The State of Trade: Biden Administration Trade Policy - One Year In

Phil Levy: Hello everyone. Thank you for joining us with today's webinar, The State of Trade Biden Administration Trade Policy One Year In.

We always recommend reaching out to a Flexport expert to discuss your particular situation.

Alright, now down to business. I'm Phil Levy, I'm Chief Economist at Flexport, and with me we have two savvy Washington trade veterans, to discuss stuff. I'm thrilled to have Scott back. I think it was your second appearance.

Scott Lincicome, who's the Director of General Economics at Cato's Herbert A Stiefel Center for Trade Policy Studies and as a Senior Visiting Lecturer at Duke University Law School where he's taught a course on International Trade law. He previously taught International Trade Policy as a visiting lecturer at Duke and before doing all of this, he spent two decades practicing international trade law at White and Case where he litigated national and multilateral trade disputes and advised multinational corporations on how to handle global trade rules and national regulation. Scott, welcome. Scott is being muted and well behaved.

Alright, we'll hear from Scott soon. All right, Ed Gresser is Vice President and Director for Trade and Global Markets at the Progressive Policy Institute, where he has returned after a distinguished and rather unique stint in government. That's my amendments to his bio. He most recently served as the Assistant US Trade Representative for Trade Policy and Economics at USTR. In this position, he led USTR’s Economic Research Unit from 2015 to 2021, and chaired the 21 agency trade policy staff committee. He was also the recipient of the 2013 Washington International Trade Association Lighthouse award. Awarded annually to an individual or group for significant contributions to trade policy. Ed, it's great to have you with us.

Ed Gresser: Great to be here. Thank you.

Phil Levy: Alright. So, we have a bit of, so that's our All Star lineup. Let me move on and say what we're going to be talking about and give you an idea of what we'll cover today. So as background, it's never entirely clear when one should take stock of its administration's progress on trade, it's been about 13 months as an environment took off. That it's been about 11 months, since the US Trade Representative Katherine Tai was confirmed by the Senate. On average, that's a year. So it's a nice round number and it gives us an excuse to look at what's happened.

I'd also make the argument and my guests can disagree later if they like, that the first year of a presidential term is especially important for trade policy to the extent that you're going to do stuff with trade agreements, on that they're an important part of that policy. There may be a somewhat narrow window to negotiate them and complete them. Given all the legal requirements, we'll get into that a bit. Surrounding agreements and the political constraints that can make it hard to finish something in an election year. We'll get to all that in the specifics.

But I think we can start with two very general points that one can't really argue which is one, President Trump had a very different trade policy from any recent predecessor. And two, President Biden had been broadly critical of President Trump's policies on the campaign trail, and at times was specifically critical of his trade policies. So that was hardly the core of his campaign platform.

So we're going to be asking across a whole range of issues, how much has changed. So the issues that we're going to take on, it's a sort of two degrees on all this. We're going to look at what's going on with China in Section 301. What's going on the big trade war with tariffs? Then we'll turn to Europe, Japan and section 232. These were the steel and aluminum tariffs on national security grounds.

We're going to ask what has happened and what might happen if I put regional trade agreements, probably more accurate terms, preferential trade agreements since they can stretch across regions. But things such as the CPTPP, USMCA and so forth. They were going to ask whatever happened to multilateralism, such as the WTO. And we're going to conclude by trying to think what the Biden administration actually means by what it describes as the center of its approach, which is to have a worker-centric trade policy. They put out some material on that. But we'll make what we can.

We're gonna get started as we usually do by asking you all to weigh in. We've got a very general question about how you see this past year and trade policy. And I will acknowledge right up front, the rest of you, to compare four years of President Trump with one year of President Biden, so you can adjust your answers accordingly.

But here are the choices for the poll. Do you think when comparing President Biden and President Trump on trade issues, that A, President Biden has gotten more accomplished in a good way. B, President Biden has gotten more accomplished in a problematic way? C, they have different styles but the substance is pretty similar. D, President Trump got more accomplished in a good way. Or E President Trump got more accomplished in a problematic way. So we're trying to be as even-handed as we can here.

