FT premium subscribers can click here to receive trade secrets by email.
Hello from Washington, where we expect Katherine Tai to take one more step toward confirmation as Biden’s senior business advisor.
The Senate Finance Committee will vote on its confirmation on Wednesday, paving the way for a full Senate review. Given the recent hearing and a new report from the U.S. Trade Representative on the way forward, the main section takes a look at what we know so far about Biden’s trade policy (spoiler: not much, but this could be a good sign).
Charted Waters examines how eurozone exporters are outperforming companies that rely more on domestic demand.
Don’t forget to click here if you would like to receive trade secrets Monday through Thursday. And we want to hear from you. Send your thoughts to [email protected] or email me at [email protected]
Biden takes a cautious approach to trading
If Mark Zuckerberg’s old mantra was “go fast and break things,” Joe Biden’s trade policy motto might be “move very slowly with promises to review everything.”
It has been difficult to spot anything that might constitute news of the few official nuggets we have 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 candidate Katherine Tai carefully proceeded to her confirmation hearing, tactfully avoiding any requests for firm commitments beyond the promise to work with Senators on their chosen business interests and more.
The lack of notoriety could be seen as a victory for Tai, and it was almost certainly by the staff members who prepared her for difficult questions. The point is not to say anything controversial. For the allies, too, the lack of early notoriety will be seen as an asset. No one wants to be surprised, as European capitals have repeatedly been, by Trump’s sudden whims over the past four years.
That said, diplomats across DC are still wondering exactly what the way forward will be on a range of issues. A burning question is who will actually drive the Biden administration’s trade policy? Bob Lighthizer, Trump’s top business adviser, had a lot of power. Tai is part of a more traditional administration that will seek to restore interagency cooperation. The White House is already playing a bigger role in 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 appointed by officials such as those responsible for supply chain issues, and someone will oversee the Buy American program. by Biden. Nonetheless, Tai firmly told Congress that she had no intention of being “on the back burner.”
For what it’s worth, between Tai’s hearing, his written responses to the Senate Finance Committee, and the USTR’s annual report, we have a picture that emerges based on the black and white of official statements.
Overall, we’ve known for a while that Biden’s trade policy would focus on American workers and their wages, rather than perpetuating a system (to put it bluntly) in which consumer goods are cheap because manufacturing has. been sent abroad at low cost. salaried countries. How to get there is trickier, and we still don’t have enough detail on how Biden’s trade policy and commitment to “Build Back Better” will work together.
There is also a new focus on supply chain security, which promises to be an important theme for the next few years. The big question is how much energy and money will the United States spend on stimulating domestic manufacturing in critical industries such as semiconductors and medical equipment, which it is likely to? do in addition to ensuring that the United States can access critical materials and components of allied countries.
Tariffs on European products are here to stay, at least for now. When a senator pointed out how unfair it was for American companies buying cheese and wine to be hit with import tariffs when they had nothing to do with the underlying dispute over aircraft subsidies Tai replied, “In a way, this is how the WTO system is supposed to work. You inflict pain on yourself. . . to try to motivate each other to reach a resolution.
Speaking of China, Tai calmly stressed that she considers 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 the continuation of “hard on China” rhetoric. No surprises there.
Accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership seems unlikely. Tai said that while working with allies to counter China “is always a good thing,” a lot has changed in Washington’s perception of its own trade policies over the past five or six years.
And on these tariffs? Tai said the Section 301 investigations, which led to punitive levies on China, were an example of a trade enforcement mechanism that could be used against intellectual property protection. Additionally, the S301 report was “very large,” Tai said. So these seem likely to stick around.
In the USTR Annual Report, we see the assertion that trade policy will support the recovery of Covid – it appears to be about ensuring ‘supply chain resilience’ and ensure the United States can access the medical items and PPE equipment it needs. Regarding the climate, adjustments to carbon borders will be considered.
Other points to note – there is an obvious effort to include more voices at the table. This translates into promises to re-examine trade policies based on their impact on ethnic minorities at home and their potential to empower minorities and women abroad. The ambition is clear that US trade policy be used to encourage and, in some cases, enforce labor standards abroad. Sometimes it’s a moral issue – just like efforts to combat forced labor in Xinjiang. But it also helps prevent downward pressure on the wages of American workers.
Other areas to focus on include the way forward in digital service taxation – will Tai pick up where Lighthizer left off using the commerce app (i.e. – say the tariffs) to concentrate minds? Tai only said she would coordinate with the Treasury Department, which oversees international tax policy. On the long-standing Airbus / Boeing dispute, there is a small sign of resolution. Regarding tariffs on steel and aluminum, there is also a small hint as to how the United States will approach things – although a solution on this must also involve the Commerce Department.
Tai has enormous bipartisan support on the Hill – strikingly, she was presented by both the top Democrat and the top Republican of the House committee with commercial jurisdiction. She has long been considered an accomplished diplomat by lawmakers from all walks of life. Part of it is Tai’s way of doing it, but it says a lot about the real overlap between many Republicans and Democrats on trade policy right now. Lighthizer was also popular on both sides of the aisle. When Tai is confirmed, as she no doubt will, we look forward to seeing more of the new USTR.
Mapped waters
One of the main reasons the rebound in global trade has been so strong is the ability of factories to adapt to the pandemic. Europe is one example, with the graph below, based on a survey of the region’s purchasing managers working in the manufacturing sector, highlighting that activity continues to recover.
However, many companies in the service sector, which depend heavily on local demand and export little, find it difficult to cope. In large part due to government-imposed closures, which remain in place in many of the eurozone’s largest economies, including Germany and France. Here is the same purchasing managers index data for the service sector:
Do not miss
-
U.S. and Asian allies are joining forces to develop a plan to distribute Covid-19 vaccines to countries in Asia as part of a broader strategy to counter China’s influence.
Read more -
The failure of the United States to impose sanctions on Saudi Arabia for the murder of Jamal Khashoggi will encourage Iran, writes David Gardner.
Read more -
Robert Smith, who has been excellent at covering events at Greensill, has a great rundown on supply chain finance today, looking at how this controversial fundraising tool works.
Read more
Talking about Tokyo
Nikkei Asia’s Best Business Stories
-
Myanmar’s coup derailed large infrastructure projects outsourced to foreign companies, such as the Dawei Special Economic Zone and Hanthawaddy Airport.
Read more -
China’s biggest companies – and carbon emitters – have been keen to publicly adhere to Xi Jinping’s goal of carbon neutrality by 2060.
Read more