In a recent speech, US Trade Representative Katherine Tai commented on the “tipping point” of the international trading system, saying “we are done with the status quo…”
For those paying attention, his statement comes as no surprise. Ambassador Tai has repeatedly said that the United States is reforming its trade policy to make it more “worker-centered”, “equitable” and “inclusive”.
This approach can be understood as emphasizing trade as a tool for ensuring economic and national security, including for dealing with geopolitical competition with China. This new approach to US trade policy is being developed piecemeal, by the Biden administration and Congress, through a mix of laws, regulations and executive orders, in which traditional trade policy plays only a support.
This new trade policy has three main elements.
1) A risk-based approach to international trade: The shift from a free-trade approach to a risk-based approach marks a fundamental shift in American thinking about trade. This has prompted the urgent development of new policies, which include greater use of export controls and investment restrictions to tightly regulate access to products that the United States believes could threaten its national or economic security. . For example, the United States has implemented export controls that block China’s access to high-end semiconductors used in artificial intelligence (AI) as well as China’s ability to design or make advanced chips. US National Security Advisor Jake Sullivan has identified artificial intelligence, quantum computing, clean tech and biotechnology among key technologies that will affect US security. Many of these technologies are already subject to US export restrictions and foreign investment screening.
2) A renewed role for industrial policy: Increased support for industrial policy reflects a rethinking of policies that can most effectively build U.S. capacity in sectors considered fundamental to national security, competitiveness, and supply chain resilience. As Biden’s National Security Strategy notes, “the United States is pursuing a modern industrial and innovation strategy.” This year, the United States passed the Inflation Reduction Act (IRA), which includes tax credits for electric vehicles, batteries and advanced manufacturing. Meanwhile, the CHIPS and Science Act provides $52 billion in grants to companies investing in semiconductor manufacturing in the United States.
3) Greater cooperation with trusted allies and partners: The United States has reduced its support for multilateralism and traditional trade agreements in favor of broad economic engagement with allies and trusted partners. Examples include the Indo-Pacific Economic Framework (IPEF), the US-EU Trade and Technology Council, and the Quadrilateral Security Dialogue (composed of Australia, India, Japan, and the United States). of these developments. While these forums include topics in traditional trade discussions, they have also expanded to include cooperation on issues such as technology standards, investment controls, supply chains and infrastructure development.
The shift in US trade policy is a response to two key trends – first, geopolitical competition with China and, second, a changing domestic political landscape with respect to international trade.
Geopolitical competition has highlighted that it is no longer sustainable to depend on China for inputs critical to national or economic security. China’s growing authoritarianism and coercive economic practices have highlighted the risks of such reliance. China’s rapid rise has also reinforced a growing bipartisan political consensus that global trade rules have failed to limit China’s unfair trade practices, negatively impacting manufacturing, jobs and wages in the United States. United States while threatening its future innovation and competitiveness.
The result is a view that open and non-discriminatory multilateral trade and trade rules that limit national policy space and options for intervention in the economy are no longer tolerable.
The forces of geopolitical competition and domestic politics will continue to push the United States toward ever-tighter restrictions on China and more protectionist policies. However, unless the administration develops a more principled and coordinated approach, it risks stirring up tension with its allies and creating policy incoherence that will undermine its goals.
Recent US policies have sent mixed messages about its commitment to working with allies and annoying the very partners needed to build an effective coalition to counter China. For example, IRA tax credits on electric vehicles for assembly in North America have provoked South Korea, the European Union and Japan. Recent unilateral US export controls directly affect many US allies and partners whose support will be needed for export controls to be effective.
Close coordination among allies is important to avoid governments seeking to subsidize each other, which would create inefficiencies, misallocate resources and undermine partnerships. As it pursues these policies, the United States should strive to be clear that it remains a champion of the rules-based international order, of which it has been the primary beneficiary.
While trade can support the Biden administration’s security agenda, the United States must be careful to balance security with international cooperation as well as the economic opportunities of expanding trade. The administration should also develop a clear set of principles that can guide and underpin its new approach to trade and avoid unnecessarily antagonizing allies and friends.
Given the rare bipartisan consensus on China, congressional buy-in is crucial to ensure the sustainability of this new trade policy beyond the transition of administrations.
Joshua P. Meltzer is a Senior Fellow in the Global Economy and Development Program at the Brookings Institution.