Analysis

New Admin Faces Tough Choices Crafting Direction Of Trade

Law360 (November 8, 2020, 5:25 PM EST) -- Trade policy will pose an early challenge to President-elect Joe Biden in the wake of his victory, as he will have to quickly decide whether and how he will depart from the Trump administration's aggressive and sometimes disruptive approach.

Biden delivered a victory speech in Delaware on Saturday night after projected wins in Pennsylvania and Nevada handed him the electoral votes necessary to take the presidency. Though President Donald Trump continues to fight in court, the former vice president said he was moving forward with his transition plans. 

On the campaign trail, Biden prioritized domestic policy initiatives like health care and economic recovery from the COVID-19 pandemic. But observers predict that the tensions with China and the European Union inherited from President Donald Trump will force the new administration into early action.

"Whether the Biden camp wants to deal with trade issues or not, to some degree it's not going to be up to them," Jamieson Greer, a partner on King & Spalding's international trade team, told Law360. "You're going to have the EU and China and all these others who are going to come to [Biden] right away to try to resolve these issues and have tariffs removed and the like."

Biden's trade plan was folded into a larger campaign document focused on boosting U.S. production, and much of it was focused on blasting the Trump administration's economic showdown with China.

But while Biden has attacked Trump's approach to China — such as the use of sweeping tariffs and failing to build coalitions with allies — he has also vowed to take a hard line with Beijing.

That dynamic has led most observers to predict that Biden's China policy will differ from Trump's mostly in tone, but not in substance.

Among the first orders of business for the Biden trade team will be a decision on the future of tariffs that Trump put in place on more than $300 billion worth of Chinese goods. An early-phase trade deal halted any new tariff increases but left existing levies untouched.

Clete Willems, an Akin Gump Strauss Hauer & Feld LLP partner who held trade posts in both the Obama and Trump administrations, said that even if Biden has publicly decried Trump's use of tariffs, he is still likely to use them to extract concessions from Beijing.

"I am broadly skeptical that Biden is just going to roll back these tariffs. It's a leverage point," Willems said. "The idea when we started down this path was that you would roll back these tariffs as China made various commitments, so I think he's going to need to get something for it."

Trump's deal with China required Beijing to up its purchases of certain U.S. goods and make several changes to its trade regime. But it punted on several more contentious issues, including industrial subsidies and cybersecurity. Those topics would likely be at the top of the list for the Biden administration if it chooses to restart negotiations with China.

While the future of these tariffs on Chinese goods and Trump's Phase One trade deal are uncertain, experts agree that Biden is likely to continue exerting pressure on China through sanctions and export controls in light of Beijing's posture toward Hong Kong and its detention of religious and ethnic minority groups.

There is support from all corners of the government to take a hard line on those issues, according to Gibson Dunn & Crutcher LLP partner Adam M. Smith, who worked as a senior adviser at the Office of Foreign Assets Control during the Obama administration.

"With China, there is such bipartisan consensus on both sides of Pennsylvania Avenue to continue imposing and perhaps even growing restrictions on China using sanctions and broader export controls as the principal lever," Smith told Law360. "China is not necessarily making life easier for anyone."

The Trump administration's multipronged dispute with the EU will also pose early challenges for Biden. The two governments are embroiled in a series of fights, including a long-running feud over aircraft subsidies, a budding quarrel over new taxes affecting U.S. tech giants like Apple and Google, and lingering tariffs on steel and aluminum.

If Biden is serious about repairing relationships with allies to confront China, settling U.S. tensions with the EU would likely be a high priority. Biden adviser Tony Blinken said in September that "we need to bring to an end an artificial trade war that the Trump administration started."

But none of the problems underlying the raft of U.S.-EU trade fights will disappear merely with Biden's election, and making nice with Brussels will be easier said than done, according to Greer.

"A lot of our allies are upset because of the steel and aluminum tariffs. If the allies say, 'Yes, we want to work with you, please remove these tariffs,' what would a Biden administration say to the steel and aluminum workers and the unions? That's a difficult thing to balance," he said.

Willems added that the steel and aluminum duties, imposed in 2018 on all but a handful of U.S. trading partners after Trump deemed the imports a security risk, offer a good starting point for Biden to begin mending fences on the global stage.

"A better way to ease tensions would be to provide our closest allies with a way out of the steel and aluminum tariffs, such as an agreement to remove the tariffs in exchange for joint action against China's excess capacity," Willems said.

Biden will also have to cope with the fraying state of the World Trade Organization, which Trump railed against for much of his presidency. Most notably, the Trump administration shuttered the WTO's Appellate Body by refusing to allow new judges to fill vacant seats as a means of protesting what it viewed as judicial overreach by the panel.

The Biden campaign has not taken a public position on the WTO, but softening the U.S. position could offer another chance to improve its trade relationships with allies. But that doesn't mean that the Biden administration will immediately allow for the repopulation of the Appellate Body.

While Trump took the blocking of WTO appeals judges to unprecedented extremes, the Obama administration blocked the reappointment of specific judges on two separate occasions.

Nasim Fussell, a Holland & Knight LLP partner who formerly served as chief trade counsel for the Senate Finance Committee, said that while it's not clear whether Biden shares Trump's reservations about Geneva's legal system, "the core DNA" of the Obama administration's objections remain.

"I don't think it will be a complete reversal of course," Fussell said. "But if they are going to follow through with this theme of reengaging with our allies ... the WTO seems like a very ideal place to do that and to show that."

The one area where most experts expect Biden to make a pronounced shift from Trump is in the actual implementation of any trade policy that emerges. Rather than sweeping unilateral moves often announced on Twitter, the expectation is that Biden will be more measured with a traditional approach.

"I expect that [trade] will be much less of a priority in a Biden administration and therefore there will be fewer new negotiations and trade actions in general," Willems said. "I also expect that the trade actions that are taken will be subject to a more predictable policymaking process and will involve less use of tariffs and other aggressive tools for leverage purposes."

--Editing by Orlando Lorenzo and Bruce Goldman.

For a reprint of this article, please contact reprints@law360.com.

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