- Current political and economic issues succinctly explained.
Who runs U.S. trade policy? For many decades, the answer was clear: the U.S. Trade Representative’s Office (USTR), an elite team of trade lawyers that has negotiated every big deal from the North American Free Trade Agreement (NAFTA) to the World Trade Organization (WTO) and been responsible for enforcing their terms. But under the Biden administration, the center of power has moved one mile southeast in Washington—from the USTR, headed by Katherine Tai, to the Commerce Department under Gina Raimondo.
The shift has significant implications for Washington’s trading partners. USTR’s mission has long been economic liberalization: constructing and maintaining a set of global rules that minimize constraints on trade and investment. The business of the Commerce Department, however, is the defense and promotion of U.S. companies and the protection of U.S. technologies. The rising power of the Commerce Department is entrenching a fundamental shift in the direction of U.S. trade policy, which has been moving away from nurturing the rules-based trading order and toward building U.S. competitive advantage, especially in the growing rivalry with China.
Consider the past couple of weeks. The Commerce Department rolled out new rules that will govern the disbursement of $50 billion in subsidies for companies building semiconductor plants in the United States. The goal is to make the United States a global powerhouse in chip manufacturing. The department also announced that several dozen Chinese companies would be added to the “entities list,” which restricts sales of advanced U.S. technologies to those companies. Officials are also considering withdrawing existing export licenses that permit U.S. companies to still sell some chips and other goods to Huawei, the Chinese telecommunications giant. This follows several years of ever more stringent sanctions against Huawei and other Chinese technology companies—actions developed and enforced by the Commerce Department. Commerce Secretary Raimondo is also involved in efforts by the U.S. Congress and Biden administration to restrict investments in China by U.S. companies for the first time.
Up the street, U.S. Trade Representative Tai has been traveling for consultations in Vietnam, Malaysia, Germany, and Brazil, and discussed labor rights with the Mexican economics minister. Other USTR officials engaged in discussions with Canada and Mexico on reducing marine litter. USTR announced it would participate in the next round of Indo-Pacific Economic Framework (IPEF) negotiations, a U.S. initiative that does not include proposals to liberalize trade with Asia, as any such forum surely would have in the past. None of these issues are inconsequential, to be sure; the discussions with Europe include important negotiations on favoring less emissions-intensive steel to address climate concerns, and the IPEF could produce new models for cooperation. But none involves USTR’s core mission of negotiating and enforcing trade liberalizing agreements.
It is not clear that the Biden administration deliberately set out to sideline USTR, but it has defined its trade policy goals in a way that does exactly that. The White House describes its approach to China, the primary trade and security challenge for the United States, as “invest, align, compete.” In two of those three aspects, USTR is irrelevant. On investment, the Commerce Department controls many of the subsidies the administration is using to bolster U.S. manufacturing; other measures, such as tax credits for clean energy under the Inflation Reduction Act (IRA), are administered by the Treasury Department. On competition, the Commerce Department is the primary agency with power to restrict exports of U.S. technologies to rivals. The department also has an array of weapons to protect U.S. companies against unfair trade, such as by slapping tariffs on imported goods.
USTR still has a role to play in the “align” portion of the administration’s strategy. Trade officials are spending considerable time trying to assuage trading partners such as the European Union and South Korea, who fear their companies will be harmed by IRA’s enormous clean energy subsidies. While USTR has never been shy about promoting U.S. corporate interests, that has always been tempered by its goal of maintaining strong international support for the system of trade rules built under U.S. leadership. Complaints from trading partners have been taken seriously and mediated through negotiations or formal dispute settlement. On clean energy subsidies, however, USTR officials can soothe allies all they want, but they have no authority; the Treasury Department is writing the rules for implementation of the IRA.
Major U.S. trading partners, especially the EU and Japan, have also been hoping that USTR would lead a concerted effort to revive the WTO’s dispute settlement procedures. These have been neutered since 2019, when the Trump administration blocked the appointment of new judges to the WTO’s Appellate Body, its highest tribunal for settling disputes. Negotiating new WTO rules would be a powerful role for USTR, and it would put the “align” pillar of U.S. strategy on par with “invest” and “compete.” But USTR has not just been disinterested in rescuing the WTO; it has been openly hostile. When the WTO Dispute Settlement Body—which is still adjudicating complaints but lacks enforcement capacity without a functioning Appellate Body—ruled in December 2022 that the Trump administration’s tariffs on steel and aluminum on alleged national security grounds violated WTO agreements, Biden’s USTR violently rejected the decision. “The United States will not cede decision-making over its essential security to WTO panels,” the agency’s spokesperson said.
USTR’s current irrelevance is a sharp contrast even to the previous administration, during which then-U.S. President Donald Trump made no secret of his loathing for most trade agreements. But rather than largely ignoring the topic of trade negotiations entirely, as current President Joe Biden has done, Trump empowered his trade representative, Robert Lighthizer, to negotiate a major overhaul of NAFTA, now the United States-Mexico-Canada Agreement, and to ink smaller deals with Japan and Korea. Even on China, Trump stuck to the familiar approach of trying to persuade Beijing to make new commitments that would help U.S. companies on investment rules, protection of intellectual property, and purchases of U.S. goods.
All of this might seem to be inconsequential bureaucratic reshuffling—except that such shifts in institutional power tend to have lasting consequences. Empowered agencies attract ambitious bureaucrats, who look for ways to further extend their mission. USTR, filled as it was with sharp lawyers and negotiators whose job was to bring home deals, continued to negotiate new trade agreements long after public support waned. The denouement was the decade spent by USTR negotiating the ambitious Trans-Pacific Partnership agreement with Japan and 10 other countries on both sides of the Pacific Ocean, only to have the deal stall in Congress and be torn up by Trump on his third day in office.
The Commerce Department today is building an ever more powerful capacity to dole out subsidies—with the explicit goal, as Raimondo puts it, to help “invent the technologies of the future in America … and manufacture them here too.” The department also continues to ramp up its capacity to impose export controls and other sanctions to prevent the loss of technologies to China and other competitors abroad, part of the administration’s strategy to “maintain as large a lead as possible” in critical technologies. Last month, the commerce and justice departments announced the launch of a Disruptive Technology Task Force, responsible for “protect[ing] critical technological assets from being acquired or used by nation-state adversaries.” The new group will include officials from the FBI and the Department of Homeland Security—but not USTR. In this task force, it seems, specialists wedded to the idea of facilitating trade would only get in the way.
All of this suggests that the U.S. shift to a more nationalist trade policy, driven by domestic industrial interests and national security concerns, will be durable. The United States is building the political and administrative infrastructure for a generations-long effort to consolidate competitive advantage—much like the U.S. government, led by USTR, spent decades building the rules-based trading system. In trade, it is a new world. U.S. trading partners will have little choice but to learn to live in it.