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Internal Friction: Biden's Self-Imposed Trade Confrontations

The discord between U.S. President Joe Biden's primary domestic and foreign policy objectives and his administration's trade policies has become strikingly evident. As Biden approaches the midway point of his presidency, it's not an overstatement to claim that he is essentially battling his own...

Tension Mounts Between Biden's Domestic and Foreign Policy Aims vs. Trade Policies: A War Against...
Tension Mounts Between Biden's Domestic and Foreign Policy Aims vs. Trade Policies: A War Against His Own Agenda

Internal Friction: Biden's Self-Imposed Trade Confrontations

The discord between U.S. President Joe Biden's domestic and foreign policy objectives and his administration's trade policies has intensified significantly. As Biden reaches the midpoint of his term, it is not an exaggeration to suggest that he is effectively waging war against his own agenda.

On the domestic front, the administration has underscored the necessity of mitigating climate change, reducing inflation, combating poverty, and maintaining productivity and growth. However, the trade policies implemented by the administration will have the opposite effect.

Similarly, U.S. foreign policy objectives are hampered by the administration's protectionist trade policies. Despite a bipartisan consensus on the importance of strengthening U.S. alliances, the administration has increased tariffs on Canadian lumber, imposed stricter "Buy American" measures, and taken other actions that harm U.S. allies.

In addition, these protectionist measures have exacerbated costs and prices at a time when inflation is at a four-decade high. A policy brief from the Peterson Institute of International Economics suggests that by eliminating the Trump-era tariffs on Chinese imports, the U.S. could achieve a one-time reduction of 1.3% in consumer prices.

An example of this dissonance can be found in the administration's policies regarding solar panels. After raising a 30% tariff on imported solar panels in 2018, Biden announced this year that he would extend this protectionist policy, which environmentalists and solar-panel distributors and installers have rightfully opposed. While the solar industry employed 250,000 people as of 2019, only 34,000 worked in solar-panel manufacturing. Moreover, almost all solar cells and a majority of the solar panels installed in the U.S. in 2019 were imported.

Policymakers could have addressed the administration's environmental, inflation-reduction, and employment objectives more efficiently by offering subsidies for solar-panel production. Supporting such efforts would also have addressed the concern that U.S. solar-panel producers would demand protections that conflict with the goals of reducing fossil-fuel use and reining in inflation.

Another example of the administration's policy incoherence is its disinterest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The absence of the U.S. from this massive economic bloc means that American exporters must compete with duty-free goods entering from member countries, ultimately harming both U.S. economic and geopolitical interests.

Tight immigration restrictions also hinder Biden's stated policy objectives. For instance, a shortage of visas for skilled workers has constrained semiconductor production and research and development, leading U.S. chip makers and high-tech industries to lobby for a higher visa cap—a crucial step to accelerate semiconductor production and development. Similarly, restaurants and other businesses that employ unskilled workers and tend to rely on foreign-born labor have struggled to fill jobs. Increasing immigration flows could boost growth and address some of the current inflationary pressures.

The administration's inability to suspend the Jones Act, which prevents foreign ships from transporting goods between U.S. domestic ports, during a threatened railroad strike reveals further inconsistency. Waiving the Jones Act could have helped replace truck and rail transport with waterborne transport, alleviating shipping costs, port congestion, inflation, and pollution all at once. However, the Jones Act is intended to protect the U.S. shipping industry, yet its minimal benefits—with only about 9,200 seamen employed on U.S. ocean-going ships and U.S. shipbuilding costs being significantly higher than those of other countries—call this motivation into question.

In order to achieve better results for the U.S. and the global economy, the Biden administration should consider joining the CPTPP, relaxing immigration restrictions, and implementing carefully targeted subsidies for semiconductor and solar-panel production if necessary.

Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the International Monetary Fund, serves as Senior Research Professor of International Economics at the Johns Hopkins University School of Advanced International Studies and Senior Fellow at the Center for International Development at Stanford University.

Copyright: Project Syndicate, 2022. www.project-syndicate.org

  1. The administration's trade policies are causing a significant discord with President Biden's domestic and foreign policy objectives.
  2. The administration's protectionist trade policies are hampering U.S. foreign policy objectives and strengthening alliances, as they have increased tariffs on Canadian lumber, imposed stricter "Buy American" measures, and taken other actions that harm U.S. allies.
  3. Protectionist measures implemented by the administration are exacerbating costs and prices at a time when inflation is at a four-decade high.
  4. By eliminating the Trump-era tariffs on Chinese imports, the U.S. could achieve a one-time reduction of 1.3% in consumer prices, according to a policy brief from the Peterson Institute of International Economics.
  5. The administration's policies regarding solar panels, such as raising a 30% tariff on imported solar panels, are opposed by environmentalists, solar-panel distributors, and installers, and have had a negative impact on employment and the solar industry.
  6. Policymakers could have addressed the administration's environmental, inflation-reduction, and employment objectives more efficiently by offering subsidies for solar-panel production.
  7. The administration's disinterest in joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is hindering U.S. economic and geopolitical interests, as American exporters must compete with duty-free goods entering from member countries.

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