The United States has a new chief trade official. Katherine Tai was unanimously confirmed as the next US Trade Representative (basically trade minister). As USTR, Tai is expected to develop and execute US trade policies.
The extent to which American policies on trade are adjusting remain to be seen. Thus far, Tai has been relatively quiet on her objectives, speaking only during her confirmation hearing. She has to hire her three deputies and a chief agriculture negotiator who will help flesh out and deliver policies.
The early signs, however, suggest that potentially important changes are on the horizon. The key buzz word is that from now on, the US will pursue “worker centered” policies.
It remains unclear what “worker centered” actually means. In practice, the phrase is likely to mean different things to different people.
It will take cues from long-standing Democratic party objectives to support organized labor and environmental protection. These concerns have been embedded into a series of trade agreements for the United States, including the renegotiated NAFTA or USMCA. Tai took the lead role of shepherding the final USMCA document through Congress and building support from within Capitol Hill for the agreement. Her personal ability to forge bipartisan consensus on renewal helped with her smooth passage into her new role at USTR.
US President Biden has suggested that trade agreements are not going to be part of American trade objectives in the near term. This suggests that worker centered policies will need to be anchored in something other than trade deals.
Where might they be found? In large measure, it appears through enforcement. The US is likely to be giving extra scrutiny to US trade partners under various free trade agreements (FTAs) and other preference programs. It will also be looking hard at obligations and commitments made at the World Trade Organization (WTO) which have not been pursued with sufficient vigor by members.
The US is also likely to change its position on a number of domestic policies. This includes an increasing use of “Buy American” policies and a probable review of US commitments under the WTO’s government procurement agreement and other similar chapters in existing FTAs.
This thorough review process will also take place across a wide range of issue areas. It’s not just that the US is coming off a tumultuous four years of radically altered trade objectives under the Trump Administration which put into place a series of unusual policies. Many of these existing trade arrangements and tools will need to be reassessed under a new administration.
Not all past Trump objectives are likely to be undone. Biden has also been issuing a series of Executive Orders. It could be that some of the national security arguments drawn up during the past four years will continue to be in play for the next four years.
Every change in administration, and particularly switches between parties, results in some review of existing practices. But the early signals from Biden and Tai suggest that, whatever ultimately gets folded into the worker centered approach will be quite different from previous policies.
The global landscape has also been significantly altered. The ability of the WTO to drive a trade agenda has been severely compromised. The US-China trade war has altered trade patterns. Covid and associated economic disruptions have delivered additional serious pressure to a weakened system.
Collectively, these changes require careful assessment by any incoming US administration. Before the Americans can engage in discussions about possible reforms at the WTO, for example, it is important that the new staff reflect on the current state of play and how any policy options on the table fit (or not) with the objectives of the Biden administration.
It seems quite clear that Biden would prefer to spend time on purely domestic conditions for an extended period. He has just pushed through a significant economic stimulus package. He is turning his attention to infrastructure. His team has been rapidly ramping up vaccinations and efforts to more effectively manage the pandemic.
The world, however, is not going to wait until the US has decided the timing is right for it to return to the room.
There have been significant changes across the past few years. Just consider the WTO for a moment. New actors that have never taken strong leadership roles have emerged to try to design and push reform agendas and delivery of potential packages on a range of topics. These invigorated members are unlikely to suddenly sit back once the Americans enter the room.
Other than the USMCA and yet another round of revisions to the US-Korea FTA, the United States has not negotiated or signed any trade deals since January 2016 when the Trans-Pacific Partnership (TPP) was concluded.
In the meantime, the rest of the world has continued to enthusiastically sign agreements. Two huge regional deals have been concluded, the African Continental Free Trade Agreement (AfCFTA), which entered into force at the start of the year, and the Regional Comprehensive Economic Partnership (RCEP) in Asia, which is likely to become active at the end of this year. The trade deal the United States left, the TPP, was redesigned as the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), launched in late 2018, and will be expanding this year.
An American focus on enforcement is unlikely to be met with enthusiasm by many trade partners.
A United States that tries to protect or support American workers may be surprised when other governments opt to try the same sets of policies—if the US can insist on local jobs for local workers, so can all other trade partners. The net result will be less trade for many. This may appear to be delivering on a promise of results to workers, but is likely to result in less economic growth overall. Less growth is unlikely to deliver more jobs.
Even the one area where the US might fashion an offensive agenda, on digital trade, could quickly run into obstacles. While the US has been largely absent, many members have been crafting all sorts of e-commerce commitments, trade agreement chapters or digital-only trade deals. US policies may, or may not be, automatically in alignment with these existing arrangements.
In short, while it is certainly welcome news that the US has in place a new USTR to help drive the trade agenda, it remains unclear how well a refashioned agenda will fit with existing ambitions and ongoing plans of other countries. While many trade watchers have been hoping for a calmer period ahead, it is likely to be a much bumpier ride than many might be expecting. Buckle up!
***This Talking Trade was written by Dr. Deborah Elms, Executive Director, Asian Trade Center, Singapore***