PRESIDENT Joe Biden entered office pledging to promote a series of policy initiatives on the domestic and foreign policy fronts that reflected the growing power of the progressive wing of his party, ranging from spending trillions of US dollars on major social-economic programmes and an ambitious plan to combat climate change to reversing US trade liberalisation policies and replacing them with a protectionist agenda.
Some of these plans, like the “Build Back Better” programme, were dead on arrival due to the opposition on Capitol Hill; others seem to be losing steam as the Biden administration confronts geo-economic and geo-strategic realities that are different from those that existed two years earlier.
More specifically, as the threat of growing inflation has risen to the top of the administration’s agenda, and has become more acute in the face of escalating energy and commodity prices resulting from the Ukraine War, the president and his aides are having no choice but to reassess their earlier priorities.
One example of this US readjustment to the new realities has been the recognition of the costs of trying to reduce the West’s dependency on Russian oil that include tight energy markets and rising gas prices for American consumers.
That meant that Washington wasn’t in a position to launch a grand campaign to cut fossil fuels production to ward off “catastrophic” warming temperatures, as President Biden pledged during his presidential campaign when he attempted to lift the spirits of the pro-green progressive politicians and activists.
In fact, President Biden has now been going out of his way to encourage the production of oil and gas at home and abroad to counter the shortages resulting from the Western economic sanctions on Russia, hoping that that would put downward pressure on the inflation rate, not to mention lowering the price of gas at the pump on the eve of the midterm elections.
But now that the central goal is to flood the global economy with energy supplies as part of an effort to reduce Europe’s dependency on Russian gas, President Biden is trying to play nice with MBS and with the autocratic leader of another oil-producing Arab state, the United Arab Emirates (UAE), Sheikh Mohammed bin Zayed Al Nahyan (MBZ).
Needless to say that left-leaning Democrats are not very happy about what is happening, and there is reason to believe that their mood is going to get any better as the Biden administration is considering taking another step that runs contrary to their agenda.
Notwithstanding their persistent attacks on the domestic and foreign policies of former President Donald Trump, progressive Democrats like Vermont Senator Bernie Sanders found common ground with him and his America First and anti-globalist views, especially when it came to international trade.
Both the Republican economic nationalists and the progressive Democrats and their labour union allies have espoused “fair trade” principles and have called to scrap the traditional trade liberalisation policies of both Republican and Democratic administrations that, they argue, were responsible for the evisceration of America’s industrial base and for hurting the interests of the nation’s workers.
Hence it wasn’t surprising that both Trumpists and progressives found themselves on the same page when it came to withdrawing from the Trans Pacific Trade (TPP) trade agreement and adopting a protectionist approach in dealing with China’s economic challenge. Which was kind of ironic because the US had earlier promoted the TPP as part of a strategy to respond to the rising economic power of China in Asia.
So anyone who expected that President Biden -- who during his 40 years serving in Washington had promoted internationalist and pro-free trade policies, including engagement with China -- would reverse his predecessor’s trade policies, and in particular with regard to China, shouldn’t have been surprised with what has happened.
Operating in a new political environment in which struggling domestic industries, the labour unions and their progressive allies emerged as central players in the Democratic Party’s electoral coalition, while economic nationalists have eroded the power of free-market Republicans on Capitol Hill, President Biden seems to have no choice but to maintain in place many of his predecessor’s trade policies.
And that include the 25 per cent tariffs that the former administration imposed on more than US$350 billion worth of Chinese imports, including industrial machinery and parts, textiles, and food.
The Office of the US Trade Representative (USTR), led by Katherine Tai, has become the main proponent of this protectionist approach. In addition to rejecting any major change in the policies towards China, Tai has insisted during Congressional hearings and public addresses that the “global economy needs to evolve” and that the US trade policies would be rebooted from “globalisation 1.0” to “globalisation 2.0” under which Washington would consider not only the effects of trade on consumers, but also on workers.
The notion of “worker-centred” trade policies may sound very original and inspiring, but in many ways it’s the same old “fair trade” approach that, to put it in less stirring terms, amounts to protectionism with a smiley face.
From that perspective, the Indo-Pacific Economic Framework (IPEF) launched by President Biden, supposedly as a substitute for the TPP in its new incarnation, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), illustrates the major problems with Tai’s “globalisation 2.0”. It’s not a free-trade agreement, and in fact, it rules out market access to US trade partners, while requesting that they adhere to US labour and environmental rules.
One of the major benefits to the global economy that has been achieved through “globalisation 1.0” and free trade in recent decades have been lower prices, including of food, clothes and energy for American consumers, and by extension the overall downward pressure on inflation.
So now with inflation roaring and becoming the Biden administration’s top priority, it seems to make sense to reassess the US protectionist agenda, in general, and in particular to remove the tariffs on Chinese imports that anyone who has studied economic 101 would tell you, are helping drive up the costs on food and clothes.
The issue has already ignited a debate of sorts among President Biden’s top economic advisors, with Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo advocating the lifting of the tariffs in order to help fight inflation.
Secretary Yellen said that lowering the tariffs on Chinese goods should be considered because of the “desirable effects” it could have on lowering inflation, and Secretary Raimondo told lawmakers that it was “conceivable” that the administration would lift the tariffs.
USTR Tai, backed by lobbyists for various industries and the labour unions, is opposed to lifting the tariffs, a move that would supposedly amount to a “reward” to China and would deprive American trade negotiators of a leverage over the country. Tai also questioned whether lifting the tariffs on Chinese imports would help lower the inflation rate.
President Biden has indicated last week that his administration was “discussing the issue right now” but that no “decisions have been made”.
The decision that he would soon have to make could have major political implications for him. Lifting the tariffs on China could help reduce inflationary pressures as his political party prepares for the midterm elections. Most opinion polls have indicated that high inflation is one of the main causes for President Biden’s loss of public support.
But then a decision to repeal an important protectionist measure is likely to anger the labour unions and produce a political backlash among progressive Democrats who could accuse the president of going back on his promises to them and reverting to “globalisation 1.0”.