A. Introduction
During the last six decades of the twentieth century, the United States played the role of benign hegemon in international affairs, most notably in international economic relations. In the 1940s, the United States led the establishment of the International Monetary Fund, the World Bank, and the General Agreement on Tariffs and Trade. Subsequently, the United States spurred the success of international trade negotiating rounds, including the extremely significant Tokyo and Uruguay Rounds, the latter of which created the World Trade Organization (WTO). United States’ leadership was the key to the establishment of the rule of law in international trade, coupled with the rules-based, adjudicatory WTO dispute settlement system.
During the first decades of the twenty-first century the United States abandoned its global leadership role on virtually all fronts,Footnote 1 most notably in international economic relations. The culmination of this abandonment was the administration of Donald Trump, and his “America First” foreign policy.
The Biden administration took office in January 2021, vowing “to repair [US] alliances and a return to a position of American leadership.”Footnote 2 In international economic relations this may be taken to mean a return to support of the WTO, the elimination of barriers to international trade, and revival of the rules-based multilateral trading system.
The thesis of this Article is that American leadership in international economic matters, for the most part, is moribund and will not be revived. Although the Biden administration gives lip service to American leadership and multilateralism in international trade, economic and political constraints loom as unmovable obstacles to significant changes in American policy concerning international trade.
The Biden administration took office in January 2021 against the background of the Trump administration’s wholesale reversal of longstanding U.S. trade policy norms. Under the banner of nationalism and populism that ignored economists and expert advice, the Trump administration (1) levied extra tariffs on a wide variety of imported products in a futile attempt to save manufacturing jobs and lower the U.S. trade deficit; and (2) openly derided multilateralism in trade, investment, and economic matters.
Upon assuming office, President Biden used his executive powers to sign orders reversing wholesale a great number of Trump administration policies, especially in the areas of climate change, immigration, protection of the environment, and civil rights.Footnote 3 President Biden used the Congressional Review ActFootnote 4 to prevent many Trump era regulations from coming into force. Most political observers expected that Biden would also quickly repudiate the nationalistic and protectionist trade policies of his predecessor.
These hopes and expectations were in vain. Biden has taken no dramatic action to reverse Trump era trade policies and actions. Former trade officials from both Democratic and Republican administrationsFootnote 5 called upon President Biden to repudiate Trump’s policies on trade and (1) remove the national security tariffs on steel and aluminum; (2) negotiate an end to the China trade war; (3) begin negotiations on free trade agreements with the European Union and the United Kingdom; (4) apply to join the Comprehensive and Progressive Trans-Pacific Partnership Agreement (CPTPP);Footnote 6 (5) revive the U.S. commitment to the WTO and the rules-based multilateral trading system; and (6) end the U.S. boycott of the WTO Appellate Body. Biden has also ignored the pleas of industry groups to end the China tariffs to offset the supply chain economic woes.Footnote 7 Biden also has ignored calls to repeal the Trump era tariffs as a means of moderating runaway inflation.Footnote 8
Rather, the Biden administration, with razor-thin control of Congress, has taken a cautious approach to trade that leaves most Trump administration policies in place. Although the Biden Administration pays lip service to multilateralism and rejects the inflammatory rhetoric of Trump, the trade policies of the Trump administration so far largely continue under President Biden. Only at the margins have Trump trade policies been reversed.
Not only has the Biden administration followed Trumpian failed trade policies, it also has so far neglected to address the fundamental causes of the trade crisis that inspired Trump’s trade wars and protectionist actions. Foremost among such fundamental causes are the China challenge and the ineffectiveness of the WTO. The China challenge concerns statist industrial policies such as (1) subsidies; (2) state-owned enterprises (SOEs); and (3) forced technology transfer. The Trump administration launched a trade war with China, coupled with protectionist tariffs to deal with these problems. Trump’s policies failed to achieve their stated goals.Footnote 9 Despite this, the Biden administration’s trade policy is in a holding pattern that retains key Trumpian policies by default. Biden is either unwilling or unable to spend any political capital on trade policy. Thus, needed international economic reforms are languishing unaddressed.
B. Globalization
I. Deglobalization
In contrast to the heady days of the 1990s, when globalization and the rule of law in international trade and investment reached its apogee, the first quarter of the twenty-first century is characterized by significant retrenchment of both globalization and the rule of law. Economic welfare, which was paramount in the 1990s, is trumped by momentous international events, such as the Russian invasion of Ukraine, the ever-increasing military assertiveness of China,Footnote 10 and the Covid-19 pandemic. New values have come to the fore, such as national security, preventing the eclipse of democracy by autocracy, and maintaining technological superiority. The Biden administration is also hemmed in by domestic economic and political constraints; for the first time in memory a clear majority of both U.S. political parties are opposed to trade and investment liberalization.
II. New International Trade Paradigm
In contrast to the Washington ConsensusFootnote 11 paradigm of the 1990s, a new international economic paradigm reflects current “deglobalization” of the multilateral trading system. The new model of reduced globalization compares each nation-state to a rotating spindle surrounded by multiple, nested hemisphere (whorls), each varying in width and speed of rotation. Each whorl in this model represents one or more international trade partner nation-states. This model reimagines globalization as selective openness to trade and investment. In the first whorl are the most reliable, friendliest nations; in the second whorl additional friendly nations; in the third whorl are various allied nations; and in the fourth whorl are non-allied but unobjectionable nations. This model allows certain nation-states to be excluded altogether from the globalization paradigm.Footnote 12
In the case of the United States, this paradigm puts Canada and Mexico in the first whorl; in the second whorl are nations, such as South Korea and Israel, with which the U.S. has free trade agreements; the EU and certain Asian nations are in the third whorl; and most WTO members reside in the fourth whorl. China has an asterisk signaling that special trade and investment restrictions apply, placing it in whorl 4.5. Excluded altogether are sanctioned nations, such as Russia, Iran, Cuba, and North Korea.
This new globalization paradigm demotes the role of the WTO in the multilateral trading system. No longer does the WTO function as sole engine and arbiter of international trade. Rather, the role of preferential trade agreements is greatly enhanced. Agreements such as the US-Mexico-Canada Agreement, the Comprehensive and Progressive Trans-Pacific Partnership Agreement, the Regional Comprehensive Economic Partnership Trade Agreement, the Mercosur Trade Agreement, and the EU-Japan Economic Partnership Agreement, are now equal partners with the WTO as custodians of the multilateral trading system.