So let me ask you all to register your opinions. I'll give you a little time to do that you can vote essentially, who got more accomplished? And was that a good thing? Or a bad thing? Or did they end up pretty much the same with C being pretty much the same?

All right, we got a whole bunch of votes in, there are no wrong answers. And I know that we can't even see what you all are saying. So go crazy.

Alright, so what we are seeing is, interesting. So the sort of two in very close range as more votes come in. But I'm seeing that C appears to be in the lead at least for the moment with 36%. And E was 35%. So between, they have different styles. But the substance is pretty similar to President Trump got more accomplished, but in a problematic way.

Well, that'll give us some good stuff to talk about. So it's helpful.

Thank you all for participating. It is great to know what you're thinking. We'll come back with a couple more polls as we go along.

But let's jump into the issues. Let's turn to China. And this is obviously a central preoccupation of both administrations, both Trump and Biden and many legislators as well.

President Trump was very blunt in his criticism of past negotiating strategies. I think there were arguably two central novel features to his approach, the use of tariffs under Section 301, and then two, having a trade agreement that came out of this, which relied heavily and tried to avoid ambiguity by sticking with numerical targets as the so-called phase one trade agreement.

Under President Biden, the tariffs are still there, numerical targets haven't been, we can see on the next slide, actually.

US Exports to China Under Phase 1 Trade Deal

We put up some data about this prepared by Chris Rogers, our Principal Supply Chain Economist. And what you see here, the dark lines are what actually happened, the solid lines, the dotted ones, were the numerical ambitions under the Phase One agreement.

Scott, let me start with you. And first, you don't have to accept my characterization of all this. Did I characterize the policies accurately? And how do you compare what we've seen under President Trump and now under President Biden? Whoops, can't, are you muted? Or let's see.

Scott Lincicome: No, I'm not.

Phil Levy: There you go. I know. Now I hear you.

Scott Lincicome: You hear me now?

Ed Gresser: Yes.

Scott Lincicome: Okay. So I think that you characterize things relatively well, overall. The only thing I would add is that the Trump Administration's policy also, especially towards the end, we're starting to lean heavily on sanctions and export controls. That is important in things like semiconductors, of course. Given the, you know, global chip shortage.

But also, a really, what I would just call a frontal assault approach to trade and geopolitics, in that there was not much subtlety in President Trump's actions or his rhetoric. Whereas past administrations, you know, tried this approach of quiet diplomacy, trying to, you know, nudge the Chinese in the right direction without going just, you know, full frontal attack mode.

Now, as I've written, I think that the Trump Administration's approach was mostly a failure. And you know, quite frankly, I don't think just because of the missing the phase one targets. Now we can talk about whether it's wise to have phase one targets at all. Particularly when some of them are in for energy goods with wildly fluctuating prices and you the targets were in dollars, probably not that smart.

But, you know, I think that more broadly, the phase one deal was about getting China to change behavior on key areas intellectual property, to liberalize in other key sectors, not just on goods and things like financial services, and also to try to adjust Chinese trade policy, economic policy, geopolitics and the rest.

And I think in that broader context, not just on the phase one targets, the deal that was was a failure. You know, the tariffs imposed a lot of costs for the US economy and for the Chinese economy too. It caused all sorts of issues with exclusions and uncertainty and there are tons of economic studies there.

But also, I mean, let's face it, the US China relationship is in a much worse place today. I think, geopolitically, human rights, foreign policy, trade policy and the rest than it was four years ago.

Now, moving to Biden, not much has changed. Some of the rhetoric has changed. President Biden has made some initial movements related to getting other allies on board, President Trump was a very Gung Ho unilateralist. And so I think that, you know, if you look at there, that's about it, though the tariffs all remain in place. The phase one deal has technically still around, although, you know, it's two year we had these two year export targets.

