Is the Biden administration belatedly tiptoeing toward an actual trade strategy? The free trade system has yielded enormous prosperity over the past seven decades. But for the past decade, trade phobia has seized both political parties, with globalization seen as a menace and trade viewed as the source of job losses and economic malaise (though both the data and public opinion suggest otherwise).
But in recent weeks, stirrings of a trade strategy may be slowly, hesitatingly, taking shape. Last week, the administration’s point person on trade, Trade Representative Katherine Tai
Katherine TaiUS, Chinese trade officials hold virtual meeting, discuss 'Phase 1' deal Biden and big business: It's complicated Biden, Xi to hold virtual summit by end of this year MORE, was in Europe for trade meetings and gave a well-received speech in Geneva pledging U.S. support for the beleaguered World Trade Organization (WTO).
Though Tai was blunt in criticisms of the WTO’s shortcomings and the need for major reforms, she stressed the importance that the U.S. attached to it. Importantly, while reiterating the Trump administration’s criticisms of the WTO’s crown jewel – the dispute settlement mechanism – Tai pledged to work with partners to fix it.
This followed on the heels of a nine-month policy review in which Tai revealed an underwhelming outcome of Biden’s China trade review. The punchline was mostly more of the same: leaving Trump tariffs in place, pursuit of discussions on implementation of the Phase I Trump trade deal and on Beijing’s subsidies to state-owned enterprises (SOEs). Given that the tariffs hurt U.S. businesses and consumers more than China, and neither the bilateral nor the global trade deficits have shrunk, it is difficult to discern a strategy here other than being “tough” to inoculate against political criticism.
That was preceded by the recent inauguration of the U.S.-EU Trade and Technology Council last month, an effort to coordinate trans-Atlantic trade and technology policies. The test of its relevance will be whether this becomes a ritualized bureaucratic check-the-box affair or a strategic vehicle to forge consensus on global tech standards and rules that leads to new trade accords.
Ernest Hemingway advised never to confuse motion for action. In the case of China, it appears that little change in our trade policies can be expected in the near-term. The U.S. must forge common positions with like-minded partners to gain leverage over China on trade and technology issues. In this era of geoeconomics, the administration seems to undervalue the importance of economic statecraft. It is more focused on “Buy American” and incentivizing onshoring investment, some of which makes sense, but is still a sign of economic retreat.
For me, the dilemma was summed up last month. The same week that the U.S. announced the AUKUS deal with the United Kingdom and Australia to sell Canberra nuclear submarines, China announced its intention to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CP/TPP). Though Beijing would have to reform its increasingly state-centric policies to gain admission, the irony is breathtaking.
What’s the connection? The U.S. tends to see strategic competition with China in military-centric terms. And while counterbalancing China is a crucial part of a smart U.S. strategy, the game is principally one of geoeconomics and geotechnology.
China is playing the long game, deepening its economic integration into the Asia-Pacific, while the U.S. has been retreating. TPP was envisioned as a key element of U.S. strategy developed by the Bush and Obama administrations and designed to enhance U.S. leverage in writing the trade rules for the 21st century. But Trump rejected the agreement, and Biden so far has shown little interest in rejoining.
It was Japan that salvaged a scaled back version of TPP after the U.S. deserted it. Japan would welcome the U.S. back and perhaps even accommodate U.S. concerns. As frustrated administration Asia hands have told me, there is no U.S. Asia strategy absent a robust economic component.
What’s more, the rest of the world is not trade-phobic. In Asia, in addition to CP/TPP, another region-wide trade accord, the Regional Comprehensive Economic Partnership (RCEP), includes China and many U.S. allies and partners. Similarly, over the past five years, the European Unions has inked trade accords with Japan, South Korea, the Association of Southeast Asian Nations (ASEAN) and Mercosur in South America. It has even signed a trade accord with China. That is serious hedging. The U.S. is the outlier as the world moves on.
The problem is that U.S. assumptions about trade are frozen in the past. In a compelling Foreign Affairs essay, Adam Posen of the Peterson Institute for International Economics shows how flawed assumptions are contradicted by the data. The backlash against globalization, the result of China’s joining the WTO in 2000 and the offshoring of manufacturing, was an understandable over-reaction.
The U.S. lost some two million jobs between 2000-2015, adding to a hollowing out of many communities. But China’s labor advantage is gone, and manufacturing has shifted elsewhere. COVID-19 has accelerated shifts to a scaled-back version of globalization, and job losses increasingly tend to be the result of advances in artificial intelligence (AI), robotics and automation than from trade. Posen’s conclusion is that the U.S. retreat on trade has not aided growth or decreased inequality or polarization.
Moreover, free trade is a net good for the economy. There are always winners and losers, and a big part of the problem is a U.S. failure to adapt, to craft a robust social safety net (e.g. portable health care and on-going skills training programs to link skills to jobs). This problem is growing as emerging technologies require new skill sets; it should be a Biden priority.
In any case, the near-term test of a Biden trade strategy is not just “to work with partners” as Tai pledged to do, but to forge common positions on urgent issues impacting the trade system. Most urgently, reform of the WTO, especially its dispute settlement mechanism, but also on subsidies and SOEs, would shape rules and help the U.S. gain leverage with China. Inertia on reform reached the point where the WTO’s new chief, Ngozi Okonjo-Iweala, recently threatened to quit.
Finally, if Biden is not ready to move toward the TPP, a baby step in that direction would be to advance an Asia-Pacific digital commerce accord, which would boost U.S. economic standing in the region and counter Chinese internet sovereignty policies. The U.S. already has a high-standard U.S.-Japan digital accord, and TPP similarly has such standards. Efforts by administration Asia hands to move forward have been stymied by the U.S. trade representative. If Biden were to override these objections, it would be a welcome sign that America is back. As the world moves on, the U.S. has little margin for error.
Robert A. Manning is a senior fellow of the Scowcroft Center for Strategy and Security at the Atlantic Council. He was a senior counselor to the undersecretary of state for global affairs from 2001 to 2004, a member of the U.S. Department of State policy planning staff from 2004 to 2008 and on the National Intelligence Council strategic futures group from 2008 to 2012. Follow him on Twitter @Rmanning4.
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