Predictions for US trade policy under Joe Biden

Expect a President Biden to be have a narrower and more disciplined trade agenda than his predecessor.

Like Trump, working class jobs and countering China will be priorities for Biden. But his response will be very different—he will focus on working with the rest of the world, including through the WTO.

Unlike Trump, climate and the environment will also be priorities.

Prediction 1. The US will continue to confront China over trade and the tech decoupling will continue. While Biden will have a vastly different approach to Trump, don’t expect big changes immediately

Prediction 2. The US will phase out Trump’s tariffs on countries other than China

Prediction 3. The US will use trade as a lever to address climate change. Expect to hear much more about a carbon border adjustment fee, and see a big partisan fight

Prediction 4. The US will take a more constructive approach to the WTO, allowing it to start working properly again. Expect the US to push aggressively for WTO reform

Prediction 5. The US won’t make much progress in terms of new FTAs. Maybe something with the UK and Kenya, but nothing on Asia (TPP) or Europe (TTIP)

The winds of change

Uniquely for recent US Presidents, international trade has been one of Donald Trump’s signature policy areas.

In addition to starting a trade war with China, Trump withdrew the US from the Trans-Pacific Partnership. He imposed tariffs on imports of washing machines, solar panels, steel and aluminium. He’s crippled the World Trade Organisation (WTO) and renegotiated the North America Free Trade Agreement (NAFTA).

But the clock is ticking on a tumultuous Trump presidency. With a commanding lead in the polls[i], Joe Biden is likely to be sworn in as US President on 20 January 2021. Trump could still win, but at this point it’s a slim chance.[ii]

So what would a Biden Administration’s trade policy look like?

Biden’s approach to trade

Biden has a history of being pro-trade. As a Senator, he voted for the original NAFTA and China’s accession to the WTO. He was Vice President in an Obama Administration that pushed the Trans-Pacific Partnership[iii] and a free trade agreement (FTA) with the European Union.

On the campaign trail, Biden has indicated he sees trade as an opportunity not a threat:

More than 95 percent of the world’s population lives beyond our borders—we want to tap those markets.[iv]

While he hasn’t released a trade policy at the time of writing, his foreign policy platform (as well as other statements) indicate three overarching priorities that will shape his approach trade:

  • Strengthening America domestically: investment in infrastructure and R&D, and a stronger focus on jobs and the environment (including climate change)
  • rebuilding alliances and partnerships: working with likeminded, economically large countries (such as the EU, Japan, UK, Canada and Australia) to update and strengthen global trade rules
  • managing China: deterring the trade and economic practices he sees as unfair by working with allies and partners.

As President, Biden would face: a domestic economy ravaged by COVID-19; the trade war with China; and other, smaller trade battles on multiple fronts. He would also face a Congress—both Democrats[v] and Republicans[vi]—more anti-trade.

And while he will have defeated anti-trade opponents in both the Democratic primaries and the general election, that doesn’t mean Americans will have voted for trade. They are ambivalent towards trade[vii] and globalisation[viii]. Their feelings towards China, already negative, have recently hardened even further[ix].

Biden recognises the world has changed:

There’s no going back to business as usual on trade with me.[x]

Predictions

Based on these policies and constraints, Mercury has made predictions about what this might mean in practice.

Prediction 1. The US will continue to confront China over trade and the tech decoupling will continue. While Biden will have a vastly different approach to Trump, don’t expect big changes immediately

Biden agrees with Trump that China is an economic threat to the US. But he doesn’t like Trump’s policy response.

He sees that the 25% tariffs on imports from China damage the US economy: American consumers and manufacturers pay the tariffs and China’s retaliation hurts US farmers.

Expect him to take a vastly different approach to Trump’s. Biden will have a focused agenda, building a coalition to achieve it. (Biden has nominated intellectual property theft, unfair practices by Chinese State Owned Enterprises and investment restrictions in China as priorities.)