And there has not been, I don't think, a really serious look at changing course. And I think that is purely not purely, but I think a lot of it is politics. Regardless of whether the tariffs make any sense, regardless of whether sticking with this phase one deal makes any sense. The fact is that the administration is quite convinced that China is essentially political kryptonite, and that moving on these issues would be very bad for Democrats in the midterms and for President Biden or Vice President Harris, whoever will be the Democratic nominee in 2024. And so that's essentially, I think, you know, really where we are, and probably where we're going to be going forward.

And then the last thing I would just add, is that a really I think key sign of where the administration is on a lot of this was that they are in court, vigorously defending Section 301, the law under which these tariffs were imposed, and the actions were taken. And the President's authority to take these types of actions under Section 301 and maintain them in that current scope. So I think that gives you a pretty good idea that they're not planning to change course anytime soon.

Phil Levy: No, that's, that's very helpful. And it's a very good reminder that this did all start with substantially greater ambition. It wasn't just a numerical target, as you say, it was much more than it. How do you see this? How do you see the history? And are you surprised by the approach the Biden administration has taken?

Ed Gresser: Great questions. I see a lot of it in ways that are quite similar to the way Scott sees it. A couple of things I would observe. One is that Mr. Trump and using unilateralism and tariffs and verbal abuse also used a lot of flattery towards the Chinese President. And that was also unsuccessful tactic. I would agree very much this agreement hasn't produced all that much.

If you look at the tariffs, we had 13 billion a year and tariffs on Chinese goods 2017. Now he has about 50 billion. If you look at the Chinese share of the US market, there's been a dent in it. They had 21% of goods imports, four years ago, and now they have 18. So there's been a kind of a swab of imports that has been kind of pushed from China into Vietnam principally in a few other Asian countries.

So you can definitely see there have been some real world changes that came from this, but they're mostly changing a source of about $100 billion worth of imports, which is nothing but it's not huge, and higher tariffs on goods is really a way of taxing mostly american manufacturers and construction firms.

Most of the China 301 tariffs are industrial inputs, whereas most of the permanent system is on retailers and families. So it has changed the nature of the tariff system significantly to the extent these stay in place, about doubled its size and shifted it from mainly consumer tariffs to about half consumer tariffs and about half business and industry taxation.

But in terms of changing Chinese policies, I don't think it's been very successful in terms of getting China to buy more things. China is quite a large importer and remains quite a large importer worldwide and of American products.

Some of the effects of the purchasing targets were to get China to again buy soybeans and airplanes, which they stopped buying only because of the 301 case. Others, you know, I think agriculture has turned up a bit. I mean, China definitely has a lot of agricultural import space. The services part of the agreement was very unrealistic. And I could see it at the time that no country had ever reached a level of services import growth that the agreement called for so you could say this isn't gonna work.

So what's happened is, we had an initial set of 301 case based on cyber theft and forced technology transfer. There was quite a professional damage assessment done by CEA were still used to work and USTR is economics office. That was about $50 billion. The rest of the tariffs are tips for tax and mutual retaliations.

So I think this hasn't been very productive. As Scott mentioned, if you look at the US-China relationship overall, you know, what is the state of human rights in China? What is the security relationship between the two countries like, it's not better. It may be the Chinese on a fairly well determined course set by the government that isn't all that influenced by things that foreigners do. But that just didn't turn it around for sure.

The Biden Administration has acknowledged this has not succeeded. I think it is well worth reading Ambassador Tai's speech in October at CSIS, where she goes through some of the history of the relationship, some of the challenges. She had seen growth while she was at USTR as a Lawyer, she was the lead, trying to negotiate quite very very well informed on these issues. She set out a series of problems that the agreement either did not succeed in addressing or didn't try to address.

So there is a roadmap for the administration to take, looking forward. I'll decline to speculate about politics and how electoral things interplay with this. But there is a, looking forward to the opportunity to have a different agenda, and one that might be more focused on the problems and economic challenges in the relationship. And I think this phase one agreement turned out to be.

Phil Levy: So it's Yeah, but the interesting thing is that on the campaign trail, President Biden did react in many of the ways that both of you described. That you described these are taxes on consumers and so forth.

