US trade policy

Revoking Normal Trade Status

Revoking Normal Trade Status

In short, there are at least three ominous implications of revoking PNTR.  First, the United States would be reversing a bedrock principle of the global trading system—to avoid discrimination.  While regular readers certainly know that the system has been under tremendous pressure, it has continued to function as a brake on all kinds of otherwise possible unilateral actions by all World Trade Organization (WTO) members.  This brake will be gone if the US explicitly opts for discrimination. Second, while some supporters of revoking PNTR seem to suggest that this action will be limited to China, once the brake is gone, it is gone for all.  There is little reason to think that others will not opt to do something similar, including against the United States.  Hence, businesses should be extremely concerned that their “foreign” products and services in markets around the world will suddenly be targets for all sorts of actions, starting with unilateral adjustments in tariff levels and moving towards outright discrimination in treatment over foreign products in markets.  Some could argue that firms already face a range of discriminatory actions in different markets, particularly with inconsistent application of non-tariff measures, unequal licensing requirements, or generally unfair trade treatment.  However, these measures are actually quite restrained compared to what will happen in the total absence of MFN. Third, as always, the worst damage is likely to be felt by firms and communities that are already at the margins.  Poor developing countries and small firms are going to be badly hit by adjustments to the global trading rules.  Without a strong network of trade agreements in place to help cushion the blows, sudden adjustments in tariff rates, differentiated customs treatment, denied access to services markets, rejections of licenses or qualifications, and restrictions on movement of business people will make trade increasingly difficult or even impossible across borders. 

Biden’s Trade Policy: Modern American Industrial Strategy

Biden’s Trade Policy: Modern American Industrial Strategy

One way to interpret much of Sullivan’s speech is that it attempts to make lemonade out of lemons.  Given that the White House has had little cooperation with Congress, much of the economic agenda outlined by Sullivan will have to be enacted through Executive Orders.  Having foreign policy driven by this process severely limits the scope of the possible.  For example, while Sullivan rails in the speech about a focus on tariffs in the past, this is also an area of Congressional responsibility.  Unless and until Congress is prepared to address tariffs, the topic cannot be added to any negotiated trade agenda.  Declaring that tariffs are the root of all evil is a handy way of avoiding doing anything about them. Something similar is likely for a wide range of potential foreign economic topics which require or are enhanced by Congressional support.  Absent endorsement from Congress, it is necessary to come up with a complicated and complex agenda that allows the US to engage on economic issues with potential friends in Asia and elsewhere. Even within topics, the scope of commitments can be constrained by self-imposed negotiating limits on potential American actions.  This includes, as Talking Trade noted earlier, funding to support an IPEF or broader trade agenda, unless resources have been allocated elsewhere and can be readily redeployed.

IPEF: The Party Few Wanted to Attend

IPEF: The Party Few Wanted to Attend

The final document, released by US President Joseph Biden, ran to just over a page. It described the elements of the proposed framework, which include four pillars of activities. Only 12 governments have agreed to think about starting to discuss something in the future. Why was this party such a disaster? In a nutshell, because the US was promising to hold a very dull event. It was not just that the food and beverages were going to be either bland and uninteresting for some party goers or inedible for others. The proposed music was not danceable. But much worse, the hosts had a series of activities planned for the party. These activities were, in fact, mostly quite unpopular for the proposed guests. The individual games or plans were largely built to suit the hosts without much consideration of the needs or interests of potential guests. These activities are also set to continue long after the original launch party ends. Some could, in fact, take years to wrap up. Guests could be committed to regular gatherings for an indefinite amount of time. While some of the activities have titles that are unobjectionable, others may be quite problematic. The description of these events is so brief and so bland that almost any sort of outcome could be imagined. There is no way to tell how involved any guest will have to be at any given time. This sounds less like a fun party and a lot more like work.

Congressional Testimony: Trade Policies in Asia

Congressional Testimony: Trade Policies in Asia

The trade and economic landscape in Asia is rapidly evolving. While there are many activities that I could mention, I will focus my testimony today on four regional trade arrangements: the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); the Regional Comprehensive Economic Partnership (RCEP); a set of digital trade deals known as DEPA or DEAs; and the upcoming American-led Indo-Pacific Economic Framework (IPEF). I will attempt to explain how and why these agreements matter for Asia and describe some of the implications of this evolving regional architecture for the United States. I will conclude with a few brief suggestions about how craft an IPEF that best fits into a complex economic landscape. Let me begin with the CPTPP. The CPTPP came into force in late December 2018 and now has eight active members: Australia, Canada, Japan, Mexico, New Zealand, Peru, Singapore, and Vietnam. The UK is in the middle of accession talks and hopes to be part of the group by the end of this year. Three additional formal letters of application were received last fall, from China, Taiwan, and Ecuador. South Korea’s outgoing government pledged to submit an accession request this month. There are three important items on the CPTPP agenda for this year: members must review the agreement; conclude accession negotiations with the UK; and decide on a process for addressing pending applications.

US Trade Policy Under Biden: More of the Same

US Trade Policy Under Biden: More of the Same

United States Trade Representative (USTR) Katherine Tai gave what was billed as a major speech at CSIS outlining US trade policy on October 4. A careful review of China policy has been underway for months and Tai’s speech was to deliver the results of this study. At the end of her prepared remarks and a short round of questions, observers were left with few clues about the future trajectory of US policies and little detail beyond broad brush strokes already sketched over previous months. What was made clear is that US trade policy, in practice, is not likely to look substantially changed from paths pursued by the previous Trump administration. In fact, if Tai’s speech were read alongside similar policy statements made under the Trump team, it would be difficult to pick out who said what. First, Tai argued that China has failed to follow appropriate actions or adjust its bad behavior despite a long history of engagement. The approach used under the Trump administration, in particular the Phase 1 agreement, may not have been exactly the model she would have chosen (what model she might have thought more suitable was not discussed), but it remains in place. Tai did express distain for the term “Phase 1,” even as she essentially promised to follow it. Tariffs will continue to be imposed on Chinese imports, although the administration will restart the process of reviewing requests for exclusion. With limited details available on the process, however, it is unclear whether tariffs will be waived in large part, or only in limited circumstances. Nor was there any clarity on how long the process may take to conclude. Given the relatively limited time “left” on the Phase 1 agreement, even a short delay may deliver only modest benefits to US firms struggling to manage tariffs of up to 25% which have now been imposed, in some cases, for years.