Introduction
This essay considers alternative scenarios for international trade policy for 2025 and beyond through the lens of the spectacular series of events that upended international trade beginning in 2017. These events are the direct results of Trump administration decisions, 2017-2021. During those years the Trump administration, with its emphasis upon nationalism and populism, effected a revolution in international trade policy that in many respects repudiated international trade policy as it existed from 1948 to 2016. Whereas for decades prior American administrations emphasized trade liberalization through international agreements, the role of multilateral institutions such as the World Trade Organization (WTO), and adherence to international law rules concerning trade, the Trump administration stood these policies on their heads, emphasizing protection of U.S. domestic markets, primacy of U.S. domestic trade laws over international law, and the irrelevance of international institutions such as the WTO. Trump administration trade policies had four major impacts: (1) a significant retreat from globalization; (2) paralysis of the World Trade Organization; (3) a revival of U.S. unilateralism in trade; and (4) a tariff and trade war between the U.S. and China.
Looking toward the future, given that 2024 is an important election year, I will discuss the announced trade policy intentions of the two presumed candidates for president — Democrat Joseph Biden and Republican Donald Trump. I will sketch briefly what each candidate intends to do concerning trade and the likely results for the American and global economies. I conclude that while both Trump and Biden advocate a certain degree of trade protectionism, Donald Trump intends to implement a radical protectionist vision concerning trade. Biden, on the other hand, will adopt a milder version of protectionism that emphasizes national security and enhancement of U.S. manufacturing autonomy. In addition, Donald Trump intends to pursue a hard U.S.- China economic decoupling. Joseph Biden, on the other hand, intends to pursue a milder approach to China, involving “derisking,” supply chain diversification, and “friend-shoring” of international trade and investment.
To his credit, Biden and his team have stabilized U.S.-China relations. Biden’s November 2023 summit with Chinese President Xi Jinping, along with diplomacy of Treasury Secretary Janet Yellen and Commerce Secretary Gina Raimondo succeeded in restoring a degree of order to the U.S.-China relationship that was so chaotic during the Trump administration. China and the United States represent about 40 percent of the world economy; stability of this relationship is an essential component of global prosperity. The Biden administration has managed the U.S.-China relationship, essaying to prevent disagreements from spiraling into conflicts.
Is the Past Prologue?
On January 20, 2025, someone will take the oath of office to serve as President for the next four years. A rematch seems to loom between Joseph Biden and Donald Trump. More than the names of the candidates will be on the ballot. Voters will choose the future role of the United States in the world. Voters will also choose the economy they will live with for the next four years and beyond. In terms of the subject matter of this symposium, we can pose the following key questions: (1) What will be U.S. economic policy toward China in the new administration? Will there be an attempted decoupling? (2) What will be the attitude toward tariffs and protectionism? (3) What will be the attitude toward new trade agreements? (4) Will the new president respect international law and institutions?
What will be the impact of international trade policies on the broader economy? The Federal Reserve seems to have engineered a “soft landing” for the U.S. economy. GDP rose 2.5 percent in 2023, and the unemployment rate is a low 3.7. percent. In 2023 inflation moderated to 3.4 percent. Which man, Trump or Biden, is more likely to maintain a good economy?
In this part I will address these and similar questions in the context of comparing the likely international economic policies of the Trump and Biden administrations. I will also describe a “third way” different from both.
Donald Trump’s “Maganomics”
Donald Trump on the campaign trail today still preaches the populist idea that tariffs benefit domestic industries and produce jobs and produce billions in revenue for the federal government. Trump has never been deterred by the opinions of economists who say that tariffs are taxes on American consumers and producers. Trump, the self-described “tariff man,” plans to double down on tariffs if he wins a second term as president.
First, he intends to impose a new “universal baseline tariff” of 10 percent on all imports into the United States.
Second, he is considering two possible options with regard to new tariffs on China. One option is to revoke China’s “most favored nation” status for trade with the United States. This would immediately result in huge tariffs on all Chinese products. If this option is problematic — it is against the rules of the WTO — Trump intends to simply impose across the board tariffs of 60 percent on all Chinese products. The magnitude of these proposed tariffs on Chinese products appears to mean that Trump will seriously aim to decouple the U.S. and Chinese economies.
