Financial Mirror (Cyprus)

Biden’s trade war against himself

- By Anne O. Krueger © Project Syndicate, 2022.

The contradict­ion between US President Joe Biden’s major domestic and foreign-policy objectives and his administra­tion’s trade policies has grown increasing­ly sharp. As Biden nears the midpoint of his electoral term, it is no exaggerati­on to say that he is waging war against his own agenda.

On the domestic front, the administra­tion has emphasized the need to mitigate climate change, reduce inflation, fight poverty, and maintain productivi­ty and growth. But its trade policies will do the opposite.

The same is true of US foreign-policy objectives. Despite a clear bipartisan consensus on the need to strengthen US alliances, the administra­tion has raised tariffs on Canadian lumber, imposed stricter “Buy American” measures (which conflict with its World Trade Organizati­on obligation­s), and taken other steps that harm US allies.

Worse, these policies have raised (or at least failed to lower) costs and prices at a time when inflation is perched at a four-decade high.

A Peterson Institute of Internatio­nal Economics policy brief estimates that the US could achieve a one-time 1.3% reduction in consumer prices simply by removing the Trump-era tariffs on Chinese imports.

Solar panels offer a perfect illustrati­on of how the administra­tion’s policies are contradict­ing each other. To phase out fossil fuels, solar cells must be produced on a much greater scale, embedded in solar-panel manufactur­ing, and then installed.

After President Donald Trump imposed a 30% tariff on imported solar panels in 2018, Biden announced this year that he would extend that policy – albeit with some exceptions – as part of his campaign to support American manufactur­ing and “good jobs.”

But environmen­talists and solar-panel distributo­rs and installers rightly objected, pointing out that while the solar industry employed 250,000 people as of 2019, only 34,000 were in solar-panel manufactur­ing, whereas a much larger share comprised installers. Moreover, about 80% of solar panels installed in the US in 2019, and almost all solar cells, were imported, suggesting that America will remain dependent on solar imports even if it can increase its domestic productive capacity.

“Self-sufficienc­y” simply is not within reach. And because US solar-panel producers still are not competitiv­e internatio­nally, they will demand protection­s that conflict with the goals of reducing fossil-fuel use and reining in inflation. In the end, more jobs will have been lost in solarpanel installati­on than could have been gained in production. Fortunatel­y, this summer, the Biden administra­tion lifted tariffs on solar panels imported from Canada and Mexico, and delayed imposing tariffs on solar-panel imports from Cambodia, Malaysia, Thailand, and Vietnam for two years.

Rather than embracing protection­ism, the Biden administra­tion could have met its environmen­tal, inflationr­eduction, and employment objectives more efficientl­y by subsidizin­g solar-panel production. Besides, it is doubtful that the stated national-security objective could even be achieved, considerin­g that the US lacks the raw materials for solar-cell production.

Another example of the Biden administra­tion’s policy incoherenc­e is its lack of interest in joining the Comprehens­ive and Progressiv­e Agreement for Trans-Pacific Partnershi­p.

After Trump abandoned the CPTPP’s predecesso­r, the Trans-Pacific Partnershi­p, which President Barack Obama had negotiated with 11 other Pacific Rim countries, Japan took over and pushed the agreement across the finish line – forming a massive economic bloc that does not include the US. As a result, US exporters must compete with the dutyfree goods entering from member countries, and since those countries are US allies, both US economic and geopolitic­al interests ultimately are harmed.

Tight immigratio­n restrictio­ns also run counter to Biden’s stated policy objectives. For example, a shortage of visas for skilled workers has constraine­d semiconduc­tor production and research and developmen­t, leading US chip makers and high-tech industries to lobby for a higher visa cap – so far to no avail. At a time when the US is adopting major new laws to accelerate semiconduc­tor production and developmen­t, self-imposed barriers to skilled labor are a shot to the foot.

Likewise, restaurant­s and other businesses that employ unskilled workers and tend to rely on foreign-born labor have been struggling to fill jobs. By increasing these immigratio­n flows, the US could both boost growth and reduce some of the current inflationa­ry pressures.

There are many more such conflicts. When the Biden administra­tion sought to increase transport capacity in response to a threatened railroad strike, it appears not to have considered suspending the Jones Act, which prevents foreign ships from transporti­ng goods between US domestic ports.

Though the Jones Act is supposed to protect the US shipping industry (including ship constructi­on and employment in maritime shipping), any such benefit is vanishingl­y small. There are only about 9,200 seamen employed on US ocean-going ships; and US shipbuildi­ng costs are so much higher than those of other countries that virtually no ocean-going vessels are produced in the US. By waiving the Jones Act, the Biden administra­tion could have helped replace truck and rail with waterborne transport, serving its goals of reducing shipping costs, port congestion, inflation, and pollution all at once.

The US economy is strong and thrives on competitio­n. Policymake­rs will only weaken it, and undercut other objectives at home and abroad, by intervenin­g to protect losers. To achieve better results for America and the world economy, the Biden administra­tion should join the CPTPP, relax immigratio­n restrictio­ns, and, if support is deemed necessary, deploy carefully targeted subsidies for semiconduc­tor and solar-panel production..

Anne O. Krueger, a former World Bank chief economist and former first deputy managing director of the Internatio­nal Monetary Fund, is 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.

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