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Perspectives: The world needs a new US trade policy but real change seems unlikely

The number of trade issues facing the new US administration is strongly related to unchanging policy fundamentals, exacerbated but not created by the Trump administration, and unlikely to change under president Joe Biden, writes David Henig.

There is no mistaking the relief generated around the world by the end of President Donald Trump’s administration.

Four years of turmoil which in trade threatened the end of the World Trade Organization, endless trade wars, and a return to high tariffs. This was made worse by the fear the failure of ‘America first’ policy prescriptions would lead to even more of the same.

For those thinking about what comes next the relief is however short lived.

The trade policy inbox of the incoming administration is daunting, involving a series of difficult and in many cases long-standing issues which cut across each other. For example a focus on domestic economic issues and interests needs to be balanced with trying to end the trade wars with the EU in part caused by those same economic interests. Similarly the desire to build alliances for a sustainable China trade policy will also need to take account of US exports and any ideas of WTO reform which would require support from China.

Given the contradictions it feels like new thinking would be needed from the new administration to see meaningful progress on these matters. As yet the only sign of change is in style rather than substance.

Long-running US trade policy issues

Most of the issues facing the new administration did not originate in the last four years. For example the Airbus / Boeing case dates back to 2004, and the EU ban on hormone treated beef was first contested in 1996. US concerns over the WTO Appellate Body date back to the previous Democratic party administration under President Obama.

Obama was similarly concerned about the rise of China and threat to the US position from this. His answer was to negotiate the two mega-regional trade agreements, TPP in the Asia-Pacific and TTIP with the European Union. The aim was stimulating economic growth, creating a network of trade agreements with friendly countries, and maintaining US influence over global economic rules.

Both projects were in effect rejected: TTIP by an EU unable to find sufficient common ground, and TPP by a US public more concerned about possible negative economic impacts than China containment.

The US is a country increasingly struggling to deal with others. Its last full new Free Trade Agreement was reached in 2012. Under Trump there were only mini-agreements with Japan and China in 2019, and updates to US-Korea and the agreement with Mexico and Canada. Biden’s ‘domestic first’ approach may, on this reading, simply be recognising politics.

Meanwhile trade policy irritants with others, but particularly the EU, continue expanding. By 2016 fundamental differences on data flows were in the spotlight. Since then proposed Digital Sales Taxes in various European countries created further friction with the US administration.

There are also long-standing differences on the use of technical standards. These add to the SPS issues that include beef hormones, chlorine washed chicken, and ractopamine in pork.

It is indeed hard to think of many meaningful trade policy issues that the EU and US have resolved in the last 25 years.

US reluctance to change trade policy

I recall speaking with a US official in 2018 who suggested that one advantage of the Trump administration was that unexpected change might be possible from a President hardly wedded to previous orthodoxy. But the agreements reached with Japan and China saw typical US priorities of agricultural export prioritised. The rifts with the EU deepened. The protectionism of Buy America programmes was supplemented with tariff increases in various disputes, and more restrictive rules of origin in the US-Mexico-Canada renegotiation.

If there is anything we should learn from the last four years it is that US trade policy positions are strongly entrenched. The US’ Advisory Committee system of stakeholder involvement seems to prioritise the most powerful interests in agriculture, pharmaceuticals, and IT.

Consensus in Congress is hard-fought but easiest to coalesce around opening up export markets while retaining existing domestic protectionism. This means aiming to force the lowest US agriculture standards on trade partners even while California and other states reject them. Under these circumstances the lack of new trade agreements is hardly surprising, it isn’t a great offer to other countries.

Internationally, the US’ difficulty in achieving compromises remains as one writer stated “the country’s chronic sense of global ascendancy”. The US wants to set global trade rules. But so does the EU, and for many years the EU has been doing it better, as documented by Anu Bradford in “The Brussels Effect”. The US – and the EU – also want flexibility applying the international rules, which hardly helps in trying to resolve the Airbus-Boeing case.

EU and US – finding a way to disagree better?

Major changes in US trade policy thus seem unlikely, particularly with the new administration drawing so heavily on experienced personnel.

A new focus on climate change will be welcome, but on past evidence there is a significant risk that implementing differently to the EU sets up further disputes.

The EU have suggested the US and EU set up a Transatlantic Trade and Technology Council, to set new standards for new technologies. But this sounds rather close to the Transatlantic Economic Council which has failed to resolve long running disputes. Perhaps more pragmatically Brussels has also been emphasising ‘strategic autonomy’, as well as a China-EU investment agreement, as if no longer believing in the possibility of reaching agreement with the US. Both the US and EU may emphasise enforcement in the coming years.

In the absence of meaningful US policy change perhaps the best we can hope for is some sort of truce with the EU. Without this meaningful progress on global trade issues such as WTO reform or China state capitalism seems unlikely. Unfortunately focusing on enforcement may reduce the chances of even this.

The big trade choices for the US, and the EU in responding, are thus far deeper and more difficult than commonly understood. Not making things worse will be a good start, but ideally in four years we need to see the world trade system a lot stronger than it is now.

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

 

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