Biden’s Frozen Trade Policy



Anne Krueger | Project Syndicate

The postwar era of widespread, robust global economic growth attests to the power of trade liberalization and US leadership within the international trading system. Unfortunately, the current US administration has failed to reverse its predecessor’s disastrous policies, leaving American producers and their workers worse off.

WASHINGTON, DC – Global economic growth since World War II has been an unprecedented success. Compared to the first half of the twentieth century, growth has been both more rapid and more widely shared around the world, leading to dramatic increases in life expectancy and health conditions in developing countries.

Trade liberalization was an important factor in that progress. Among developing countries, those that opened their economies up to international trade experienced rapid growth. South Korea, Chile, China, and India in the 1990s are prominent examples of successful trade liberalization, but there are many others.

The United States led the postwar process of integration, both by maintaining its own very open economy and by helping to establish the World Trade Organization. The WTO’s articles govern the rules of trade and enable negotiation of multilateral trade arrangements, including reciprocal tariff reductions. Without this international rule-of-law foundation, trade liberalization and the resulting economic growth could not have proceeded as it did. Importantly, because the WTO is a multilateral institution, it guarantees the rights of all countries, large and small.

Tragically, former US President Donald Trump undermined this system. His promise to “make America great again” was betrayed by his efforts to use America’s global leadership position to bully others on trade, which severely diminished the country’s international standing. He weakened America’s position in Asia by rejecting the Trans-Pacific Partnership, which was then salvaged by the TPP’s other 11 members, led by former Japanese Prime Minister Shinzo Abe. As a result, US exporters to those countries now face trade barriers that do not apply to their competitors within the new trading bloc.

Trump also weakened the North American Free Trade Agreement and imposed tariffs on imported steel, aluminum, washing machines, solar panels, and other goods – all on dubious national-security grounds (as if the US could ever be threatened by Canadian steel imports). In doing so, he flagrantly disregarded US treaty obligations under NAFTA and the WTO.

Moreover, the Trump administration blocked new appointments to the WTO’s Appellate Body, thereby paralyzing the dispute-settlement mechanism – long known as the “crown jewel” of the international trading system. With the DSM effectively shut down, WTO members had no independent mediator to resolve the disagreements that frequently arise between trading countries.

Most dramatically, Trump launched a trade war with China, unilaterally slapping tariffs on a wide range of Chinese imports. The Chinese naturally retaliated, and in the last year of Trump’s single term, a “truce” was announced. The Chinese agreed to purchase $200 billion worth of specified goods from the US in exchange for a slight reduction of US tariffs. Additional negotiations were supposed to follow this phase-one agreement, but nothing has happened since.

One of the US’s original complaints against China was that it was engaging in managed trade and intervening in markets. But the phase-one agreement would have led to an intensification of managed trade, because it would have required Chinese authorities to ensure that their import commitments were being fulfilled. In any case, the agreement wasn’t carried out. According to Chad P. Bown of the Peterson Institute for International Economics, “China bought only 57% of the US exports it had committed to purchase under the agreement, not even enough to reach its import levels from before the trade war.”

During his 2020 presidential campaign, Joe Biden criticized Trump’s policies and announced that he would return to working with US allies, and through multilateral channels, to solve global problems. But that has not happened when it comes to trade. Despite the Biden administration’s strategic emphasis on Asia, the US has not joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (the TPP’s successor). Moreover, the Biden administration could have offered to negotiate a mutual reduction of the “trade war” tariffs with China, but it has not done so.

The US could still lead, by convening WTO members to discuss rules governing new trade issues arising from the digital economy. But first, the WTO’s earlier capabilities would need to be restored, starting with the DSM. The Biden administration so far has done neither. Instead, it has negotiated with the European Union, Japan, and the United Kingdom merely to revise the ill-conceived Trump arrangements for steel.

These changes will do little to free up trade in steel. Although the tariffs on specified amounts of imported steel have been removed, the quantities that may be imported without additional duties are still restricted to volumes that were entering the US market when duties were paid. That means that the price of steel for users in the US will remain above its price in other countries. Hence, as of February 14, 2022, hot rolled band steel cost 61% more per metric ton in the US than in the world export market.

Worse, exporting countries’ producers will receive the tariff revenue that previously went to the US, even as US steel-using industries continue to pay far more for their steel than their foreign competitors do. These terms were agreed despite the obvious harm to American steel-using industries, which employ more than 80 times more workers than the steel industry does.

Biden has said he wants good jobs for Americans. He would do well to be reminded that workers in export industries are better compensated than those in import-competing industries. Undoing the recent damage to the international trading system would do far more for American workers than perpetuating Trump’s failed policies will. American leadership in restoring the WTO and addressing new trade issues would make America greater. The current approach can lead only to further decline.

Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, is Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.

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