The Biden Presidency will not be a quick fix to trade tensions between the EU and the US

The Biden Presidency will not be a quick fix to trade tensions between the EU and the US

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Hello, and welcome back to DC, where the event of the week is sure to be the first presidential debate on Tuesday night between Donald Trump and Joe Biden, who continues to maintain a stable but not entirely comfortable lead in the polls. The first 30 minutes – before viewers start voting – could be crucial, and we will certainly be looking for trading angles to share with you.

Last week, my Brussels colleague Alan Beattie said you should be happy about trade relations between the EU and the US in a Biden government after Antony Blinken, his main foreign policy adviser, promised to end the "artificial trade war" with the EU (assuming of course) Biden wins and Trump gives up power in an orderly transition, gulp!) But it may not surprise readers that we have a broad church of opinion here at Trade Secrets, and after thinking about the matter, I have some doubts. It may not be quite as quick and easy to repair the damage to transatlantic trade over the past four years – and that is my column for today. Our tit for tat guest is Todd Tucker, Director of Governance Studies at the Roosevelt Institute, while our daily map shows US auto imports from China.

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Only four small problems to solve

"Instead of hurting our own citizens and fighting with our democratic allies, we should work on a fair approach to international trade and investment." Tony Blinken, Barack Obama's former assistant secretary of state, is Joe Biden's senior foreign policy advisor, but he spoke extensively on trade at a US Chamber of Commerce event last week, and it made some waves in a good way.

The message to the EU was particularly reassuring as it signaled that Washington's problems with Brussels were disproportionate and solvable by the Trump administration. It was also suggested that restoring economic ties was part of the broader strategic goal of a Biden presidency.

But let's not get too carried away.

There are a number of practical and political obstacles to burying the hatchet with European countries that could slow or halt the progress of a hypothetical Biden government. The good news is that one of the toughest problems may be the easiest to get off the table.

Since arriving at the White House, Trump has threatened to impose tariffs on foreign cars and auto parts for national security reasons, posing a major threat to Germany and other European suppliers. But there never was a real political constituency in favor of car tariffs, and even Trump, despite all his unrest, was disappointed.

So there would arguably be little political cost – and much economic benefit in terms of keeping BMW investing in America – for Biden to rule out auto tariffs for good. The next two problems are more difficult because they require negotiation. Trump imposed tariffs on a number of European imports because the World Trade Organization ruled last year that European subsidies for Airbus were illegal. We are eagerly awaiting the Geneva decision on US support for Boeing.

The lifting of the levies will almost certainly depend on negotiation to resolve the dispute and we cannot expect an agreement. After all, the EU and the US have been fighting over airplanes for decades. So why stop now?

US President Donald Trump has threatened to impose tariffs on foreign cars and auto parts for national security reasons, which poses a threat to Germany and other European suppliers. © Krisztian Bocsi / Bloomberg

Then there is the issue of taxes on digital services and tariffs that are being imposed – and threatened – on a number of EU countries, starting with France. A Biden administration may not necessarily want to dump Big Tech in the first few months of its tenure, at least not in commerce, so a unilateral removal of tariffs and threats does not seem likely. Instead, it would likely stimulate talks at the OECD on a multilateral tax deal and be more serious compared to Trump, but a compromise could take some time and until then tariffs could well remain in place.

Last but not least, the question arises as to which taxes the US levies on steel and aluminum imports from around the world, which are still applicable to the EU. Many US manufacturers despise metal tariffs for increasing their input prices, but there is still an influential group of rust-belted companies and union leaders who strongly support them. If Biden wins back Wisconsin, Michigan, and Pennsylvania, his first step may not be to reward their loyalty by lifting those tariffs.

Once these four issues are resolved, it may be time for US and EU officials to pick up where they left off a few years ago and see if there is scope for trade liberalization rather than just the field of to clear the abandoned mines Trump. Here, too, the EU may need to be extremely patient. Not only did Biden announce a huge federal “Buy America” procurement agenda that has always puzzled Europeans, but most importantly that new trade deals could only come about after making major public investments in education, health care and environmental energy to make the US economy more equitable and resilient. I doubt this will happen in a few weeks or months.

There is still much we do not know about Biden's trade agenda, starting with the identity of a future US sales representative. However, it may take more than a snap of your finger to get EU-US trade going again.

Mapped waters

HMTX, a tile supplier, filed a lawsuit on Sept. 10 on the grounds that the Trump List 3 tariffs that came into effect in September 2018 on Chinese imports were unlawful. More than 3,300 importers have filed similar complaints – including Tesla, which is demanding a refund of tariffs and calling them arbitrary and capricious. Chinese auto exports to the US have been hit as a result, although the pandemic has caused US auto imports from other countries to plummet even more.

Bar chart of the annual change in US auto parts imports, with Trump's tariffs weighing on Chinese auto exports in USD million

Tit for tat

Todd Tucker, political scientist and director of governance studies at the Roosevelt Institute, accompanies us on three open questions.

Can trade tariffs ever really be moral and not economic?

Earlier this month, the WTO ruled that US tariffs on Chinese imports violate global trade rules. The Trump administration had argued that its tariffs on Chinese goods were motivated by moral concerns – one of ten "general exemptions" that can be raised in defense. For the Chinese, this was a grievance: a country's laws do not necessarily reflect its moral values, and even when they did, tariffs were applied on the basis of economic goals rather than morality.

However, it is not that far-fetched to believe that tariffs could have any moral basis. Tariffs are ultimately a political tool, and we see all kinds of other political tools being talked about morally. It would be extremely cynical not to consider all of the United States law to be in any way related to moral values. As anti-monopoly crusader Barry C Lynn argues in Liberty From All Masters, protecting against robbery (domestic and international) and insisting on rule-following not only achieves desirable economic outcomes, as measured by income or productivity growth, but also promotes it equality and community trust and freedom from domination.

What are the importers who file cases against Trump's 301 tariffs on Chinese goods likely to achieve?

The Trump administration isn't just hammered in Geneva; It has problems at home in the New York-based Court of International Trade. As of September 10, more than 3,300 US importers have filed legal complaints about Trump's tariffs for China. Importers know that with the Appellate Body in trouble, there is not much the WTO can do to de-escalate the US-China conflict. So you do what any good lawyer would advise you to do: reach for whatever remedy you have. According to some trade lawyers, the odds of winning are at best 50 percent, but the cost of filing is low enough to deserve a shot. The problem for them: Presidents benefit from a large margin of discretion under Section 301 to deal with evolving disputes, as has certainly been the case with China for the past three years. This adds to the general reluctance of the judiciary to review foreign policy strategies.

Yet it is another administrative problem and an interesting parallel to the WTO case. In Geneva the US moral claim was accused of having exempted too many importers from tariffs and carried out too many cost-benefit analyzes (how can a country base its morality on a number?). In New York, the US claim is being challenged by the beneficiaries of these exemptions, which claim to be under-quantified.

In your opinion, what should the next WTO Director General do first?

This conversation leads the way: Show that they are open to reforming the process and rules of the body. A growing bipartisan chorus in Washington is frustrated with the trade organization's apparent inability to address structural challenges arising from China's economic model. The disruptions of the Trump era have also made other advanced economies more receptive to WTO reform. The new director general can gain a lot of political capital by showing how modernized trade rules can help countries' attempts to address existential threats like climate change and growing inequality.

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