But don’t expect a large-scale drop the tariffs right away. He doesn’t like them, but politically he will need to demonstrate progress before he can lower tariffs across the board (although may introduce targeted exclusions).

The kind of changes Biden wants from China can’t be delivered via tariff pressure alone. Biden wants meaningful changes to the global trade rules, changes that can only be delivered through sustained pressure from an economically large coalition. But pressure can’t just be rhetorical. The coalition will need to put costs on China in order to affect real change (costs that might, ironically, include tariffs).

Expect the technological decoupling to continue. But under Biden it will be more measured and consistent with established US principles. The US will try to do it in a more coordinated way with allies and partners.

Prediction 2. The US will phase out Trump’s tariffs on countries other than China

Unlike the China tariffs, expect an announcement fairly early on winding back tariffs on steel, aluminium, washing machine and solar panel imports into the US, from countries other than China.

Biden sees these as damaging important relationships, alluding to these tariffs when saying

Trump has designated imports from the United States’ closest allies—from Canada to the European Union—as national security threats in order to impose damaging and reckless tariffs. By cutting us off from the economic clout of our partners, Trump has kneecapped our country’s capacity to take on the real economic threat.[xi]

Biden will also be able to point to the benefits to the US economy, an economy needing all the help it can get. A Federal Reserve research paper, for example, said the tariffs led to job losses and higher prices[xii].

But expect these tariffs to come off gradually, not straight away. And expect the US to maintain its robust approach to antidumping and countervailing duties.

Prediction 3. The US will use trade as a lever to address climate change

Biden gas a very strong climate change policy. He has pledged the US will achieve net zero emissions by no later than 2050. He has said that on day one of his presidency he would reverse Trump’s decision to withdraw the US from the Paris Agreement on climate change.

Under Biden, expect the US to use trade policy as a means to push countries to do more on climate change.

Biden’s campaign website says he will

Apply a carbon adjustment fee against countries that are failing to meet their climate and environmental obligations to make sure that they are forced to internalize the environmental costs they’re now imposing on the rest of the world. This adjustment stops polluting countries from undermining our workers and manufacturers…[xiii]

Expect to hear much more about a carbon border adjustment fee—and see a big political fight with Republicans.

Prediction 4. The US will take a more constructive approach to the World Trade Organisation

The Trump Administration has brought the WTO to its knees. By blocking new judges from being appointed to the WTO Appellate Body, the US has undermined the whole WTO Dispute Settlement System and by extension undermined world trade rules. (Some members, including the EU, Canada, Australia and China, have scrambled to put in place a temporary alternative.)

The US has also set stringent conditions on candidates for WTO Director General, making the position more difficult to fill quickly when the current DG steps down. This is at a time when the WTO faces the most complex outlook in its history.

The US’s concerns with the WTO pre-date Trump and are shared by many WTO members. But the Trump Administration’s tactics have put offside many of the countries the US will need to work with to resolve those concerns.

Biden has shown, with his commitments on to keep the US in the World Health Organisation and the Paris Agreement on climate change, he will take a far more constructive approach to international bodies and agreements.

Expect the US under Biden to take a constructive approach to the WTO, allowing it to appoint a new WTO DG and Appellate Body judges. But expect the US to work aggressively on WTO reform.

Prediction 5. The US won’t make much progress on new Free Trade Agreements

Of all the trade priorities, free trade agreements (FTAs) would be towards the back of the queue.

Biden has supported major trade deals in the past. But on the campaign he’s said he would not enter into any new FTAs until he has ‘invested in Americans and equipped them to succeed in the global economy’.

The most attractive trade deal for the US is the TPP. Biden supports the TPP as a means of influencing China. But while the US re-joining the agreement might help, at this stage it’s too little too late to achieve that strategic objective. Because of this, and its unpopularity with Democrats in Congress, don’t expect the TPP to be a priority.

On the bilateral front, the US is not currently in any active FTA negotiations. But is involved in trade discussions with the EU, UK and Kenya.