These proposals, if implemented, would spark a global trade war, not only with China but with virtually all U.S. trading partners. They would also cause inflation and unemployment. A report commissioned by the U.S.-China Business Council predicts more than 700,000 job losses and a cost of over $1.6 trillion to the U.S. economy.
Third, Trump intends to propose a new round of tax cuts for small business and the middle- class worker. He proposes to cut the corporate tax rate from 21 percent to 15 percent.
Critics point out that this tax cut, like Trump’s first term Tax Cut and Jobs Act, is unfunded. Republicans are fond of such unfunded tax cuts that add to the national debt, which now stands at over $34 trillion. During his term as president, Trump added $8 trillion to the U.S. budget deficit. In 2023, U.S. interest payments on the national debt totaled $659 billion. The U.S. debt is growing faster than the economy. Many believe this rise in the debt is unsustainable.
Summing up Trump’s economics it can only be said that they are totally wrongheaded and borderline lunacy.
Joseph Biden’s “Bidenomics”
The Biden administration’s trade policy prioritizes labor and the American worker over consumerism. Biden’s 2021 Report to Congress states that American workers should be at the forefront of trade policy. Trade must be conducted to benefit regular American communities and workers. Trade policy must recognize that people are not just consumers, they are workers and wage-earners. Trade policy must protect American jobs not just low prices for consumers.
A threshold decision for the Biden administration was whether to repeal the Trump tariffs. At the time inflation was high. Numerous commentators advised Biden to rescind the Trump tariffs, arguing this action would lower U.S. inflation by 1 to 2 percent. Biden rejected this advice; he chose to defend the Trump tariffs in court litigation. Biden’s defense was successful. Biden did, however, allow importers to seek exclusions on grounds such as lack of domestic supply.
The Biden administration also vigorously defended the section 301 tariffs on China and ultimately prevailed in court. The Biden administration has not sought to lift these tariffs either unilaterally or in conjunction with an agreement with China.
The central element of Bidenomics, one that is new and untried, is an industrial policy that shapes the international economic order to achieve economic goals that benefit particular industries and communities. Four new laws are essential to this process: (1) American Rescue Plan Act ($1.9 trillion); (2) Infrastructure and Jobs Act ($1.2 trillion); (3) Inflation Reduction Act ($369 billion); and the (4) Chips and Science Act ($52 billion). Industrial policy is any governmental effort to boost priority industries or to create structural economic change. The United States formerly looked down on industrial policy and criticized states that adopted it. No more — if you cannot beat the competition, you join it.
Biden’s industrial policy involves three elements. First, massive subsidies are available doled out by bureaucrats or made directly to consumers in the form of tax credits. Second, the subsidy must be spent in America under Executive Order 14005, the Buy American mandate. Third, Executive Order 14017 comes into play mandate special attention to the supply chain to ensure there will be no disruptions or delays. “Make it in America is no longer just a slogan,” said President Biden, “it is a reality in my administration.”
The Chips and Science Act addresses a long-term decline in U.S. semiconductor chip manufacturing. Of the world’s five largest chip manufacturers, only one, GlobalFoundries, is based in the United States. In February 2024, the U.S. Department of Commerce announced a $1.5 billion grant to GlobalFoundries to build a computer chip manufacturing plant in New York state. Additional grants include $35 million to BAE Systems, a defense contractor, and $162 million to Microchip Technology, a Colorado company. The Biden administration argues that subsidies are the only way to create a viable computer chip manufacturing industry in the United States. This may be the case, but the subsidies potentially contravene the prohibitions contained in the WTO Subsidies and Countervailing Measures Agreement, and the “buy American” program may violate the WTO Government Procurement Agreement.
In past administrations negotiating free trade agreements that open foreign markets to American exporters was a high priority. The Biden administration, however, is an exception to this rule. Early in his administration President Biden stated, “I am not going to enter any new trade agreement until we have made major investments here at home and in our workers.” Biden has not sought to enter into any free trade agreements and apparently does not intend to do so if he wins a second term as president. He has not sought to revive unfinished negotiations with the European Union or theUnited Kingdom. He has not expressed interest in joining the Progressive and Comprehensive Trans-Pacific Partnership free trade agreement, which is in force for eleven nations.
