In which case, the leverage argument defaults into a longer-term “justification” for keeping higher tariffs on Chinese imports. Conveniently, the latter outcome is not inconsistent with a worker-centric trade policy.

Second, by retaining President Trump’s tariffs on China, which are largely above allowable maximums set in the United States’ obligations at the WTO, the Biden Administration is essentially confirming that it too is prepared to withdraw Most Favoured Nation status to China.

The damage done by withdrawing MFN by a large player, such as the United States, to global trade rules is no longer an aberration. As American say, it has become a feature not a bug. This point will not be lost on other WTO members, especially when American officials challenge them on their fealty to global trade norms.

So what’s left? Actually quite a lot

By now a reader could be quite sceptical that much, if anything, will change in terms of US trade policy, at least during a first Biden Administration. (If your view is that, on age grounds alone, there won’t be a second Biden Administration, then one might be tempted to assume stasis will last longer.) But is that pessimistic conclusion correct? I am not so sure.

Last week’s signal that the US is willing to support a global minimum rate of corporate taxation is very significant. It is a reminder that inter-governmental talks on first-order commercial policy issues which have been stuck for a long time can suddenly gain traction. That’s important to bear in mind for all those armchair cynics concerning the future of the World Trade Organization. (Yes, there is much to be cynical about but sharp shifts in the approach of major trading nations are still possible.)

The deeper significance of the recent US move on corporate taxation is that it comes at a time when the Biden Administration wants to raise corporate tax rates in the United States to pay for the planned multi-trillion US dollar infrastructure programme (“Build Back Better”). So as to assuage fears that US corporate tax rates will become too high when compared to others abroad, why not have an international accord that raises the minimum tax rate charged around the world? Here an international commercial policy initiative became possible because it supports a flagship domestic project of the Biden Administration. This precedent may be useful when addressing trade-related aspects of climate change policies and digital trade policies.

Furthermore, trade policy cooperation may be easier on policies that are less salient than tariffs. In the case of medical goods, for example, that could involve aligning US standards with global standards thereby facilitating imports from qualified foreign suppliers, at least for the duration of the pandemic. This means that deals to free up non-tariff barriers may be easier to pull off that publicly cutting import tariffs. In this topsy-turvy world, murky trade reform may be easier to accomplish than transparent tariff cutting.

So can Joe cut trade deals? There may be grounds for qualified optimism. While traditional big picture trade deals are out, other consequential initiatives involving trade cooperation with America’s trading partners are possible—especially if those initiatives can be linked to restoring President Biden’s plans to restore America economic and public health. This is not to say that occasional irritants will arise—such as Buy American public procurement provisions.

Finding the basis of a deal is central to any successful trade negotiation. Just because some deals are no longer possible does not mean that every deal is off the table. From what we’ve seen of the Biden Administration, there are terms upon which it is prepared to cooperate on trade policy. Whether those terms are acceptable to foreign governments is another matter.

Comments on this piece are welcome and can be sent to [email protected]

Global Corporations and Economy
The Tectonic Forces Reshaping Multilateral Trade Cooperation
Simon Evenett
To some policymakers and analysts, if WTO rules get in the way of tackling the pressing threat to humanity then these rules will need to be pared back. To others policies to tackle climate change and to facilitate the associated transition towards renewable energies are a Trojan Horse for the next wave of protectionism. Both perspectives could result in governments reassessing the balance of benefits from their membership of the WTO and their willingness to undertake further cooperation there, writes Simon J. Evenett, Professor of International Trade and Economic Development, University of St. Gallen.
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