Biden’s Trade Policy and Free Trade Areas

“I’m not going to enter any new trade agreement with anybody until we have made major investments here at home and in our workers,” President-Elect Joe Biden.[1]

President Biden has advocated a worker-centric trade policy that is intended to ensure that American trade negotiators “will fight for every American job and for the rights, protections, and interests of all American workers.”[2] The Biden Administration’s long overdue focus on American workers could reinforce federal and state programs that have not yet succeeded in effectively offsetting the hardships that imports can impose on workers facing competition from abroad. However, the Administration’s focus on investments at home should not obscure the importance of international trade to the US economy. Agricultural exports, for example, account for approximately 20% of US farm and manufactured sales. As of 2019, exports were estimated to directly and indirectly support 10.7 million jobs, or 7.1% of total US employment.[3] While imports compete for sales with American companies, they also lower the cost of consumer goods for middle- and low-income families.

It has been over 25 years since the last successful multilateral trade negotiation. The failure of the Doha Round of multilateral trade negotiations in 2006 laid bare the weakness of the global trading system that the United States had supported since 1945. The lack of a consensus among major trading nations, and between them and their emerging competitors, contributed to a proliferation of FTAs and other preferential trade agreements, which now account for more than half of global trade.[4] Although the United States has been a relatively minor player in the worldwide growth of FTAs, North American economic cooperation, fostered by NAFTA and its successor, the US-Mexico-Canada Agreement (USMCA), has integrated North American supply chains and strengthened the international competitiveness of the United States. “Factory North America” is a major player in the international economy.

Despite the success of the North American trade agreements, FTAs have fallen out of favor with large portions of the US electorate and figure prominently in debates over the direction of US trade policy.[5] The NAFTA and the USMCA have been singled out for criticism, in large part due to shifts of some production and employment to Mexico.

In response to criticism of US trade agreements, the Biden team has emphasized a new approach:

Too often in the past, Congress and the administration came together to finalize and pass a trade agreement. But then other urgent matters arose and we all moved on.[6]

 Some of us previously argued for free trade agreements because we believed Americans would broadly share in the economic gains . . .and that those deals would shape the global economy in ways that we wanted.  We had good reasons to think those things.  But we didn’t do enough to understand who would be negatively affected and what would be needed to adequately offset their pain, or to enforce agreements that were already on the books and help more workers and small businesses fully benefit from them.[7]

Certainly, major improvements in the assistance to US workers impacted by imports are necessary, and the negotiation of new provisions in trade agreements can be a response to the concerns of workers and those that favor tougher environmental regulations.[8] Indeed, the introduction of significant labor and environmental measures in the USMCA was essential to gaining Congressional approval of the agreement in 2020. Enforcement of mutually agreed obligations in the USMCA and other FTAs must be a major component of US trade policy.

However, the criticism of FTAs by the Biden Administration may fuel the belief that US trade agreements are major drivers of job losses and industrial displacement in the United States. They are not. Nor should US trade policies in general bear the brunt of the blame for job losses. Improvements in US productivity account for a much greater share of the declines in manufacturing employment than does trade. For example, from 1991 to 2019, an estimated 29% of manufacturing job losses were due to trade, productivity growth being responsible for the other 71%.[9]

Despite objections to free trade agreements, the United States is actually at a competitive disadvantage in world markets because it has not kept pace with the international growth of FTAs. The past rounds of multilateral trade liberalization no longer provide US exporters with adequate access to international markets. The Biden Administration must recognize that rather than having too many FTAs, the United States has too few: US exporters have preferential access to less than 10% of the world’s consumers. (See Table 1, which shows the share of world GDP accounted for by the FTA partners of the United States and other major trading nations, with the European Union included as a single entity).[10] Mexico and Canada, in contrast, maintain preferential access to markets that account for over 50% global GDP.

