A Course Correction: Joe Biden's Approach To Trade

A Course Correction: Joe Biden's Approach To Trade

"The most dramatic change from a Biden administration will be to stop relying on trade policies to solve non-trade problems."

By Susan Ariel Aaronson*

"The most dramatic change from a Biden administration will be to stop relying on trade policies to solve non-trade problems" writes Susan Aaronson, Research Professor and  Cross-Disciplinary Fellow and Director of the Digital Trade and Data Governance Hub at George Washington University in Washington DC.

On January 21, 2017, the day he began work in the executive office of the White House, Donald J Trump radically changed US trade policy.  He withdrew the US from the Trans-Pacific Partnership, an agreement his predecessor spent years negotiating.  Trump’s early actions signaled not just a new era of protectionism, but instead a new approach to trade built on bullying and economic nationalism.

Over the last three years, the administration has relied on a wide range of rationales to justify the imposition of tariffs.  As an example, it justified tariffs on Canadian steel as essential to national security.  In addition, it put tariffs on China in the hopes of reducing that nation’s trade surplus.  And it threatened tariffs on France for possibly imposing that nation’s use of digital taxes to raise revenues.  These actions, whether justified or not, did nothing to improve the competitiveness of the companies and sectors meant to be protected from the effect of globalization. Moreover, taken in sum, these actions are a form of industrial policy: favoring some sectors, firms, and workers, over others.  If some steel, aluminum, lumber, and home appliances firms benefited from Trump’s tariffs and quotas, overall these measures did little to address their problems of overcapacity, reduced demand, and the availability of alternative products. The fact is that Trump’s approach to trade is ineffective and inequitable.

Moreover, Trump justified such actions as essential to winning a war that only he was fighting—to reduce the trade deficit. But the US trade deficit kept rising. Lately, the US Trade Representative, Robert Lighthizer, has tried to argue that Trump’s trade policies were successful until the pandemic thwarted progress. If elected, Joe Biden will decisively change the direction and tenor of America’s approach to trade. He will return it to its longstanding mix of trade agreements designed to encourage the rule of law, open markets, and protect firms and individuals from harm.  One can expect that Joe Biden will appoint senior officials who believe in multilateralism and the rule of law.  He will also signal his new administration's adherence to the rule of law, transparency, and accountability, making them guiding principles for international economic policymaking.  As an example, the Biden campaign team has already indicated that it would work with allies to reduce dependence on China while modernizing international trade rules to secure supply chains for the US and its allies. Also, the election of Joe Biden would mean the end of the Trump administration’s efforts to undermine the WTO. The US might also, with some conditions, rejoin the TPP (now CP-TPP) to rebuild trade relations in Asia.

The most dramatic change from a Biden administration, however, will be to stop relying on trade policies to solve non-trade problems, such as overcapacity in steel, autos, and semiconductors. Instead, the new president will use the power of government to foster American competitiveness by investing in education, high-tech manufacturing, and data-driven change. He will also use procurement policies (“Buy American”) to build markets and economies of scale and scope for firms owned by minorities and women.

This major course correction is supported by labor. American union leaders now recognize that protectionism and trade policies are not the right instruments to address longstanding problems such as deindustrialization and outsourcing.   Joe Biden has long been arguing that Trump’s approach is inadequate to meet the challenges of the changing world economy. Trump’s focus on bilateralism comes with real costs. Bilateral negotiations are time-consuming and entail significant negotiating resources. Even when “successful” in narrow market access terms, firms can incur significant transaction costs from having to navigate the resulting tangle of inconsistent or conflicting rules.

Multilateral trade rules—such as those embodied in the WTO—bring more predictability and continuity to trade relations. With respect to one of America’s most important exports —digital trade— bilateral trade talks simply would not be useful because of the crisscrossing nature of global information flows. The platform for facilitating those information flows —the internet— is designed to be universal, open and global. That is why the system of rules governing trade in information flows needs to be global as well.  A Biden Administration would be more likely to bring the WTO’s e-commerce talks to a successful conclusion.

*Dr. Aaronson is Research Professor, Cross-Disciplinary Fellow and Director of the Digital Trade and Data Governance Hub at George Washington University in Washington DC,.Aaronson is also Senior Fellow, Economics, Centre for Governance Innovation, Canada.