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US-China trade

Biden’s contradictory goals set to collide at G-20 and APEC

Published 11 October 2022

The contradiction and the challenge of Biden's trade policy are obvious: Can he privilege US workers and US interests while at the same time make a “we’ve got to work together” sales pitch to many of America's global partners? By the time the G20 and APEC meetings conclude next month, a clearer picture should emerge.

Joe Biden has a problem. His trade policy explicitly and unapologetically puts the interests of US workers front and center. That is not going down well with many of the United States’ closest partners. In the most recent example, both the European Union and South Korea are up in arms over a provision in the recently passed Inflation Reduction Act, which discriminates against foreign electric vehicles in favor of vehicles produced by US workers, an apparent contravention of US trade obligations.

Biden has concluded that the traditional US approach to trade – pursue free trade policies that grant market access – is no longer in the best interest of the US. At the same time, however, he needs amenable global partners more than ever on his wider agenda. Making progress on climate change, holding a tough and unified line on Russian sanctions, or presenting China with a common front on trade grievances will all require the active buy-in and support of like-minded countries. Open US trade policies and ample market access have always been an essential lubricant in building cooperative relationships, but the current US president is charting a much different course.

Biden’s trade policy has been an interesting mix. On one hand, it has featured proactive measures to tilt the playing field to the advantage of US workers and US production, along with the aggressive enforcement of trade remedy laws, such as anti-dumping. On the other hand, it has pursued initiatives to deepen trade and economic cooperation, such as the Indo-Pacific Economic Framework (IPEF), with many of the partner countries that have been adversely affected by US preferences and enforcement measures.

The contradiction – and the challenge – are obvious: Can Biden privilege US workers and US interests in trade policy while at the same time make a “we’ve got to work together” sales pitch to many of the same partners he has just – in their perception at least – slapped around on trade?

Biden’s tricky mission to Asia

Two important tests loom on the short-term horizon. The Group of 20 (G-20) meeting in Bali, Indonesia, and the Asia Pacific Economic Cooperation (APEC) meeting in Bangkok, Thailand, will take place within days of each other in mid-November. Both will put Biden (and/or his senior trade officials) in the same room with many of the leaders he needs to bring on board. By the time these meetings conclude, we should have a clearer picture of how successful the Biden administration will be in managing its contradictions, or if its policy approach will collapse under the weight of those contradictions.

The missing “secret sauce”

The US commitment to the multilateral trade system, its willingness to open its market, and its past leadership in pursuing cutting-edge bilateral and regional free trade agreements have been essential ingredients in knitting together both formal and informal cooperative groupings of like-minded countries for decades. This has traditionally allowed the US to play a leadership role in institutions such as APEC, the World Trade Organization, and the G-20.

After four years of neglect under the Trump Presidency, Biden is now trying to reinvigorate these cooperative relationships, albeit without the “secret sauce” of trade leadership. He has in fact headed in the opposite direction. The US dropped out of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership under Trump, but Biden has shown zero interest in returning. The US policy of blocking the appointment of WTO Appellate Body judges has continued under Biden, starving the organization of its authority to adjudicate global trade disputes. And the United States’ worker-centric trade policy calls into question several foundational principles of the rules-based trade system.

There is simply no way that a comprehensive US-worker centric trade policy can be neatly squared with the commitments on non-discrimination and national treatment the US has made at the WTO and in preferential trade agreements. Although ample loopholes exist, the fundamental aim of these foundational principles is that foreign products, workers, and companies are treated essentially the same as domestic products, workers, and companies. The US can no longer credibly claim to believe this.

Other policies are just as contradictory. The US is currently pursuing the CHIPS 4 alliance with semiconductor powerhouses Taiwan, Japan, and South Korea. The purpose is to enhance cooperation on the production and design of chips. But the US has also recently passed the CHIPS Act, which provides US$52 billion in subsidies and other inducements to entice semiconductor production away from other countries and to the US.

Through a variety of initiatives, including the IPEF, the US is calling for cooperation on policies which encourage the adoption of renewable energy sources. Concurrently, the US Department of Commerce has commenced an investigation into solar panel imports from Cambodia, Malaysia, Thailand, and Vietnam. Although the process has been suspended, the result could be hefty tariffs, higher prices for US consumers, and dampened demand for solar panels in the US. In the view of at least some environmental groups, these policies are at cross purposes.

It’s unclear to what extent the contradictions can be mitigated at the G-20 or APEC. Some of these issues are likely to come up at least tangentially during the formal meetings. However, these summits are frequently more noteworthy for the bilateral sidebars that take place among leaders in which they hash out the “real” issues. Expect Biden and his senior officials to have full dance cards in Bali and Bangkok and expect partners to press them forcefully on these seeming contradictions.

How should US partners respond?

US partners, both existing and prospective, should consider the following when weighing their responses to the contradictory policy impulses Biden and his team will display in Bali and Bangkok:

Accept reality – whether you like it or not. Understand that Biden has very limited room to maneuver either politically or substantively on trade. The administration recognizes the legitimate shortcomings of the previous approach to trade and is navigating a messy course correction. The US will exhibit some flexibility. Work pragmatically with the administration to smooth over the roughest edges of problematic trade policies, and hold your nose and accept the rest. We are no longer operating under Bill Clinton’s idealized vision of free trade and globalization from the 1990s. One may regard that as either good news or bad news, but it is reality.

Don’t cut off your nose to spite your face. Compartmentalize real or perceived grievances on specific trade issues and don’t allow them to impede mutually beneficial progress on points of commonality with Biden’s agenda. It serves no one’s interest to maintain supply chain overdependence on countries that have demonstrated a proclivity to weaponize trade relationships. Engage with the US on the various supply chain resiliency initiatives it has launched. Keep your eyes open for opportunities that will almost certainly arise. Biden’s worker-centric approach will help reset norms in the trade system and could create useful policy space for other countries to more proactively address their own issues of domestic importance.

Obsolescent trade rules will frequently be ignored. Lack of consensus at the WTO will prevent a meaningful update of the trade rulebook for the foreseeable future. The old (and often out of date) rules will therefore remain “on the books” despite their diminished relevance to the trade realities of today and the fact that few seem inclined to wholeheartedly abide by them. Some may argue that China “broke the system” through its model of state-directed capitalism and mercantilist trade policies. Others will place that blame on Trump’s policies which have been largely maintained by Biden. In either case, there is a growing tacit understanding that countries can and will bend or break obsolescent trade rules to suit their interests. Don’t expect the US to be any different.

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Stephen Olson

From 2014 to January 2024, Mr. Olson was a Senior Research Fellow of the Hinrich Foundation. Mr. Olson began his career in Washington DC as an international trade negotiator and served on the US negotiating team for the NAFTA negotiations.

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