US trade policy agenda being scuttled by politics
TUE, APR 12, 2022
LEON HADAR
US Trade Representative Katherine Tai's recent appearances before the House of Representatives' Ways and Means Committee and the Senate Finance Committee provided an opportunity for the Biden administration to advance the president's trade policies and allow US lawmakers to debate the issue.
In general, President Joe Biden has refrained from placing his administration's trade policies at the top of his agenda, even before the war in Ukraine has become the central focus of the policy discourse in Washington, followed by the surging inflation and the continuing threat of the pandemic.
The major reason for the lack of an ambitious trade policy on the part of the White House has to do with politics. Members of the Democratic Party's powerful progressive wing continue to resist the idea of new US initiatives on the international trade front; in particular, they are opposed to the introduction of new trade agreements that by definition would amount to an effort to liberalise international trade.
Democratic Senator Elizabeth Warren and other progressive Democratic lawmakers and the leaders of the labour unions allied with the party, have argued that the promotion of globalisation, including free-trade pacts by Democratic presidents like Bill Clinton and Barack Obama, was responsible for the collapse of the US manufacturing sector and a major blow for American workers.
In the past, Democratic presidents were able to rely on the support of pro-free-trade Republican senators to counter the power of left-leaning Democrats on Capitol Hill and help them get their trade initiatives approved by Congress.
But reflecting the influence of former President Donald Trump and his economic nationalist positions, a growing number of Republican lawmakers, including leading Senators Marco Rubio from Florida and Josh Hawley from Missouri, have embraced protectionist measures and expressed opposition to new trade deals.
The result is that at a time when the Biden administration needs to win congressional support on so many critical domestic and foreign policy fronts, it is not willing to spend its political capital on fighting losing battles on international trade. So it is avoiding any push for trade agreements that would need congressional approval.
Hence, while Ambassador Tai told lawmakers that the Biden administration's policy was focused on reforming the global trade system, much of what she had to say sounded much less aspiring, especially when it came to commercial ties with China.
She admitted that trade negotiations with China have become "unduly difficult" and that Washington was searching for new tools in dealing with anti-competitive behaviour by the world's second largest economy.
But then, realigning trade ties with the Chinese would take time and changing China's economic policies would be difficult, Ambassador Tai told lawmakers. Instead, the US should focus on rebuilding its own industrial manufacturing base and on making domestic investments to counter the Chinese competition.
Some of the lawmakers, including Democrats representing states dependent on exports, did try to press Ambassador Tai to energise the administration's trade agenda.
Hence Senator Maria Cantwell, a Democrat from Washington, insisted that Washington could continue to protect the interests of American workers while pressing ahead with new plans to liberalise international trade.
"I'm for labour rights. I'm for enforcement. I'm for capacity building. But why can't we be for opening market access right now and getting rid of tariffs?" she asked.
More specifically, some lawmakers asked why the Biden administration was not continuing the free-trade agreement negotiations with the United Kingdom and Kenya, and raised questions about the administration's proposed Indo-Pacific Economic Framework (IPEF).
President Biden launched the IPEF last month as his administration's key initiative for economic engagement with the Indo-Pacific region. The move came in response to pressure from Congress and America's trade partners, who warned that US economic leadership and credibility were at stake in the Indo-Pacific, now that China was strengthening its position there.
Indeed, since former president Donald Trump withdrew from the Trans-Pacific Partnership (TPP) agreement - now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - China has, in part through its membership in the Regional Comprehensive Economic Partnership (RCEP) Agreement, strengthened its economic links throughout the region, and is now seeking membership in the CPTPP.
But the IPEF is not going to produce free-trade agreements and will not provide improved market access through tariff elimination. Instead, it would be committed to advancing "fair and resilient trade rules" in areas like digital trade, labour and the environment, and focus on issues such as supply-chain resilience, infrastructure and green technology, and tax and anti-corruption.
The reason some of the US trade partners in the Indo-Pacific region are sceptical about joining the IPEF is that it demands that they accept high-standard and binding trade rules, including on labour market reforms, without receiving market access.
In addition, the Biden administration plans to pass the IPEF as an Executive Agreement rather than a treaty ratified by the Senate, which means that the next administration could end up pulling the US out from the agreement.
Nevertheless, the Biden administration sees the IPEF as a way of promoting US leadership and deepening US ties with Indo-Pacific countries and as part of a strategy to counter China's power. It hopes that India would join it, as would Australia, New Zealand, Singapore, Japan, South Korea, and other Asean countries such as Vietnam, Malaysia and Indonesia.
But the bottom line is that by not focusing on market access, the goal of the IPEF, unlike that of the TPP and the CPTPP, is not to liberalise trade and investment rules.
Instead it is an attempt by the Biden administration to focus on issues like labour and the environment, reflecting its progressive orientation and the interests of the labour unions and environmental groups that are part of the Democratic Party coalition.
In fact, during the congressional hearings, Ambassador Tai's suggested that tariffs were a "20th century tool" to promote international trade, and insisted that "what we are trying to do in the economic framework for the Indo-Pacific is new" and include many "innovative elements" for the region and "for the trade policy conversation overall because of the evolving challenges that we are facing".
That all sounds very inspiring. But in reality, US lawmakers like Senator Cantwell are interested in gaining more access in Asian markets to exporters from their states, while US trade partners hope that the IPEF would provide them with tangible benefits in the form of more access to American markets and are unlikely to reform their labour and environmental rules without those benefits.