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Panjiva Insights: What to watch for U.S. trade policy under the Biden administration

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Panjiva Research took part in a webinar on Dec. 16, “DC Watch: U.S. Trade Under a Biden Administration” along with our colleagues from S&P Global Market Intelligence and S&P Global Ratings. This report addresses some of the questions asked during the call. A full recording is available here.

Poll: Which of the following do you think will occur during the next four years?

We started with a poll of the audience, which represented a broad spread of financial, corporate, government and consulting listeners, looking at expectations for policy implementation in the coming four years.

The general conclusion can be seen as there being few expectations of major changes in the effective policy landscape. Only 12% of respondents expect the U.S.-China trade war to be resolved while only 30% expect the WTO to be reformed in the coming four years. Trade deal-making is seen as more likely with an U.S.-U.K. deal seen as the most likely with 58% of respondents seeing a deal being delivered. An agreement between the EU and U.S. was seen as less likely with 49% expecting a deal. Expectations for the U.S. to join the CPTPP group in Asia was lower still.

Which of the following do you think will occur during the next four years?

Chart shows results of a poll held during Dec. 16 webinar “DC Watch: U.S. trade policy under the Biden administration”.   Source: Panjiva

President-elect Biden has promised a trade plan soon after inauguration – what can we expect?

The President-elect has been very clear that there will be no rush to complete significant trade deals, with an initial focus on post-pandemic recovery and rebuilding the domestic economy, as outlined in Panjiva’s “Life After the Election” research series

Biden has also made it clear that environmental and labor issues will be at the forefront in negotiating new deals, so expect a commitment to full trade deals rather than the mini-deals used frequently by the Trump administration.

One challenge there will be to address the potential cohabitation depending on the outcome of the Georgia Senate races. Without the Senate, President-elect Biden will struggle both to enact legislation or to get renewal of Trade Promotion Authority.

While Biden may commit to reversing many of the Executive Orders / proclamations made by Trump, of which there have been more than 70 in relation to trade policy and supply chains, it’s likely that tariffs will remain in place initially. Those will be a core part of Biden’s likely continuation, with a change in style, of Trump’s tough-on-China stance. In that regard less emphasis will be placed on tariffs and more on rebuilding multilateral organizations like the WTO and building alliances with allies including the EU and across Asia.

Has the U.S. become addicted to tariff revenues? What will become of Trump’s China tariffs and which other tariffs may be removed first?

While tariff policy has been a significant part of the implementation of President Trump’s trade policy, the total tariff income reached $66.0 billion in the 12 months to Nov. 30, up from $34.4 billion in 2016. That’s hardly a significant figure in the context of the overall U.S. budget. One option may be to hypothecate those tariff revenues to trade support mechanisms ranging from education and infrastructure to support for onshoring.

The tariffs on imports from China will likely remain, though the Biden administration is likely to move onto the bigger picture regarding national security and intellectual property rather than ust trade in goods. An early test for relations will come in whether to support Australia’s position vis a vis China as well as deciding whether the forthcoming 15th Five Year Plan in China violates global trade rules.

Elsewhere the removal of tariffs may be used as a carrot in negotiations with allies. The ongoing spat with the EU regarding aerospace subsidies and resulting bilateral retaliatory tariffs may be on area to resolve, potentially reducing tariffs across a wide range of consumer goods.

Steel and aluminum tariffs are another area where selective reductions, particularly with the EU, could help improve relations. A similar approach was taken with Canada and Mexico in relation to signing the USMCA deal. One matter counting against such a move is that industrial utilization in steel and aluminum remains well below the 80% threshold for long-term industrial viability.

Tariff-rate quotas on solar power generating equipment imports may be an earlier area for tariff cuts given the President-elect’s ambitious aims regarding renewable energy. Panjiva’s data shows that U.S. seaborne imports of solar panels have jumped 62.0% higher year over year in the 12 months to Nov. 30 and were nearly double the level seen in 2017. The surge in imports in the past 12 months has been led by a 656% rise in imports linked to Trina Solar, while those linked to LONGi and Hanwha rose by 72.4% and 65.0% respectively.

That would suggest that tariffs on imports are being passed onto consumers at either the utility or commercial level and so are doing little more than increasing the cost of the green energy revolution.

Solar tariffs no longer inhibiting panel imports

Chart segments U.S. seaborne imports of solar panel by shipper on a monthly and three-month average basis.   Source: Panjiva

What do you expect for USMCA under the Biden administration?

The passage of USMCA through Congress took around a year and involved a significant strengthening of the labor rules at the behest of House Democrats. The Biden administration will likely keep a focus on ensuring those terms are correctly implemented. 

The Trump administration has recently launched a complaint regarding imports of fruit using the section 201 safeguarding mechanism which may end up targeting Mexico while also launching a complaint regarding Canadian dairy. These are likely to prove to be brushfires, if continued by President-elect Biden, rather than there being a wholesale review of the agreement.

Will the US consider joining CPTPP or attempt to just renegotiate TPP?

While reference is often made to President Trump having withdrawn the U.S. from the TPP, in reality it had never actually ratified the agreement which reached fruition under the Obama administration. While the CPTPP as implemented is similar to TPP and covers much of the same ground as USMCA it should by no means be assumed that the U.S. will either attempt or successfully achieve membership of CPTPP. 

As mentioned already, President-elect Biden is in no rush to join new trade deals, nor will he necessarily have the Senate support to do so whether or not TPA is continued. Furthermore, with a reduced House majority and given prior comments regarding hostility among progressive Democrats to the deal it might not even reach the planning stage.

That said, recent comments by President Xi Jinping that China may consider joining the CPTPP could force President-elect Biden’s hand in at least starting negotiations to join. In the meantime CPTPP may well expand anyway to include new members such as South Korea.

What is your outlook on trade with India under a Biden administration, and do you expect a return of GSP status for India?

The Indian government has recently expressed an interest in improving trade relations with the U.S., potentially including a trade deal. That partly reflects India having missed out on the initial switching of U.S. supply chains away from China and towards other Asian countries. Panjiva’s data shows that U.S. imports from India have declined by 11.8% year over year in the 12 months to Oct. 31. There have been some bright spots though. Products driving the largest increases in dollar terms include imports of telecoms and network equipment having increased by 115.4%, pharmaceuticals which rose by 5.6% due in part to the pandemic and power transformer imports which have climbed by 118.5%.

Putting aside the issues raised above regarding President-elect Biden’s position and issues regarding trade deals there has also not been a change in the Modi administration’s approach towards international trade. The country was a hold-out during the Doha round of negotiations at the WTO. It also withdrew from RCEP negotiations before its completion and has persisted with the “Make in India” tariff policy. 

One area where there may be an improvement in relations as part of coalition building against China could come from reinstating India’s Generalized System of Preferences status. That could come against the backdrop of a renewed widening of GSP, though as of today there are doubts that the year end Omnibus package from the U.S. government will renew it.

Pharmaceutical dwarf other sources of import growth

Chart segments U.S. imports from India by product on a monthly and 12-month average basis.   Source: Panjiva

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