TPP, Tariffs And China: What Biden Might Do On U.S. Trade Policy

President Obama never seemed comfortable with international trade. He avoided the subject, probably because the retail and business community would push for it, while the unions would push back. Early in his term, President Obama learned a valuable trade lesson when the United Steelworkers asked his administration to place a 35% tariff on low-cost Chinese tires to head off a presumed business threat and to preserve production of made-in-USA tires. The tire retailers actually didn’t ask for this and, in fact, they didn’t really want it. Retailers were using low-price imported tires to help promote and sell their higher-priced, made-in-USA tires. Ultimately, the tariff concept was a flop. Low-cost tire production was moved to other countries, and the administration only saved about 1,200 jobs. After the tire-tariff ran its course, a study determined that the estimated cost to the American consumer was about $900,000 for every job that they saved, per the Peterson Institute.

While this may be speculation, there is also a theory is that perhaps President Obama created the Trans-Pacific Partnership (TPP) to be an uber-tough policy that would surely fail. His administration may have developed the trade deal to show that they were working on international trade (to appease the business community), but they proceeded to make it so incredibly rigid (to appease the labor and environmental activists) that it would likely collapse long before it was ever passed. This strategy potentially allowed President Obama the leeway to say it is the toughest agreement ever created, while they were working hard to get it developed. The problem was that after 7 years of tough international TPP negotiations (and 19 official meetings), the TPP became the largest and most comprehensive trade agreement ever created. It became a source of great achievement and ultimately encompassed 12 negotiating countries covering 40% of the global economy. More importantly, it would have significantly helped America to become a major stake holder in the Asia-Pacific region, and would likely have keep China’s regional expansion in check. Vice President Biden worked hard to sell TPP, and in 2015 he was quoted as saying: “I think it’s very, very important to understand that the 20th century rules of the road no longer exist, and new ones have to be written, and we should write them.” Biden was on the team trying to get the TPP legislation through Congress, but he was often equivocal about its passage.

Biden on TPP: Of course, when the former Vice President decided to run for President (by July 2019), Joe Biden had to reverse (or update) himself to better align with the more progressive segments of the Democratic Party. Biden said (as a quasi-flip-flop): “I would not rejoin the TPP as it was initially put forward. I would insist that we renegotiate pieces of that with the Pacific nations, so that we could bring them together to hold China accountable.” Essentially, the former VP wants to tighten up on labor and the environment and, of course, re-assemble a coalition to counter-balance China’s expansion policies.

On January 23, 2017 (three days after assuming office) President Trump took a hatchet to the agreement when he signed an Executive Order signaling the end of potential U.S. participation in TPP. His act was a symbolic exercise, since Congress had not ratified the deal, but it effectively said that TPP was halted from the U.S. side. President Obama’s U.S. Trade Representative Michael Froman (who negotiated the original TPP deal) said, “There’s no doubt that this action will be seen as a huge, huge win for China.” With all the talk about being tough on China, “for their first action (of the Trump Administration) to basically hand the keys to China and say we’re withdrawing from our leadership position in this region is geostrategically damaging.”

Likely TPP conclusion: Biden would re-open negotiations.

Biden on the WTO: President Trump does not like the World Trade Organization (WTO). Strategists will tell you that this administrating body for international trade could be improved, but most will say it plays an important role and is helpful. Perhaps President Trump intended to call the WTO out to make it look weak. In that way, his administration could do what they want in the world of trade because they would have neutralized the sheriff. President Trump once said: “The WTO was set up for the benefit of everybody but us. They have taken advantage of this country like you wouldn’t believe.” International trade disputes are resolved through the framework of the WTO, but the President has said: “We lose the lawsuits, almost all the lawsuits, in the WTO.”

Fact checkers find it interesting that President Trump would say that, since the Obama Administration was quite successful when working with the World Trade Organization. They filed 25 cases and won 14. They amicably settled 6 cases, and 5 cases were left as pending when the Obama term ended.

Likely WTO conclusion: Biden would work to repair the issues with the WTO, as he is known to prefer a rules-based system of international order.

Biden on tariffs: President Trump loves his tariffs and he has utilized three types. First there were the 201 tariffs against solar panels and washing machines. Then there were the 232 tariffs designed to create an umbrella of “national security” to tax steel and aluminum. Then, of course, there are the China 301 tariffs aimed at all types of imported goods – that have been highly disruptive to retail supply chains, and have taxed the retail and fashion industries.

The good news is that candidate Biden does not like the tariffs. Earlier this month in an interview with Lulu Garcia-Navarro, he articulated exactly what he thought, and the campaign later felt the need to touch up on his comments, saying that they would re-evaluate the situation after taking office. However, what the former VP said about using tariffs was quite helpful: “Hey, look, who said Trump’s idea is a good one? Manufacturing has gone into a recession. Agriculture lost billions of dollars that the taxpayers had to pay.” He also said: “We’re going after China in the wrong way.”

Realistically, President Trump’s rationale for using all the different tariffs has not worked. The national trade deficit was supposed to be reduced, but it got larger. Manufacturing jobs were supposed to come back, but they haven’t accelerated. The China Phase One Trade deal is running well below its stated goal, and the Phase Two deal has been sidelined.

Likely tariff conclusion: Biden will strike a multi-nation deal with China to be a better global trade partner and all the tariffs will be removed.

Biden on China: It’s no secret that retailers are struggling right now. In the fashion world 40% of all apparel, 65% of all footwear, and 80% of all accessories are currently imported from China. For retail expansion, China is a hot market and most retailers/brands are interested to sell product to them. Plus, Chinese consumers love to shop in the U.S. and (before COVID-19 and all the anti-China rhetoric) we had U.S. visits of 2.9 million people with an average spend of $7,000 per person. We also had 370,000 students attending our schools, spending billions of dollars to get an American education.

During the Republican convention this week, they will talk about “Tough Trump” as being hard on China and they will drop hints about “decoupling” from China. They will also mention “Beijing Biden” as a way to infer that Joe Biden would be soft on China.

Most everyone in the media agrees that there have been some serious issues with China. To President Trump’s credit, he made a serious effort to provide some solutions. The problem, however, is that ultimately the Trump ideas have not been helpful to our farmers, our retailers, our fashion industry, or our American brands. China is a complicated country with a different form of government with a unique operating structure. General consensus is that it is best to communicate with China and to do so wisely. Decoupling from China would be an absolute disaster.

Likely China conclusion: Biden will re-engage with China and work to resolve some of the more troubling issues.

During the first presidential campaign, candidate Trump referred to the TPP as the “worst deal ever negotiated.” He also referred to NAFTA (North America Free Trade Agreement) as the “worst trade deal ever signed.”

When President Trump successfully re-negotiated NAFTA to become the U.S. -Mexico-Canada Agreement (USMCA), he called it “the largest, most significant, modern, and balanced trade agreement in history.”

A closer reading of the actual text of the USMCA reveals that many parts of the TPP were included in the USMCA agreement. All that begets the following summary and clearly explains Trumpian trade policy:

In order to fix the “worst trade deal ever signed” (NAFTA), the Trump team used components of “the worst trade deal ever negotiated” (TPP), to create “the most significant trade agreement in history” (USMCA).

Likely conclusion for American trade policy and for the future of American retail: The disaster of the current trade policies will get resolved – simply because everyone understands that the process isn’t working.

The great humorist Will Rogers could have easily explained what has been going on in America when he said: “I don’t make jokes. I just watch the government and report the facts.”