AMERICA NEEDS STRAIGHT TALK ON TRADE / THE FINANCIAL TIMES OP EDITORIAL

 America needs straight talk on trade

Allies are crying out for clarity from the Biden administration, with a clear plan from Trump waiting in the wings

Rana Foroohar 

© Matt Kenyon

Trade policy is where the rubber meets the road between Joe Biden’s two favourite interest groups — American workers and American allies. 

Consider the recent statement about Japanese giant Nippon Steel’s bid for US Steel by the president’s top economic adviser, Lael Brainard.

While Biden welcomes “manufacturers across the world building their futures in America with American jobs and American workers”, she said, “he also believes the purchase of this iconic American-owned company by a foreign entity — even one from a close ally — appears to deserve serious scrutiny in terms of its potential impact on national security and supply chain reliability”.

Translation: yes, we’ve told allies such as Japan that we want to hold them closer as we try to decouple from China in strategic areas like steel, chips, electric vehicles and so on. 

But we are still worried that they’ll work with China, preference their own homegrown production in a pinch, or shift steel jobs to low-wage right-to-work states where union organising is more difficult. 

And this will make the president look bad at a time when Donald Trump is about to start campaigning on a hardline America First trade policy.

These are legitimate concerns. 

Robert Lighthizer, the former US trade representative under Trump, who would probably serve again if he were to be re-elected, has already been on Fox News decrying the deal. 

Lighthizer successfully put pressure on Japan to limit exports of steel, cars and other goods as deputy trade secretary in the Reagan administration. 

Now he is articulating a point that many on the left and in labour organisations would agree with. 

There is an inherent asymmetry between laissez-faire free-trade policy, which assumes an even playing field without subsidies or national security interests, and state-run economies that assume just the opposite.

Japan, unlike China, is not state run. 

But in some ways it presents a more complex challenge for the regulators at the Committee on Foreign Investment in the United States (Cfius) who’ll be looking at the deal. Japan is an ally. 

But Nippon, like many companies in countries that are US allies, has some subsidiary operations in China. 

This raises the question of just how much allies have to toe Washington’s domestic policy line with Beijing to do business in the US in strategic sectors.

What’s more, while Japan is ostensibly a free-market economy, the country’s “keiretsu” system of interlocking corporate share ownership and business relationships (which tend to favour domestic players) presents a challenge. 

This US administration is committed, under section 232 provisions of the Trade Expansion Act, to raising domestic steel production output long term. 

Can a multinational company in Asia really be guaranteed to do that? 

If there were, say, a natural disaster or war that disrupted global supply chains, who would get preference for Nippon’s US steel production? Japan or America?

These questions can of course be finessed away with legal agreements should the merger be allowed to go through. 

But there is a deeper issue at stake. 

What, exactly, is the Biden administration’s trade policy? 

And how does it differ from what Trump’s would be if he were re-elected?

America’s allies want to know. 

And they can be forgiven for feeling that they are being given mixed messages on this score. 

Friend-shoring is supposed to include friends, such as Japan. 

But when it comes to the most strategic industries, such as steel, perhaps that’s not the case. 

Or maybe it could be, if a company were to commit to unionised labour and no Chinese operations. 

Who knows? 

That’s the point here — the world is desperate for more clarity from the US on trade.

Why hasn’t it come yet? 

In part because of differences in how officials see a decoupling world. 

Some in the commerce and security sectors are eager to cut new trade deals with allies as a counter to China’s economic power, particularly in Asia. 

Others, such as US trade representative Katherine Tai, have made the case for a “postcolonial” trade paradigm based on a shared approach to labour and the environment. 

This strategy acknowledges that the existing market system simply hasn’t prioritised them, and that institutions like the WTO aren’t purpose built to do so. 

I would agree with that, although some allies, such as the EU, do not. 

I would also argue that the White House won’t be able to sell its approach to the rest of the world unless it puts more meat on the bones of how Biden’s trade policies differ from Trump’s, and why they are better than others.

There’s a strong case to be made, for example, that America’s clean energy subsidy system could work better for the Global South than Europe’s carbon border adjustment mechanism — particularly if technology transfer from the US was offered up in exchange for supply-chain and resource security. 

Some emerging markets seem to have bought into the Biden administration’s “bottom up and middle out” approach to supporting working people through economic policy. 

Malaysia’s deputy minister of investment, trade and industry advocated for the view in a LinkedIn post a few months ago, saying Tai’s approach held the possibility of ending the “race to the bottom” of the last 40 years. 

Post-neoliberals within the administration have a good case. 

But they haven’t made it well enough yet.

They should be allowed to do so. 

No one can beat Trump at America First. 

The Biden administration needs to clarify its own approach and why it’s superior.