As a substitute initiative the Biden administration formed what is called the Indo-Pacific Economic Framework for Prosperity. This is a “framework” not a free trade agreement. It is a voluntary document that does not contain any legal obligations but simply pledges cooperation. As Catherine Rampell describes it, “the only thing that can be reliably counted on is a growing aversion to anything branded as free trade.”
The words “free trade agreement” have become toxic on Capitol Hill and in the Biden administration.
The Biden administration eschews the inflammatory rhetoric of the Trump administration but has not sought to repair the damage to the multilateral trading system or to solve the thorny problems left over from Donald Trump.
The Biden administration’s trade policy, like Trump’s, is a huge break from decades of past trade policy. Biden rejects free trade negotiation to open foreign markets in favor of handing out lavish subsidies to favored industries. Critics decry the free spending and the emphasis on government creation of a manufacturing boom that will never materialize. They point out that manufacturing employment has been in steady decline for decades as automation makes it possible to produce more goods with ever fewer workers. Manufacturing accounts for just 8.3 percent of total employment, down from 8.6 percent when Biden took office.
A Third Way
Two prominent critics of Bidenomics, not to mention Trumpian Maganomics, are former Secretary of the Treasury Lawrence Summers and former USTR Robert Zoellick. These men constitute a “third way” in trade policy, different from Biden and more attuned to traditional trade policy of past decades. Summers has said, “I am profoundly concerned by the doctrine of manufacturing-centered nationalism that is increasingly put forth as a general principle to guide policy.” Summers decries much of the Biden administration’s industrial policy and the protectionism behind Biden’s emphasis on “buy American.”
Summers believes that excessive reliance on “buy American” exacerbates economic problems by driving up prices and fueling labor shortages. Summers argues that it sounds smart to use tariffs or buy American to protect the 60,000 workers in the U.S. steel industry. But when you raise the price of steel, the 6 million workers who use steel as an input all suffer as do consumers of steel. He reminds us that the workers who produce steel are only 1 percent of the workers who need and use steel as an input in the goods they make. Saving a few jobs for workers who make steel may not be the answer to economic malaise.
At a talk in 2023 at the Peterson Institute for International Economics, Summers made the following interesting points: (1) trade with China benefits the United States, which achieves job growth and consumer advantages; (2) government economic intervention aimed at bringing about a renaissance in U.S. manufacturing jobs is unrealistic and potentially counterproductive; and (3) the U.S. government should not try to maximize job creation over maximizing availability of low-cost goods to consumers.
Robert Zoellick makes four cogent criticisms of Bidenomics. First, team Biden ignores all fiscal discipline, embracing modern monetary theory that consigns fiscal constraints to the past. On the contrary, the U.S. budget deficit is worrisome and will have to be addressed. Second, “Biden’s team pursues trade and antitrust policies while questioning the importance of prices, costs, and efficiencies. Increased prices for consumers matter little to the administration compared with such goals as blocking foreign competition, doing away with fossil fuels, and experimenting with new regulations.” Third, team Biden distrusts the private sector of the economy, putting too much faith in statist solutions. Fourth, Biden now eschews American leadership in international trade. Instead, “Katherine Tai, Biden’s USTR, embraces Trumpian isolationism. She denies the power of deals to open markets and to accomplish other administrative objectives.
In short, Zoellick says, “Biden theorists imagine a national economy that Washington designs without foreign involvement.” There seems to be no memory that the post-war trade agreements signed between the 1940s to the 1990s produced unprecedented economic growth both for the United States and its trading partners.
Summers’ and Zoellick’s criticisms point toward a third way of handling the important subject of trade and investment policy. Why not return to multilateralism, which has stood the United States and its allies in such good stead for so many decades? This is not to advocate the multilateralism of the past. Why not adopt a multilateral approach suitable to deal with the problems of today. This multilateralism has three elements.
