Nov. 6, 2020

How the Global Trade Agenda Might Change with a New President

Phil Levy

Chief Economist, Flexport

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We had a national election. The people have spoken. Now what does it mean for trade?

First, there is the matter that days after the election, a clear outcome is not as clear as we might have hoped. So, for the moment, let’s consider a particular scenario: Joe Biden becomes the 46th President of the United States, working with a Senate in which Republicans have a narrow majority, and a House controlled by Democrats. With big questions ahead, businesses await an outcome that may shape new strategies for the coming year.

During the campaign, former Vice President Biden deferred questions about trade by saying that he would focus on domestic concerns first. That he felt compelled to do so is one reflection of how divisive an issue trade can be. Case in point: During the Obama administration, there was a rift between those who were more skeptical of trade agreements (e.g. organized labor) and others who saw a rules-based, open-trading system as vital (e.g. much of the business community). Under President Trump, these traditional divides were blanketed by new concerns about China as a “strategic competitor” and questions about what role Congress should have in trade policy formation.

Even if a President Biden sidestepped these questions early on, it is going to be very difficult to postpone some big topics on the trade agenda once in office. Below are three large bins into which we can place pending trade issues as a guide to understanding the implications.

The Clock is Ticking

The Trump administration has not been shy about picking trade fights and pursuing opportunities. But after an active stretch from spring of 2018 to January 2020, Trump trade policy seemed to go dormant. In many cases, though, deadlines were pegged to (either explicitly or effectively) take effect at the end of the presidential term.

The most prominent example of this is the trade war with China. In January, the Trump administration reached a “Phase One” deal that set numerical targets for Chinese imports from the United States. By the time a President Biden would take office, it would be clear whether China had met those targets (and current indications are that China will not). Further, the Phase One deal did very little to address deeper concerns about Chinese economic behavior. Instead, those concerns were postponed to a “Phase Two,” though there is no sign that such discussions have occurred or made any progress.

A President Biden will have to choose to:

  • Follow the Trump approach and use the Phase One promises as a measure of Chinese behavior, or
  • Discard the entire process and take a different approach

There are also pending issues with Europe. Each side of the Atlantic has fired off a volley of tariffs in a burgeoning trade war over alleged subsidies to large passenger aircraft production (Boeing-Airbus). The Trump administration has also threatened further tariffs over French plans to impose a digital services tax in mid-December.

A President Biden will have to choose to:

  • Follow through on the tariffs and threats against Europe, or
  • Set the tariffs aside and try to recruit Europe as an ally in commercial disputes with China

Finally, there is the question of the United Kingdom (UK) and Brexit. The Trump administration has been negotiating a free trade agreement (FTA) with the UK. While the details have not been settled and some important obstacles remain (chlorinated chicken!), there have been multiple rounds of negotiations. And, with the UK’s transitional trade deal with the EU coming to a close at the end of the year, there will be pressure to agree to something.

A President Biden will have a pair of choices to make:

  • Adopt the Trump administration’s approach to the FTA, or
  • Suspend negotiations with the UK or restart with new objectives

And,

  • Help smooth over the looming tumult of Brexit, either through diplomacy or an overarching agreement, or
  • Leave the EU and the UK to work it out for themselves

All of these questions are likely to come to a head on or before Inauguration Day.

Sins of Omission

Beyond these pressing cases, there are a number of other issues for which inaction by a new administration might have serious consequences.

Perhaps the most significant of these is Trade Promotion Authority (TPA) legislation. It delegates authority from Congress to the President to negotiate trade deals and sets the terms under which Congress votes up or down on those agreements. The current version is set to expire on July 31 of next year, six months into the new presidential term.

TPA is a key reason why the Trans-Pacific Partnership (TPP)—painstakingly negotiated under President Obama—fell apart. That’s because the Obama administration waited until 2015 to pursue TPA, which meant that the TPP vote got pushed into 2016. Without TPA, trading partners are reluctant to make serious offers in trade deals.

But asking Congress for a new TPA is not so simple because it serves as a blueprint for all trade deals to come. It can prompt tough debates about what FTAs should look like.

At the same time, by not taking on a trade fight early in a new administration, a President Biden would have a difficult time credibly negotiating any trade deals.

A second such “slow-burn” issue concerns the tariffs applied under Section 301 (China trade war) and Section 232 (national security tariffs). These tariffs are in place now and will remain in place without executive action. While a Biden administration could leave them alone for a little while, after six months of inaction they would become a de facto adoption of President Trump’s approach.

A final pending issue of this sort concerns the World Trade Organization (WTO). Currently in a precarious state, it has been unable to deliver on major negotiations. It is stymied by two major impasses—appointing officials to its Appellate Body and determining who will run the organization as Director General. Any prolonged neglect of this issue could lead to dramatic decay of the WTO and the multilateral trading system it oversees.

Hopes and Dreams

Last of all, there are the issues that a President Biden might hope to address at a more convenient time. These could include an agreement to get the United States involved in the successor to the TPP, a trade deal with Europe, or perhaps a new agreement on how to reconcile environmental concerns with trade openness.

The problem is that there are important, effective constraints on when such deals can be accomplished, constraints that would be even more acute if it were a one-term presidency.

First, it is difficult to push trade deals through in the final year of a term, amid a politically charged atmosphere. The 2016 failure of TPP was the clearest demonstration of this. Instead, the third year of a term might be a better target for getting a deal passed.

Second, international negotiations take time. The TPP discussions that concluded in 2016 were first launched in September 2008. Even President Trump’s relatively minor modifications to NAFTA took more than two years to negotiate.

Third, to broker a deal, a president needs both negotiating authority (enabled by TPA) and key negotiating personnel confirmed by the Senate (US Trade Representative and officials at Commerce, State, and Treasury). The upshot is that a new president who wants a reasonable chance of getting a novel deal passed in a single term has a narrow, early window in which to start.

There has never been a president with a trade policy as volatile as that of President Trump. Given that, it’s likely that a President Biden would be more multilateral, traditional, predictable, and cooperative with allies. But the trade upheaval of the last four years will not subside immediately and the issues will land on the next president’s desk early, whether he likes it or not.

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