Table 1

Percentage of World GDP Accounted for by

FTA Partner Nations – 2019

The high percentages for Mexico and Canada are due in part to the fact that the US economy (to which Canadian and Mexican companies have preferential access) accounts for 24% of world GDP. However, even when North America is excluded from the calculations, Canada and Mexico have access to over 40% of global markets, compared to 8% for the United States. The European Union, a customs union almost as large as the United States, has more than twice as much preferential access to international markets. Japan has more than three times the preferential access as the United States. China’s efficiency as an exporter apparently offsets its relatively small share of preferential access to international markets.

Table 2, below, shows the relative importance of individual US FTAs in terms of trade in goods. We first calculate the relative importance of FTAs as a percentage of US goods trade with FTA partner nations, and then as a percentage of total US goods trade. Overall, the USMCA accounts for one third of total US exports and a quarter of US imports. None of the other 13 US FTAs account for a substantial percentage of total US goods trade (Korea and Singapore are the next largest by this metric, and each nation accounts for under 5% of US trade in goods). Combined, all FTA partner nations of the United States, other than Canada and Mexico, account for only 13% of total US exports and 8% of total US imports. The difference between the USMCA and all other US FTAs is even more stark when limiting the comparison to trade with FTA partner nations. The USMCA comprises 72% of US exports to its FTA partners and 76% of its FTA imports. The USMCA is the only FTA that pulls significant weight in terms of the overall US trade profile, further evidence that the United States has failed to keep pace with the worldwide increase in the number of FTAs.

Table 2

Goods Trade with US FTA Partners – 2020

Source:  U.S. Census Bureau. Foreign Trade, Balance by Partner Country (Accessed March 21, 2021).

There is scant likelihood that there will be another multilateral trade negotiation anytime soon. Meanwhile, the increasing economic integration of the Asian-Pacific region will continue within the CPTPP and the recently signed 15-member RCEP.[11] Through its newly “assertive” trade policies, the European Union will strengthen trade and economic ties with its FTA partners and other countries.[12] China is building economic and commercial relationships through its Belt and Road Initiative and has indicated an interest in joining the CPTPP, a potential “geopolitical disaster” for American interests in the Pacific.[13] The United States should not be merely an observer as other nations strengthen or enter into new preferential trade agreements.

There is no conflict between investment in the US economy and the commencement of trade negotiations. Acting on both domestic and trade policy issues could lead to far better and balanced economic results. Besides decisions on FTAs, trade policy issues facing the Biden team include renewal of the Trade Promotion Authority; negotiations with the EU on aircraft subsidies; renewal of the Generalized System of Preferences (GSP); removal of the “national security” tariffs imposed by the Trump Administration on imports of steel and aluminum; the resolution of trade disputes with China; and the reinvigoration of the World Trade Organization. Those actions would remove roadblocks to better relations with US allies and remove or lower the taxes on American consumption imposed by the Trump tariffs.

The Trump Administration began negotiations on two new FTAs, one with the United Kingdom and the other with Kenya. The shared history of the US and the UK and the latter’s departure from the EU may give impetus to that negotiation. Picking up the negotiation with Kenya would signal that the US has continued interests in improving its economic relations with Africa.  Among other possible FTAs, the return of the United States to the CPTPP looms large, but it would be difficult to agree on labor provisions comparable to those in the USMCA with some of the current members of the CPTPP, a task that would be much more difficult (if not impossible) if China joined the CPTPP.[14] An FTA with the EU, while desirable, does not appear to be a feasible near-term objective, although there is Congressional interest in a US-EU deal.[15] The United States and Japan may strengthen their bilateral commercial ties without commencing an FTA negotiation.

If the United States were to negotiate FTAs with those potential partners, it would take a significant step toward improving the degree of preferential market access enjoyed by US firms and workers. For example, a trade agreement with the European Union would cover 17% of total US exports. An FTA with the United Kingdom would cover 4% of total US exports, and joining the CPTPP would cover 5% of US exports, through the addition of Japan, Vietnam, and New Zealand to the list of US FTA partner nations. Each of these potential FTAs would cover a higher volume of US exports than any current US FTA except the USMCA.

