Hi there from Washington, where President Donald Trump has finally ordered his administration to start co-operating with Joe Biden’s transition team. Biden, meanwhile, has announced his sweep of national security picks, though there are still a few months in which the Trump administration can get things done. What they can do — and are expected to do — on trade is the subject of our main piece today.
Our Person in the news is Janet Yellen, Biden’s pick for Treasury secretary, while Martin Wolf’s article “What the world can learn from the Covid-19 pandemic” provides our chart of the day.
Lighthizer’s last stand
US president-elect Joe Biden has started appointing his cabinet officials, and although trade watchers will have to wait a little while more before we know who the US’s new top person on trade will be, speculation in DC continues to swirl. (See our previous note on the runners and riders here).
But even if there ends up being a smooth transition in January, Robert Lighthizer, the current US trade representative, still has plenty of time to get a few more things done before he hands over control of trade policy to the Biden team — including dishing out a few more tariffs.
So what are the likely last acts of Lighthizer’s memorable time at the helm?
The most immediate item on the to-do list is the progression of a project the Biden folks will probably pick up, and that is to press on with the several outstanding Section 301 investigations into a string of countries — including the UK and EU — over proposed digital services taxes. As readers of Trade Secrets will know, the Section 301 investigation mechanism is the same process the US used in its trade war against China and can lead to punitive tariffs being put on countries that the US thinks are damaging its interests with unfair trade practices.
Washington argues that plans by countries including Austria, Brazil, the Czech Republic, India, Indonesia, Spain, Turkey and the UK to increase taxation of tech companies amounts to unfair targeting of US groups, and the 301 process is a way of formalising that view and offering an avenue to retaliation.
The US has already completed a Section 301 investigation into France, and come out with a final list of tariffs it has said it will apply in early January if France presses ahead with the tax — which it is doing. But Donald Trump’s administration is also likely to issue its findings as to whether the other countries being investigated are carrying out unfair trade practices. That wouldn’t immediately lead to tariffs, but the administration could have time to work its way through a staged process, and will probably get to the point of issuing a proposed tariff list, which it has to consult on, before the changing of the guard.
Separately, there’s a Section 301 investigation into Vietnam over alleged currency manipulation, which Lighthizer is likely to want to focus on. This would be a real policy shift, and tackling currency malpractice with trade law tools is not the norm in the US. Uncovering and reacting against currency manipulation has traditionally been the domain of the US Treasury, but Lighthizer has argued that undervalued currencies harm American workers by allowing artificially priced products into the US.
Clete Willems, a former Trump trade official, said tackling the issue of currency undervaluation had been a big ambition for those in the administration who wanted to reduce the trade deficit. “The point they make is that if you look at the deficit, one of the biggest drivers is the unbalanced currency,” said Mr Willems.
Separately, there is thought to be at least one of three possible Section 232 investigations — which can result in tariffs on imports that threaten national security — almost ready to be published. This is not really something in Lighthizer’s domain, and comes more from commerce secretary Wilbur Ross, but it’s trade policy so we’ll include it here. In May, the commerce department launched an investigation into electrical steel and other electrical grid parts, which could lead to new tariffs being announced by Trump before he leaves office.
Interestingly, some of this will be a bit awkward for Biden, but we’d argue that some of it might also help him and his trade officials. Inheriting some tariffs from the Trump administration sets up a classic “good cop, bad cop” routine as one set of trade negotiators hands over to the next. Biden-appointed officials will be able to offer to remove the tariffs in exchange for concessions, but will have avoided raising tempers because they didn’t implement the tariffs — they can instead blame the Trump administration. US allies are unlikely to expect the Biden administration to unilaterally remove tariffs, but they may be more willing to co-operate with a reset and change of personnel.
That being said, there will be plenty of awkward situations left for Biden. The main problem will be the proposed digital services tax and corresponding US tariffs. It’s hard to see how the US can offer to remove or suspend the tariffs without other countries offering to roll back their digital services tax, which they won’t want to do before a multinational solution is reached at the OECD. France is leading the charge, but a host of countries are keen to overhaul the way technology and ecommerce companies are taxed.
Biden’s strategy might have been to stall for more time, but with tariffs in place on more French imports the situation will have been considerably ramped up. Will the good cop, bad cop strategy work here? We’ll have to wait until 2021 to find out.
The most important single thing we have learnt from Covid-19 is how much damage may be done by a relatively mild pandemic by long-term historical standards, writes Martin Wolf. To call it mild is not to belittle the suffering it has caused, and will continue to cause, before an effective vaccination programme is rolled out and sustained globally. But Covid-19 has demonstrated a social and economic vulnerability far greater than experts imagined. It is important to understand why this is the case and learn how to manage the impact of such diseases better in future.
Person in the news
Janet Yellen has been picked by Biden as his Treasury secretary and top cabinet official in charge of the US economy as it faces a painstaking recovery from the shock of the coronavirus pandemic.
The nomination cements the status of Yellen as one of the top US policymakers of her generation, given her previous role as chair of the Federal Reserve, president of the San Francisco Fed and chair of the White House Council of Economic advisers under Bill Clinton.
European capitals have welcomed Biden’s proposed foreign policy team — but despite widespread relief at President Trump’s impending departure, the EU is already gearing up for further transatlantic battles. While European officials look forward to better relations on issues such as world health and global warming, they are braced for tough talks on contentious subjects, including data protection, tech companies’ power and trade.
Germany’s carmakers cannot believe their good fortune. Chinese consumers have ridden to their rescue again, a decade after pulling them out of a hole following the financial crisis. “It’s almost too good to be true,” Ola Kallenius, chief executive of Daimler, said last month as he cheered a 23 per cent increase in sales in China in the third quarter. Prevented by coronavirus from taking an expensive foreign holiday, wealthy Chinese have been splashing out on luxury S-Class Mercedes cars instead. But concerns have been revived that German industry is too dependent on China.
As Biden contemplates his first 100 days in office, he should consider what can be done over time to reduce the extreme codependency that developed between his predecessor and the US stock market, writes Mohamed El-Erian.
The best trade stories from Nikkei Asia
Beijing is luring veteran engineers and executives to leave top US chip companies for Chinese rivals as Washington’s crackdown on Huawei exposes weaknesses in China’s chipmaking ecosystem.
In Tokyo, Chinese foreign minister Wang Yi agreed with his Japanese counterpart to bring the recently signed Regional Comprehensive Economic Partnership into effect quickly and to hold talks with South Korea on a three-way trade deal.
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