Biden’s trade policy : A partial reset

Macro

Christopher Dembik

Head of Macro Analysis

Summary:  The Biden administration will be more moderate and mature on handling foreign affairs and will undoubtedly adopt a more multilateral approach on international trade issues, but a U-turn policy on China is very unlikely. The rhetoric will change, but the new administration will most probably pursue the same list of grievances against Beijing than its predecessor.


With a new administration now taking the reins, the question remains to know what will be the relationship between the United States and the rest of the world in the next four years. There is no denying that the perception of the United States has already changed in the international scene, and there is also no doubt that the United States will move away from the belligerent rhetoric that characterized the Trump administration. Trade policy will not be at the core of the US agenda in the first months of the new administration as its main priority will be to revive an economy slammed by the pandemic, but the issue of trade agreements and tariffs will be the second top issue that the president elect will need to deal with. We believe that the Biden administration will adopt a Jeffersonian stance in foreign policy (as was the case with the Obama administration), will favor a multilateral approach and will push for reconciliation with the Europeans. Biden’s trade policy will mostly aim at China, thus pursuing the same list of grievances than the Trump administration.

With all that in mind, here are our expectations regarding the evolution of the US trade policy under a Biden presidency, focusing on five main topics: the WTO and its appellate body, climate change and its integration into trade policy, tariff policy, trade relations with the EU and China.

-- WTO : Under the Trump administration, the WTO was by-passed, the United States did not comply with the rule of law in international trade, and unilateral actions were taken by Washington to defend its own trade interests. US concerns about the WTO and its efficiency to address trade dispute won’t disappear from one day to another, but a more conventional Biden administration is likely to try to reform the organization from inside, which would ultimately revitalize the WTO and its appellate body and ensure that trade flows as smoothly, predictably and freely as possible.

-- Climate change: With the United States expected to rejoin the Paris climate agreement in early 2021, climate change will be at the core of the US security and trade policy in the next four years. The president elect has already pledged to put further pressure on countries to adopt more ambitious targets, using if necessary American economic leverage (more probably resorting to development aid than tariffs for instance). It will be the first time ever that the three main superpowers (the United States, the EU and China) will be fully aligned regarding climate change, thus potentially leading to concrete achievements to fight against this global issue in the near future.

-- Tariff policy (in general terms): Biden’s trade policy will differ from Trump regarding tariffs. The Biden administration will probably refrain as much as possible from resorting to tariff threat and will adopt a more multilateral approach to promote its international trade agenda. With a very divided Congress, where Republicans are likely to keep control of the Senate, the new administration will have more limited room for maneuver in terms of trade policy. The Congress is inclined to take back its tariff authority and at least subject any “national security” measures to greater congressional oversight.

-- Section 232 tariffs on steel and aluminum : End artificial trade war with Europe, which means withdrawing aluminum and steel tariffs and removing the threat of auto tariffs. This is a necessary step to boost Transatlantic relations and create a united international front against China’s trade practices. During the campaign, Biden confirmed he would immediately consult with US allies before deciding on the future of US tariffs on Chinese goods in a bid for collective leverage against China. It will be an easy task to set up a coalition of countries that are not happy with China using loopholes in WTO rules to unfairly compete with foreign firms. In contrast with the Trump administration, the Biden administration understands the United States can advance its interests more effectively trough coalitions, using a multilateral framework, than unilateral initiatives and omnidirectional belligerence. Ultimately, this new approach could be much more challenging for Beijing.

-- China : Containing and confronting China is a strategic consensus between the two major political parties in the United States. Therefore, we don’t see Biden rolling back Trump’s tariffs on Chinese goods – tariffs and Phase One deal will remain in place, at least initially. Assuming China’s incomplete V-shaped recovery continues, the pace of Chinese purchases should further increase, which would be another good reason to keep the Phase One deal fully operational. On China, Biden is more or less aligned with Trump, meaning he will essentially pursue the same list of grievances than his predecessor. The main difference is that he will work in close coordination with the EU, Japan and Australia in this matter. We thus expect that China will be one of the main trade concerns in the next four years, with increased scrutiny on Chinese subsidies and non-market practices. The rhetoric will undoubtedly change but tensions will remain at very high level.

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