Negotiating an FTA takes time.[16] Since 1985, when the first US FTA was enacted with Israel, it has taken an average of three years to negotiate and obtain Congressional approval of an FTA. The time required increased to over six years for the four US FTAs initially signed in 2007. The negotiation and Congressional approval of the USMCA, however, required 31 months. Thus, an FTA negotiation in 2021 might at best yield an agreement in late 2022, which would then require Congressional approval, probably by the 118^th Congress in 2023. Despite those challenges, a firm commitment to include FTA negotiations in the Biden Administration’s trade policy would begin to offset the competitive advantages held by exporters from countries whose FTAs give them greater preferential access to international markets than those available to US firms, farms, and workers.

Guy Erb is a former U.S. trade policy official and investment banker.

Scott Sommers is a PhD student in Economics at the University of Minnesota.

[1] Interview with Thomas L. Friedman, New York Times, December 2, 2020.

[2] Secretary of State Anthony Blinken, “A Foreign Policy for the American People,” March 3, 2021.

[3] International Trade Administration, 2020. https://www.trade.gov/feature-article/otea-publications

[4] Espitia Rueda, et al., 2018. “How preferential is preferential trade?” World Bank Group, Policy Research Working Paper No. WPS 8446, Washington, D.C.

[5] For an example of the criticisms leveled at FTAs, see, for example, “Memorandum on U.S. trade and manufacturing policy,” Economic Policy Institute, which called for a “a freeze on negotiating new trade agreements.” https://www.epi.org/publication/memorandum-on-u-s-trade-and-manufacturing-policy/  Accessed March 23, 2021.

[6] Opening Statement of Ambassador-designate Katherine Tai Before the Senate Finance Committee, February 24, 2021.

[7] Blinken Speech, op. cit.

[8] Edward Alden, Failure to Adjust: How Americans Got Left Behind in the Global Economy, Council on Foreign Relations.

[9] Stephen J. Rose, “Foreign Trade and Employment,” forthcoming, and Lawrence Edwards and Robert Z. Lawrence, “Rising Tide: Is Growth in Emerging Economies Good for the United States?” Peterson Institute for International Economics, 2013.

[10] See also Shannon O’Neill, “Protection without Protectionism,” Foreign Affairs, January-February 2021, p. 157.

[11] Members of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) are Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Brunei, Chile, Malaysia and Peru have not yet ratified the agreement. The signatories of the Regional Comprehensive Economic Partnership (RCEP), which is not an FTA, are Australia, Brunei, Cambodia, China, Indonesia, Japan, Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. 

[12] European Commission, “Trade Policy Review – An Open, Sustainable and Assertive Trade Policy, February 18, 2021. https://trade.ec.europa.eu/doclib/docs/2021/february/tradoc_159438.pdf Accessed March 17, 2021.

[13] Edward Luce, “The Puzzle of Joe Biden’s ‘middle class foreign policy,’” Financial Times, March 28, 2021.

[14] During the Presidential campaign, candidate Biden explained his thinking on the TPP as follows: “I would not rejoin the TPP as it was initially put forward. I would insist that we renegotiate pieces of that with the Pacific nations that we had in South America and North America, so that we could bring them together to hold China accountable for the rules of us setting the rules of the road as to how trade should be conducted.” Transcript: Night 2 of the second Democratic debate,” Washington Post, July 31, 2019.

[15] “A Top House Democrat Prods Biden to Reopen E.U. Trade Talks,” New York Times, December 11, 2020.

[16] See our previous articles on FTAs: “Losing Ground: the United States, Free Trade Areas, and the World Trade Organization,” WITA, May 2, 2018, http://americastradepolicy.com/losing-ground-the-united-states-free-trade-areas-and-the-world-trade-organization/#.WusNVDbrtjV and “Still Losing Ground: The Consequences of the Trump Administration’s Bilateral Trade Policy,” WITA, July 9, 2020, https://www.wita.org/blogs/losing-ground-trump-administrations-bilateral-trade/