Trump withdrew the US from comprehensive FTA negotiations with the EU (TTIP), commencing instead narrower negotiations aimed at opening up access to the EU for US businesses (under the threat of additional tariffs). Any progress on a meaningful FTA between the US and EU will require major concessions on both sides, concessions neither is likely to give.

Expect the US to start FTA negotiations with the UK. The US and UK set up (before the UK left the EU) a working group to discuss a bilateral FTA, but there have been no formal FTA negotiations. President Obama said the UK would be at the back of the queue for trade negotiations, Trump moved it to the front. Expect it to stay there under Biden.

Expect formal FTA negotiations with Kenya to also start.

Both the UK and Kenya negotiations will take considerable time. It’s possible the deals will come into force in Biden’s first term, but don’t expect it. FTAs typically take longer than four years and aren’t popular with the Democratic Party. Biden won’t be willing to spend much political capital on them unless there is a quid pro quo.


[i] On 11 August, FiveThirtyEight’s average of national polls had Biden 8.2 percentage points ahead of Trump.

[ii] It’s important to note 2016, where the polls wrongly predicted Hillary Clinton to defeat Trump (while she won the popular vote, she lost the Electoral College). The big difference in 2020 is the size of Biden’s lead. In the four months to the 2016 election, Clinton’s average lead over Trump was 4 points. Since March, when he became the presumptive Democrat nominee, Biden’s lead over Trump has been between 3.4 and 9.6 points. Since June, Biden’s lowest lead over Trump was 7.6 points.

[iii] https://www.dfat.gov.au/trade/agreements/not-yet-in-force/tpp/Pages/summary-of-the-tpp-agreement

[iv] Biden, J, Why America must lead again, Foreign Affairs March 2020, https://www.foreignaffairs.com/articles/united-states/2020-01-23/why-america-must-lead-again

[v] Biden’s two main challenges for the Democratic nomination, Bernie Sanders and Elizabeth Warren, both had protectionist tendencies popular amongst the Democratic base. Biden won the nomination with his centrist appeal, but will need to keep his base on side.

[vi] Under Trump the Republican Party has been much more anti-trade. While this has been against the instincts of individual members of Congress, they have supported Tump policy due to political considerations. But even if Trump loses the election, his trade policies are likely to retain substantial support with the Republican base.

[vii] Pre-COVID America was positive to trade, with 79% seeing trade as an opportunity for growth (https://news.gallup.com/poll/286730/americans-vanishing-fear-foreign-trade.aspx). But another survey in May found 66% support for improving the US economy by increasing restrictions on imports (https://fticommunications.com/covid-19/wp-content/uploads/2020/05/FTI-Shifting-Expectations-II-Topline-Results.pdf)

[viii] American’s attitudes to globalisation are mixed. An April 2020 poll by the Pew Research Centre found 47% of Americans thought globalisation had been a good thing in the last few years, while 44% thought it had been bad. https://www.pewresearch.org/fact-tank/2020/05/18/amid-coronavirus-crisis-americans-and-germans-see-changing-world-in-different-ways/ft_2020-05-18_usgermany_04/

[ix] In June 2020, Pew found 57% thought of China as a competitor and 26% thought of it as an enemy. Just 16% described China as a partner. On the bright side, Americans slightly preferred pursuing a strong relationship over getting tougher on China (51% to 46%) https://www.pewresearch.org/global/2020/07/30/americans-fault-china-for-its-role-in-the-spread-of-covid-19/

[x] https://www.cnbc.com/2019/07/11/joe-biden-slams-trump-china-trade-war-in-foreign-policy-speech.html

[xi] Biden, J, op cit.

[xii] https://www.marketwatch.com/story/fed-study-finds-trump-tariffs-backfired-2019-12-27

[xiii] https://joebiden.com/madeinamerica/

Published by Heath Baker

Principal of Mercury International Consulting

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: