US sales representative Robert Lighthizer has enough time to hand out more tariffs before handing control over to Biden's team

Joe Biden’s chance to play “good cop, bad cop” in US trade policy

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Hello from Washington, where President Donald Trump has finally ordered his administration to work with Joe Biden’s transition team. Meanwhile, Biden has announced that he will be taking national security measures, although there are still a few months for the Trump administration to get things done. What they can and should do in retail is our topic Main piece today.

Our Person in the news Janet Yellen, Biden’s election for Treasury Secretary, is ours while Martin Wolf’s article “What the world can learn from the Covid-19 pandemic” is ours Chart of the day.

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Lighthizer’s last stand

US sales representative Robert Lighthizer has enough time to hand out more tariffs before handing control over to Biden’s team. © Andrew Harnik / EPA / Shutterstock

US President-elect Joe Biden has begun appointing his cabinet officials, and although trade watchers will have to wait a while before we know who the new top US person in trade will be, speculation in DC continues to swirl. (See our previous note on the runners and drivers here).

But even if it makes a smooth transition in January, Robert Lighthizer, the current U.S. trade agent, has plenty of time to do a few more things before handing over control of trade policy to the Biden team – including that Handing out a few more tariffs.

So what are the likely final acts of Lighthizer’s memorable time at the helm?

The most immediate item on the to-do list is the progress of a project that the Biden people are likely to pick up on, which is to continue the multiple pending investigations under Section 301 in a number of countries – including the UK and EU – on proposed taxes to digital services. As trade secret readers will know, the Section 301 investigative mechanism is the same process the US used in its trade war against China and can result in punitive tariffs being imposed on countries the US believes are in their interests harm through unfair trading practices.

Washington argues that plans by countries like Austria, Brazil, the Czech Republic, India, Indonesia, Spain, Turkey, and the United Kingdom to increase taxation on tech companies are unfair targeting US groups, and the 301 process is one way to formalize that view and provide a route to retaliation.

The US has already completed a Section 301 investigation in France and released a final list of tariffs to apply in early January if France pushes the tax – which it does. However, Donald Trump’s administration is also likely to publish its findings on whether the other countries surveyed are using unfair trading practices. That would not lead to tariffs immediately, but the administration could have time to work its way through a phased process and will likely issue a proposed tariff list to be consulted prior to changing tariffs.

Separately, there is a Section 301 investigation in Vietnam into alleged currency manipulation, which Lighthizer is likely to want to focus on. That would be a real policy change, and using commercial instruments to tackle currency errors is not the norm in the US. Detecting and reacting to currency manipulation has traditionally been the domain of the US Treasury Department, but Lighthizer has argued that undervalued currencies harm American workers by allowing artificially priced products into the US.

Clete Willems, a former Trump trade official, said tackling currency undervaluation has been a big goal for those in the administration looking to cut the trade deficit. “The point they are making is that if you look at the deficit, one of the biggest drivers is the imbalanced currency,” Willems said.

Regardless of this, it is assumed that at least one of three possible investigations under Section 232 – which can lead to import duties that endanger national security – is almost ready for publication. This isn’t really something in Lighthizer’s domain, and rather comes from Secretary of Commerce Wilbur Ross, but it’s trade policy so we’re going to include it here. In May, the Commerce Department launched an investigation into electrical steel and other parts of the power grid that could lead Trump to announce new tariffs before he leaves office.

Interestingly, some of this is going to be a bit of a hassle for Biden, but we’d argue that some of it might help him and his trade officials as well. By inheriting some tariffs from the Trump administration, a classic “good cop, bad cop” routine is introduced where one group of trade negotiators hands over to the next. Officials appointed by Biden can offer to remove the tariffs in exchange for concessions but have avoided raising sentiment for failing to implement the tariffs – they can instead blame the Trump administration. U.S. allies are unlikely to expect the Biden government to unilaterally lift tariffs, but they may be more willing to cooperate with a reset and staff change.

That being said, there will still be a lot of uncomfortable situations for Biden. The main problem will be the proposed tax on digital services and the corresponding US tariffs. It’s hard to see how the US can offer to cancel or suspend tariffs without other countries offering to reset their tax on digital services, which they don’t want until a multinational solution is reached at the OECD. France leads the way, but a multitude of countries are eager to overhaul taxation on technology and e-commerce businesses.

Biden’s strategy may have been to stay longer, but with tariffs on more French imports, the situation will have worsened considerably. Does the strategy of the good and the bad cop work here? We’ll have to wait until 2021 to find out.

Mapped waters

The most important thing we have learned from Covid-19 is how much damage a relatively mild pandemic can do by long-term historical standards, writes Martin Wolf. Calling it mild does not mean, and will continue to cause, mitigate the suffering it caused, until an effective vaccination program is established and sustained worldwide. But Covid-19 has shown a social and economic vulnerability far greater than experts believe. It is important to understand why this is the case and to learn how to better manage the effects of such diseases in the future.

Estimated deaths as a percentage of the population graph showing how humanity has suffered far worse pandemics than Covid-19

Person in the news

Janet Yellen's appointment as Secretary of the Treasury cemented her status as one of the leading US politicians of her generation
Janet Yellen’s appointment as Treasury Secretary cemented her status as one of the leading US politicians of her generation © Andrew Harnik / AP

Janet Yellen was chosen by Biden as his Treasury Secretary and top cabinet officer in charge of the U.S. economy as she struggles to recover from the shock of the coronavirus pandemic.

The nomination consolidates Yellen’s status as one of the leading policymakers of her generation in the United States, having previously served as Chair of the Federal Reserve, President of the San Francisco Fed and Chair of the White House Council of Economic Advisers under Bill Clinton.

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