Huge uncertainties still surround US trade policy

Author: Editorial Board, ANU

Donald Trump’s presidency signalled a decisive US retreat from free and open trade and leadership of the multilateral trading system that had fostered unprecedented trade and economic growth for over 70 years.

Trump built his political claims to high office by drawing on a deep well of resentment among middle-class Americans who’d been denied the benefits of the gains from international trade by a national system for distributing them that was inadequate and broken. And he fingered the international trading system and foreigners, especially China, as the cause of America’s own problems and neglect and walked away from the Trans-Pacific Partnership trade agreement that the Obama administration had instigated.

By the end of Trump’s term, the initiation of trade war with China had ended in a rule-breaking and damaging managed trade deal and allies and partners were subject to trade imposts on grounds of national security. The appointment of members to the appellate body of the WTO, arbiter of the international trade rules that the United States had largely crafted, was stymied by US veto. The principles of international trade that still provide the confidence and trust on which global integration has been built, nowhere more so than in the Asia Pacific region, were under US attack and the rules being flouted by the world’s two largest economies.

Settling on a new, coherent trade strategy has not been a Biden administration policy priority. Policy attention has been dominated at home by recovery from the pandemic and the big infrastructure spend and abroad by the messy withdrawal from Afghanistan and security posture towards China.

US Trade Representative Katherine Tai’s slogan of a trade policy to serve America’s middle class is just that — a political slogan that has yet to gain any policy substance. Meanwhile, America’s middle class has dwindling income ripped out of its collective pocket by the tariffs that remain on Chinese imports, as both Tai and Commerce Secretary Gina Raimondo acknowledge that decoupling from the world’s largest trader is not a viable option.

The advent of the Biden administration held promise of a return to respect for international institutions, prominent among them the WTO. It was quick to remove the logjam around the appointment of its new Director General, Ngozi Okonjo-Iweala, and mend trade relations with Europe, albeit with total disregard for multilateral rules. But the US veto on appointments to the WTO Appellate Body is still in place, Biden too has eschewed the Trans-Pacific Partnership, now the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and is negotiating with China within the framework of Trump’s Phase One trade deal that disrespects multilateral trade rules in favour of bilaterally managed trade.

In our lead article this week, Gary Hufbauer and Megan Hogan say that ‘like Trump, Biden has struggled to craft an effective approach to deal with China. Multiple WTO cases have prompted China to reform individual aspects of its trade regime, but there has been no action through the WTO that’s persuaded Beijing to alter foundational features — namely forced technology transfers and subsidisation of state-owned enterprises. Trade battles have not relaxed US fears over China’s military and technology ascent’. True, there’s an agenda for global trade system reform, but the United States shows no inclination to engage on it nor to frame any overarching strategy that would deal with its trade policy woes.

The alternative is a piecemeal, ad hoc approach to building coalitions that subsume trade interests under other issues. Having mended its squabble with Europe, Biden promised at the East Asia Summit last October that he would present an Indo-Pacific economic framework for engagement with Asia this coming year.

As Hufbauer and Hogan explain, ‘meaningful engagement in the region faces a number of challenges, from both inside and outside the administration … The consequence of presidential neglect was that rather than push a single framework, Secretary of State Antony Blinken, Raimondo, and Tai each supported different and somewhat competing angles on Indo-Pacific engagement’. Access to the US market served to attract partners to the Trans-Pacific Partnership. With tariff reductions off the table, the administration is considering other incentives, such as funding capacity building, infrastructure projects, and green financing. Everything seems to be in the mix except trade…

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