III. Salient Biden Trade Policies
Three salient elements characterize the Biden policies toward international trade. First, like the Trump administration, Biden invokes the myth of a manufacturing comeback in the United States, harkening back to the time when factory jobs were plentiful, labor unions were powerful, and unskilled labor was the norm. As Katherine Tai, U.S. Trade Representative (USTR) under Biden, puts it: Trade policy must be “[American] worker centered.” Trade must benefit “regular Americans, communities, and workers.” Americans are “not just consumers, they are also workers and wage earners.”Footnote 13 In his first week in office, President Biden signed Executive Order 14005, which requires, to the maximum extent feasible, American government entities to “buy American,” to source components and products made in the United States.Footnote 14 Executive Order 14017Footnote 15 mandates a broad review of supply chains for products and industries vital to United States security and economy. The purpose of this Order is to make sure that “production shortages, trade disruptions, natural disasters, and potential actions by foreign competitors and adversaries never leave the United States vulnerable again.” “Make it in America is no longer just a slogan; it’s a reality in my administration,” brags President Biden.Footnote 16 He boasts about “finally bringing home jobs that have been overseas for a while.”Footnote 17
While such statements have appeal as political rhetoric, factual truths belie their reality. The author has addressed this issue elsewhere.Footnote 18 Suffice it to say that the old days of plentiful manufacturing jobs for unskilled workers are not returning. The U.S. is now a service-based economy. The U.S. manufacturing base now produces as much or more than in days past but with drastically fewer workers. Moreover, manufacturing jobs are still relatively plentiful in the U.S., but for workers highly skilled in technology.Footnote 19
Second, the Biden administration views international trade policy as means to address non-trade, societal concerns such as climate change and workers’ rights. The USTR argues that open international trade tends to incentivize downward pressures on environmental protection. Accordingly, the USTR states we must develop trade rules that protect against wildlife trafficking, illegal logging and deforestation, overfishing, and air and water pollution. Trade rules must enhance supplies of environmental goods; trade policy must also be enlisted to tackle climate change.Footnote 20
Third, Biden’s trade policy is highly cautionary and political. Biden has apparently decided that his administration cannot or should not address trade matters that will raise even minimal opposition or controversy. He apparently believes that any significant trade initiative would fail in the Congress, given the fact that the Republican party under Trump is now overtly protectionist and his Democratic party is split on trade. This means that the Biden administration intends to allow trade policy to drift along without addressing matters that are potentially of benefit to the United States. For example, (1) tariffs and other trade restrictions imposed by the Trump administration pursuant to section 232 of the Trade Expansion Act and sections 201 and 301 of the Trade Act of 1974, will remain, at least for now;Footnote 21 (2) trade and investment sanctions on China will remain and will be legally secured and enlarged;Footnote 22 (3) although the Biden administration played a key role in the appointment of Ngozi Okonjo-Iweala as new Director General of the WTO, there likely will not be any American-led revival of the WTO; and (4) negotiating new free trade agreements is not a high priority for the Biden administration.Footnote 23 President Biden has stated: “I am not going to enter any new trade agreement until we have made major investments here at home and in our workers.”Footnote 24
In this Article I will address in more detail seven components of the Biden policies: (1) buy American; (2) Trump tariffs; (3) WTO; (4) free trade agreements; (5) technology; (6) China; and (7) Russia.
C. Buy American
Like President Trump, one of President Biden’s first actions with respect to international trade was to issue an Executive Order mandating “buy American” by federal government entities.Footnote 25 Two statutes govern federal procurement of foreign origin products. First, the Buy American Act (BAA), 41 U.S.C. §§ 8301-8305, generally requires federal entities to procure articles manufactured in the United States unless the head of department determines that their cost is unreasonable. Second, the Trade Agreements Act (TAA) implements trade agreements entered into by the United States that guarantee signatory countries non-discriminatory treatment in government procurement.Footnote 26 These two statutes are obviously in tension. TAA eligible contracts (contracts over certain monetary thresholds) benefit from a waiver issued by the USTR.
The BAA applies various legal tests to determine the country of origin of different categories of products. One of the most important tests applies to manufactured products: A manufactured product, to be American in origin, must be manufactured in the U.S and the cost of its components mined, produced, or manufactured in the U.S. must exceed 50 percent of the cost of all its components.Footnote 27 The latter rule is known as the domestic content test.
The Biden executive order increases the domestic content requirement from 50 percent to 75 percent, and still higher minimums are applied to iron and steel end products. The executive order also increases the price preferences for domestic end products and construction materials. If a domestic end-product is not the lowest price for a government contract, a factor of 20 to 30 percent (depending on whether offer is from a small business concern and whether the construction material is manufactured or unmanufactured) must be added to the price of the foreign low offer to evaluate the relative competitiveness of the offers. The Biden executive order also centralizes the oversight of waivers and the approval process under the TAA in a new Made in America office in the Office of Management and Budget. The Final RuleFootnote 28 strengthens Buy America Act requirements for US government contractors and their supply chains. All government contractors must undertake a strategic review of supply chain sourcing with a view to complying with the new thresholds.
The Biden administration’s “buy American” policy is a key aspect of a new American industrial policy enacted by the Congress in the form of four laws that subsidize key sectors of the U.S. economy. The American Rescue Plan Act (2021) provides some $40 billion in industrial subsidies; the Infrastructure and Jobs Act (2021) adds some $1.2 trillion; the Inflation Reduction Act (2022) contains some $369 billion in subsidies for electric vehicles and renewable energy; and the Chips Act (2022) adds $252.7 billion in subsidies for semiconductor chips technology. These laws coupled with new “buy American” standards constitute a venture into protectionism and away from free trade ideals.
Critics of the “made in America” Biden policy include Larry Summers, former U.S. Secretary of the Treasury, who maintains the executive order will exacerbate economic problems by driving up prices and fueling labor shortages.Footnote 29 A legal and political concern is whether these buy America executive orders are compatible with U.S. obligations as a member of the WTO Government Procurement Agreement.Footnote 30 Due to the Trump and Biden buy America executive agreements, a formal waiver pursuant to the TAA is necessary if an exception must be made to buy America to comply with the GPA. Trading partners of the U.S., particularly the European Union and Canada, should be worried about the new constraints buy America places on the TAA waiver approval process.
D. Tariffs
Using authority delegated by Congress, President Donald Trump took unprecedented advantage of his executive powers by issuing successive proclamations that imposed protectionist tariffs and other barriers on imports. In doing so, Trump ignored international law normsFootnote 31 in favor of acting unilaterally under U.S. law. Trump relied upon authority delegated under section 232 of the Trade Expansion Act of 1962;Footnote 32 and sections 201Footnote 33 and 301Footnote 34 of the Trade Act of 1974, to levy tariffs on thousands of categories of imported products, including primarily products imported from China.Footnote 35 But Trump used tariffs largely indiscriminately so the countries most affected were economic and military allies, including the EU and Japan.
