Trade Policies of the Biden Administration

Takaaki Asano, Senior Analyst
Sumitomo Corporation Global Research Co. Ltd.

1. Biden's Pledges during the Election Campaign

Throughout the presidential election campaign, former Vice-President Joe Biden reiterated that he would pursue trade policies that would benefit workers once he came to power. He stated that he would first revitalize the US economy and would not agree to any new trade agreements until he would be confident that sufficient domestic investment has strengthened US industrial competitiveness. He also stressed that due consideration be given to the input from labor unions and environmental groups when he attends trade negotiations. 1

Casting doubt on the traditional theory of free trade and debating a trade policy by linking it directly to domestic employment has become the "new normal" in the United States. Always conscious of his past of representing the interests of the US steel industry, US Trade Representative Robert Lighthizer in the Trump administration argued that the purpose of trade policy lies in providing good jobs to the American people and bringing stable manufacturing jobs back to America. He justified President Trump's trade policy by stating that past trade policy, which had long prioritized economic efficiency and diplomatic considerations for allies, was detrimental to the interests of the American people. 2 Following President Trump's views on trade that regard US trade deficits in goods trade as a problem, Lighthizer raised US tariffs, blaming unfair practices of trading partners while respecting US national security considerations. He pressed partner countries to review existing trade agreements. It is precisely due to this protectionist position that the Trump administration could get the House Democrats to approve a bill to implement the US-Mexico-Canada Agreement (USMCA) --- a revised version of the North American Free Trade Agreement (NAFTA).

The Biden team failed to offer until the end of its campaign trail any specific trade policy menu that would replace the Trump trade policy during the last four years. Nor did it suggest any alternatives, which would favor the "interests of workers," to Trump's trade policy that rendered the WTO's dispute settlement system dysfunctional; used tariff hikes as leverage to bring partner countries into bilateral negotiations; introduced managed trade practices, and started an exchange of tariff hikes with China.

In July 2020, a month before the Democratic National Convention, the Biden campaign announced recommendations that resulted from policy debates with Senator Sanders' campaign. As a policy agreement with the left-wing faction in the Democratic Party supporting Senator Sanders, the document laid out policy guidelines for each of the following six areas: climate change, the criminal justice system, the economy, education, health care, and immigration. 3 In its "economy" section, there is some mention of trade policy; yet, its description was basically just a repetition of the same vague arguments made in the past, except for a new reference to drug prices and to the medical supply chain.

Table: Trade Policy Recommendations by Biden-Sanders Unity Task Force

"Democrats will pursue a trade policy that puts workers first."
"We will negotiate strong and binding standards for labor, human rights, and the environment in the core text of our trade deals."
"We will eliminate trade and tax policies that promote the offshoring of pharmaceutical manufacturing and raise prices on medications for American patients."
"We will use all tools at our disposal to take action against countries that manipulate their currencies to get an unfair advantage in international markets."
We "will take immediate action to repair the damage President Trump's reckless policies have done to American farmers".
By "working with our allies" we will stand up to China and negotiate from the strongest possible position."

(Biden-Sanders Unity Task Force Recommendations, July 2020)

2. Nomination of the Next US Trade Representative

Following his victory in the November 2020 presidential election, Biden announced on December 10, 2020 among a series of appointments for his administration the nomination of Katherine Tai as incoming US Trade Representative. Since 2014, Tai has served as Democratic trade counsel for the House Ways and Means Committee. She played a vital role in the negotiations between the Trump administration and House Democrats to pass the USMCA implementation bill, contributing to the strengthening of labor provisions of the USMCA. Both the Trump administration and Congressional Democrats have highly praised her for her expertise and coordination skills. In an interview with the media, outgoing US Trade Representative Lighthizer described Tai as having the skills to bring together people pursuing different goals to get things done.

Before serving as a Democratic congressional staffer, Tai worked for the USTR (2007-2014), where she was responsible for representing US interests at the World Trade Organization (WTO) in cases against China. Tai emphasized that trade policy is not a stand-alone policy but needs organic coordination with foreign and domestic economic policies; that measures to enhance the competitiveness of the US economy must be considered on a cross-governmental basis to protect an open and democratic American society. She also said that in formulating a trade policy toward China, it is important to understand the nature of Chinese challenges to the United States and secure beforehand bipartisan political support. Tai will not only take a tough stance against China's unfair trade practices, but will also employ more strategic approaches.

According to the media primaries, several names appeared as possible candidates for the next US Trade Representative, and the candidates underwent selection with the following taken into consideration: candidates' proximity to labor unions that constitute the support base of the Democratic Party; their being conversant with trade policy; and ensuring diversity in ministerial appointments. Tai's 1) ability to coordinate with Congress; 2) knowledge of international economic and legal practices; and 3) experience in confronting China in the WTO may on the whole have qualified her over other candidates for the post of US Trade Representative. Although it will take a while before the appointment of Tai as head of the USTR will be confirmed by the Senate, we expect that the USTR mode of operation under Tai will become apparent through the nomination of deputy US Trade Representatives, chief of staff, and general counsels.

