Will Biden’s Trade Policy Shift After the Midterms?
While all the races have not been called, both Democrats and Republicans are taking stock of the mixed midterm election outcome. Though a red wave did not materialize, there is also no clear mandate for President Joe Biden’s agenda. Republicans are predicted to secure a narrow hold on the House, while Democrats have retained control of the Senate. Though trade policy was not a prominent talking point in the elections, inflation and the overall health of the economy remained top-of-mind for voters, which had prompted Democrats’ fears of getting clobbered. What will split control of Congress mean for Biden’s economic policy, and will he pivot on trade?
Though Democrats held the Senate, there is still a major question about the composition of the Senate Finance Committee, which handles trade matters. Notably, Senators Richard Burr (R-NC), Rob Portman (R-OH), and Pat Toomey (R-PA) are retiring, and it is not clear who will take their place. Toomey was a strong advocate for trade, one of the handful of senators pushing for the reform of two trade statutes—Section 232 and Section 301—abused by the Donald Trump administration to start a trade war with both U.S. allies and China. Portman, who served as the U.S. trade representative under President George W. Bush, has also been an important pro-trade voice in the Senate, and in recorded comments at a recent event remarked that he was concerned the current debate on trade “causes us to lose sight of the benefits of trade,” which he called “a valuable tool in our competitive arsenal.” The absence of both Portman and Toomey will be heavily felt on Senate Finance, and there could be less opposition to executive overreach on trade and the Trump-era tariffs that Biden has mostly left in place.
Retirements in the House will also leave a mark on the Ways and Means Committee, with the departures of Representatives Ron Kind (D-WI), Stephanie Murphy (D-FL), and Thomas Suozzi (D-NY). Suozzi’s seat has flipped to the GOP. Both Kind and Murphy were moderate Democrats and trade supporters, but their views on trade were more aligned with President Barack Obama’s approach than Biden’s, which has largely been a continuation of Trump’s trade policy. Their seats have flipped as well. Representative Adrian Smith (R-NE) is in the running to chair Ways and Means, though it is too early to tell if he can secure the spot. Smith has been critical of the Biden administration’s trade policy, particularly the lack of a traditional proactive trade agenda, and the waiver of the Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement, which the administration negotiated at the World Trade Organization’s twelfth ministerial conference this past summer. At the very least, Republican leadership at Ways and Means could push Biden to be more cognizant of consulting Congress on trade matters.
But a divided Congress bodes poorly for legislation on Trade Promotion Authority (TPA), which lapsed in July 2021. TPA allows Congress to lay out trade negotiating objectives while also giving the president time-limited authority to negotiate agreements that are subject to expedited voting procedures in Congress. Importantly, TPA requires the executive branch to consult with Congress throughout negotiations, which matters because the Constitution grants Congress exclusive authority to regulate commerce with foreign nations. TPA thus serves as a check on executive power on trade, while at the same time sending a signal to foreign trading partners that what the president offers up in negotiations will be honored by Congress because it will have been guided by specific objectives and regular consultation. The problem, however, is that Democrats and Republicans remain divided on TPA legislation. Democrats won’t support a bill that does not include Trade Adjustment Assistance, which is a program that provides help to workers who lose their jobs due to trade disruption. But Republicans remain skeptical of TAA, owing to research that shows it does not have a noticeable impact on employment outcomes.
How the debate over TPA plays out will be one to watch, not least because the Biden administration has embraced Trump’s penchant for trade executive agreements—“mini deals” made by executive branch agencies with other governments that “have some relationship to trade, broadly defined” but are not subject to congressional review. President Biden’s signature trade initiative, the Indo-Pacific Economic Framework (IPEF), falls under this category. Biden’s trade representative, Katherine Tai, recently stated that she is open to “broadly bipartisan” TPA legislation, but has been critical of trade liberalization, calling the lack of market access in IPEF a feature, not a bug. Congress has expressed frustration at her “failure to consult properly with Congress.” She is likely to face greater pressure on transparency in the new Congress, especially from Republicans.
The midterm results thus portend tension and possible opposition to Biden’s trade policy. But it doesn’t have to be this way. If Biden reflects on the outcome of the midterms, all signs indicate that he should pivot on trade. Why? According to exit polls, the leading issues motivating voters were abortion and inflation. While the party’s base was energized by Democrats’ abortion-rights message, the majority of voters blamed Biden for high inflation. Republicans could put additional pressure on Biden to explain why he isn’t using every tool in his toolkit—including trade—to reduce inflation. If Biden wants to allay the fears of higher inflation and a possible recession, he should take the opportunity to do all that he can to ease the burden Americans are feeling on their pocketbooks.
The first place to start is to lift the Section 301 tariffs that Biden has continued to impose on China from Trump’s failed trade war. Although some administration officials are worried that lifting the tariffs would make them look soft on China, Americans’ views on the U.S.-China relationship do not reflect the obsession with China inside the beltway. In fact, Morning Consult’s foreign policy tracker shows that less than a quarter of voters see U.S.-China relations as the most important foreign policy issue facing the United States. The challenge for Biden is reframing the issue to reflect the reality that the tariffs have failed to achieve their objective. In fact, far from punishing China, the evidence clearly shows that American companies and consumers have borne the brunt of the costs. Biden could make the case, as research from the Peterson Institute for International Economics has found, that cutting these tariffs can contribute to taming inflation. He could also point to research that has detailed the high costs on U.S. consumers and businesses for maintaining the Section 232 tariffs on steel and aluminum, and remove these trade barriers as well.
Similarly, Biden could help Americans understand the benefits of working with their allies to ensure secure supply chains for the items they use every day. One concrete action he could take would be to broaden discussions with the European Union under the auspices of the Trade and Technology Council to remove regulatory barriers to trade, such as those that prevent Americans from importing baby formula from Europe. This is trade liberalization that could directly help countless American families. Biden could also ramp up efforts in supply chain resilience negotiations for the IPEF, and provide additional carrots to our trading partners, like market access, to help push these talks along.
Finally, Biden could show how achieving his ambitious climate goals can be done without imposing serious costs on American families. To that end, he can work with U.S. trading partners to ensure that their electric vehicles will qualify for the consumer tax credit offered as part of the Inflation Reduction Act. Americans should be able to buy the electric vehicle that is most affordable for them and have access to a wider variety of options, such as vehicles made in Europe or South Korea. Furthermore, Biden could take action to reduce the costs for consumers and businesses to access the technology needed for a green transition across the board by restarting talks on the Environmental Goods Agreement (EGA) at the World Trade Organization. Concluding this agreement would give Americans access to environmentally friendly products and tech from around the world. He should take this further still and expand the EGA to also include services such as engineering and architecture, which are essential in designing green infrastructure.
At a press conference the day after the election, President Biden seemed emboldened by the midterm results and stated plainly, “I’m not going to change anything in any fundamental way.” On trade policy, that would be a mistake. While Democrats managed to avoid widespread defeat by Republicans, they may not be so lucky in 2024, especially if inflation continues to climb and the United States enters a recession. And with control of Congress split, Biden’s domestic policy agenda will stall and he will need to look to foreign policy initiatives to deliver results. Trade is one place he can do that, and—if properly framed—with bipartisan support.