The Biden administration’s ‘worker-centric’ trade policy

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Summary

  • Since taking office, President Biden has touted what he calls a “worker-centric” approach to trade policy.
  • Trade Representative S. Katherine Tai recently testified before Congress on key elements of the policy, including realigning U.S.-China relations, engaging with major trading partners and multilateral institutions, and promoting confidence in trade through better enforcement.
  • The testimony raised as many questions as it answered, including what role traditional market-opening trade deals will have and what, exactly, the administration will do to compete with China.
  • In the meantime, the Biden administration has continued much of former President Trump’s costly and ineffective protectionist trade agenda, while China expands its global economic influence through the Regional Comprehensive Economic Partnership, the largest trade deal in the world. history, at the expense of the United States. .

Introduction

Since taking office, President Biden has signaled his desire to pursue a “worker-centric” trade policy that is radically different from the protectionist trade agenda of the Trump administration. During recent testimony before Congress on the administration’s 2022 trade agenda, U.S. Trade Representative (USTR) Katherine Tai laid out the principles of the administration’s approach. Yet Tai’s testimony raised as many questions as it answered, including: what role do traditional market-opening trade deals play in the Biden administration’s trade strategy, and what exactly will the administration to compete with China? What was clear, however, was the administration’s continuation of the Trump administration’s costly protectionist trade policies, as well as its intention to pursue federal industrial policy, despite its criticism of China for making same.

The administration’s “worker-centric” trade policy

In recent congressional testimony on President Biden’s 2022 trade agenda, Ambassador Tai laid out the main elements of the administration’s approach.

These include:

  • Promoting a “worker-centred” trade policy;
  • Realign the U.S.-China trade relationship;
  • Engage with key trading partners and multilateral institutions;
  • Promote confidence in trade policy through law enforcement; and
  • Promote fair, inclusive and sustainable trade policy and broaden stakeholder engagement.

While the agenda lays out these goals, it provides few specific details about how the administration will achieve them. Ambassador Tai said in her recent testimony that “our strategy must extend beyond simply pressuring China to change and include vigorously defending our values ​​and economic interests against negative impacts unfair economic policies and practices of the PRC”.[1] She also said that “to ensure that our industries remain competitive, we must develop new national tools aimed at defending our economic interests and making strategic investments in our economy”.[2] Still, she didn’t provide any details on exactly what those new household tools would look like.

Tai also touted the Biden administration’s support for industrial policy, such as that found in the Creating Helpful Incentives for Semiconductor Production for America Act, which would include a $52 billion subsidy. to encourage companies to produce semiconductors in the United States. Such an industrial policy is probably an inefficient and wasteful use of federal taxpayers’ money. This legislation would also contradict previous messages from the Biden administration, which has frequently criticized China for engaging in unfair trade practices through its own industrial policy.[3] Indeed, China’s unfair trade practices also violate many World Trade Organization rules.[4]

Continuing Trump’s Protectionist Trade Policies

So far, the Biden administration’s trade policy has kept in place the majority of the tariffs originally imposed by former President Trump. As part of his protectionist trade agenda, President Trump has imposed tariffs on nearly $350 billion in imports from US rivals and strategic allies. The main purpose of these tariffs was to increase the competitiveness of American manufacturing and industry by limiting imports, especially those from China. However, President Trump’s tariffs and overall protectionist policy were largely unpopular and ineffective. They have made only a small number of American industries more competitive, while increasing costs for most American industries and consumers and damaging relations between the United States and its strategic allies.

Previous research has shown that tariffs have had a negative impact on economic output and growth.[5], [6] The trade deficit in 2021 is also larger than ever before, meaning tariffs have done little to reduce the US’ “reliance” on imports. Since taking office, the Biden administration has kept most of Trump’s China tariffs in place. President Biden also passed measures with “Buy American” provisions, a new trade strike force to impose new trade enforcement mechanisms such as tariffs, and a 100-day supply chain review presumably to increase domestic manufacturing.[7] In practice, the Biden administration is as protectionist as the Trump administration.

What is the role of trade agreements?

