Foreign economic policy challenges for Biden's US

The new administration could find it difficult to make China fall in line with the January 2020 agreement, especially as Beijing has strengthened its position through new alliances.

Published: 27th January 2021 07:32 AM  |   Last Updated: 27th January 2021 07:32 AM   |  A+A-

US President Joe Biden

US President Joe Biden (Photo| AP)

Within days of occupying the Oval Office, US President Joe Biden issued two significant Executive Orders, the nub of which is to reset the frayed relations of the US with its partners.

The first was the decision to rejoin the Paris Climate Agreement, from which his predecessor had withdrawn a few months into his presidency. The second was the retraction of the Trump administration's decision to withdraw from the World Health Organization in July 2020.

Given that President Biden had played a key role in the Obama administration’s efforts to break new ground in US foreign economic relations, do these decisions portend a reset in America’s economic relations as well, overcoming the disruptions caused during the Trump era?

Driven by its agenda to "Make America Great Again", the Trump presidency stepped back from its engagements with partner countries. One of its first decisions was to withdraw from the 12-member Trans-Pacific Partnership (TPP), the largest free trade agreement (FTA) that was concluded in 2016.

The TPP was central to the Obama administration’s policy of "pivot to Asia", which was expected to, among other objectives, deepen relationships with emerging powers and expanding trade and investment.

More importantly, it was the strategy to establish American leadership in the most dynamic region of the world. President Trump's memorandum marking US withdrawal from the TPP was important, for it defined his foreign economic policy.

The Memorandum emphasised the importance of bilateral trade negotiations to promote American industry, protect local workers and raise their wages. What followed was a rising tide of US trade protectionism and a series of actions against major trade partners from 2018, beginning with the raising of tariffs on steel and aluminium to target imports from several countries, including India.

Actions against China for perceived violations of intellectual property rights soon followed that snowballed into a trade war, with both sides raising their tariffs. India was also targeted when the Trump administration withdrew the preferential market access that its products enjoyed in the US under the Generalised System of Preferences (GSP).

Importantly, this action was used to negotiate better market access opportunities for the US agribusiness in India in order to satisfy one of Trump’s key backers. Clearly, the key objective of Trump was to ensure that its major trade partners like China and India increase their imports from the US.

A deal was struck with the former in January 2020, wherein China agreed to increase its merchandise imports from the US by USD 162 billion in two years. However, recent numbers suggest that China is nowhere near meeting the commitment. In 2020, China's imports from the US increased by just $12 billion over the previous year’s level, while its exports to its largest trade partner increased by $33 billion.

With America’s economic ties with several of its major partners seemingly unhinged, the Biden administration is faced with two sets of challenges. First, how does it deal with China, which has emerged from the pandemic-induced crisis much stronger than before? Second, does the "pivot to Asia" strategy have a future?

President Biden has frequently stated that he would not remove the 25 per cent tariffs that his predecessor had imposed on about half of China's exports to the US. This is hardly surprising in view of the bipartisan support for the tough stand against China and also because Trump’s anti-China rhetoric evoked a sense of economic nationalism in the country.

The new administration could also find it difficult to make China fall in line with the January 2020 agreement, especially because Beijing seems to have strengthened its position through new alliances: by the forging Comprehensive Agreement  on Investment (CAI) with the European Union and by joining the Regional Comprehensive Economic Partnership.

President Biden seems to have given the "pivot to Asia" strategy a new lease of life by appointing Kurt Campbell, the architect of this strategy in the Obama administration, as the Indo-Pacific coordinator.

But can the US play the leadership role in the region without having a forum to move the strategy forward? Since the US withdrew from the TPP, the 11 remaining countries formed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

While President Biden has not been averse to joining CPTPP, his Vice President, Kamala Harris, and some prominent members of the Democratic Party, including Bernie Sanders, have argued that the agreement "did not meet their standards". It is, therefore, unclear as to how the economic dimensions of "pivot to Asia" can be implemented under the new administration.

What could be the future of US-India trade relations? Economic relations between the two countries have largely been frosty, despite the bonhomie between their leaders.  The Trump administration's sole objective was to ensure that India increases its imports, thus narrowing the nation’s existing trade deficit. On the other hand, India has sought restoration of GSP benefits.

Over the past year, India has been exploring the possibility of an FTA with the US, but this move was not adequately reciprocated. The question is, will the Biden administration engage? And what will be its terms of engagement?

(The writer is Professor, Centre for Economic Studies & Planning, School of Social Sciences, JNU and can be contacted at bisjit@gmail.com)



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