There are different kinds of Americans. And there are different kinds of tariff strategies. That’s the key message to take away from President Joe Biden’s new import duties on various Chinese goods. While some see them as proof that this White House wants to deglobalise as fast as the Donald Trump administration did, nothing could be further from the truth.
Trump used tariffs as a blunt tool in a single-prong strategy to reduce the US trade deficit with China, but for Biden they are part of a much broader plan. This aims not only to tackle Chinese mercantilism, the global economic and political fallout from it and the failure of the existing trade system to address it, but also to expand capacity in key areas like semiconductors and clean tech.
It’s a trade strategy that also aims to build a true democratic alliance – among environmentalists and labour unions, across blue and red states and, ultimately, with overseas allies, around the clean energy transition. All of this is something Europe and other liberal democracies should not only support but emulate.
Understanding this requires coming out of the usual technocratic silos that dictate the debate in Brussels. It also requires abandoning the outdated market maths that sadly still characterises most economic analysis.
For example, what’s the point of trying to tally up the potential economic costs of tariffs based on models that assume an even global playing field, when no country, certainly not a rich one with decent environmental and labour standards, could compete on price with China in any area of production?
Why argue that the world should simply accept massive Chinese dumping of clean tech as a solution to global warming, when the true carbon cost of producing such goods with coal power, as well as the emissions involved in shipping them, aren’t even factored into those calculations? Transport emissions from durable goods are the second-largest source of global emissions after China itself.
These are just a few of the “market knows best” absurdities that this White House is quite rightly trying to rectify.
Then there’s the elephant in the room: the fact that China has thrown its autocratic weight behind some of the world’s most repressive regimes, from Russia to Iran. These regimes are the enemies of all liberally minded people. Given this, do we really want to count on Beijing for essential goods? And even if China’s communist party wasn’t taking this road, haven’t the pandemic, the war in Ukraine, the threat of conflict around Taiwan, shipping blockages in the Red Sea and any number of natural disasters provoking supply chain chaos over the past few years shown us that it’s not a good idea for the world to keep all its production eggs in one basket?
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Indeed, reliance on a single source of supply for clean energy “risks replicating the problems of the fossil fuel era”, in which the world has been dependent on a handful of autocratic states, says Todd Tucker, head of industrial policy and trade at the Roosevelt Institute, a think tank closely aligned with this White House. “That is not good for energy price stability, the economy or climate.” It’s a crucial point – the Chinese market share for battery cells, about 60 per cent, is roughly equal to the current production share of the 13 Opec nations.
These are just a few of the “market knows best” absurdities that this White House is quite rightly trying to rectify. It is doing so in part by using tariffs that create space for fairly paid, environmentally sound domestic production of crucial goods, which simply wasn’t happening otherwise.
But unlike Trump, Biden isn’t stopping with the tariffs. Nor is this White House interested in going it alone. The president has two favourite interest groups – US workers and US allies. His trade strategy aims to ultimately benefit both.
While Trump wants to dump electric vehicle production, the Biden administration is trying to keep domestic workers and industries – many of them in red states – whole during the transition, ensuring that America can continue to do its part to combat global warming. We’ve already seen in both the US and Europe what happens when you don’t support labour during a big economic transition – you get rightwing populists in power.
French president Emmanuel Macron’s recent speeches and interviews, as well as statements by other Europeans including former Italian premiers Enrico Letta and Mario Draghi, make me optimistic that Europe may finally be ready to have a real conversation about shared labour and environmental standards as well as a common approach to global trade imbalances.
As Macron put it, Europe historically turned a blind eye to such problems because it “saw China as a good export market ... especially for the German car industry”. Now, Chinese overcapacity and the WTO’s failures have changed the equation in ways that require a radical new approach to trade. And unlike those who would like to equate the political economies and approaches of the US and China, Macron points out that “we [Europe] are not equidistant [between the two]. We are allies of the Americans”.
I’m hopeful that if Biden is re-elected, we will see Europe finally embrace the idea that this administration has put forward – the world has changed, and trade must change, too. Saying so isn’t protectionist. It’s realistic. – Copyright The Financial Times Limited 2024
