Washington Wednesday - Biden’s trade talks

NICK EICHER, HOST: It’s Wednesday the 8th of December, 2021. Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. First up: How is President Biden reshaping U.S. trade policies?

President Trump made trade a defining issue during his time in office. He pushed back hard against China, sparking a heated trade war. His trade policies also caused friction with U.S. allies and Europe, and he scrapped NAFTA, the North American Free Trade Agreement. He called that the worst trade deal ever made.

EICHER: His administration replaced NAFTA with the U.S.-Mexico-Canada agreement. And last month, President Biden sat down with his counterparts from Canada and Mexico to talk about how it’s going.

Biden has signaled a desire to smooth over trade tensions with U.S. allies around the world. But nearly a year into his presidency, how has U.S. trade policy actually changed?

Joining us now to help answer that question is Tori Smith. She is a trade policy analyst at the Heritage Foundation.

REICHARD: Tori, good morning!

TORI SMITH, GUEST: Good morning. Thanks for having me.

REICHARD: Well, how is it going? What’s changed with trade and let’s start in North America?

SMITH: Well, the three leaders actually, you know, they got together to discuss not just trade under the agreement, but overall the trilateral relationship, which has to do with cross-border goods and services, but also with things like energy and mutual security interests, mutual foreign policy interests, the immigration and migration issues amongst the three countries. So it was very important that, you know, President Biden held this meeting because  it's important for North America to stick together not just as a trading bloc, but as a bloc of countries that share values

REICHARD: Some are concerned that part of President Biden’s plans for spending the infrastructure funds that just passed risk alienating Mexico and Canada. What’s the concern with that?

SMITH: Yes, this is a very major issue between the three countries. And it's a bit complicated. The first part of it is on the issue of tax credits for electric vehicles. Electric vehicles are a newer technology that's still actively being being developed. And some of the efforts by the Biden administration to allow these tax credits is seen as being trade distorting by our North American neighbors. So that it would potentially incentivize American automakers over Canadian or Mexican automakers, and give them an advantage that these other companies might not have, and make the playing field a little unlevel. The same thing can be said for issues on infrastructure, which was a major topic of discussion between the three leaders, because the infrastructure bill that was just passed includes what's called domestic content requirements or Buy America requirements, so that when these contracts go out, when this money is spent, it can only be spent on American-made products, which makes it so that Canadian and Mexican businesses can’t bid on these projects. And, again, leads to a competition issue that our partners see as unfair.

REICHARD: The Trump administration had some trade spats with U.S. allies in Europe, and the Biden administration has tried to ease trade tensions. What’s happening there?

SMITH: Yes. So our ambassador, Katherine Tai, she's the head of the Office of  United States Trade Representatives—so this is the body that goes out and negotiates our trade agreements—recently reached an agreement with our counterparts in the European Union to help lessen some of the tensions over steel and aluminum tariffs which were imposed under the Trump administration, on the basis of threatening -- that the imports threaten to impair U.S. national security. And so there was some tit for tat back and forth between the two entities to try to get those tariffs to go away. And the deal essentially is that they will switch over to not a tariff system but a quota system, which basically means that they're going to be counting every item of steel that comes in from Europe. And if too many things come in, then they'll start taxing at a higher rate. So that has lessened the tension, resulted in some lesser retaliation against the U.S. by the European Union. And the two sides also agreed to some mutual efforts to help address issues of steel overcapacity and the mass production of steel and its relation to climate issues.

REICHARD: Let’s talk about China for a minute. What’s changed from the Trump administration to the Biden administration as far as U.S. trade with China?

SMITH: Well, generally speaking, we have the U.S.-China deal, the phase one deal that was signed under the Trump administration. Leading up to that deal, there were very high tariffs imposed on both sides, making it more expensive for Americans to buy from China and vice versa. Those tariffs are largely still in place under the Biden administration. So it is more expensive for you today to buy from China than it was, say four or five years ago. And we've seen very little improvement on, you know, things like intellectual property protections in China and some of the larger issues that the U.S. did have with China. It seems to me that the Biden administration is not changing much on the previous administration's China policy. And the one thing I would say is different is that the Biden administration is trying to work more with allies, like the European agreement that we just talked about, and at least trying to have that conversation almost on a multilateral basis. But that is not doing much for us as Americans who are paying the cost of these tariffs.

REICHARD: Related to that, Tori, you recently wrote that President Biden’s trade policies would make America more like China. What do you mean by that?

SMITH: Yes, so the Biden administration has been proposing some policies related to industrial planning, or, you know, government central planning, about how our economy should look and what industries should be the ones that are succeeding, and what ones that and the ones that shouldn't. A good example of this is in the area of energy production. You see the Biden administration really harming the ability of the U.S. to drill for oil, to do drilling for natural gas, and actually throwing all of their weight behind alternative energies and wanting to subsidize those energy sources and making oil and gas more expensive. And that is a very concrete example of the government picking that these industries are going to win and these ones are going to lose. At the Heritage Foundation what we advocate for is to have these energy sources competing on a level playing field. Let's get rid of all of this government support and subsidies for all of the energy industries, and then see what the most efficient and cost effective and best energy production source is.

REICHARD: Final question, about the World Trade Organization. I’ve heard some people calling to reform it. What role does the WTO play to shape trade between the United States and the rest of the world? And what needs to change, if anything?

SMITH: Yes. The World Trade Organization is one of the principal international organizations of which the United States was a key founder and architect of this organization. But it's the organization that helps us to agree to a set of rules between countries around the world—over 100 countries are members of the World Trade Organization—and it helps us to agree on a rules-based system and that countries will, you know, adhere to those rules. And if they don't, the WTO has what's called a dispute settlement system that allows the United States to file a case against, say, Chile or Mexico or China or whoever it may be, alleging, you know, what rule they aren't following and looking for a way to resolve that. And it's actually a very effective mechanism, this dispute settlement. Without it, the only real system that we have for enforcing our trade rules is through our trade agreements. And we don't have trade agreements with all the countries in the world. In fact, we have trade agreements with less than 20 countries in the world. So this is a really important mechanism. And it's not perfect. Like any organization, it's not perfect and it can use some improvements to help streamline the process, make it more efficient, and more effective. And, you know, those are the things that we're working on to figure out what's the best way to make those changes while ensuring that the organization is moving forward to deal with the issues on trade that we need new rules for that didn't exist when the institution was started 20 years ago.

REICHARD: Tori Smith is Senior Policy Analyst in Trade Policy at the Heritage Foundation. Tori, thanks so much!

SMITH: Thank you.

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