If, as Tai points out, trade policy is just one piece of the large puzzle of economic policy and economic diplomacy, then the Biden administration's trade policy will be affected by many other factors: the interests of the Departments of Treasury, Commerce, State, and Defense, as well as the functions of various policy coordination mechanisms within the White House. This is contrary to the Trump administration's approach, which allowed government agencies to develop their policies with minimal intra-governmental coordination. It will be noteworthy to see how Tai, promoted to the position of Cabinet member from that of a Congressional staffer, will be able to make her presence felt and work out trade policies.

3. The Biden Administration's Trade Agenda

The Biden administration will take over many trade issues from the Trump administration; the most notable will be issues related to China. As for sanction tariffs against China under Section 301 of the US Trade Act, President Biden has only revealed that he would not lift them immediately and that the future policy will be decided through consultations with US allies. The status quo will be maintained for the time being. The US-China Phase One agreement, which went into effect in February 2020, stipulates that China should work to increase imports of US goods over two years through 2022, along with specific numerical targets. At this point, however, those targets are at present far from being fulfilled, and it remains unclear how the Biden administration will handle the agreement. The Trump administration also took other policy measures, such as sanctions for human rights violations and US export restrictions for controlling sensitive technologies. The Biden administration's approach will deserve attention.

The additional tariffs are imposed not only against China but also on steel and aluminum imports for national security reasons under Section 232 of the US Trade Expansion Act. It will be noteworthy to see if the Biden administration will lift the additional tariffs imposed on the latter items. The EU will likely call for the immediate removal of the Section 232 tariffs. On the other hand, however, there are other trade issues between the United States and European countries --- the taxation of digital services and subsidies for the aircraft manufacturing industry. How will the Biden administration strike a balance between a trade policy centered on the "interests of workers" and multilateralism? It is still unclear whether the Biden administration will draw a large picture not confined to trade, thereby aiming at a comprehensive solution, or if it will seek individual negotiations.

With the Japan-US trade agreement that came into effect in January 2020, bilateral trade negotiations have come to an end. Originally, negotiations between the two countries were to start in the spring of 2020 to reach a more comprehensive agreement. However, due to the global outbreak of COVID-19 and the US presidential election, no real progress has been made in negotiations, although government-to-government talks appear to be underway. Since, thanks to the above bilateral trade agreement, the United States has already succeeded in opening the Japanese agricultural market almost to the same extent as it would have been under the Trans-Pacific Partnership (TPP), it has at present no great incentive to expedite additional negotiations with Japan. The Biden administration has announced that returning to the TPP, which the United States withdrew from shortly after President Trump took office, is not a priority issue for the time being.

Besides individual trade deals with Japan, China, and the EU, the Biden administration needs to work on a policy toward the WTO: the post of WTO Director-General has been vacant since the end of August 2020. The US government did not approve the candidate from Nigeria, whom most WTO members favored. As a result, the WTO Director-General selection process predicated on members' consensus remains at a standstill. Furthermore, the WTO's Dispute Settlement Body has been dysfunctional since the end of 2019, due to the Trump administration's refusal to approve the appointment of its senior member. The Biden administration, which wants the United States to remain a leader in the international economic arena, needs to convince the international community that the United States has abandoned the course of Trump's trade policy. To that end, it may begin by changing its WTO diplomacy, which will have less impact on US domestic politics.

4. Expiration of Trade Promotion Authority

The Trump administration embarked on trade negotiations with many countries and even achieved a revision of the NAFTA that required congressional approval. This was possible because the Obama administration obtained, at a high political cost, trade promotion authority (TPA) from Congress in 2015. The TPA expired in 2018 but gained a three-year extension under the relevant Congressional provisions. It will finally expire at the end of June 2021. Theoretically, there is no problem for the administration to conduct trade negotiations without the TPA. But congressional approval is essential for all of the following: the FTAs with the United Kingdom and Kenya that the Trump administration initiated; the future comprehensive trade agreements with Japan and the EU; and CPTPP membership. The Biden administration will need to work on Congress to grant it the TPA.

However, at the time of the passage of the TPA Act in 2015, House Democrats' approval rating was only 15%; the Obama administration was obliged to obtain the TPA with the help of Republicans. Although the political and economic environment has changed significantly since then, the Biden administration will unlikely spend massive political capital to negotiate trade liberalization before the 2022 midterm elections.

Instead, the Biden administration is likely to prioritize regulations and taxation systems that would encourage American businesses to return from overseas and the extension of trade adjustment assistance (TAA) rather than negotiations on trade liberalization. The Biden administration will not participate in any negotiations on market access liberalization unless it has narrowed the target areas (digital commerce, medical supply trade, etc.) through talks with CPTPP members. In parallel with such limited moves, if the Biden administration makes a move to emphasize to Congress and the American public the importance of US leadership in building a free and open economic order, the possibility of a bolder trade policy initiative will become visible in the latter term of the Biden administration.

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