Articles

    TCF learns about U.S. trade policy and what to expect with a Biden administration

    Dr. Russell Hillbery
    Professor, Agricultural Economics
    Purdue University

    Dr. Russell Hillberry, a professor in Purdue University’s Department of Agricultural Economics, discussed the history of United States trade, where we are now, and where we could be headed with the country’s trade policies under President-elect Joe Biden during the November 9th Chicago Farmers webinar meeting.

    Reflecting on the current administration, Dr. Hillberry said that President Donald Trump was a historical anomaly in terms of presidents’ trade policy orientation. He said that generally this president employed an aggressive use of U.S. trade policy and used what some would say are the “loopholes” in trade policy to pursue his agenda. As a result, there was predictable retaliation from other countries.

    By contrast, President-elect Biden has a long record of support for U.S. trade agreements, although he also has sought and won support from labor unions, which often oppose such agreements. But there was little talk about trade policy in the campaign, said Dr. Hillberry, so it is not completely certain how the Biden administration will approach trade.

    Sharing a historical overview, Dr. Hillberry related that Article I, Section 8, of the Constitution gives Congress the authority to set tariffs. The president has the responsibility for most foreign policy issues. Dr. Hillberry pointed out that it is difficult for Congress to negotiate with countries because it is not well-organized for negotiating trade agreements. The two chambers can differ on trade policy ideas and its members cannot respond rapidly to developments that would affect trade.

    Congress has granted limited authority to presidents to negotiate agreements for a given period of time, which is known as Trade Promotion Authority. With this authority, the president negotiates agreements and then consults with Congress, which votes on an agreement without amendment. With congressional approval, the agreement goes into effect.

    In terms of responding to events, many years ago Congress granted the president the authority to raise tariffs in certain situations. As a result, the president has the power to respond to events or raise tariffs due to national security concerns. The president also can use trade agreements as “a stick with countries that have not lived up to stipulated obligations.” There is no need for Congressional approval, but the president has to ensure that certain legal conditions are met.

    Domestic politics do play a role in trade agreements. Dr. Hillberry said that the Senate is more favorable than the House to granting presidents the authority to negotiate. This is due to the fact that the costs of trade agreements are concentrated by industry and are localized. However, the benefits of trade agreements are diffuse. American voters generally do not take trade policy into account as they cast their ballots. “The higher levels of representation generally are more in favor of trade agreements,” noted Dr. Hillberry.

    He went on to say that presidents usually tend to favor more trade agreements and take national interests into account when considering the agreements. They see trade agreements as a tool for accomplishing foreign policy objectives. But, a president also naturally favors more negotiating authority because such authority is a grant of power from the Congress to the president, said Dr. Hillberry.

    “Presidents, in general, are more favorable to trade agreements due to these factors than their political parties as a whole are,” according to Dr. Hillberry.

    Trade agreements are usually about economic benefits, but presidents’ foreign policy objectives are ultimately more important in the minds of policymakers than are the economic implications of agreements, Dr. Hillberry noted.

    For example, presidents use the granting of access to U. S. markets in return for some foreign policy goals they want to achieve. In order to have domestic politics work out, a president would leverage the support of domestic export interests, such as agriculture or medical equipment or Hollywood, to overcome opposition from import competing interests.

    Following World War II, from the 1940s to the early 1980s, the United States advocated multilateralism regarding trade. It had the view that the nation should form agreements with many countries, but only within the context of the General Agreement on Tariffs and Trade (GATT). “GATT was an open club,” said Dr. Hillberry. “Member countries treated each other in the same manner.”

    The primary reasons for pursuing the GATT agreements were related to foreign policy. The goal was to create prosperous blocs of market-oriented economies as a Cold War strategy. “The United States wanted its allies to be prosperous to diffuse the adoption of communism and to unify Western Europe. The agreements were efforts to support the NATO allies. Additionally, they made former combatants in Europe interdependent. This would build a big, open club that would liberalize trade,” according to Dr. Hillberry.

    He went on to say that there were economic reasons, too, for pursuing the GATT agreements. They created a broad international prosperity with few trade barriers. Additionally, policies that are consistent across trading partners are economically most rational; it is the preferred way of doing trade agreements. At the time of these agreements, the United States was dominant in manufacturing and the agreements opened up trade for U.S. exports.

