Overview
2022 is shaping up to be a critical year for the Biden Administration regarding U.S. international trade policy. In 2021, the Biden Administration made headway in resolving some of the challenges with United States’ allies that arose during the last Administration, and trying to build bridges in important regions that had perhaps had been neglected. But in a number of other critical areas, and arguably in the most significant areas, the Biden Administration made little tangible progress over the past year. The discussion below offers a look back at the key developments in 2021 with respect to U.S. trade relations with the EU, China, the rest of Asia and North America, and a look ahead at what could come in 2022.
EU
A Look Back: The Biden Administration has achieved its greatest trade policy successes with respect to the EU. The Administration reached accommodation with the EU with respect to the Section 232 steel and aluminum tariffs, which was perhaps the most significant bilateral irritant. These tariffs were replaced by a tariff rate quota (TRQ) system that allows for certain quantities of steel and aluminum products in country/product-specific categories to enter duty free; above those limits, the Section 232 duties would then apply.
The second success was a temporary resolution of the decades-long dispute over subsidies to each side’s commercial aviation industry. The Boeing-Airbus dispute had generated numerous WTO determinations, which allowed each side to impose sanctions (in the form of additional tariffs) on the others’ imports. As a result of this deal, each side agreed to lift its retaliatory tariffs for a period of five years while a more permanent resolution of the dispute is negotiated.
Finally, the U.S. and the EU established the Trade and Technology Council (TTC), which is designed to be a platform for the resolution of trade irritants. Thus far, the TTC has created ten “working groups” to address priority areas in the bilateral relationship, including technology standards, secure supply chains, information communications technology, services security and export controls.
A Look Ahead: Having resolved two major issues and having established a platform to address future issues, it seems likely that the U.S.-EU trade relationship should be on relatively stable ground. The TTC is scheduled to meet again in the spring of 2022, which will be a critical test to determine whether this forum will in fact address other issues in the U.S.-EU trade relationship in a more constructive manner and enable the two sides to come together on strategies to address common challenges, including China.
China:
A Look Back: During her confirmation hearing, USTR Tai indicated that the Administration was undertaking a “top to bottom” review of U.S. trade policy toward China, and that during that time, no one should expect to see a wholesale rollback of the Section 301 tariffs imposed on Chinese imports. Now, almost one year into the Administration, the results of that review have not been released and those duties remain firmly in place.
But as 2021 ended, there were signs that whatever grace period the Administration had been given on China was coming to an end. The Phase One agreement ended in 2021, and while China lived up to a large number of the important statutory and regulatory changes in that agreement, it fell well short of its pledged $200 billion in additional purchases. This shortfall has been noted by a number of vocal critics of China, who have begun to demand that the Administration punish China for its failure to live up to its commitments.
At the same time, a chorus of business interests and members of Congress has increased its call for a reopening of the exclusion process for Section 301 duties that ended in 2020. The Administration extended some exclusions that had expired as of December 31, 2020, but this affected only a few hundred of the previously granted exclusions, and notably did not open the door to new requests.
These competing goals – punishing China for failing to meet its Phase One commitments while at the same time addressing the needs of the U.S. business community to reduce Section 301 liability – put the Administration in a difficult position at the end of 2021.
A Look Ahead: While the United States has the right under the Phase One agreement to reinstate or increase duties on nearly $300 billion in imports, that seems just as unlikely as a unilateral rollback of the Section 301 tariffs. Instead, what seems more likely is that at some point in 2022, the United States will seek to initiate direct trade discussions with China, perhaps with the threat of a tariff increase in the background, to discuss China’s performance under the Phase One agreement. This could then give the Administration room to address not only the purchase shortfall, but also the deeper “Phase Two” issues such as China’s support for its state-owned enterprises or its industrial subsidies. These negotiations might then give USTR the political space it needs to reopen the exclusion process, if only on a limited basis.
While this is a potential path forward, it would take China’s active involvement, and it is not clear that China has any interest in doing so. While this Administration has not to date taken any actions to inflame the U.S.-China trade relationship, the United States has taken other actions that have caused concern in Beijing. These include passage of the Uyghur Forced Labor Act, increased sanctions on Chinese companies to prevent technology transfer, and perhaps most critically, statements by the Administration signaling a possible change in U.S. policy toward Taiwan. All of these are likely to lead China away from the negotiating table, which could limit the Administration’s range of options.
