Biden’s Trade Goals In A Trump-Altered World: Peace And SustainabilityBloombergQuintOpinion
The previous ‘On Point’ column identified a core issue the world trading system is asking: if the Joe Biden - Kamala Harris ticket prevails in the November elections, what will U.S. trade policy look like? That column suggested the manner and style of the approach a Biden administration could take, to rebuild widespread consensus and reintroduce integrity that comes with plain-speaking.
This article focuses on the desired outcomes of a Biden administration practicing an ‘Enlightened Trade’ policy – peace, and sustainability.
The incessant invective against America’s trade allies is perhaps the easiest dark dimension of the Trump altered world in which a Biden-Harris administration could shed light. The Veep and Senator just need to be themselves when they’re negotiating with America’s friends.
Okay, there’s a bit more to re-unifying the U.S. with other nations.
First, they could remind everyone of what French classical liberal political economist Frédéric Bastiat said: “When goods do not cross borders, soldiers will.”
Trade is supposed to be a bridge to peace, not a prelude to war.
Exaggerating national security threats undermines hope of enhancing peace through trade: if everything is about national security, then nothing is.
Second, they will have no choice but to seek constructive solutions to the U.S.-China Trade War knowing that Xi Jinping will be president until at least 2024, if not for life, with ever-more concern for, and ever-less tolerance of, reformist dissenters. The Obama administration passed the last major trade enforcement legislation, the 2015 Trade Facilitation and Trade Enforcement Act, but Xi’s CCP operates more systematically than unilateral antidumping, countervailing duty, and anti-circumvention investigations can manage. Resolving the trade war will start with consulting America’s allies. They share the same concerns, and those in the Asia-Pacific that are on the front lines of the Nine-Dash Line dispute face a new reality: Chinese medium-range ballistic missiles are not only potential “aircraft carrier killers,” but can also reach U.S. bases across the region to Guam.
A Biden administration will want to avoid the Trade War becoming a Cold War, and then mushrooming into a hot war.
The choices it will confront will narrow to two: further decoupling from China’s economy, if the CCP doesn’t change its ways; or gradual re-engagement, if it does. Only the second is in China’s interest, but both have gravitas if America teams with its allies, i.e., it’s worse for China if everyone decamps from the Mainland and Hong Kong, and better for it if they reverse the outflow.
Complimenting either choice is a third likely scenario: America re-joining TPP. America’s other 11 allies suspended 22 provisions in that deal, mostly ones concerning intellectual property on which the Obama administration insisted, forged ahead with the rebranded CPTPP, and left open the possibility of the U.S. rejoining the deal. China’s missiles probably make them more eager to see the U.S. do so.
Since TPP negotiations began in 2008, negotiators shared an underlying interest in an alternative to the China-driven Regional Comprehensive Economic Partnership. TPP was an enlightened tool of “containment” (euphemistically, “constrainment”). Their goal was for America and its allies, not China, to write rules that covered 21st-century trade issues like e-commerce, data privacy, and biologic medicines, yet allow for a reform-minded China to, one day, join TPP.
The Trump Administration’s withdrawal ignored the bipartisan advice of eight former Secretaries of Defense and five Secretaries of State who endorsed TPP as sound, integrated trade and national security policy. The administration left itself with no alternative means to get tough on China but to launch a unilateral trade war under Section 301 of the Trade Act of 1974.
Is it a just war? Arguably yes, as this columnist wrote. Has it hurt Americans, particularly farmers, necessitating $28 billion in bailouts to cover their lost Chinese export revenues? Yes, as they said at the DNC. Has it saved American jobs, a common claim at the RNC? Not necessarily. Supply chains are rethinking their dependence on China, but Vietnam is among the favored jurisdictions in which to set up or expand production facilities. It’s both cheaper than the U.S., and closer to dynamic Asian consumer markets.
The January 2020 Phase One Agreement is on a ventilator: China had met just 40% of its overall purchase obligations as of the first quarter 2020, 27% of the target value for farm goods through July 2020, and 5% of the targeted value of energy products as of the first half of 2020. And, that’s the easiest goal – cutting the bilateral trade deficit. There is justifiable bipartisan concern the CCP’s Made in China 2025 industrial policy, support for state-owned enterprises, and calculated intellectual property misappropriation erode America’s comparative advantages and undermine the post-World War-II rules-based trading system. Yet, President Trump said there won’t be a Phase Two deal anytime soon.
So, if elected, the Biden-Harris team will have no choice but to reevaluate Section 301 rather than CPTPP as the best way to simultaneously de-escalate trade tensions with, and support reform in, China.
It’s a certainty a Biden administration will not disparage African countries or Haiti with the adjective “s*** hole.” Enlightened Trade policy, to use an adjective disparaged at the RNC, would be “empathetic.” After all, why antagonize developing and least developed countries such that they look to China’s Belt and Road Initiative to accelerate their upward trajectory of per capita GDP growth and UN Human Development Index metrics? Why, indeed, when many of those countries are America’s largest and/or fastest-growing potential export markets?
Expect a Biden administration to support the Generalized System of Preferences and the ability of WTO members to self-select their status as ‘developing’. That would put America back on the side of poor countries worldwide.
Likewise, expect a Biden administration to manifest good stewardship of the environment in trade deals. Subsidies to help companies meet higher environmental standards (i.e., retrofitting) may be green-lighted. Import-export transactions on an agreed list of ‘green’ goods may be duty-free. Targets for reducing the carbon footprint of goods may be set, with concomitant incentives, including, as per his ‘Made in All of America’ plan, punitive carbon-based tariffs on merchandise originating in countries that don't satisfy global warming reduction targets.
Finally, expect Enlightened Trade policy to simplify rules where possible.
Complexity can hurt poor countries, because tariffs saved may be less than the costs and difficulties of compliance.
Technical USMCA regional value content, labour value content, and steel and aluminum rules of origin may be an example. Laudably, these ROOs aim to bring and keep production jobs in North America. But, a sizeable percentage of USMCA auto trade may be tariffed if manufacturers in third countries decide setting up plants in North America isn’t worth it.
Here’s The Deal
“Hey, folks, here’s the deal,” as Vice President Biden would put it. An “Enlightened Trade” policy would be bipartisan, theoretically and empirically honest, calm in demeanor and aims, and sustainable.
Or, that’s the hope, anyway.
Raj Bhala is the inaugural Brenneisen Distinguished Professor, The University of Kansas, School of Law, Senior Advisor to Dentons U.S. LLP, and Member of the U.S. Department of State Speaker Program. The views expressed here are his and do not necessarily represent the views of the State of Kansas or University, Dentons or any of its clients, or the U.S. government, and do not constitute legal advice.
The views expressed here are those of the author, and do not necessarily represent the views of BloombergQuint or its editorial team.