No, Biden Will Not End Trade Wars
Biden has matched Trump’s rhetoric on trade soundbite for soundbite, and his economic plans are likely to make trade conflicts worse.
If Democratic candidate Joe Biden becomes president next January, mending U.S. trade relations won’t be anywhere near the top of his to-do list. He has stated unequivocally that he would not enter into any new trade agreements “until we’ve made major investments here at home, in our workers and our communities.” Don’t expect a Biden-led United States to join the Trans-Pacific Partnership in Asia, restart talks on a new agreement with the European Union, or pursue trade deals elsewhere anytime soon—if ever.
But for the rest of the world, four years of being pummeled with tariffs and sanctions by President Donald Trump make better trade relations a priority. How deftly Biden handles that tug of war will determine whether the United States regains some of its tattered leadership over the international economic order—or stands by while the world further deteriorates into tit-for-tat trade wars.
From a U.S. domestic perspective, Biden’s priorities are certainly right. Lack of investment in workforce retraining, access to education, and critical infrastructure—as well as a tax code that favors shedding workers—goes a long way to explaining why Americans soured on trade. Former President Barack Obama, after running as a trade skeptic in 2008, fell in line with his predecessors in pursuing an ambitious agenda to expand trade, especially with Asia, despite growing evidence that imports from China were destroying U.S. manufacturing jobs. Discontent over trade helped Trump win the 2016 election in critical industrial states like Michigan, Wisconsin, and Pennsylvania. This year, the Democrats are determined not to make the same mistake. Biden’s plan to “build back better” plainly states that “the goal of every decision about trade must be to build the American middle class, create jobs, raise wages, and strengthen communities.”
But the world cannot afford to wait for the many months—or years—that it would take the new administration to roll out its domestic policies, and the additional years for them to show effects. After four years of Trump, the international trade system is collapsing. A short list of the urgent priorities include fixing a broken World Trade Organization (WTO), building a stronger alliance to confront China economically, and resolving growing differences with Europe over taxation of and privacy regulations for digital companies, and avoiding a spiral of new trade conflicts over the use of border taxes to punish carbon-hungry industries. A Biden administration cannot just plead with the rest of the world to stand still while the United States gets its domestic house in order.
If anything, Biden’s plans would likely make trade conflicts worse—at least in the short run. That’s because his showcase economic proposals include preferential treatment for U.S.-made goods, a long list of subsidies to domestic industries, and a ban on foreign companies from government procurement. These are exactly the kinds of protectionist practices that past trade agreements have sought to contain because they wall off home markets from foreign competition, are widely abused by governments and corporations, and often lead to a spiral of retaliation by other countries.
For example, Biden wants a $400 billion “Buy American” scheme focused on U.S.-made infrastructure and clean energy technology. That would cut out many highly competitive European and Asian suppliers. Polls suggest this is extremely popular: A new survey by Trade Vistas found that 75 percent of Americans support Buy American policies, with 40 percent believing they would create “a large number of jobs.” Biden has been unequivocal in pledging that the government “will not purchase anything that is not made in America.” To that end, he has promised to close loopholes in the Depression-era Buy American Act, which he says result in “tens of billions of dollars each year going to support foreign jobs and bolster foreign industries.” What Biden calls loopholes, however, include long-standing commitments made by the United States and other countries under WTO rules, as well as U.S. obligations under trade agreements with Canada, Mexico, Korea, Australia, and many other nations.
Biden is also offering a cascade of government subsidies to industry, shattering what little is left of international commitments under the WTO and various trade deals to restrain such supports. The Biden plan calls for showering U.S. corporations with federal support to repatriate critical supply chains in sectors such as medical equipment, semiconductors, and communications technology—an issue on which there is little daylight between Democrats and Republicans. A bipartisan bill in the U.S. Senate calls for $25 billion in government aid to bring semiconductor manufacturing back to the United States. All this promises an escalating subsidies war, not just with China but with close U.S. allies as well.
Finally, Biden is promising little respite in the trade war with China, which has caught many U.S. trading partners in the middle. Trump might have hoped to use the election campaign to paint Biden as soft on China, but Biden has matched him soundbite for soundbite, calling out China for its “assault on American creativity” through intellectual property theft, cyberattacks, and unfair subsidies. In addition to calling for tougher trade enforcement, Democratic U.S. Senators unveiled a $350 billion spending plan last month “to confront the clear and present threat China poses to our economic prosperity and national security.” Such proposals are the Democrats’ own version of “America first,” marrying Trump’s hard line on China with a longstanding Democratic wish list of domestic economic programs—mainly subsidies to favored sectors, companies, and initiatives.
Some might still be under the illusion that a Biden-led United States would go back to being its old self on trade—the mostly benevolent hegemon dedicated to preserving and expanding the rules-based trading order, even when that sometimes led to economic harm to certain U.S. industries and workers. But they are coming around to realizing there is no going back to a pre-Trump era of free trade. And after four years of Trump, U.S. allies are likely to be willing to give a Democratic administration some room to deal with domestic challenges.
Europeans, Canadians, Australians, and other allies are likely to be patient in order to avoid having to choose between trading with China and trading with the United States, especially given how little China has done to win new friends. On the contrary: Beijing has engaged in what the Financial Times journalist Jamil Anderlini calls punishment diplomacy, using economic weapons to bully countries that dare to criticize the President Xi Jinping government over human rights, Hong Kong, or the coronavirus. Countries on the receiving end of such treatment will be more than happy to embrace a reengaged United States, even if they won’t get all their wishes fulfilled on trade.
To keep allies and trading partners happy, a fairly short list of goodwill gestures from Biden might suffice. First, Biden should work to preserve and revitalize the World Trade Organization. While it’s true that the Obama administration shared the Trump administration’s concerns over the WTO’s inability to constrain China and overreach by the organization’s Appellate Body, a Biden administration should commit itself to saving the institution through serious reform rather than destroying it, as Trump has been working to do. Second, a new administration should renounce tariff wars with allies. With Europe, that means not just lifting Trump’s tariffs on steel and aluminum, but finally negotiating an end to the long-running dispute over aircraft subsidies for Airbus and Boeing, which is set to escalate yet again after the WTO’s recent authorization of $4 billion in European tariffs on U.S. goods. With Canada and Mexico, that means adhering to the new United States-Mexico-Canada Agreement, which Biden considers an improvement over NAFTA, without threatening new tariffs as Trump has done against Canada over aluminum and Mexico over migrant flows. Finally, Biden will need to deliver on his promise to work closely with allies—early and consistently—on a common trade policy toward China. This should include developing, together with allies, a resilient supply chain for medical equipment and technology, rather than insisting that the United States must make everything at home.
Democratic presidential candidates have a history of campaigning as trade skeptics and governing as trade liberalizers. But Biden certainly recognizes the dangers of that course: An about-face on trade would deepen rifts with the increasingly powerful left wing of the Democratic Party and make Biden and the party vulnerable to Trump’s Republican successors. Biden will therefore have to find the sweet spot—let’s call it an “America mostly first” trade policy—by also recognizing international commitments and the importance of economic leadership to U.S. power and global stability. In a 2011 Task Force I co-directed at the Council on Foreign Relations, we called for such a pro-America trade policy focusing on spreading the benefits of trade to more Americans, while also strengthening the rules-based trading system against abuses, especially by China. The Democrats’ failure in 2016 to find that middle ground on trade left the field wide open for Trump. Biden should seize the opportunity to take it back.