First, the United States should return to negotiating free trade agreements that open foreign markets to U.S. exporters. The U.S. traditionally was the largest exporting country. China became the world’s largest exporter only in 2009. The United States should again achieve this title; the way forward is the negotiation of free trade agreements.
Three free trade agreements should be high on the agenda of the next administration:
(1) The United States should join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP); this free trade agreement was negotiated by the United States and is in force for eleven friendly Asian-Pacific countries. President Trump withdrew his support for this agreement in 2017, part of his mistaken “Maganomics” protectionism. This was a grievous error. The provisions of the CPTPP were created in Washington and are in the American interest.
(2) The United States should restart and complete negotiation of the Transatlantic Trade and Investment Partnership (T-TIP) with the European Union and the UK. This negotiation was scuttled by Trump. It can easily be revived.
(3) The United States should come to a free trade agreement with eleven (or more) Western Hemisphere nations. The Biden administration has launched talks with these nations but only to discuss what is called an “American Partnership for Economic Prosperity.” This is a toothless political agreement to be “nice,” but would not open any foreign markets or carry economic obligations. Nothing less than a full free trade agreement should be the administration’s goal.
(4) The United States should reengage with African nations through the African Continental Free Trade Agreement.
The purpose of entering into free trade agreements is not only to open foreign markets, but also to compete with China, which is very active all over the world promoting its Belt and Road initiative and other goals. By entering into these free trade agreements, the United States can help craft a global standard of conduct in trade and investment that China must observe. Without new trade agreements China is free to pursue its “divide and conquer” strategy to negate American influence around the world. New trade agreements would also confirm and reanimate America’s relations with its allies, who are anxious to create a counterweight to China.
As a second element of a “third way” in trade, the United States should reengage with the WTO and again play a leadership role in that organization. Since 2017 a leadership vacuum has existed at the WTO. Now is an excellent time to reassert American leadership. There is still a need for clear multilateral rules in trade. American leadership of the WTO could help shape the rules to our liking. It is not enough to merely criticize the rules and the role of the Appellate Body. The U.S. should also actively promote new rules more to our liking.
Third, the United States should establish a wide-ranging dialogue with high-level Chinese counterparts to provide transparency and to justify American actions in the ongoing economic competition with China. While decoupling is not and should not be the American goal, strategic decoupling may be warranted. The United States is taking numerous actions regarding China unilaterally. But that is not enough; there should be a bilateral forum to discuss American and Chinese actions in real time as they are happening. Establishing such a forum could help each side to understand this strategic decoupling process and to make corrections where warranted. The Trump administration abandoned economic dialogue with China shortly after taking office in 2017 in favor of a one-sided, “lay down the law,” monologue with its Chinese counterparts. This was a mistake. Larry Summers has described how bilateral talks with China have been fruitful to change Chinese behavior with respect to currency valuation and other matters.
Conclusions
In November 2024, voters will choose between Trump and Biden to be president of the United States. This essay has compared the different international trade policies of each man. While Trump’s policy views are sheer lunacy, embracing full-throated protectionism, Biden’s trade policy views are troubling. Biden also leans toward protectionism to some degree.
It is surprising that Biden on trade resembles his Republican predecessor more than the presidents of both parties who preceded him in the White House. Biden errs in turning his back on past trade liberalization pursued by successive presidents before Trump. The next administration should adopt a “third way” set of policies on international trade, emphasizing (1) negotiation of wide-ranging new free trade agreements; (2) reengagement with the WTO; and (3) robust bilateral forums to discuss trade matters with China.
Thomas J. Schoenbaum is presently the Harold S. Shefelman Professor of Law at the University of Washington in Seattle. He received his Juris Doctor degree from the University of Michigan and his PhD degree from Gonville and Caius College, University of Cambridge (UK). He is also Research Professor of Law at George Washington University in Washington DC. He is a practicing lawyer, admitted in several U.S. states and before the Bar of the Supreme Court of the United States.
PB14_ Biden VS TrumpTo read the executive summary as it is posted on the website of the Institute for European Policymaking at Bocconi University, click here.
To read the full policy brief published by Institute for European Policymaking at Bocconi University, click here.