US trade policy is ready for its Biden makeover

If he winds up facing a hostile Senate, President-elect Joe Biden will struggle to make sweeping policy changes. But for better or worse, executive power has expanded to the point where Biden will be able to make progress on a number of fronts without the say-so of the Republican opposition. One such area of opportunity is trade. Biden will have the power to reverse many of the Trump administration’s bad policies to strengthen trade with allies and potential allies, while keeping up the technological competition with China.

The first order of business is to remove all tariffs on developed countries such as Canada, Japan, and in Europe. Currently, Trump’s tariffs on these nations are sparking a dangerous and completely counterproductive tit-for-tat:

This is madness. Trade with places like the European Union, Japan and Canada is no threat to American workers, because they also have high wages and strong labor and environmental protections. Nor is it a threat to U.S. technological supremacy, because these countries all respect intellectual property rights. Finally, these countries are U.S. allies, and will be essential in the geopolitical contest with China. There’s absolutely no reason to keep any of these tariffs, and Biden should immediately eliminate as many as the law allows.

A more contentious move will be to rejoin the Trans-Pacific Partnership. Canceling this multilateral trade deal, which Democratic Senator Bernie Sanders also opposed, was one of Trump’s first moves upon taking office in 2017. But thanks to the efforts of leaders in the Asia-Pacific region, the TPP has been preserved and improved since then, and is ready and waiting for the U.S. to come back. Biden can’t ratify TPP without Congress, but he can rejoin the negotiations.

Beyond a general backlash against the idea of free trade, the TPP encountered bipartisan opposition for two reasons. First, it contained onerous intellectual property provisions, which have now been removed. Second, the treaty includes Vietnam, which is a poor, rapidly industrializing nation attempting to attract manufacturing investment with low labor costs. The U.S. experience with China in the 2000s has made many gun-shy about opening up trade with such countries . And in fact, it’s possible that liberalizing trade with Vietnam would put a slight amount of downward pressure on American wages.

But only a very tiny amount. Vietnam is less than a tenth the size of China, and doesn’t have the cheap energy and generous government subsidies that made China so competitive in the 2000s. It will be able to absorb a small amount of the investment now trickling out of China, but that will likely come at the expense of other U.S. trading partners like Mexico, rather than at the expense of American workers.

Meanwhile, Vietnam will be an important U.S. partner against China. Vietnam has been a regional rival of the People’s Republic since the 1970s, when the two countries went to war (Vietnam, of course, was the victor). The two currently have an active territorial dispute in the South China Sea. Helping Vietnam to grow its economy rapidly by exporting goods to the U.S. and to Asian nations like Japan and South Korea would bolster its ability to resist encroachment by America’s biggest rival. If Indonesia decides to join the TPP, the calculus will be similar.

Even beyond Vietnam and Indonesia, geopolitics is an underrated reason to reenter the TPP. It creates a trading bloc of Asian nations centered around the U.S. instead of China, taking advantage of Asia’s emerging role as the world’s economic center of gravity in a way that also helps balance out the region.

Which brings us to the last aspect of Biden’s trade policy—China. There is every indication that Biden’s China policy will be just as hawkish as Trump’s, if not more so. A general geopolitical contest of some sort is inevitable.

Biden, unlike Trump, intends to take on China by restoring U.S. technological leadership and economic strength, and by getting together a gang of allies. TPP should be part of that. But it will also require resisting the dominance of Chinese technology. That part of Trump’s trade war—the struggle for high-tech supremacy—should continue in some form.

Biden should therefore continue the resistance to Huawei’s domination of global telecommunications infrastructure. He should continue to scrutinize Chinese investments via the Committee on Foreign Investment in the U.S.,  and pressure China to curb industrial espionage.

In the case of tariffs, the calculus becomes trickier. Biden should remove tariffs on intermediate inputs that U.S. manufacturers source from China, since these simply raise costs for U.S. producers and ultimately hurt competitiveness. But tariffs on finished Chinese goods (especially high-value brand goods) are fine, and can be used as leverage to push China to appreciate its currency.

In general, Biden can use executive power to define a new orientation for U.S. trade policy. The free trade consensus of the past is gone, but Trump’s slapdash, counterproductive trade war is not the way forward. Trade policy needs to be reorganized around strategic lines—freeing up trade with allies, while continuing to push against China’s attempt to usurp the U.S.’s traditional role as the center of the global economy.