    In the 1980s and 1990s, the United States began to sign preferential agreements. Israel, Canada, and Mexico were given greater access to U.S. markets in return for the United States gaining access to their countries’ markets. The main reason for a 1985 agreement with Israel was political: to support an ally in the Middle East. There were no meaningful economic benefits.  A foreign policy rationale for Nafta was that it helped to stabilize Mexico and support its reforming government. Economically, agreements with Canada and Mexico created a trading bloc to compete with blocs in Europe and Asia.

    President George W. Bush signed a number of agreements with small countries that supported the United States in the Iraq War. Another reason to pursue so many bilateral agreements was that the European Union was signing agreements throughout the world at that time. The many U.S. agreements that came with a lot of commitments also were seen as a way for the United States to force the agenda at the World Trade Organization. Among the agreements negotiated by President Bush, the U.S.-South Korea agreement was a notable exception. An agreement with that country was negotiated under pressure from Congressional leadership from agricultural exporting states.

    President Obama shifted from negotiating with one country at a time to negotiating mega-regionals such as TTIP (left unfinished) with the European Union to harmonize technical standards, and the Trans-Pacific Partnership (TPP) with 11 Pacific countries to compete for influence in the region with China. TPP also was held out as a carrot for China to behave itself and have a future membership with the group, said Dr. Hillberry.  The TPP was negotiated and signed by President Obama, but President Trump withdrew before the agreement could be sent to Congress. Neither agreement has been implemented by the U.S., though the other members of the TPP went ahead without the U.S.

    President Trump invoked discretionary powers to raise tariffs. He initiated steel and aluminum tariffs against most of the world and put higher tariffs in place against China, who then retaliated with tariffs on agricultural products, among others. As a response, the U.S. government sent large payments to farmers to make up for the loss of exports.

    President Trump also was skeptical of international institutions and undermined the WTO; he negotiated either reductions in the tariffs he had imposed or the halting of tariff increases; and negotiated mini-deals that did not require the consent of Congress. He also renegotiated NAFTA with Mexico and Canada, although he made limited changes in that case due to pressure from Congress.

    What to expect from President-elect Biden? During the campaign, candidate Biden proposed changes to government procurement laws that favored buying American made products. Dr. Hillberry thought President-elect Biden might try to rebuild U.S. influence at the WTO and he will probably move quickly to remove tariffs with allies, especially in Europe. He will expect reciprocity with lower tariffs on U.S. goods. A President Biden can do this without Congress because these tariffs were raised without Congressional approval. President-elect Biden might consider re-entering TPP because he was an advocate of it. However, he would need Congressional approval, and the votes might not be there, Dr. Hillberry suggested.

    Dr. Hillberry expects President-elect Biden to use trade policy, such as carbon tariffs, to compliment policy related to climate change. It is possible that tariffs would be in place for countries that don’t have policies to mitigate emission of carbon dioxide and other climate change pollutants.

    Regarding China, there are relatively high tariffs in place in both directions due to the trade war. President Trump negotiated a “phase one” mini-deal at the end of 2019 that could be thought of as mostly a cease fire, we won’t continue to raise tariffs on China, and vice versa is expected.

    The United States did get commitments from China to purchase U.S. agricultural products, these commitments were not met due to Covid and interruptions in the world economy, the commitments probably were not feasible anyway, Dr. Hillberry said.

    In getting the agreements, President Trump set up farm payments without Congressional approval through the Market Facilitation Program for farmers affected by tariffs. This program could be reversed.

    “My expectation is that President-elect Biden initially will keep the tariffs that PresidentTrump had as leverage with China,” said Dr. Hillberry. “He can negotiate away Trump’s tariffs without Congressional approval as President Trump did.”

    Dr. Hillberry said that President-elect Biden will likely have different goals than President Trump. He will seek policy commitments, not purchase agreements, in his negotiations, and he would look for movement on certain issues. For example, it is possible that President-elect Biden would focus on intellectual property and state owned enterprises and down play agricultural export interests.

    He noted that the China policy is likely to be re-oriented away from U.S. agricultural exports and there could be a reduction or end of the Market Facilitation Program payments.

    Dr. Hillberry pointed out that most of President Trump’s actions were done without Congress with no change in the law so they may have limited durability with a new president. Trade policy probably will not be a high priority in the Biden administration, which will be focused on other things. “I expect mostly a return to normal U.S. trade policy settings and restoring relationships with traditional allies, such as Europe and Japan, will be a main objective,” said Dr. Hillberry. “There will be new efforts related to labor interests in the United States and environmental issues such as climate change will be key parts of trade policy going forward.”

    Written by Denise Faris, The Chicago Farmers Newsletter Editor