Biden’s trade agenda: No trade policy, no-trade policy — or both?

When Joe Biden entered office, he promised that “the U.S. is back” and that, heretofore, the “U.S. writes the [trade] rules of the road for the world,” thus paving the way for U.S. businesses to “win on the world stage.” Yet, many commentators have lamented the absence of an international trade policy by the Biden administration. 

“This trade policy is under review” is probably the most frequently heard public statement expressed by U.S. Trade Representative (USTR) Katherine Tai. But with the Biden administration soon entering its third year, such statements reek of temporizing. 

The Biden administration has not rolled back former President Trump’s discriminatory tariffs on Chinese imports under Section 301 of the 1974 Trade Act. This is all the more surprising since Biden has called these tariffs “damaging”, “disastrous” and “reckless”. Yet, the inherited China tariffs have been “under review” ever since Biden came into office. 

Regarding trade relationships with allies, it is also difficult to discern an overarching strategy. Determining that “now is not the time for traditional free trade agreements,” Tai has nixed negotiations over any new trade agreements. 

Existing trade talks (for example, with the United Kingdom) were slow-rolled, and by now have come to a halt. Under the Biden administration, a portion of Trump-era tariffs on aluminum and steel imports from the key allies has been converted into voluntary export restraints and quotas — a sleight of hand rather than a true fix (other tariffs remained in place). America’s closest trade allies, Canada and Mexico, have not gone unscathed, either. For example, the Biden administration imposed stricter rules of origin in the automotive sector, thus eschewing Canadian and Mexican firms’ access to U.S. car manufacturers. 

The only trade effort pursued by the Biden administration thus far is the Indo-Pacific Economic Forum (IPEF), the putative counterbalance against China’s ascending trade might in the Asia-Pacific region. But at present IPEF can best be described as a paper tiger, and few trade partners hold their breath over concrete trade liberalization outcomes, not least since the Biden administration has ruled out offering any market access to IPEF partners, thus depriving the negotiations of any fuel from the get-go.

Maybe the most telling example of a rudderless trade policy is the Biden administration’s stance vis-à-vis the World Trade Organization (WTO). After repeatedly threatening to withdraw from the WTO, the Trump administration in December 2019 all but denuded multilateral dispute settlement by refusing to appoint WTO appellate judges.

Today, three years later, the Biden administration has made no effort to reinvigorate the trade court; it has not even spelled out which procedural and substantial reforms it demands in exchange for unblocking WTO dispute settlement. 

However disappointing the absence of a coherent U.S. international trade policy may be, something more concerning lurks — the Biden administration’s active efforts to limit, rather than promote, international trade. 

Examples abound: As mentioned, President Biden has not lifted the Trump tariffs on most Chinese products, or on steel and aluminum from Western allies, India and Turkey. According to some estimates, these tariffs still affect over $400 billion of imports and exports, and increase costs to U.S. consumers by $51 billion annually. 

Next, through a constant dribble of low-level regulations, technical restrictions and executive orders, the Biden administration has continued interrupting trade with export controls, investor screening, capital controls, stifling forced-labor compliance rules and economic sanctions. While many individual actions may be motivated by the right intentions, it is unclear who defines at what point valid national-security concerns are eclipsed by hidden protectionism. 

Finally, animated by what has been described as “supply-chain nationalism,” the Biden administration has increased domestic content requirements for federal government procurement, and enacted massive new subsidy programs, including in the $50 billion CHIPS Act and the $737 billion Inflation Reduction Act, which contains a $369 billion industrial subsidy scheme. 

Whether these government-led efforts will result in re-shoring of manufacturing back to the United States remains to be seen. The administration’s industrial policies certainly have already provoked concerns by trade partners and immediate threats of retaliation and counter-subsidization by the EU.

The absence of U.S. leadership in trade, coupled with neo-protectionism, ultimately constitutes a continuation of the Trump-era trade tactics, even though the accompanying rhetoric by the Biden administration is more polished and less acrimonious. The implications – self-centeredness à la “America First,” alienation of friend and foe alike and a further shift away from a rules-based and towards a power-based world trading order – remain the same. 

With the United States clocking out of the multilateral trading system and without the WTO trade enforcer supervising international trade, the door to unchecked economic nationalism by other nations is ajar. According to some commentators, Chinese President Xi Jinping is matching President Biden’s techno-nationalist agenda move for move. 

At the same time, neither international trade nor trade cooperation is going to halt.  China is already filling the vacuum left by the United States. While the United States dithers, China is aggressively pursuing new trade agreements, such as the Regional Comprehensive Economic Partnership Agreement (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the mega-regional agreement that President Trump spurned in his first week in office. 

The more the United States lets the WTO slide into irrelevance, abdicates global leadership in trade and pursues a power-based “might makes right” stance, the more it risks precipitating a de facto dissolution of world trade into blocs — one around China, one around the U.S. and one around the EU. 

In that scenario, trade across blocs will become sporadic, unpredictable and certainly more political. The Biden administration should think long and hard about whether this kind of international trading order is really in the United States’s economic and national-security interests.

Simon Schropp is managing economist at Sidley Austin LLP. All opinions expressed in this contribution are the author’s and do not reflect the views of his employer or its clients.