Does he have the ability? I wanted to ask you to sort of do political handicapping? Let me put it this way, should we expect any sharp and we'll do sort of lightning round to conclude this, we got the rest of the world to get to. But should we expect any sharp change based on say what Ambassador Tai said in October or what you know of things? As we look forward, are these tariffs gonna stay in place? Or do we see a new direction? Scott quick answer.

Scott Lincicome: I See no real change, I really haven't seen any significant indication from the administration, whether it's on the tariff exclusions and the resistance there or in the courts, that they're going to change course on the tariffs anytime soon.

Phil Levy: Ed?

Ed Gresser: I tend to agree with Scott, I think, two things to be aware of, in my perception of the administration. And maybe some of this we'll talk about in the next round. One is that they see foreign policy very much through the lens of competition with several great powers, particularly Russia and China, that are disenchanted or never were satisfied with the US rules based order.

And in order to make, you know, succeed in this, you need to have policies that will have consensus among US friends and allies and also contents at home. And I think China policy generally and in trade will develop secondarily to those goals. Rebuilding relationships with the traditional US allies and having a trade policy that will have some degree of consensus within the United States.

Phil Levy: That actually makes for a very nice segway. Thank you to our next topic, which is, let's talk about the part where we call our allies national security risks. No I'm sorry, that's being a little bit snide on my part.

So let's talk about Section 232 of the Trade Expansion Act of 1962. Which the Trump Administration and it's kind of a novel way, used to get authority to impose tariffs on imports of steel and aluminum. And among the things, so first claiming national security as a rationale was a novelty. But then there was also the part here where this started hitting a lot of nations who were traditionally thought of as close allies of the United States, in political, in geostrategic terms, such as Europe and Japan.

That actually, we have had a development fairly recently from the Biden administration, where they have renegotiated some of those approaches, not blocking them or stopping them, but altering them and replacing tariffs, with some with a mechanism called a tariff rate quota.

So Ed, maybe you can tell us how we should think about this. How unusual this was to write a national security argument, whether you were surprised this rationale stayed in place and what's a TRQ anyways?

Ed Gresser: Okay. Well, I'm kind of defer a lot to Scott on this is a Trade Lawyer, and he will be, I think, quite capable of correcting and sharpening whatever I have to say about this, but it's a couple of things. One is that there is in the WTO and the GATT agreement, a long-standing exception that allows countries to take action on the basis of national security.

My personal impression of this, I don't think it had been used in the past, my impression of it would be hypothetically. The Government of Ukraine could ban Russian investment on the grounds of national security is, we are in an emergency situation and we do not have confidence in Russian investment investors hear I mean. That's sort of what comes to mind to me as a kind of predictable use of national security.

The Trump administration argument was, the US needs to have an indigenous steel manufacturing capacity. This is a basic industry that serves a whole lot of other parts of the economy. They had a faith in tariffs as a way to build up the steel industry. There's been a lot of experience with that in the past and hasn't always paid off. But I think it's definitely quite offensive to Europe and Japan, US allies to Canada and Mexico as well.

But the argument was not that the EU as per se a threat to us, but that we need to have US based steel manufacturing aluminum capacity. I would have thought personally that if there were a real threat to those industries, that that's what the safeguard laws are for. So I thought that the use of the National Security Law was, as you say, novel and odd and not something I would have advocated.

Phil Levy: And then, how about Biden, you were just telling us the Biden administration was relations with allies? And yet, they're still calling them national security threats.

Ed Gresser: No. I don't think they're calling national security threats. I think they do have, they do share with the last administration a sense that there's not enough manufacturing in the United States, and that some policy, activity and in some cases, industrial policy, and in some cases trade policy, will help to shore up the US industrial base.

They have worked out agreements with the EU and with Japan, to have a certain share of steel coming duty free, and the rest of it the are subject to a quota. And so I think this is very much in line with their hopes to rebuild relationships and confidence with US allies. But it was also kind of a clunky set of agreements. And it's not clear how well it worked. But it also reflects the strong desire to have that trade policy should not be a large headache within the Democratic Party, as was the case under President Obama and President Clinton. And so they do put a lot of effort and a lot of work into getting the Democratic Party and constituencies on board, and this sometimes involves trade-offs that the two rather clunky agreements.

