Tai’s caution echoes broader attitude on trade


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Hello from Washington, where we’re expecting to see Katherine Tai take another step towards confirmation as Biden’s top trade adviser.

The Senate Finance Committee will vote on her confirmation on Wednesday, clearing the way for full Senate consideration. Given the recent hearing and a fresh report from the US Trade Representative on the way ahead, the main section takes a look at what we know so far about Biden’s trade policy (spoiler: not much, but that could be a good sign).

Charted waters looks at how the eurozone’s exporters are pulling ahead of businesses that depend more on domestic demand.

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Biden takes a cautious approach on trade

If Mark Zuckerberg’s old mantra was “move fast and break things”, the motto for Joe Biden’s trade policy could be “move very slowly with promises to review everything”. 

It’s been difficult to spot anything that could constitute news from the few official nuggets we’ve received from the US Trade Representative’s office so far. The recent annual trade report did not provide a huge amount beyond what we already knew about the general direction. 

Late last week, new USTR nominee Katherine Tai proceeded carefully through her confirmation hearing, tactfully sidestepping any requests for firm commitments beyond the promise to work with senators on their chosen trade interests and more. 

The lack of newsworthiness could be seen as a win for Tai, and almost certainly was by the staffers preparing her for tough questions. Saying nothing controversial is the goal. For allies, too, lack of early newsworthiness will be seen as an asset. Nobody wants to be surprised, as capitals across Europe repeatedly were, by Trump’s sudden whims over the past four years.

That said, diplomats across DC are still wondering what, exactly, will be the way forward on a range of issues. One burning question is who will really drive trade policy in the Biden administration? Bob Lighthizer, Trump’s top trade adviser, had a lot of power. Tai is part of a more traditional administration which will look to restore inter-agency co-operation. The White House is already taking on a more important role when it comes to trade. Peter Harrell of the National Security Council and Sameera Fazili of the National Economic Council (both components of the White House) have already been named by officials as the people leading on supply chain issues, and there will be someone overseeing Biden’s Buy American programme. Nevertheless, Tai firmly told Congress she had no intention of being “put on the back-burner”.

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For what it’s worth, between Tai’s hearing, her written answers to the Senate Finance committee and the USTR annual report, we have a picture emerging based on the solid black and white of official statements.

Broadly, we’ve known for a good while that the Biden trade policy would focus on US workers and their wages, rather than perpetuating a system (to put it crudely) where goods for consumption are cheap because manufacturing has been sent overseas to low-wage countries. How that’s achieved is trickier, and we still don’t quite have enough detail on how trade policy and Biden’s “Build Back Better” pledge will work together.

There is also a new focus on supply chain security, which promises to be an important theme of the next few years. The big question is how much energy and money will the US devote towards stimulating domestic manufacturing across critical industries such as semiconductors and medical equipment, which they’re likely to do alongside making sure the US can access critical materials and components from allied countries. 

Tariffs on European goods are here to stay, at least for the time being. When one senator pointed out how unfair it was that US businesses procuring cheese and wine were hit with import tariffs when they have nothing to do with the underlying dispute about aircraft subsidies, Tai replied: “In some ways, this is the way the WTO system is supposed to work. You inflict pain on each other . . . to try and motivate each other to come to a resolution.” 

On China, Tai calmly pointed out that she did consider it necessary for the country to abide by the terms of the phase 1 trade deal, even though Beijing is woefully behind on its purchasing commitments, indicating continuation of the “tough on China” rhetoric. No surprises there. 

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Joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership seems unlikely. Tai said that while working with allies to counter China “is still a sound formula”, a lot has changed in Washington’s perception of its own trade policies over the past five or six years.

And on those tariffs? Tai says the Section 301 investigations, which led to punitive levies on China, were an example of a trade enforcement mechanism that could be used against IP protection. Also, the S301 report was “very voluminous”, Tai said. So those sound likely to stay. 

From the annual USTR report, we see the claim that trade policy will support Covid recovery — this seems to be about ensuring “supply chain resiliency” and making sure the US can access the medical items and PPE equipment that it needs. On climate, carbon border adjustments will be considered. 

Other points to note — there is an obvious effort to include more voices at the table. This can be seen in promises to review trade policies for their impact on ethnic minorities at home, and for their potential to empower minorities and women abroad. There’s clear ambition that US trade policy be used to encourage and in some cases enforce labour standards abroad. This is sometimes a moral question — as is the effort to counteract forced labour in Xinjiang. But it also fends off downward pressure on US workers’ wages.

Additional areas to focus on include the way forward on digital services taxation — will Tai pick up where Lighthizer left off in using trade enforcement (ie tariffs) to focus minds? Tai has said only that she will co-ordinate with the Treasury department, which oversees international tax policy. On the long-running Airbus/Boeing dispute, there is a little sign of resolution. On tariffs on steel and aluminium, too, there is a little clue as to how the US will approach things — although a solution on that must also involve the Commerce department.

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Tai has huge bipartisan support on the Hill — strikingly, she was introduced by both the top Democrat and top Republican from the House committee with trade jurisdiction. She’s long been thought of as a consummate diplomat among lawmakers of all persuasions. Some of that is Tai’s way of doing things, but it also says a lot about the genuine overlap between many Republicans and Democrats on trade policy at the moment. Lighthizer was well liked on both sides of the aisle too. When Tai gets confirmed, as she undoubtedly will, we look forward to seeing more from the new USTR.

Charted waters

A big reason why the rebound in world trade has been so strong is the ability of factories to adapt to the pandemic. Europe is one case in point, with the chart below, based on a poll of the region’s purchasing managers working in manufacturing, highlighting that activity is continuing to pick up.

Line chart of Purchasing managers' index, below 50= a majority of businesses reporting a contraction showing Manufacturing activity in the eurozone grows at a faster pace

Many companies in the services sector, which rely heavily on local demand and export little, are on the other hand struggling to cope. Largely as a result of government-enforced closures, which remain in place in many of the eurozone’s largest economies, including Germany and France. Here’s the same purchasing managers’ index data for the services industry:

Line chart of Purchasing managers' index, below 50= a majority of businesses reporting a contraction showing Eurozone services activity contracted in February

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