Broad powers won’t make it easy for Biden to shift trade policy

The president-elect's allies benefit from protectionism

President-elect Biden may find any effort to modify or cut tariffs put in place by President Donald Trump will encounter resistance from his party and union supporters.  (Caroline Brehman/CQ Roll Call)
President-elect Biden may find any effort to modify or cut tariffs put in place by President Donald Trump will encounter resistance from his party and union supporters. (Caroline Brehman/CQ Roll Call)
Posted November 30, 2020 at 10:49am

President Donald Trump dug deep into executive powers to drive his populist trade policy, strike a mini deal with China and keep Congress largely on the sidelines.

As Trump’s successor on Jan. 20, President-elect Joe Biden will have the same powers to launch investigations, and impose or remove tariffs. But Biden may find it hard to change course because some Trump tariffs are popular with unions and members of his own party, backed by politically influential industries like steel, or, in the case of China, part of a geopolitical rivalry that goes far beyond trade.

“I think the difficult political game he has to play domestically is how far can he push back against the sort of populism that led to the trade wars in the first place. Maybe more importantly, how does he keep the more liberal wing of the Democratic caucus on his side,” said Ian Sheldon, Ohio State University’s Andersons chair of agricultural marketing, trade and policy. “I think many of them are less keen on free trade than maybe he is, or at least has been historically.”

Like its predecessor, the Biden administration will have executive authority to use Section 301 of 1974 trade law to enforce U.S. rights under trade agreements; Section 232 of a 1962 law to restrict trade because of national security; and Section 201 of the 1974 law to give temporary relief to industries trying to adjust to foreign competition. Biden could use also use his authority to remove or modify tariffs that Trump levied. And the new president will have a chance to help reshape the World Trade Organization.

Biden has offered few specifics, but he says he would focus on fence-mending with allies and trading partners to address mutual problems and concerns such as Beijing’s overproduction of steel and aluminum that flood international markets and undermine metal industries in other countries.

U.S. Trade Representative Robert Lighthizer says the Trump imprint on trade will last for a long time.

“I think that Republicans and Democrats . . . both think about trade differently than they did before and I think that will continue,” Lighthizer told the Robert J. Dole Institute of Politics during a Nov. 19 virtual talk. “Whoever sits in my chair under any president going down the road, I’m feeling confident that the fundamental things that we’ve talked about, this reorientation of policy toward working people, worrying about the challenge of China, that those things are going to endure and that people will continue to make progress on them."

Section 301 and China

Trump used Section 301 to levy tariffs on $350 billion in imports from China starting in 2018. China retaliated with its own tariffs, targeting a key part of Trump’s political base, U.S. agriculture. Without removing the tariffs, the administration sought to soften the blow with a phase one deal in January 2020 under which Beijing agreed to buy $200 billion of agriculture, energy, manufactured goods and services through 2021.

Most trade economists are skeptical that China will meet the 2020 target. The Agriculture Department forecasts that China will buy $27 billion of U.S. agricultural exports in fiscal 2021, part of $152 billion in total farm exports, the second largest on record.

For Biden, who has said he will be tough on China, the problem may be not only whether Beijing hits the phase one target and who gets credit for it, but also whether China has any interest in a phase two agreement addressing government subsidies to state-owned enterprises. Some experts are skeptical.

“Politically it seems to me this would be a no-win situation for a Biden administration. If China somehow reaches the targets, the Trump administration would get credit for it politically,” Chad P. Bown, a senior fellow with the Peterson Institute for International Economics, said during a Nov. 11 Trade Talks podcast he co-hosted. “But if China didn’t, the Biden administration would likely get blamed somehow for not using these really nontransparent enforcement mechanisms that are in the agreement to somehow get China to that $200 billion.”

The Trump administration has other Section 301 investigations in digital services taxes adopted or proposed by 10 countries that could affect U.S. tech giants. A Section 301 investigation found that a French digital services tax was discriminatory, but the administration delayed imposing 25 percent tariffs on French cosmetics and handbags valued at $1.3 billion until Jan. 6, 2021.

Another Section 301 investigation is underway into whether Vietnam’s central bank’s actions in exchange markets led to the undervaluation of the country’s currency against the U.S. dollar, giving Vietnamese exports an edge against U.S. products.

Section 232

Trump used national security concerns to justify a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. The administration expanded the tariffs in February to apply to steel and aluminum derivative products.

The moves drew widespread criticism for seeing a national security threat in goods from allied countries. The tariffs triggered retaliatory duties on selected U.S. export goods from the European Union and trade partners, making some agricultural, furniture and clothing goods collateral damage.

But Biden is likely to face opposition from the steel industry if he tries to remove them. The industry said it needs the tariffs to fend off foreign competitors and keep an overflow of cheaper, Chinese-produced steel out of the U.S. market. Steel users, by contrast, want those tariffs gone, or at least focused on China.

Paul Nathanson, executive director of the Coalition of American Metal Manufacturers and Users, said his member companies have paid billions in additional tariffs to import steel and aluminum products affected by the tariffs. China is the real target and it makes little sense to hit other countries with tariffs, he said. The coalition plans to continue its campaign for tariff relief.

Nathanson said his member companies expect Biden to end the steel and aluminum tariffs sooner or later.

“We are confident under the next administration that Section 232 tariffs will be terminated. They have actually hurt U.S. manufacturing. It shouldn’t be a political issue, but everything is a political issue and we believe that the politics favor lifting the tariffs,” Nathanson said.

He said U.S. law offers more targeted alternatives through the Commerce Department and the U.S. International Trade Commission that can apply penalties against specific foreign companies.

Section 201

The Trump administration used Section 201 to impose additional tariffs on large residential washing machines and tariff-rate quotas on certain solar cells and modules.

Steel-makers, their unions, the U.S. Trade Representative’s office, or congressional trade committees also could petition the International Trade Commission to determine under Section 201 if increased imports cause substantial injury to an industry. The penalties can be extended several times, with or without modifications, for a total of eight years.

World Trade Organization

Biden will decide how Washington will proceed in trying to revamp the World Trade Organization, an institution the U.S. helped create but that several administrations, including the Obama White House where Biden served as vice president, said needed reforms.

The Trump administration has blocked appointments to the institution’s appellate body on trade disputes — the body has too few members to function — and opposed a recommended candidate for the top post of director general. The administration says the institution is ill-equipped to address trade infractions by China without an overhaul of the way it functions. The U.S. actions pushed other nations to propose institutional changes, but there’s no agreed upon plan.