I. Section 301 Investigations
1. Trump Administration Section 301 Investigations
During the Trump administration, the USTR made unprecedented use of the legal authority in the United States known as section 301 of the Trade Act of 1974,Footnote 36 which permits the United States to take unilateral action against countries whose acts or practices the USTR finds unjustifiably impede or burden the foreign commerce of the United States. From 2001 to 2017, only four section 301 investigations were undertaken, all in full compliance with WTO norms. President Trump’s USTR, however, launched six section 301 investigations: (1) against the European Union and the United Kingdom concerning Airbus subsidies;Footnote 37 (2) against France concerning French taxation of U.S. digital services companies;Footnote 38 (3) against the EU and additional countries concerning digital services taxes;Footnote 39 (4) against Vietnam concerning intervention in international currency markets;Footnote 40 (5) against Vietnam concerning alleged illegal timber exports;Footnote 41 and (6) against China concerning technology transfer, intellectual property rights, and innovation.Footnote 42
It is notable that there has been no clash between the policy of the Trump USTR and the Biden USTR concerning these cases. In fact, the two administrations seem in accord. Both administrations have moved to mollify the section 301 contretemps with the European Union (and the UK). USTR Lighthizer first proposed a “truce” on the Airbus dispute in October 2020. On June 15, 2021, the EU and US announced a five-year suspension of the Airbus-Boeing tariffs by both sides for five years. The two sides also formed a working group to find a permanent solution to the dispute.Footnote 43 Similarly, the EU and the Biden administration have suspended tariff retaliation in the two digital services taxation section 301 cases, with the idea to find a negotiated solution.Footnote 44 No tariffs or punitive measures were declared by either the Trump or Biden USTRs against Vietnam. On July 23, 2021, the United States announced agreement with Vietnam to resolve the international currency dispute;Footnote 45 and on October 1, 2021, the USTR announced agreement with Vietnam ending the timber dispute.Footnote 46
Only against China have both administrations taken a hard line; there is no end in sight for the trade war between the United States and China. In 2018, the Trump administration formally found that “certain acts, policies, and practices of the Chinese government” related to technology transfer, intellectual property, and innovation “are unreasonable or discriminatory and burden or restrict U.S. commerce.”Footnote 47 The USTR then published four lists of products imported from China on which were levied section 301 punitive tariffs:
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List 1 ($34 billion) effective July 6, 2018
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List 2 ($16 billion) effective August 23, 2018
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List 3 ($200 billion) effective September 28, 2018
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List 4 was divided into two tranches; List 4A ($126 billion) became effective September 1, 2019; List 4B was suspended under the U.S.-China Phase One Trade Agreement, January 15, 2020.Footnote 48
2. WTO Review
U.S. tariffs on Chinese imports were imposed virtually “willy-nilly” against tens of thousands of products by a president, a self-described “tariff man,” without regard to U.S. obligations under international law. The tariffs are facially inconsistent with GATT Article I (most-favored nation); Article II (tariff bindings); Article XI (when turned into quotas); and Article XIX and the WTO Safeguards Agreement. In China Tariffs,Footnote 49 a WTO Panel ruled that the section 301 tariffs levied on imports from China violated GATT Articles I and II.
This Panel ruling was not adopted by the WTO Dispute Settlement Body (DSB), nor will it ever be adopted. Thus, the ruling is in this case is non-binding. Article 16.4 of the WTO Dispute Settlement Understanding (DSU) provides that the report of a WTO dispute settlement panel may not be considered by the DSB “until after completion of the appeal.” The U.S. appealed the adverse ruling in the China Tariffs case, effectively blocking any DSB action. Because the Appellate Body has not been allowed to function since December 2019, because of the U.S. boycott, the appeal in the China Tariffs case cannot be heard.
3. Judicial Review
Section 301 authorizes the President to take “all appropriate and feasible action within his power” to retaliate for four different categories of unfair trade practices.Footnote 50 The President has virtually unfettered discretion in deciding whether to act and in deciding what type of trade action to take. No provision of the statute grants a right of judicial review of the President’s action. The President has plenary authority in foreign affairs, and his power is at its maximum when exercised in accord with Congress, as is the case with section 301.Footnote 51 Nevertheless, the President may not contravene clear statutory requirementsFootnote 52 or clear procedural norms.Footnote 53
In the case of the section 301 China tariffs, over 6,500 importers filed suit to challenge the List 3 and 4A duties. This litigation focused on the role of the USTR in formulating the lists of products subject to duties. In this case, the Court of International Trade rejected plaintiffs’ claims that the USTR did not have statutory authority. The court ruled that sufficient authority existed under sections 307(a)(1)(B) and (C) of the Trade Act of 1974.Footnote 54 The court also ruled that the USTR had sufficient authority to modify the original section 301 tariffs in response to China’s subsequent behavior.Footnote 55 However, the court agreed with the plaintiffs’ claim that the USTR when it issued the duties failed to respond adequately to significant comments filed by importers in violation of the Administrative Procedure Act, 5 U.S.C. § 553(c).Footnote 56 The court remanded the case to the USTR for further explanation and consideration. The court also issued a preliminary injunction that suspends liquidation of plaintiffs’ unliquidated entries from China regarding products on Lists 3 and 4A.Footnote 57 At the time of writing, the litigation is continuing.
Although the Biden administration mounted a vigorous defense of the Trump section 301 tariffs, the effect of the Court of International Trade’s decision is to compel a wholesale reconsideration of the China tariffs. The court’s decision combined with three important factors makes it highly likely the Biden administration will end up imposing a changed and perhaps less burdensome tariff scheme: (1) There is great pressure upon the Biden administration to lift the China tariffs to combat current inflation in the United States;Footnote 58 (2) In October 2021, USTR Katherine Tai, announced a new, targeted tariff exclusion process for the benefit of U.S. importers;Footnote 59 and (3) On May 3, 2022, the USTR began a statutorily mandated four-year review of the section 301 actions taken against China.Footnote 60
These developments make it likely that the Biden administration will develop its own strategy in the rivalry with China. This would be an excellent development as the Trump China policy has demonstrably not worked.
II. Section 232 National Security Tariffs
1. Tariffs on Steel and Aluminum
In his quest for protectionism, President Trump dusted off little used section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862, which confers open-ended authority on the President to take action to protect national security. President Trump conducted eight national security investigations under this authority, but he used this authority to impose tariffs only with respect to imports of steel and aluminum. Beginning on March 23, 2018, President Trump ordered extra tariffs be assessed, 25 percent and 10 percent, respectively on imported steel and aluminum products.
The steel and aluminum tariffs were imposed by the President across the board even on close allies such as the E.U. and Japan. For a time, these tariffs were imposed on imports from Canada and Mexico despite the North American Free Trade Agreement.
The Biden administration has chosen to leave the Trump steel and aluminum tariffs in place despite their high cost. In 2021 Biden replaced the metal tariffs on imports from the E.U. and the U.K. with tariff rate quotas.Footnote 61 In 2022, Biden negotiated a tariff rate quota on metals with Japan.Footnote 62 Biden removed the tariffs entirely on imports from Ukraine, a largely symbolic gesture.
