By Andrew Busch and Leah Hamilton
Wondering if the Trump Trade wars change under Biden? This research reviews the current and proposed trade policies of President Donald Trump and presumptive Democratic presidential nominee Joe Biden. Prior to COVID-19, global trade and supply chains were under pressure due to the reworking of NAFTA (now USMCA) and the ongoing US-China trade war. The virus outbreak and subsequent shutting down of the global economy have now driven these trade issues to new lows. Making matters worse, many countries have taken protectionist stances and have closed their borders, have kept medicines and equipment for their own populations, and have closed down trading relationships. As the world’s largest economy, the United States’ trade policies are critical for reigniting global growth in trade.
There are a number of trade policies and areas of disagreement that we have already covered with regard to all of the Democratic candidates, including Biden. (Andrew Busch) However, when COVID-19 struck, global trade faced a rapid and severe decline. (LA Business Journal) Aik Hoe Lim, Director of the Trade and Environment Division at the World Trade Organization (WTO) has “compared the pandemic and its impact on the global economy to a war” with trade expected to decrease by 13-32% in 2020. (IISD)
Within a greater theme of deglobalisation, trade will continue to face contractions, with further moves towards protectionism. The pandemic has “greatly increased the use of subsidies while changing the balance of traditional trade policies towards restricting exports and reducing import barriers.” (VoxEU) This approach is guaranteed with Trump, but a question remains around whether Biden may also shift in this direction. (The Atlantic)
Key takeaways:
- Biden and Trump take opposite approaches to the trade relationship with China. Biden is likely to soften the relationship and reduce tariffs, but not completely. In addition, Biden wants to form global alliances to influence China, while Trump’s policy is premised on aggressive, unilateral tariffs and an America First policy stance.
- Biden’s trade policies tend to have many other policies intertwined, particularly when it comes to the environment, climate and social issues. Trump’s approach is more narrow.
- Trump’s protectionist and anti-global approach to trade is in stark contrast to Biden’s more multilateral stance.
Biden
Since his position in the Obama administration, Biden’s trade policies have not changed significantly. Instead, the “biggest shifts seen in Biden’s approach to trade do not necessarily reflect a change of opinion but rather a change of context.” (CSIS) Prior to COVID-19 and the rapid shift away from globalisation, Biden had released several policies on trade that echoed his long-standing views. These policies are laid out in his Plan for Rural America, his plan on Climate, and his foreign policy plan on American Leadership.
The primary takeaways from his Plan for Rural America is that policies would be pursued to support American farmers, including trying to establish strong trading positions for US agricultural goods. He does not set out further details on how this would be carried out. (Joe Biden)
Biden is in favor of free trade agreements, and many of his trade policies would also include climate-friendly approaches, as he believes the US can “no longer separate trade policy from [its] climate objectives”. He would also require trade partners to meet certain climate and environmental targets, or be subject to adjustment fees and restrictions. For instance, trade partners would be required to meet their Paris agreement obligations. (Joe Biden)
In his plan for American Leadership, he believes in using trade agreements and partnerships with other countries to create “substantial leverage to shape the future rules of the road on everything from the environment to labor to trade to transparency, non-proliferation to cyber theft, and data privacy to artificial intelligence.” (Joe Biden)
Recently Biden responded strongly to Trump’s ongoing tariffs on China, stating that “the U.S. needs to act to counter China or it will “keep moving and robbing U.S. firms” of technology and intellectual property.” (CNBC) His approach now appears to be a strategy involving forming global alliances with other partners, “to hold China accountable” and force trade to open up. (CNBC)
He has not yet stated whether he would end the tariffs, though he has “made clear that the costs have not been worth what Trump has managed to extract from China thus far.” (CSIS)
The main changes that have occurred in Biden’s trade policies over the years center on two areas:
- His shift towards a “foreign policy for the middle class” and investment in the US as a part of a strong trading policy; and
- The integration of environmental and clean energy ideas into trade policy, as in his Climate policy discussed above. (CSIS)
Biden has also recently released a new set of policy recommendations from the Biden-Sanders Unity Task Force. (Joe Biden) The recommendations set out a number of new policies, including on trade. Like Trump, Biden notes that the “ COVID-19 pandemic has shown the risks of relying too heavily on global supply chains,” causing problems for local communities and the availability of goods and services. However, Biden’s approach is focused on a global “teamwork” strategy rather than doubling down on protectionist ideas, with the Unity Task Force Recommendations proposing to “negotiate strong and binding standards for labor, human rights, and the environment in the core text of our trade deals.”
The Task Force goes further with two important goals:
- We will eliminate trade and tax policies that promote the offshoring of pharmaceutical manufacturing and raise prices on medications for American patients.
- We will use all tools at our disposal to take action against countries that manipulate their currencies to get an unfair advantage in international markets.
Both of these are similar to policy stances the Trump administration has taken before (currency manipulation) and after (on-shoring key pharmaceuticals) the virus outbreak.
To emphasize these points, Biden released his $2 trillion climate plan on July 14th and had these two key points on trade:
- Biden will use all the levers of the federal government, from purchasing power, R&D, tax, trade, and investment policies to reverse this trend (of Chinese dominance in electric cars) and position America to be the global leader in the manufacture of electric vehicles and their input materials and parts.
- Biden will vigorously enforce trade rules in response to currency manipulation, overcapacity, and Chinese government abuses in this sector.
Trump
In his inaugural address, President Trump gave a speech that laid out his “America First” vision with a plan that the federal government should “buy American and hire American.” (Politico) As a result, a key policy issued by Trump was the Buy American and Hire American executive order. This was intended to “help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases.” It required the “use of goods, products, and materials produced in the United States.” It also restricted immigration to the US with the goal of creating “higher wages and employment rates for workers.” (Federal Register)
Subsequently (and prior to COVID-19), Trump issued additional executive orders covering trade policy. He issued an executive order to “address the challenges to economic growth and employment that may arise from large and chronic trade deficits.” (Federal Register) This executive order required a report to be produced, researching all of the factors that could be major causes of the US trade deficit. It also ordered an investigation into whether any “trading partner [was], directly or indirectly, imposing unequal burdens on, or unfairly discriminating in fact against, the commerce of the United States.”
In addition, an order was issued for Addressing Trade Agreement Violations and Abuses. This required comprehensive performance reviews of:
- All bilateral, plurilateral, and multilateral trade agreements and investment agreements to which the United States is a party; and
- All trade relations with countries governed by the rules of the World Trade Organization (WTO) with which the United States does not have free trade agreements but with which the United States runs significant trade deficits in goods. (Federal Register)
These policies were aimed at creating a stronger manufacturing and economic base within the United States.
Trump also signed and ratified the USMCA agreement, the re-negotiation of the original NAFTA agreement with Canada and Mexico. The USMCA does not significantly change the provisions of NAFTA, but strengthens the domestic production of auto manufacturing. It also includes provisions to strengthen environmental regulations relating to trade between the countries (USTR). The USMCA makes significant changes and additions to further modernize environmental provisions by integrating an environmental chapter. This chapter includes core obligations for parties to maintain high levels of environmental protection and robust environmental governance, including commitments to enforce environmental laws and to promote transparency, accountability, and public participation. (Jurist)
The other primary marker of Trump’s presidency has been the ongoing trade war with China. This began with aluminum (10%) and steel (25%) tariffs in January of 2018, ratcheted up 25% tariffs on $200 billion of Chinese goods, and then led to negotiations and a Phase One deal. The China trade war was eased with the Phase One agreement in January, but many problems remain including a high level of tariffs still in place. Going into the COVID-19 crisis, many of the provisions in the Phase One deal appeared to have potential problems being enacted including China’s pledge to buy US agriculture and energy products. (The Diplomat)
As well, a new simmering trade war is in action with the EU over subsidies to Airbus. Trump has also responded to a number of countries’ decisions to create a new tax on various tech giants including Google, Facebook, and Twitter. On this point, the administration released a statement saying they are “investigating digital services taxes being enforced or considered by several U.S. trading partners including the European Union, India and Brazil.” (Washington Post) The evolution of a tariff dispute on these fronts could cause further economic issues.
Summary
Biden’s trade policies are more focused on strategic alliances and creating global leverage with trading partners. On the other hand, Trump’s approach is more protectionist and focused on domestic production.
The trade war with China is a difficult sticking point for both candidates. Trump’s approaches have been inflammatory and tough, while Biden’s responses have been little more than rhetoric with no clear policies on how he would handle the issue. The problem for Biden is that he “isn’t really saying how he’ll be much better than Trump, just that he would.” (Vox) The re-entering of a TPP trade deal by either candidate would potentially be able to put pressure on China, but only indirectly.
Questions remain as to whether Trump’s hard-line strategy was effective: his goal was to finally “bring China’s rise at the expense of American manufacturers to an end,” but “it’s unclear his major China initiative succeeded.” (Vox) This approach creates significant uncertainty for US businesses and farmers as they attempt to discern where trade relations with China will end up.
In addition, the newly introduced taxes on tech companies in numerous countries around the world are likely to escalate trade issues between the US and other trading partners. US officials have noted that the taxes “discriminate against the U.S. Internet companies that dominate the online economy, such as Google, Facebook and Amazon.” (Washington Post) While it is certain that the Trump administration will continue to respond strongly, it is also foreseeable that these kinds of taxes would not be supported either by a Biden administration, as the “stand-off is expected to reignite a transatlantic trade dispute that has been simmering for more than a year.” (Politico)
In addition, while the USMCA was ratified and signed by all of the agreement parties, there are still issues remaining with regard to tariff threats against Canada, and potential disagreements with Mexico. US Trade Representative Robert Lighthizer has noted that he “anticipates heated fights with Mexico on labor, biotechnology, intellectual property and energy,” which could be big problems for the US going forward regardless of whether a Biden or Trump administration is at the helm. (Politico)
One of the issues that may arise with Biden’s approach to China is that with the world deglobalising and focusing on local and national manufacturing, it may be harder to form the trade alliances that he wants. Forming relationships with strategic partners may be significantly more difficult in the post-COVID world, at least in the short term.
The reality is that Biden’s election is unlikely to significantly calm the US-China trade war, in a challenging geopolitical environment and with ongoing tension established by President Xi and President Trump. (Money Management) However, Biden’s election may result in some of the tariffs being lifted, although there is still a lack of clarity on what would result with the technological battle being carried out over brands such as Huawei. (Forbes) The interplay between these issues and the broader shift away from reliance on China for manufacturing makes things difficult to predict. Part of the issue is that “even with the U.S. and China almost two years into a trade war featuring billions of dollars in tariffs on one another’s goods, the coronavirus has made clear just how intertwined their economies remain and how difficult it will be to separate them.” (The Atlantic)
The Phase One trade agreement was a step in the right direction, but the COVID-19 pandemic’s impact on the global economy means that the deal may be “dead on arrival.” Nonetheless, “both governments claim they are committed to implementing it” (The Diplomat) and we have already seen stepped-up Chinese purchases of US grains. In the post-pandemic recovery, additional tariffs would be very harmful to the global economic growth that is sorely needed. In addition, for the global economy to recover properly “cooperative efforts are required to keep supply chains working, with multilateral cooperation more important than ever; and protectionist measures will not help address the crisis or help countries increase their resilience and could, in fact, slow reform and building back better.” (IISD)
While Trump’s focus on domestic manufacturing may help domestic producers and particular industries, it could harm the global economy on a large scale if trade disputes are not resolved. Pressing forwards with a trade war would ramp up “disputes just as governments worldwide were struggling economically because of the Covid-19 public health crisis.” Inflicting further tariffs on the Chinese front as well as with the EU and Brazil, “especially at this point in time … would hurt the economy, jobs and confidence even further.” (Politico)
The pandemic provides an opportunity to “build back better” when it comes to a green economy and new approaches to energy, goods, trade, and environmentally-friendly choices. Depending on the path taken, responses also have the potential to “lock the world into unsustainable paths, making meeting the goals of the Paris Agreement on climate change more challenging.” (IISD)
Biden’s focus on a global approach with standards written into the core text of all trade agreements appears positive, but will not likely solve the trade issues at hand. The cost of increased regulation and including further barriers in trade agreements could make economic recovery more difficult, even if the approaches were beneficial and more sustainable in the long term. This makes Biden’s integrated trade/environment policies potentially hard to implement on the global level, and could stop his much-desired trade partnerships from bearing fruit. A significant climate event akin to the outbreak of COVID-19 could change this trajectory.
Overall, a Trump administration is likely to continue imposing tariffs as a measure to rebalance global trade, which could continue to slow growth, raise prices and speed de-globalisation. On the other hand, Biden’s approach may be more open and focused on free trade and global alliances, but may be a costly exercise in attempting to impose environmental and climate-related requirements on trade agreements. In the post COVID-19 economy, countries may simply not have the resources (or be willing to prioritise them) to meet a Biden administration’s trade negotiation demands.
