Reading Tea Leaves

It is still early in the Biden-Harris administration, and, although the president has been very busy, not many of his actions relate directly to trade. Still, there are a few signs demonstrating what many of us have been saying: that the issue cannot be completely ignored. Reality intrudes, and issues come up. There have been a few noteworthy developments that may provide some hints as to how President Joe Biden’s trade policy will unfold—tea leaves, if you will.

The first is not of his own making—the decision by South Korean trade minister Yoo Myung-hee to withdraw her candidacy for World Trade Organization director-general. That leaves Ngozi Okonjo-Iweala as the last woman standing, and the administration wasted no time endorsing her only a few hours after Yoo withdrew, thereby joining the consensus that had been reached last October by all members except for the United States. This is an important sign of the Biden administration’s commitment to multilateralism, and it is most welcome.

The second is more complicated—the president’s order to overrule his predecessor’s decision to remove the aluminum tariffs placed on imports from the United Arab Emirates (UAE). It appears that Biden’s decision had more to do with foreign policy than with trade policy—both the tariff removal and an arms sale package appeared to be part of a deal involving the UAE’s recognition of Israel—and Biden has now reversed the first and blocked the second pending review. Nevertheless, his decision also said that he thought the initial national security rationale for the tariffs remained, and thus their removal could not be justified. Other guidance from the White House suggested this case should not be regarded as a definitive policy statement, but it does clearly suggest that the new administration is both aware of Section 232 and not averse to its use. That does not mean we will see a bunch of new tariffs, but it does suggest the old ones will not go away easily. That should not be a surprise. The politics of steel and aluminum are closely tied to states that gave Biden the presidency. Both commodities are victims of Chinese-caused overcapacity being dumped on the world market. The best solution would be a global safeguard action in which all the other producers agree to actions that will push the surplus back onto China. Unfortunately, the UAE decision says very little about their long-term plans to deal with the problem.

The third, and most important, is the president’s Buy American executive order (EO). The Scholl Chair has published a short paper on the contents of the EO, so I will not go into details on it here. Its specifics remain to be worked out, but it is clear the intent is to increase the domestic content requirements as they apply to parts and components, eliminate some exceptions that have allowed procurement officers to ignore foreign parts in computing content, and possibly revise the substantial rules to provide for more U.S. content. When asked how this EO differed from the one former president Donald Trump issued a few days earlier, the administration’s response was, essentially, that his would not have worked, and this one will.

If that turns out to be true, it may not be good news for businesses because they may be forced to alter their supply chains significantly. There are two problems with that: it takes time and costs money. New suppliers have to be identified and then evaluated, tested, and certified, all of which takes time. Converting to U.S. suppliers will also likely be more expensive, making their products less competitive internationally. In essence, an aggressive Buy American policy trades the international market for the home market. With 96 percent of the world’s consumers outside the United States, that is not a very good trade.

Finally, the fourth development was the flap over Huawei. During Commerce Secretary nominee Gina Raimondo’s confirmation hearing, she was asked to commit to keeping Huawei on Commerce’s Entities List, which means licenses would be required for all exports. She initially declined to be as definitive as some of the senators wanted, saying, quite reasonably, that the policy on Huawei would be reviewed. That did not last long. Recognizing the political sensitivity of the issue, the White House made clear that same afternoon that it considered Huawei a national security threat, and Raimondo herself subsequently took the same view in her written responses to the committee. That was the right decision, but it illustrates how little maneuvering room the administration has on China. With public opinion having soured on China, and members of Congress competing to see who can be the toughest, the space for thoughtful policy development is very narrow. Trump’s scattershot China policy largely failed, and Biden has promised a coherent strategy instead. It would be wise for Congress to let him develop one.

So, what do the tea leaves signal? First, a welcome return to multilateralism. Second, that not all of Trump’s trade actions will be reversed. Those that are national security based, in particular, may survive. Third, that campaign promises like Buy American matter, and there will be attempts to keep them. Absent so far are signs of a comprehensive trade policy, but I will continue to read the tea leaves and report back.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

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