Biden Team Promises New Look in Trade Policy
Leading members of the Biden administration are promising a very different approach to international trade. No longer would American negotiators focus on opening markets for financial-service firms, pharmaceutical companies and other companies whose investments abroad don’t directly boost exports or jobs at home.
Those making the case include President Biden’s national security adviser, Jake Sullivan, and members of his transition team who are likely to get senior trade jobs. The new thinking is becoming mainstream among Democrats.
Trade policy should “involve a laser focus on what improves wages and creates high-paying jobs in the United States, rather than making the world safe for corporate investment,” Mr. Sullivan wrote early in the presidential campaign. “Why, for example, should it be a U.S. negotiating priority to open China’s financial system for Goldman Sachs?”
Clinton administration Treasury Secretary Lawrence Summers goes even further, arguing against prioritizing gains for Hollywood, investment banks and inventors who want intellectual-property protection. Their “elite concerns” don’t contribute much to U.S. employment or tax revenue, he said in an interview.
Those views are reflected in Mr. Biden’s tax proposals, which are intended to prod U.S. companies to keep jobs at home rather than easing investment overseas. Expanding facilities in the U.S. would earn a tax credit; shifting production abroad, especially to tax havens, would be penalized by higher taxes.
A Biden trade transition task force member, Brad Setser, has provided much of the intellectual firepower behind the proposed shift.
Although U.S. negotiators push to open markets for pharmaceutical companies, Mr. Setser argued at the Council on Foreign Relations, the firms do much of their production in low-tax countries like Ireland, leading to a big U.S. trade deficit in the sector. Boosting U.S. financial-service firms’ business in China is another priority, but the sector’s exports to China are dwarfed by sales to tax dodges in the Cayman Islands.
Mr. Setser urges that trade and tax policy promote U.S. exports of manufactured goods, a call picked up by Mr. Sullivan and incoming U.S. Trade Representative Katherine Tai.
Ms. Tai says the new administration wants a “worker-centered trade policy,” not one focused on corporate competitiveness or bargain prices. “People are not just consumers, they are also workers and wage earners,” she told a big business group recently.
The Biden plans have produced a lot of eye-rolling among skeptical trade policy veterans. Administrations dating back to at least the Clinton years have promised something similar. The Trump administration’s trade representative, Robert Lighthizer, asserts he already created a worker-centered policy.
Mr. Lighthizer used tariffs to try to drive manufacturing back home, although growth in factory jobs stalled once the administration resorted to levies that drove up costs for many factories. He also pushed for and won greater access to Chinese markets for U.S. financial-services firms, which wouldn’t be a Biden priority.
“We have made inroads on financial services,” said Mr. Lighthizer in an interview. “I want them to do well.” But he said U.S. car makers and other manufacturers also benefited from the Trump administration’s China trade pact.
There are many reasons why U.S. trade policy continues as it has. Trade economists say that market openings for financial services, pharmaceuticals and other big investors abroad do benefit middle-class Americans, if indirectly.
The revenue strengthens big companies so they can do research at home, spin out new products for American consumers and pay good wages to American workers.
The drug industry’s merchandise trade deficit doesn’t reflect the value of the research and development and other work done in the U.S., said a representative for the Pharmaceutical Research and Manufacturers of America.
The industries that the Biden team would de-emphasize also have the lobbying muscle to fight back. The financial-services industry contributed about $200 million to Mr. Biden’s election, according to the Center for Responsive Politics. That is roughly four times as much as the industry chipped in for Donald Trump’s election.
The industries also have powerful allies in Congress, which plays a large role in setting the U.S. trade agenda. The pharmaceutical industry has been able to hold up trade deals until it got what it wanted, although that could be changing. The industry failed to get the protection from competition from near-copies that it sought in the U.S.-Mexico-Canada deal negotiated by Mr. Lighthizer with an assist from Ms. Tai, who was then a House staffer.
Essentially, the Biden team is betting that political changes on Capitol Hill and in the public will be sufficient to help it pursue a revamped trade policy. In the past, Republican lawmakers have been reliable free traders who sought to help companies clear away barriers to investment overseas. But during the past four years, as former President Trump pushed a protectionist trade policy, that has changed. A number of GOP lawmakers have endorsed subsidies and tariffs to help U.S. manufacturing.
The deepening competition with China has accelerated the embrace of industrial policies favoring manufacturing as has the global pandemic in which the U.S. found itself short of health gear it needed.
“The point of further trade negotiation isn’t to make the world safe for multinational corporation investment,” said Mr. Sullivan in an interview during the presidential campaign. “It’s about jobs and wages.”
Source: Dow Jones