The economic effect of these tariffs is to raise prices and disrupt supply chains; the American consumer commonly pays millions of dollars, the extra cost they represent. Affected countries have retaliated, raising tariffs on U.S. exports in some cases. The tariffs save some domestic jobs but at great economic cost.Footnote 63 Moreover, any U.S. job boom in steel has not occurred. Employment in U.S. blast furnaces, mills, and foundries rose before the pandemic to more than 144,000 from 139,200 when Trump imposed the measures, but at this writing, after three years of tariffs, employment stands at 135,000 workers.Footnote 64
The steel sector lobbies to retain the tariffs, citing global excess steel production capacity. Tom Conway, the President of the United Steelworkers Union, says the tariffs were “a ham-fisted approach to the problem of too much global steel supply,” but he argues that the tariffs must remain until there is a global settlement among major steel-producing nations.Footnote 65 The Biden Administration appears to agree with this sentiment.
2. Judicial Review
Numerous importers have challenged Trump’s section 232 national security tariffs in the U.S. Court of International Trade without notable success. In American Institute for International Steel v. United States,Footnote 66 the court rejected a challenge to the President’s use of section 232 as an impermissible delegation of statutory authority. In Universal Steel Products v. United States,Footnote 67 the court rejected a second broad challenge to the national security tariffs. The court opinion rejects (1) that the Secretary of Commerce violated section 232 procedural requirements; (2) that the President misinterpreted section 232 by failing to base his determination on national security; and (3) that certain mandatory timing and duration requirements were violated.Footnote 68 In Prime Source Building Products, Inc. v. United States, Footnote 69 the court considered the validity of Presidential Proclamation 9980, which imposed national security tariffs on certain derivatives of aluminum and steel products. The court rejected the plaintiff’s claims of violation of the Administrative Procedure Act, violation of due process, impermissible statutory delegation, and violations of Commerce Department regulations.
A new challenge to the tariffs was raised in Thyssenkrupp Materials NA Inc. v. United States.Footnote 70 In this case the steel importer made two arguments: (1) the proclamation levying tariffs together an exclusion process that relates to specific importers rather than steel products violates the Uniformity Clause (Art. I, sec. 8, cl. 1) of the U.S. Constitution; and (2) the exclusion process is inconsistent with section 232, which by its terms does not contain any exclusion process. The Court of International Trade rejected both arguments. The Uniformity Clause only requires Congress to reference a tax in non-geographic terms; and the fact that the statute is silent on exclusions does not bar an exclusion process under an arbitrary and capricious standard of review.
The extent of judicial review of an action taken pursuant to section 232 was addressed by the Court of Appeals for the Federal Circuit in USP Holdings, Inc. v. United States.Footnote 71 The court affirmed that Presidential action taken is reviewable, but only for violation of an express statutory mandate or clear action outside statutory authority.Footnote 72 However, the President may not be sued directly; the courts have jurisdiction only over subordinate officials who are charged with implementing the President’s decision.Footnote 73 The President may act to impose tariffs or other measures under section 232 only after the Secretary of Commerce has issued a report finding a security threat posed by the relevant imports. The secretary’s report is final action that is also reviewable by the court, but only for compliance with the statute.Footnote 74 Under these circumstances, the President’s action and the “threat” determination by the secretary must be “reviewed together as a single step using an identical test.”Footnote 75 In the USP Holdings case, the court found no violation of the statute.
Challenges to section 232 have succeeded only as to marginal legal issues. In Universal Steel Products v. United States,Footnote 76 the court granted summary judgment to plaintiff on a claim that the President’s proclamation violated a mandatory timing provision of section 232. In a related case, Transpacific Steel, LLC v. United States, Footnote 77 the court ruled that the imposition of additional section 232 tariffs on steel imports from Turkey violated a mandatory timing provision of the statute and concluded there was no national security reason for the increases. This ruling was overturned on appeal.Footnote 78
Thus, the court will reject any broad challenge to presidential action invoking section 232 but may hold the executive to account for clear procedural violations. Plaintiffs seeking relief from the section 232 tariffs may apply for an exclusion order from the Department of Commerce. If exclusion is denied, the applicant may seek judicial review. If the requester of exclusion proves that the relevant articles are not immediately available, government may settle, or the court may order relief.Footnote 79
III. Safeguard Tariffs
1. Solar Products and Washing Machines
In early 2018, the Trump administration applied safeguard relief in the form of tariffs in two cases, Large Residential Washing Machines Footnote 80 and Solar Cells and Modules.Footnote 81 This was the first time in sixteen years a president had granted safeguard relief. Both safeguard actions were challenged at the WTO. In United States—Safeguard Measure on Imports of Crystalline Silicon Photovoltaic Products, WT/DS562/R (Sept 2, 2021)—a WTO panel concluded that China failed to demonstrate that the U.S. acted inconsistently with GATT Article XIX or the WTO Safeguards Agreement. In United States—Safeguard Measure on Imports of Large Residential Washers, WT/DS546/R (Feb. 8, 2022)—the WTO panel ruled that the U.S. had acted inconsistently with Article XIX and the WTO Safeguard Agreement because its report does not contain a reasoned and adequate explanation on “unforeseen developments” and the “obligations incurred.”
Neither safeguard measure accomplished its intended purpose. In the case of large residential washers, the safeguard triggered sharply increased prices and a collapse of domestic sales.Footnote 82
The solar safeguard failed to raise domestic production of solar cells and created turmoil in the solar panel installation industry by raising prices and creating shortages. The U.S. solar industry incurred chaos when the U.S. Department of Commerce opened an investigation of alleged dodging of tariffs by Chinese solar cell makers.Footnote 83 The Biden administration is walking a fine line, pushing for immediate deployment of solar energy while trying to incentivize the creation of a robust domestic solar manufacturing industry.
Apparently after a change of heart, President Biden, on June 6, 2022, decided to extend the solar safeguard duties until 2026,Footnote 84 but bifacial solar panels continue to be exempt from the safeguard duties. Biden also ordered two-year pause in levying safeguard duties on imports of solar modules and cells from Cambodia, Malaysia, Thailand, and Vietnam. He invoked the Defense Production Act to accelerate domestic production of clean energy technologies.Footnote 85 Thus, Biden, in a classic case of “having your cake and eating it too,” both extended the Trump tariffs and created some breathing space for more imports and deployment of solar technologies.