Phil Levy: Okay, thank you. So Scott, I know you weren't a fan of the original action. Are you all good now with a system of TRQ's airfreight quotas?

Scott Lincicome: Not at all? No, I think I think it's a I mean, I'll piggyback off Ed's last comment. I agree with pretty much everything he said. But that, well, this is a classic case of balancing political realities, namely, getting the support of The United Steelworkers Union, and some very politically powerful steel makers in places like Pennsylvania, getting them on board and of course, their backers, Senator Sherrod Brown in Ohio, for example to maintain their support for other domestic legislative priorities and all that kind of stuff.

So politics on one side, political or sorry, geopolitical and economic realities on the other side. I mean, you start with the fact that and full disclosure went back when in my trade lawyer days, I actually participated in the original 232 steel investigation. So I know this stuff like the back of my hand, but I'll just note that the United States Steel Industry before the tariffs were imposed, had about a 70% US market share, they were not dying off. They had strong financials, they had gone through a bit of a mini recession, in ‘15 and ‘16, with a lot of manufacturers, but they were doing just fine.

They also, of course, benefited from hundreds of anti dumping and counter-bailing duty measures protecting discrete areas of the steel supply chain. So the case for a global tariff to protect the steel industry was pretty bogus. Particularly when in the early days it applied to Canada. Canada is literally part of our defense industrial base. And a lot of steel makers are integrated across the border. But and Mexico and then all of these other allies.

So I think the TRQ's again, really defy that economic reality. For example, the quota, the duty-free parts of the quota are significantly below historical averages pre-tariff. Meaning that there's really still a tariff applied, it's just going to be applied to a smaller amount of product. But the other big thing is anybody who deals with quotas knows the complexity of all of this.

On the EU side, the quotas are divided up by member state and by product. Looking at thousands of different quota levels applied quarterly, the Japanese only have about 50 or 60 of these things. And that type of complexity just further confounds the market. And it's going to ensure that prices in the United States stay pretty high, significantly higher right now than prices in Europe or the world export prices, which of course puts us manufacturers at a huge disadvantage.

But look, you know, the Biden administration is clearly trying to balance all of that, trying to balance with, you know, trying to get Europe and Japan and other allies to be happier about a situation that they are clearly ticked off about. Trying to get them to lift in the Europeans case and retaliatory tariffs on US exports, with again balancing it with the political realities.

The only thing I would add, however, is that I think the Koreans, South Korea is a huge, I think problem right now in this whole system. Because the Koreans in the Trump administration days agreed to a hard quota. That is again, way below historical level.

South Korea is a very important regional ally. And the South Korean government I think is pretty ticked about. They are now very much on the outside looking in and apparently the Biden Administration isn't given much the time of day. And I think that's, you know, going to be a potential thorn going forward until it's worked out. And then the other big one, of course, is the UK, but I imagine they're gonna work out something like the Europeans and Japanese got.

Nation Security Tariffs and Steel/Aluminum Imports

Phil Levy: No, that's an excellent point actually. If we go to the next slide, we'll see a little bit of data on all of this, where this is showing what happened to who was bringing in 232 still at berth. It doesn't highlight Korea, as you said, but you do see there's been some shifting around as various deals have been struck. And it's one feature of this approach, when one does quotas and allowing certain amounts, which is our general belief had been you set say, a tariff rate if you need to, it's supposed to be uniform, at least in a multilateral system across countries, and you buy from whoever sells you the best stuff at the at the lowest prices.

Here, you end up with sort of allocation, that's a part of the history we saw here was North American partners, Mexico and Canada, providing, presumably Canada predominantly providing substantially more of these imports.

I want to, before we leave this, let me just sort of put one question to each of you, for a quick round. So Scott, the question to you is that Ed made the good point, which is, you know, you look at the GATT and there is an exception there that says you can do national security things. If it's on the books, what's so wrong about using it?

