When President Biden took office, he implemented a bold domestic agenda to jumpstart a U.S. economy deep in the throes of the COVID pandemic. After two years, his “Build Back Better” agenda — with pivotal investments in electric vehicles (EV) and other advanced technologies, as well as increased American-made content requirements for goods purchased by the federal government — is reinvigorating U.S. manufacturing. The administration has called for updating U.S. trade policy to benefit domestic manufacturers and American workers, and to reduce offshoring of jobs, production and profits.
These important steps have made U.S. industry more competitive. Now, the Biden administration appears ready to pursue the same approach to its global economic agenda by addressing international tribunals that allow bureaucrats to rule against the United States in global trade disputes.
This month, U.S. Trade Representative Katherine Tai called out the World Trade Organization (WTO) for ruling that the U.S. violated trade rules with steel and aluminum tariffs implemented during the previous administration. Tai rightly put the WTO in the crosshairs, saying the ruling “challenges the integrity of the system” because it “gets deep into creating requirements and parameters for what is or is not a legitimate national security decision.”
Tai’s statement reflects a policy evolution in which real economics would regain the upper hand over academics and ideologues who have dominated trade policy, often at the behest of corporate interests. The real-economy crowd understands that countries have a legitimate national interest in addressing climate change, protecting workers, and ensuring domestic production for essential products. These should be the goals of trade agreements, not a blind pursuit of “free trade.”
However, institutions that govern trade disputes have been dominated for decades by bureaucrats stuck in the debunked world of “pure” trade liberalization that has elevated multinational corporate interests. And the WTO is not the only place where these ideologues have caused damage to American manufacturers and workers. Case in point: Mexico and Canada have decided to upend the United States-Mexico-Canada Agreement (USMCA) that took effect only two years ago.
The USMCA represented a promising improvement on the North American Free Trade Agreement (NAFTA). It included rules requiring that 75 percent of a car — up from 62.5 percent — must be manufactured in North America to be imported duty-free to the United States. This sector was hit particularly hard due to NAFTA’s domestic content rules that proved to be too low and too easy to skirt, particularly in the face of illegal, predatory Chinese trade practices. Additional rules required that 70 percent of a car’s steel and aluminum be sourced from North America, and seven core vehicle parts categories received specific content thresholds.
In many ways, the USMCA represented a return to the original shared intent of setting trade rules that benefit workers, consumers and domestic companies. The agreement even stood a chance of blunting China’s increasing presence in the global auto market since it established a line against the trans-shipment of Chinese products through Mexico.
But less than two years after USMCA took effect, Mexico and Canada reneged. In January, they sued Washington to reduce the agreement’s North American content threshold by up to 33 percent. Why? Because it’s cheaper to bring in subsidized parts from Asia — and particularly China. This month, international bureaucrats at the USMCA tribunal ruled in favor of Mexico and Canada, rubber-stamping their push to weaken the deal’s content rules.
This shouldn’t be a surprise. Trade tribunals are composed of anonymous representatives from various nations. They bring a bias and often rule against the United States. The U.S. possesses a massive consumer market and other countries want to sell as much as possible to America — and to buy little in return. For example, Mexico sold more than 2 million cars to the U.S. last year, but purchased fewer than 100,000 American-made cars.
The USMCA panel is not the only trade challenge the Biden administration faces. The WTO recently ruled against U.S. tariffs intended to preserve America’s steel industry, which were imposed in 2018 on national security grounds. However, WTO bureaucrats aren’t concerned about the viability of America’s steel industry. Tax credits in the Inflation Reduction Act, which could grow America’s EV industry, are at risk from European Union objections at the WTO. Similarly, Beijing launched a WTO challenge against the president’s ban on advanced semiconductor sales to Chinese companies in response to the CHIPS and Science Act.
The Biden administration has condemned the WTO’s lopsided steel ruling, but these other trade disputes threaten the president’s economic agenda. The president should disregard the USMCA decision and continue low-tariff treatment for cars and parts that specifically follow the agreement’s original content requirements. Canada and Mexico could retaliate, but the United States runs large trade deficits with both countries — meaning, they lack leverage. In fact, Biden can make clear that restoring original content rules will be a top priority in the six-year renegotiation of USMCA.
Tribunals such as the WTO are becoming artifacts of the past — and out of step with the realities of a rising China. Until the rules governing tribunals such as the WTO are overhauled so that all countries (including those in the Global South) are free to pursue industrial policy, Biden should stand strong and continue to ensure his global economic agenda matches the boldness and vision of his “Build Back Better” agenda. The president has pledged to forge a new American Dream for workers, communities and American manufacturing that puts working people first, not multinational corporate interests. That’s why the administration must stand firm against trade competitors and WTO bureaucrats crying foul. Otherwise, they could threaten his broader agenda.
Tom Perriello is executive director of Open Society-U.S., which supports efforts to advance equality, fairness and justice, with a focus on marginalized U.S. communities. He is a former diplomat with the Department of State and former member of Congress from Virginia. Follow him on Twitter @tomperriello.