Congress also passed the Inflation Reduction Act of 2022, which provides advanced tax credits for manufacturing production of solar technology.Footnote 86 The Biden administration also excluded Canada and Mexico from the safeguard solar tariffs levied by the Trump administration.Footnote 87
2. Judicial Review
In the imposition of safeguard duties under section 201 of the Trade Act of 1974, the President has broad discretion. Although the statute does not provide for judicial review, in Maple Leaf Fish Co. v. United States,Footnote 88 the court stated that the scope of review is whether there was a “clear misconstruction of the governing statute, a significant procedural violation, or action outside delegated authority.” The fact that the President is imbued with foreign relations power means that he is “insulated from judicial review for abuse of discretion.”Footnote 89
Judicial review of the Trump safeguard has centered on follow-on administrative actions by the USTR. The solar products safeguard, Presidential Proclamation 9693,Footnote 90 delegated authority to the USTR to make exclusions from the safeguard duties. After notice and comment, the USTR exempted bifacial solar panels from the safeguard duties. But in October 2019, the USTR abruptly withdrew this exclusion.Footnote 91 On judicial review, the Court of International Trade invalidated this withdrawal on the grounds mandatory administrative law procedures were ignored by the USTR.Footnote 92 Following this rebuff, the Trump administration issued Presidential Proclamation 10101 to withdraw the exclusion.Footnote 93 In a questionable decision, the Court of International Trade was unmoved by the presidential proclamation, interpreting the word “modify” in section 204 of the Trade Act to mean “make less extreme;” thus, the bifacial solar panels exclusion holds firm.Footnote 94
E. Reviving the WTO
The top two functions of the WTO are (1) to service as a forum for multilateral trade negotiations; and (2) the administration of the WTO dispute settlement mechanism. Both functions are seriously impaired.Footnote 95 The WTO has been unable to agree on any significant trade agreement since the Uruguay Round in 1994, and the dispute settlement mechanism, despite a record number of pending cases, is moribund because the Appellate Body has not functioned since December 2019.Footnote 96
Some 42 WTO members and the E.U. have put forward a multi-party interim appeal arrangement in the form of agreements to arbitrate trade disputes as specified in Article 25 of the WTO Dispute Settlement Understanding. This interim arrangement is now functioning for the states accepting it.Footnote 97 This arrangement is an attempt to preserve the two-tier WTO adjudication process in the absence of the Appellate Body.
A key question is: Will the Biden administration take steps to restore these two key functions of the WTO? The USTR Katherine Tai has pledged to reengage with U.S. allies and multilateral institutions, but the way does not seem clear for return to the status quo ante with respect to the WTO.
The United States has little interest in restoring the WTO as a trade agreement negotiation forum. First, the United States has no present interest in any form of comprehensive, multilateral trade agreement. Such an agreement would not have any chance of gaining the approval of Congress. Second, the United States has lost confidence in the ability of the WTO as a negotiating forum. The specialized trade agreements that the U.S. advocates, such as an environmental goods agreement and a digital trade agreement, do not find favor among most WTO members. Thus, the U.S. commonly turns to other negotiating forums, such as the OECD, the G-7, or the State-to-State dispute mechanism of the United States-Mexico-Canada Agreement (USMCA).
The U.S. has no interest in reviving the WTO dispute settlement system or the Appellate Body. There is bipartisan agreement among U.S. policymakers that the Appellate Body has strayed from WTO agreed rules to take an activist stand on many legal and policy issues. The 2020 USTR Report on the Appellate Body of the World Trade Organization,Footnote 98 points out that fully one-quarter of all disputes at the WTO have challenged U.S. laws or measures. In total, 155 disputes have been launched against the United States, and some 90 percent of these have led to a finding that a U.S. law or measure was inconsistent with WTO obligations.
The Report levels three major charges: (1) the Appellate Body ignores or violates numerous procedural rules and deadlines in dispute settlement; (2) the Appellate Body engages in “making law,” issuing rulings that are not to be found in the body of WTO agreements; and (3) the Appellate Body has issued numerous rulings invalidating U.S. domestic trade remedy laws that are essential to U.S. interests. The Report contends that the Appellate Body was never intended to serve as a supreme court of international trade, and that, pursuant to the Agreement Establishing the WTO, Article IX.2, only the Ministerial Conference and the General Council may adopt interpretations of WTO agreements.
A prominent example of the Appellate Body’s activism is the rulings on “zeroing” in antidumping proceeding. United States law provides for zeroing, which permits, under certain circumstances, the export price to be reduced to zero for purposes of comparison with normal value. The WTO Antidumping Agreement nowhere expressly prohibits zeroing. Yet the Appellate Body, applying the “fair comparison” mandate of Article 2.4.2 of the Antidumping Agreement, condemns this practice, ignoring Article 17.6 of the Antidumping Agreement, which limits the scope of review of findings of national authorities.Footnote 99 A second example is the Appellate Body’s ruling with respect to subsidies received by Chinese exporters from certain Chinese state-controlled enterprises in the form of low-priced raw materials, preferential loans, and tax reductions. Yet the Appellate Body rejects the argument that these government-controlled enterprises are “public bodies” under the WTO Subsidies and Countervailing Measures Agreement. Thus, such subsidies may not be neutralized by countervailing duties.Footnote 100
The United States believes the Appellate Body was never intended to function as it does, like a supreme court of international trade, deciding legal questions whose solutions are not clearly stated in the WTO agreements, using recognized tools of interpretation provided by international law.Footnote 101 The U.S. believes the Appellate Body’s powers should be reduced so that hard cases are referred to the DSB, acting as the WTO Council, or to the Ministerial Conference. Until this happens, the United States will continue to boycott new appointments to the Appellate Body, preventing it from functioning.
The present state of the Appellate Body suits U.S. interests as the target of most WTO dispute settlement actions. So long as the Appellate Body cannot function, the United States is immune from adoption by the DSB of adverse legal rulings. If a WTO panel decides a case adversely to U.S. interests, the U.S. may block its adoption by the DSB, simply by filing an appeal.Footnote 102 Thus, the U.S. likely will not readily restore the functioning of the Appellate Body and the WTO dispute settlement mechanism.
Certainly, the performance of the WTO in recent years leaves much to be desired. The WTO with its consensus decision-making is virtually incapable of deciding important matters. The only WTO negotiating round, the Doha Development Agenda, was a failure. There is much to criticize about certain Appellate Body decisions. Yet the WTO, largely an American invention, has accomplished much. The United States Trade Representative still celebrates those WTO decisions where the U.S. view prevails.
The U.S., under both Republican and Democratic administrations, has taken a negative view of the WTO without engaging with other members to negotiate reforms. The WTO will likely play a diminished role in international trade in the future. However, the U.S. should not simply criticize, but should play a constructive role in advocating improvements and even new initiatives in cooperation with like-minded states, especially the E.U. and other allied nations.
F. Free Trade Agreements
President Biden has signaled that negotiating new free trade agreements will not be a priority for his administration.Footnote 103 The March 1, 2020, published Trade Policy AgendaFootnote 104 lists four notified trade negotiations: U.S.-EU; U.S.-Japan; U.S.-Kenya; and U.S-U.K.Footnote 105 Only the U.S.-Kenya negotiation has succeeded;Footnote 106 the Congress in 2022, would not be receptive to approving any important new trade initiative.
Biden’s statement with respect to free trade agreements reflects the prevailing political climate in the United States. Free trade agreements are out of favor with the electorate, and free trade agreements do not fit well with Biden’s announced “worker-oriented” trade policy.
The Biden administration lavishly praises the USMCA, the major trade initiative of the Trump administration. The Democratic chairman of the powerful House Ways and Means Committee, Richard Neal, has said that the USMCA is the “blueprint” for future trade pacts.Footnote 107 USTR Katherine Tai touts the USMCA as a premier bipartisan accomplishment.Footnote 108 The United States now chooses to file requests for consultations over trade matters under regional agreements, especially the USMCA, rather than using the dispute resolution mechanism of the WTO.Footnote 109
The USMCA updates and replaces the North American Trade Agreement (NAFTA), but the much more stringent rules of origin of the USMCA,Footnote 110 which are designed to tilt the North American market in favor of American businesses, tend to isolate the North American market and reserve it for relatively high-cost American companies. Because of these rules of origin, the USMCA is more restrictive of trade than its predecessor, NAFTA. The rules of origin are designed to shut out more third-country trade than did NAFTA. The rules were crafted expressly for these purposes with the idea that U.S. workers would benefit.
With its focus on the North American market, U.S. trade negotiators have largely turned a blind eye to what is happening in the rest of the world. Free trade agreements give preferential access to foreign export markets on a reciprocal basis. The U.S. has fallen severely behind other nations of the world with respect to such preferential access. U.S. exporters presently have preferential access only to markets that constitute 9 percent of global GDP. By comparison, Canada maintains preferential access to 57 percent of global export markets; Mexico has access to 56 percent; Japan has access to 31 percent; and the EU has access to 20 percent.Footnote 111
In much of the world massive new free trade and other economic agreements are coming into force. China’s Belt and Road Initiative involves some 68 countries, 65 percent of world population, including many economic and security allies of the U.S. In 2020, China and fourteen other nations signed the Regional Comprehensive Economic Partnership Agreement (RCEP). RCEP nations constitute about 30 percent of global trade and GDP. In 2018, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) entered into force between eleven Asia-Pacific nations that constitute 13.4 percent of global GDP. Other Important free trade agreements are MERCOSUR, between Argentina, Brazil, Paraguay, and Uruguay; the 2020 African Continental Free Trade Agreement between 54 African countries; and the European Economic Area, which includes member states of the EU and several additional European nations.
The Biden administration’s answer to these developments is something called the “Indo-Pacific Economic Framework for Prosperity.”Footnote 112 The administration is careful to point out that this “Framework” is not a free trade agreement. Aimed at friendly Asian countries, the Indo-Pacific Economic Framework (IPEF) is a tool to boost U.S. cooperation with its Asian trade partners. The IPEF, therefore, is a trade agreement that does not involve trade liberalization. As Catherine Rampell commented in the Washington Post, “the Biden administration has apparently decided to defer to the Trump worldview and assume that tariff [lowering] of any kind is too politically dangerous to attempt.”Footnote 113 The IPEF is an agreement that rests on four rather vague “pillars:” Supply chain resiliency, digital economy rules, clean energy, and anticorruption.Footnote 114 What is more—the IPEF is designed so that participating countries may opt out of any “pillar” they do not like. To the chagrin of Asian countries to which the IPEF is being pitched, the IPEF does not offer greater market access to the U.S. or any other nation. As Ms. Rampell puts it, “The only thing that can be reliably counted on . . . is a growing political aversion to anything branded as free trade.”Footnote 115
The United States should use free trade agreements as an engine to grow the economy and as a political weapon to win the competition with China. The way forward is—first—to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) that the Obama administration negotiated over several years and that would have substantially increased U.S. economic welfare. Second, the U.S. should come to agreement with the E.U. on a Transatlantic Trade and Investment Partnership (T-TIP).Footnote 116 These two agreements in addition to the USMCA would constitute a new basis for close political and economic linkages between democratic nations in North America, Asia, and Europe. This trilateral linkage would immediately become the economic standard for the world, leaving behind and isolating nations governed as autocracies. China and other nations would be compelled to change their behavior to come to terms with this trilateral alliance.
Perhaps the greatest mistake Trump made in his tenure as president was his repudiation of the 12-nation Trans-Pacific Partnership Agreement negotiated over six years by the Obama administration. As the Washington Post editorial board stated, “What could have created a truly effective counterweight to Beijing was the 12-nation Trans-Pacific Partnership. Mr. Trump spurned it, and Mr. Biden, bowing to protectionist sentiment in his own party, shows no sign of reviving it. The President should change that.”Footnote 117
G. China Challenge
Beginning with its dramatic opening to the world in 1979, China has risen economically, politically, and militarily to become one of the most important countries in the world. For most of the past forty years, the rise of China was considered benign by the United States and the West. China was welcomed into international economic institutions such as the WTO after sometimes arduous negotiations. By 2016, China had become the second largest economy in the world and the most important trade partner of the United States. During most of the period of China’s rise, U.S. policy makers assumed that China would eventually adopt American values of liberal economics and democracy .Footnote 118
In the second decade of the century, however, China changed, doubling down on Communist party autocratic rule, state-centered economics,Footnote 119 and abuses of human rights. China’s increasing military power clashed with the U.S. vision of a free and open Indo-Pacific region and threatened the self-governing status of Taiwan. The United States also changed. Liberal values of open trade and democracy were flouted by many important political leaders. Donald Trump, who won the presidency in 2016, installed nationalist, populist international economic and political policies. Trump and his advisors singled out China for opprobrium. A favored line in Trump’s political stump speeches was, “We can’t continue to allow China to rape our country and that’s what they’re doing. It’s the greatest theft in the history of the world.”Footnote 120
Once in power, the Trump administration broke with the bipartisan consensus in favor of engagement rather than confrontation with China. The Trump administration called out China specifically on trade, citing the large deficit with China on trade in goods as well as Chinese discriminatory trade barriers, forced technology transfer, and domination by state-owned enterprises. Trump launched a multi-billion-dollar trade war with China featuring tit-for-tat tariffs. Trump also promoted a limited “decoupling” of the Chinese and U.S. economies especially in the fields of technology and investment.
The reaction of China to Trump’s anti-China actions was to double down on aggressive actions toward the United States. China adopted tit-for-tat tariffs on U.S. goods in response to the U.S. tariffs. China also accelerated its military buildup and its militarization of disputed islands in the South China Sea. China cracked down against dissenters in Hong Kong and took threatening actions in the Taiwan Straits.
The culmination of the Trump policy toward China was the conclusion January 15, 2020, of a “Phase One” Trade AgreementFootnote 121 that obligated China to cease its predatory practices and to buy American products. Chapters of this trade agreement addresses intellectual property, technology transfer, agriculture, financial services, currency manipulation, and expanding the purchase of U.S. goods. China promised to maintain current purchases of U.S. products and to purchase an additional 200 billion dollars in goods and services from the U.S. in 2020 and 2021, and to continue this trajectory in subsequent years. Essentially China was obligated to buy at least 227.9 billion dollars of U.S. exports in 2020, and 274.5 billion dollars in 2021, for a total of 502.4 billion dollars over the two years.
China never came close to meeting these commitments. China’s total purchases of U.S. goods over the two years amounted to 288.8 billion dollars, a shortfall of 57 percent.Footnote 122 On October 1, 2021, Biden’s USTR, Katherine Tai, announced that China is not complying with the provisions of the Phase One deal.Footnote 123 After four years of a bitter trade war there is little to celebrate on either side. The trade war reduced exports and imports between the two countries and contributed to a global decline in trade and economic slowdown. The U.S. trade in goods deficit with China in 2016, before the trade war, was 346.8 billion dollars. In 2021, the deficit was 353.5 billion dollars. The trade war has negatively affected the U.S. trade surplus in services: there was a decline of 37.3 percent in 2020. Meanwhile both sides continued a modicum of foreign direct investment. In 2020, U.S. foreign direct investment in China totaled 123.9 billion dollars; Chinese foreign direct investment in the U.S. totaled 38 billion dollars.
It is obvious that the entire Trump administration China policy has been a miserable failure from beginning to end. Each side raised tariffs against the other. Average Chinese tariffs on U.S. goods went from 8 percent in 2017 to 21.8 percent in 2022. Average U.S. tariffs on Chinese goods went from 3.1 percent to 21.2 percent in the same period. China and the U.S. are by far the two largest economies in the world, but they remain deeply interdependent despite growing rivalry.
The Biden administration is unclear about its own China policy. On October 4, 2021, USTR Katherine Tai delivered a much-anticipated speech on the Biden administration’s “New Approach to the U.S.-China Trade Relationship.”Footnote 124 Ambassador Tai outlined the new policy as follows:
First, we will discuss with China its performance under the Phase One Agreement . . . Second, we will start a targeted tariff exclusion process . . . Third, we continue to have serious concerns with China’s state-centered and non-market trade practices . . . [W]e will raise these broader policy concerns with Beijing . . . [W]e will use the full range of tools we have and develop new tools as needed to defend American economic interests . . . Finally, . . . we will work with allies to shape the rules for fair trade in the 21st century.
What is this statement? Is this a policy or a strategy? A Washington Post editorial commented: “The more things change . . . the more they will stay the same in terms of U.S. economic policy toward China.”Footnote 125 Business groups derided this speech as a continuation of Trump’s failed policies. Craig Allen, president of the U.S.-China Business Council, stated that—“Many find it ironic that the Biden administration is following so closely the playbook laid down by the Trump administration on China.”Footnote 126 Business has continued to call on Biden to formulate a concrete policy on China trade.
To be fair, Ambassador Tai has convened the Trilateral Meetings of trade ministers of the U.S., E.U., and Japan to discuss China. At the November 2021 Trilateral Meeting, a Joint Statement was adopted calling on China to reform its statist trade policies, such as subsidies, state-owned enterprises, and forced technology transfer.Footnote 127
But much stronger medicine is needed. The Biden administration should take bold moves to (1) negotiate and agree with China to restore tariffs both sides now levy back to 2016–17 levels; (2) become a full member of the CPTPP; (3) conclude comprehensive free trade agreements with both the EU and the UK; and (4) use the WTO constructively to confront Chinese statist trade practices.
Two substantive issues stand out as disagreements with China: (1) subsidies; and (2) state-owned enterprises (SOEs).Footnote 128 China with its state-directed economy employs both in such a way as to distort international markets. There is a consensus that current WTO rules on both issues are insufficient.Footnote 129 There is a consensus that new, stricter rules are needed.Footnote 130 The best source for formulating the needed rules on SOEs is regional, preferential free trade agreements.Footnote 131 For example, the CPTPP, Chapter 17, requires that SOEs are to act in accordance with commercial considerations except when providing a public service; SOEs must buy and sell goods and services in a non-discriminatory manner; and no country is to cause harm to another country through the use of non-commercial assistance provided to its SOEs.Footnote 132
New rules on subsidies are best negotiated at the WTO, either as amendments to the Subsidies and Countervailing Measures Agreement, or as a plurilateral WTO agreement. Stricter disciplines on subsidies means, at a minimum, expanding the categories of prohibited subsidies to include all government interventions that have a distortive impact on international competitiveness or trade; enhanced remedies; equalized treatment for direct and indirect taxation methods; more effective transparency rules; Footnote 133 and reversal of the burden of proof for “actionable” subsidies whereby there is a rebuttable presumption that they cause “serious prejudice” to trade partners.
The lesson of the Trump failed policies on China is that U.S. unilateral measures alone will not work to change Chinese behavior in international trade matters. U.S. trade tools will work only if they are deployed in coordination with other powerful economies. The best China strategy would place emphasis on multilateralism to confront China with a united front of North American, European, and Asian-Pacific economies to assure that China plays by the rules of international trade.Footnote 134 The U.S. needs urgently to engage with the EU, UK, Japan, Korea, and other Asian-Pacific countries to map out a China strategy and to reform the WTO.Footnote 135
The Biden administration’ s answer to the China challenge is, instead, a classic case of —“if you can’t beat ‘em, join ‘em.” While continuing to condemn China’s industrial subsidies,Footnote 136 the Biden administration enacted the Chips Act,Footnote 137 which provides 52.7 billion dollars in emergency supplemental appropriations over five years to develop domestic manufacturing capability and workforce development to greatly expand the production of semiconductor chips in the United States. The Chips Act also provides some 200 billion dollars that are available for the development of new technologies, such as robotics, artificial intelligence, and quantum computing. The Biden administration has chosen to match China’s flagrant subsidization with subsidies of its own.
H. Technology Wars
The match that lit the fire still burning in the contretemps between the United States and China is Beijing’s launch of “Made in China 2025,” a state-led industrial policy that seeks to make China dominant in global high-tech manufacturing. Made in China 2025 (MIC 2025) is a broad industrial policy adopted by China’s State Council in 2015. MIC 2015 emphasizes technology advancement and innovation as drivers of economic growth and productivity.Footnote 138 MIC 2025 calls for breakthroughs and further state planning to support ten specific industrial sectors:
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New generation informational technology
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High end computerized machines and robots
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Aerospace
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Maritime equipment and high-tech ships
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Advanced railway transportation technology and equipment
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New energy and energy-saving vehicles
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Energy equipment
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Agricultural equipment and technology
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New materials development
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Biopharma and high-tech medical equipment
These technologies are central to the so-called fourth industrial revolution, the integration of big data, cloud computing, and other emerging technologies into global manufacturing supply chains. With MIC 2025, China seeks to become a world leader in the technologies essential to this revolution. For example, in semiconductors China seeks to create a globally competitive domestic industries that ranges over design, operating systems, manufacturing, packaging, testing, equipment, and materials. By 2049, the 100th anniversary of the founding of the People’s Republic of China, China aspires to be a global leader in advanced technology.