And then Ed, my question to you which you can answer right after Scott answers his, is does this approach do what the Biden Administration approach do what they want to do in terms of clearing the decks and having now better commercial relations or better relations with Europe and with Japan, we've only touched on part of those relationships.

Scott Lincicome: So GATT Article 21, the big National Security Exception, it’s very broad and discretionary, and it thus was not the subject of really any previous litigation a little bit way back in like the 60’s, but the other big thing was that it was used sparingly, it was a bit of a third rail of international trade law and it was not used for straight-up economic protectionism like these 232’s the steel and aluminum 232’s were and that has really caused problems at the World Trade Organization. Dispute settlement panels that were constituted to look at these tariffs, they don't want to rule on this case because of the really significant geopolitical implications of telling countries what is in their essential security interest.

Well the Trump administration didn’t care and I think that's a another real problem with the 232s and the 232 model. I would just add that the other part that's buried in there is also the use of quotas very much looked down upon at the WTO for the reasons you described and for a lot of political economy reasons, you know giving out quota rents is pretty nice, but it raises all sorts of, you know as you said economic and issues. But that's another part of this, you know you're not supposed to, there countries are not supposed to agree to quantitative export restraints or quantitative agreements generally and yet they have, and so that's putting even more pressure on top of the national security stuff.

Phil Levy: And that's we're going to come back to that talking about the State of Agreements and what's happening with them, so that's a great preview. But first, Ed you told us before that a principal goal with the Biden administration was to have cooperation with the right kind of countries that we saw is, the ones who sort of had a similar vision for an international order, Europe and Japan would certainly count. Do you think that these restructurings accomplish that task?

Ed Gresser: Not enough themselves, I guess before I go to that I would say, Scott's point about the very sparing use of the National Security Exception is a really important one that it is a very big loophole if you want to use it as a loophole. And I think it is important to see it as something you use an extremist when your country is in danger, not as a economic management tool that you know, if you want to have a policy for tariffs on an industry that's what the safeguard agreement is there for.

So going back to your question, in and of themselves these agreements with Europe and Japan I think bring down the temperature. I mean I don't think either of them are fully satisfied with them, and for reasons that Scott is laid out pretty well, I think both of them feel this is a positive step. They're aware that the Biden administration has domestic politics as well, and that there's some constraints on it.

So I think you have to take this set of agreements in the context of whatever may come out of the US, EU Trading Technology Council, whatever the next steps are with Japan and with the, as we learn more about the Indo Pacific economic framework. And I think the general sense, I do think it's correct that the US allies feel the Biden administration is serious about rebuilding relations with them, that the President is personally serious about this, and that there's going to be some areas where they're not totally satisfied on trade. But I think they will say the administration heart is in the right place, and a lot of his actions are going in the right direction.

Phil Levy: Okay, that's helpful. All right, it's time to get back to our audience. And as we've already mentioned a bit about how, you know what whether the free trade agreements have shaped some of these flows, side deals or the multilateral system, we're turning the direction, let's go to a poll.

So, we are now going to ask, as we look forward to these things. When you think about possible trade deals, the US might strike, so what the Biden administration might do, which is closest to your view, is it that A: The most important thing is that the US joined the CPTPP, that's the successor agreement in Asia that followed on the TPP. B: We should really focus on digital trade, not unconventional trade deals. C: It's most important that the US conclude its deal with the United Kingdom. D: The US should focus on a multilateral deal, something at the World Trade Organization, the WTO, or E: Trade deals are overrated, let's stick with what we have.

So, let me ask you all, many of you have voted, let me ask the rest of you to register your opinion and then we'll compare what happened under the Trump administration and where we see the Biden administration going and what's happened on this. So, thank you for those who have voted, will sort of keep the poll open for a little bit more. It looks like interestingly, I don't know whether it's good, whether Biden administration will be happy with this, but by far the leader so far are D which is, the US should focus on a multilateral deal with the WTO, or A it's time for the US to join the CPTPP.