Early 2022 will also likely see the passage of some form of legislation addressing the competitive threat from China. In mid-2021, the Senate passed the U.S. Innovation and Competition Act (USICA), which was largely focused on improving U.S. competitiveness in a number of emerging technologies. Progress on parallel legislation in the House has been stalled, though leadership has stated that it will see floor action in early 2022. The Senate bill contained several provisions of concern to China, particularly with respect to Taiwan. If these provisions are contained in the final legislative package, they could further complicate U.S.-China negotiations.
One final wild card is the litigation pending before the U.S. Court of International Trade challenging the third and fourth tranches of Section 301 duties, covering approximately $320 billion worth of imports. If successful in invalidating these duties, this litigation would significantly undermine the Administration’s leverage against China, and could potentially force the Administration to initiate another Section 301 investigation to replace the duties (and leverage) lost.
Rest of Asia.
A Look Back: Toward the end of 2021, the Biden Administration turned its attention to the rest of Asia, with both Ambassador Tai and Secretary Raimondo promising closer ties during their trips in the region. But here too, the Biden Administration faces extremely difficult choices.
Notwithstanding President Trump’s decision in 2017 to withdraw the United States from negotiations regarding the Trans-Pacific Partnership (TPP), the countries in that region continued those negotiations, which culminated in the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) in 2018. In parallel with that negotiation, a somewhat overlapping group of Asian countries negotiated and signed the Regional Comprehensive Economic Partnership (RCEP), which came into effect on January 1, 2022. While RCEP is not as extensive as CPTPP, it nevertheless covers a substantial number of countries – all 10 members of ASEAN, plus Australia, China, India, Japan, Korea and New Zealand – and is arguably the largest free trade agreement in history. And China’s announcement of interest in joining CPTPP, along with Korea and Taiwan, means that the countries in the Asian region are continuing their integration without U.S. involvement.
A Look Ahead: The lapse in Trade Promotion Authority means that President Biden is unable as a practical matter to have the United States join these trade agreements, and there is little appetite to seek renewal of this statutory authority. To avoid this problem, the Biden Administration has instead announced its intention to negotiate an Indo-Pacific economic framework to counter this growth in free trade agreements. The Administration has stressed that this will not be a trade agreement requiring Congressional approval, though it’s unclear exactly what this framework will cover and whether this will be a single agreement covering multiple nations, or a series of bilateral or small group (e.g., Quad) agreements, or perhaps both. But more fundamentally, it is unclear whether the United States’ Asian trading partners will be willing to engage in difficult negotiations over agreements that may afford them less economic benefit than they have already achieved with CPTPP and RCEP.
North America
A Look Back: Notwithstanding the negotiation of the U.S.-Mexico-Canada Agreement in 2020, trade relations among the three countries remain subject to the same irritants. As in prior years, trade in autos and auto parts, labor standards, trucking, softwood lumber and agriculture continued to cause frictions throughout 2021.
A Look Ahead: The lack of political commitment among the USMCA countries to resolve these long-standing issues means that 2022 will likely see more of the same.
Enforcement of enhanced labor rules under USMCA has been the most tangible aspect of the Administration’s “worker-centric” trade policy, and given the headlines that these enforcement actions generate, we expect to see the Administration pursue additional enforcement actions in 2022. In addition, the binational panel process under USMCA to review antidumping and countervailing disputes, which was effectively frozen under the prior Administration, will get unstuck in the coming year as this Administration has now approved panelists to hear disputes. Further, monitoring of certain agricultural products (specifically, bell peppers and strawberries) that began in early 2021 could lead to full-scale safeguards actions in 2022 depending on import trends, with a particularly significant impact on Mexico.
The one issue that has the potential to cause new and substantial trade rifts is the electric vehicle tax credit proposal currently in the Build Back Better legislation, which would effectively benefit segments of the U.S. auto industry relative to vehicle producers in Canada and Mexico. If passed, this would be viewed as a significant violation of the principle of non-discrimination contained in the USMCA, and would likely lead to a major legal challenge.
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