MIC 2025 represents longstanding Chinese development goals as China seeks to transition from low-value, low-wage manufacturing of consumer goods to a high-tech, high-productivity economy. To achieve this goal, China intends to (1) set specific targets; (2) provide sufficient state subsidies; and (3) mobilize state-owned enterprises. To acquire technology China relies not only on domestic research, but also on foreign investment acquisitions and requiring joint ventures involving foreign firms to share technology.
MIC 2025 is obviously of high importance and a challenge to the United States. Two questions come to mind: (1) What is the United States’ response to MIC 2025? And (2) how should the United States respond to MIC 2025?
The past and current response of the U.S. government with respect to MIC 2025 is a paroxysm of panic and hysteria. The Trump administration’s analysis of the problem is typified by President Trump’s cretinesque exclamation: “It’s the greatest theft in the history of the world.”Footnote 139 The Biden policy with respect to MIC 2025 is simply “more of the same,” a continuation of the mindless Trump policy.Footnote 140 As journalist Josh Rogin stated in the Washington Post in February 2022, “Restraining China is now a multi-administration, bipartisan strategy that stands among the most important foreign policy adjustments since the end of the Cold War.”Footnote 141 This “strategy,” if it can be called that, certainly accords with U.S. public opinion: A poll taken in April of 2022 found that two-thirds of Americans now see China as a “major threat.”Footnote 142
What this policy means in practical terms is that Katherine Tai’s statement that “we will use the full range of tools . . . and develop new tools,”Footnote 143 must be taken literally. Ambassador Tai’s policy may be termed a “kitchen sink” statement—the U.S. has sought to block China from technological advancement in every possible way known to man (or woman), using every method including the kitchen sink.
There is no space in this brief Article to list and analyze all the technology restrictions the Trump/Biden administrations have invoked against China. Suffice it to say that these restrictions include export controls, investment restrictions, visa restrictions, import restrictions, technology transaction rules, and law enforcement.Footnote 144 The U.S. Department of Commerce’s “Entity List” of companies banned from U.S. trade and technology reads like a “who’s who” of Chinese technology companies. In 2018, Congress enacted the Foreign Investment Risk Review Modernization Act to place new controls on incoming Chinese foreign investment.Footnote 145 Congress also in 2018 enacted an Export Control Reform Act to place special export controls on U.S. “foundational” and “emerging” technology.”Footnote 146 Not content about merely complaining about Chinese subsidies of technology, the U.S. Congress is considering legislation that would grant 252.7 billion dollars in subsidies for the U.S. semiconductor industry.Footnote 147
The U.S. all-out, no holds barred approach to technological and economic competition with China raises several interesting issues. First, is the appropriate response to China’s forced technology abuses denial of China’s access to legitimate technological business transactions? Is the purpose of American sanctions simply to cripple China’s ability to compete technologically? Second, is the American response to MIC 2025 a nationalist move to decouple China’s tech sector from U.S. and Western technology?Footnote 148 If so, can it succeed? China is in third place behind Canada and Mexico in total trade with the U.S., but effectively the three countries are tie (China’s total U.S. trade was 657.5 billion dollars in 2021, compared to first-place Canada’s 664.8 billion dollars) as America’s most important trade partner.
How should the United States respond to MIC 2025? In my opinion, the most effective U.S. response would be to use multilateral and unilateral trade tools to counter the aspects of MIC 2025 that are clearly legally inconsistent with multilateral trading rules. These are: (1) Subsidies that distort global competition and frequently lead to overproduction of goods and product dumping; (2) The operation of state-controlled companies that act in non-commercial ways; (3) Any form of forced technology transfer; (4) Discrimination and lack of reciprocity; and (5) Dual use technologies that have military application.
By targeting legal abuses, the United States can create a multilateral coalition that can effectively counter Chinese abuses under MIC 2025. The U.S. should adopt a three-pronged strategy to counter these Chinese practices. First, the U.S. should raise these concerns in the WTO; second, the U.S. should discuss these issues with China directly in bilateral talks; third, and most importantly, the U.S. should, with allied nations, especially the EU and Japan, craft detailed rules that will become international norms that must be accepted by China.
Forced technology transfer, which is requiring transfer of technology as a condition of market access, is at the heart of China’s objectionable technology practices.Footnote 149 In the 2020 Phase One Agreement with the United States, China agreed to international rules to stop forced transfer of trade secretsFootnote 150 and technology.Footnote 151 The Biden administration should create a multinational coalition to enforce these rules.
I. Russian Sanctions
The world changed overnight on February 24, 2022, with the unprovoked invasion of Ukraine by the Russian Federation mandated by Vladimir Putin, who fancies himself a twenty-first century Peter the Great. At this writing, there is no end in sight for the war. Russia is freely targeting civilians and wreaking wanton destruction on Ukrainian cities and towns.
The Biden administration, coordinating with the EU, Japan, and other states, has adopted the largest economic sanctions ever on a major nation. These include financial, trade, investment, and technology sanctions.Footnote 152 It is beyond the scope of this short Article to elaborate these sanctions and to judge their effectiveness. Suffice it to say that these sanctions have bipartisan political support in the U.S., as do other sanctions programs against Cuba, Iran, North Korea, China, and Central African Republic.Footnote 153
These sanctions are richly warranted. The unprovoked Russian aggression against Ukraine is a blatant violation of the United Nations Charter, Article 2(4) as well as additional “jus ad bellum” norms of international law. Russia’s targeting of civilians and its prosecution of the war is also a violation of the “jus in bello” norms of international law.
J. Conclusions
Times change. The expectation that the Biden administration would take important new initiatives to support the multilateral trading system and the rule of international law in international trade so far has not been realized. The United States no longer plays a leadership role in international economic matters. Those who believed that the Biden administration would result in a return of American leadership and a new era of open trade have been disappointed. Constrained by economic and political considerations and giving priority to urgent domestic concerns, the Biden administration’s international trade policy is basically a continuation of the protectionist, nationalist-populist trade policy of its predecessor. Only the strident rhetoric of President Trump is missing.
The Biden administration—rhetorically at least—has embraced multilateralism in trade policy, but by default and political expediency Biden’s trade policy differs little from the Trump administration’s. Except with respect to the Russia sanctions, Biden’s trade policy lacks strategic vision. Trade policy under Biden is adrift and fraught with uncertainty.
Economic and political confrontation with China now dominates American trade policy and actions. The competition with China will play out in now unforeseeable ways for at least the remainder of this century. It is unfortunate that the U.S. under President Biden is still searching for a strategy to meet and ameliorate the China challenge. But the China strategy is flawed. For example, Biden neglects to employ even obvious steps to diminish China’s influence, such as joining the CPTPP and concluding free trade agreements with the U.K. and the E.U.
At the halfway mark, Biden’s trade policy disappoints. However, hope springs eternal: There is still time to develop new and better trade policies that redound to the benefit of the United States and the world.
Competing interests
None.
Funding statement
No specific funding received.
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