The US’ inward-looking stance and trade war with China will continue at least till its economy recovers from the pandemic blow
Under the Trump presidency, the legitimacy of the WTO was constantly questioned, if not trivialised. For example, on February 11, 2020, the US Trade Representative (USTR) office published the Report on the Appellate Body of the World Trade Organization, in which it complained about the adjudicators taking away members’ rights.
Hence, the election of Joe Biden as the US president led to an expectation that there would be a change in the disruptive policies followed by Trump . After assuming office, President Biden assured the world that the US is committed to internationalism and multilateralism. There were also some tangible signs of positive change. The US rejoined the Paris Accord and lifted the blockade against the selection of the WTO director-general.
Since then, the US has shown some signs of engaging in a few key areas of the multilateral trading system. Moving away from its traditional hardline position on intellectual property rights (IPRs), the US has supported the waiver of IPRs for Covid-19 vaccines. It has also been active in some areas of WTO negotiations, including fisheries and e-commerce. In the recent G7 meet, the US collaborated with other developed countries to reach a historic deal to tax multinational companies.
However, despite this renewed activism of the US in the global stage, it has continued with its hardline stance on several other trade issues. In some cases, it has reinforced some of the Trump era policy measures. For example, the Biden administration has not eased the high tariffs imposed during the previous government on several countries, including friendly ones like the EU; it has strengthened the “Buy American” clause; and it has not taken any steps to break the impasse of the WTO Appellate Body.
Thus, one wonders when we will see the rise of the brave old world of globalisation and multilateralism. There can be two broad reasons why the US may continue with many of the Trump-era policies.
First, it is possible that even under Biden, the US will not lower its guard against China and others. The US economy is still recovering from the pandemic shock, and the policy thrust of the US is towards boosting manufacturing jobs and promoting its industrial sector. The US government wants to achieve these through large-scale investments in domestic infrastructure and technology.
Biden, in his first State of the Union address to Congress, stated that the focus of his multi-trillion-dollar spending proposal for the US economy is to challenge China and to strengthen the global leadership of the US economy. Here, the focus of his policy is to fight China in the areas of trade and technology. To achieve this, the Biden administration is continuing with and sometimes expanding the restrictive tariff and trade policies of its predecessor.
The tariff policy is also used to protect US interests abroad. For example, the USTR recently announced a retaliatory tariff hike against several Indian goods, as India has imposed a tax on earnings of foreign technology and e-commerce firms, which includes big US firms.
As part of its fiscal policy, the US announced in its budget an unprecedented spending boost, amounting to around $6 trillion. Such massive spending will have a spillover in the external sector. To ensure that there is minimum leakage through increased imports, the US has tightened its “Buy American” rules. The “Buy American” clause was introduced in 1933, during the height of global protectionism, and was aimed at ensuring that the federal agencies purchase only from domestic business to boost domestic production and support US workers.
However, in 2014, the US has signed the WTO Government Procurement Agreement (GPA), which is a plurilateral agreement with 20 other countries as signatories. The core objective of the GPA is to ensure that government procurement is done in a non-discriminatory manner. Therefore, in spirit, the GPA agreement goes against the “Buy American” rules which are essentially discriminatory in nature.
Though the GPA does not cover all government procurement and there are some restrictions on its scope, given the size and the spread of the US stimulus, it is possible that the “Buy American” clause will come into conflict with some of the GPA commitments made by the US. Also, such a massive state intervention to boost the competitiveness of US industries may invite investigations under the WTO Subsidies and Countervailing Duties agreement if the beneficiaries of these policies start selling their output in the international market.
Therefore, it is possible that Biden has recognised some of these potential threats and is not in a hurry to end the stalemate with regard to the WTO Appellate Body.
Thus, it appears that while the Biden administration is indeed committed to moving away from the protectionist policies of the Trump era, it may take it’s own time to remove the restrictive measures. Perhaps, it is trying to ensure that the US fiscal stimulus does not get channelled into a higher demand for Chinese products. Till then, the US is likely to drag its feet in the WTO, continue to stall the Appellate Body functioning and carry on with its trade-war with China and other countries.
Notwithstanding the rhetoric, it seems that the brave old world may take some more time to rise.
Parthapratim Pal is Professor of Economics, IIM Calcutta, and Partha Ray is Director, National Institute of Bank Management, Pune. Views are personal