Alright, I'm not going to make, Scott I'm not going to make you guys actually vote on this. Thank you for everyone who has, this very interesting. We actually have almost 50% saying, let's be multilateral, which we almost never hear about multilateral. We're going to take each of these topics in turn, we're going to think about preferential which has been a lot more active, and then we will turn to multilateral, we're gonna listen.

But let's move on, let's talk about Regional Trade Agreements or Preferential Trade Agreements if you will, and let's move to the next slide.

Trade Deals - Dead or Alive

Alright. So prior to President Trump coming in, negotiating Preferential Trade Agreements was really a centerpiece of administration's trade policies, and that's been true, I think since the 1990s with NAFTA, so we saw multiple agreements under President Clinton, under President Bush, under President Obama, it was not at all unusual to see agreements that were started in one administration and concluded in the next. We can come up with a number or passed in the next, we could come up with a number of examples of that.

President Trump broke pretty sharply from that tradition by rejecting the Trans Pacific Partnership, the TPP right upon taking office. He then did some rewrites of existing agreements, Korea and NAFTA, with the NAFTA rewrite being passed as the USMCA. And then he launched some negotiations in sort of distinctive style with the United Kingdom and others.

One of the keys to this and we'll turn to our legal assistance, so Scott this is on you is, we know that trade promotion authority has lapsed, we want to know why we care. President Biden has not seemed anywhere near as interested in pursuing premiums, but they have started talking about this thing called an Indo Pacific economic framework, we recently had some details released. So Scott, where do we stand with free trade agreements as a tool now, and what change do you perceive if any?

Scott Lincicome: So I mean, I don't think we have a lot of real comprehensive free trade agreements in our near future. The Biden administration has been pretty clear that they do not want the Indo Pacific economic framework to be a comprehensive FTA. Now, the new strategy does have some indications of broader and deeper engagement. But the, and then the real tale there, I think is the lack of any mention of the TPP or now CPTPP, which is a pretty in at least on substance, and again, it's different from politics. But this on substance, there's a pretty clear opening there, the CPTPP members have been very clear that they would love the United States to come back, now the United States has to renegotiate its entry, because once United States withdrew they now have to rejoin, that would take some work. But compared to starting from scratch, there, that's an obvious place to start. And you know the TPP was originally meant to be, at least in part about engaging in the Asia Pacific region acting as a bit of a counterweight to China's growing economic and geopolitical gravity in the region and all that jazz.

But there really doesn't appear to be much interest, at least overtly before the midterms. Maybe that'll change after the midterms a bit, especially depending on who retakes Congress, the congressional Republicans have started hinting at TPP engagement, or CPTPP engagement. So maybe there's something there in November, December of this year. But, as you noted, Trade Promotion Authority is a big thing that needs to be figured out, I think. So for those on the call who don't know, Trade Promotion Authority is essentially the vehicle by which the United States negotiates and most importantly implements trade agreements, because it reflects a balance between Congress and the executive branch of the Constitution, Congress has tariff power, the President has foreign affairs power, TPA's kind of a handshake deal between them, and it allows trade agreements that the President negotiates to get fast tracked through Congress.

Now without that, theoretically the United States can negotiate and conclude trade agreements. But getting them through Congress would be extremely difficult, I believe there's only one US FTA the Jordan, US Jordan FTA that proceeded without TPA. TPA is a really integral part, it's really important also because trading partners want to know that they're getting the best deal that Congress isn't going to change the deal, and so they really value TPA too. So without it, you know the Biden administration can make some efforts on things like digital trade or supply chain resiliency or something, but you're not going to see the deep type of engagement that we've had in the past. And it should be noted, the deep type of engagement that our regional allies in the Asia Pacific really really want. So, this Indo Pacific economic framework stuff is nice, but it's not nearly as deep as what the folks out there want.

Phil Levy: So Ed, let me pose this to you, so Scott described sort of a divergence where our allies and the people in key regions really want this sort of deep engagement and it's getting less and less support in US administrations. Do you see that the same way?