One of the best ways for the United States to outperform China is to pursue meaningful economic cooperation with strategic allies in the Asia-Pacific region. This means taking advantage of current trade agreements and seeking new ones. Trade agreements provide net economic benefits by allowing participants to maximize their comparative advantages. For the United States, this advantage would mainly benefit high-skilled services and technology industries. Trade agreements also provide a platform to consolidate and integrate business practices. Together, these factors enable large economies like the United States to shape regional trade in their favor and pursue their strategic interests. Through trade agreements, the United States can work with its strategic allies to define the terms of economic cooperation in the Pacific. The Biden administration’s trade agenda, however, provides little to no detail on the role of trade deals.

The United States initially led negotiations for the Trans-Pacific Partnership (TPP) trade deal, which included strategic Asian allies including Japan, Malaysia, Singapore and Vietnam, as well as Australia. The TPP would have been the largest trade deal ever, covering 40% of the global economy. The deal was expected to increase real US income by $131 billion a year from 2030.[8] Yet before the deal could be finalized, in 2017, the Trump administration pulled out; thus, the United States will not realize any of the economic benefits it would have gained from increased trade cooperation with the Asia-Pacific region.

Other countries expected to sign the TPP instead insisted on the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) trade agreement. China is an original RCEP member and recently applied to join the CPTPP. These agreements show that countries can still reap economic benefits by entering into free trade agreements with China and without the United States. The Biden administration has no intention of joining either partnership. Trade agreements such as the CPTPP and RCEP will only increase China’s global economic influence by allowing it to shape regional trade in its favor. The United States is outside and looking within.

The administration’s Indo-Pacific strategy

In February 2022, the Biden administration released its long-awaited Indo-Pacific Strategy, a document outlining the Biden administration’s broad goals in the region and the countries it would like to share those goals with.

Among these goals, the administration indicated its desire to “drive new resources to the Indo-Pacific” and, more specifically, to “open new embassies and consulates”. The plan also calls for the creation of “a new partnership that will foster and facilitate high-level trade, govern the digital economy, improve supply chain resilience and security, catalyze investments in transparent infrastructure and high level and enhance digital connectivity. “While this may sound encouraging, it is unclear what this new partnership would actually do to achieve these goals.

The Indo-Pacific strategy is simply ambitious. It does not establish additional economic cooperation. It does not eliminate trade barriers, increase members’ access to each other’s markets, or allow the United States to take advantage of its comparative advantages. And without real economic benefits, the United States will not be able to shape regional trade in its favor and pursue its strategic interests as it would with a strong and established trade agreement. While the United States is broadcasting its aspirations with the Indo-Pacific strategy, China is reaping the benefits of real trade agreements such as the RCEP and soon the CPTPP.

Conclusion

Right now, the Biden administration’s “worker-centric” trade agenda raises more questions than it answers. Specifically: what precisely is the role of trade deals and how exactly will the administration compete with China? The concrete actions the administration has taken to date mean in practice continuing the Trump administration’s costly and ineffective protectionist trade agenda, while waiting for Congress to engage in industrial policy. In the meantime, China is actively signing genuine trade agreements such as the RCEP, and soon the CPTPP, reaping the economic and strategic benefits and usurping the role of the United States as the de facto economic leader in the Asia-Pacific region. .

[1] https://ustr.gov/about-us/policy-offices/press-office/press-releases/2022/march/ustr-releases-2022-presidents-trade-policy-agenda-and-2021-annual-report

[2] Same

[3] https://www.wsj.com/livecoverage/biden-speech-tax-antipoverty-plan-congress/card/Z0ZunBXKSZd5yk4wtith

[4] https://www.cato.org/policy-analysis/disciplining-chinas-trade-practices-wto-how-wto-complaints-can-help-make-china-more#

[5] https://taxfoundation.org/tariffs-trump-trade-war/

[6] https://www.nber.org/papers/w26610

[7] https://www.whitehouse.gov/wp-content/uploads/2021/06/100-day-supply-chain-review-report.pdf

[8] Where real income is the collective income of the citizens of a country, adjusted for inflation.

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