Ed Gresser: Like I said, it's still an open question, still policy and development. If you read the Indo Pacific economic framework document, there's a lot of principles in it, there's a nod toward digital trade, there's nod toward free and open and fair trade in the region, yet to be seen how this will be fleshed out. I think fundamentally the document says, we and our Asia Pacific allies share values and common interests, we would like to proceed with them on the basis of those values and interests. So that is quite big departure from the Trump administration, which was more like, we are the victims of our tricky and unreliable, trustworthy so called allies, we have been cheated and we're going to get our own back.

So I mean, I think that does point to, at least a big divergence in the way the administration's are thinking. I think as both of you mentioned, the TPP is the largest most comprehensive agreement reflects a lot of American policy goals negotiated out in 2013 '14, '15, and '16. It's also quite controversial, I think one of the administration's principles is, they don't want to have a confrontation on trade within the party as happened very much over TPP. So that's the sort of choice that they're faced with you know, is it okay to go back to to TPP? Or is that going to lead to another kind of big intra democratic argument, and maybe not too successful agreement. Is there a different sort of agreement model that is contrast in some ways and we get more consensus, or is there some other? I mean, if I look ahead, if just thinking purely as trade and flows, and what is US need. Right now, the US is doing fairly well, we had a very large jump in exports last year with a large jump in imports, you know quite big trade boom as we were getting out of the depths of COVID. Will that last? I don't know.

If you look ahead you see, I think a couple of things that are quite worrisome, one is that you have TPP in effect or CPTPP. That means some substantial amount of tariff differentials against American exporters and some diversion of trade away from United States that will be amplified by Regional Comprehensive Economic Partnership. This is a 15 country agreement with China and Korea and Japan, Australia, New Zealand and the 10 ASEAN members. And that came into effect January 1st, and will continually be cutting away tariffs internally.

So at a kind of simple and non comprehensive sub level, we're gonna see more tariffs discrimination against US exporters, against chemicals, against foreign products, against cars and so forth, than we now see. And the digital area, there is a similar phenomenon, very strong, very focused efforts by China to design a digital policy framework that is not at all consistent, or with the US sort of traditional approach of open data flows, free flow of information, of sorts of things.

And so, when we are thinking about agreements and administration thinking about agreements, we're doing so from, I think a short term position which is fairly good, that there isn't really an emergency. But there's several long term problems that are going to get more significant with the passage of time. And so these are going to be important decisions, and at some point you may have to accept some domestic stress to secure international growth, or you at least be faced with the choice between them.

Phil Levy: That's a very good point, and actually, so Scott let me give you the opportunity to quickly close us out on this issue, where Ed is described how there's some laudable goals, some important things in, like the Indo Pacific economic framework. There's concerns about having rifts within a party, some of the political things. Do you see from say, a legal standpoint or somebody who sort of as an experienced analyst and observer of this, are there alternatives? Are there ways that one can do this without having sort of the contentious debates we've had in the past? Or do we have to make the kind of trade offs that I'd just talked about at some point in the future?

Scott Lincicome: Yeah, I don't really see much of a way to get around having some political discord. Because you have a pretty staunch opposition from say, United Auto Workers Union, Steel Workers Union and strong democratic constituencies, and then I would say some on the environmental side as well, that really see this type of deep engagement as problematic. Now, there are some potential fixes, for example, the types of rules of origin in the USMCA that the Trump administration negotiated.

The unions really liked those in the automotive space, because they insured a lot of domestic content, but getting the CPTPP members to agree, I mean, it's very very tough outside of Canada and Mexico, which are so reliant on the US market. So I think at some point you know, you are going to need a bit of a Sister Souljah moment on this stuff too, because you, this type of comprehensive engagement necessarily involves economic competition and some folks don't want that.

Phil Levy: And our older demographic is going to appreciate you doing old school with a Sister Souljah moment.

Scott Lincicome: Yeah, sure.

Phil Levy: Okay, cool. Well, we're going to go old school because once upon a time. Next slide, please. The sort of the paradigm for how one really ought to conduct trade policy was that you should, because it was having a nice multilateral rules based system. That was what was supposed to cover thing as we discussed earlier, it was a way to make sure things were even handed. Let's go to the next slide.