TLDR: There’s no return to normal in sight as all sides are gearing up their China strategies – but Biden’s trade plans are light on specifics, offering some rays of hope for business
What we’re talking about: As of this month, Biden’s economic agenda has been released in four parts:
- a post-COVID economic recovery plan for the middle class, otherwise known as “Build Back Better”;
- a detailed “Made in America” plan to help the US manufacturing industry regain its foothold;
- a proposal to re-shore supply chains away from major US competitors, focused heavily on China;
- and lastly (to date), a $700 billion clean energy investment promise
The most pressing issue for business is the trade agenda. On that front, here’s what’s notable, in terms of what’s included and what is strikingly unmentioned:
It’s all about China: Between Biden’s four economic plans released, China is mentioned 37 times. Other major US economic competitors (e.g. Germany, Japan, Mexico) are not cited at all. No other US competitor, from the EU to Japan to Mexico, receives any mention in Biden’s plans. Russia (hardly an economic competitor) is surprisingly mentioned four times alongside China as a source of critical medical supplies.
Not much new here: On the whole, these plans provide very little clarity on how a Biden administration will look beyond investments in manufacturing and with the aim to bring back jobs to the US. Little specificity is offered beyond the immediate priority of medical devices and other critical supplies. There is a 100-day supply chain review – but that’s hardly a plan. It is, however, an interesting data point in a new supply chain centric focus on trade.
What’s new is industrial policy: Biden’s plan notes that the US falls behind China in innovations in clean energy and artificial intelligence while reminding voters that China’s R&D investment is expected to overtake the US’s in 2020. Interestingly, the plan directly references China’s own state-led agenda, “Made in China 2025”, to invest in technology that will move the country further up the global value chain in manufacturing. In response, Biden proposes a combined $400 billion in public procurement and a $300 billion investment in R&D for biotech, AI, and clean energy over four years to challenge China’s enormous market share in these sectors.
No mention of tariffs: The most top-of-mind issue for most businesses is what is going to happen to the tariffs. As a negotiating lever, it was always unlikely there would be any promises here, especially in a policy document. But it’s notable it isn’t mentioned once.
So for businesses seeking signs of immediate relief from the trade war, there is little to suggest there will be a return to the “norm”, but also little specificity to create major concerns. This makes it difficult to gauge how concerned businesses should be about a Biden trade policy. Breaking it down into what we know so far, here is how we see it:
1. The Politics:
Both Trump and Biden have incentives to continue protectionist and anti-China trade policies. Manufacturing continues to capture the imagination of American politics and blue-collar jobs are an easy election winner for both Trump and Biden. China has now been firmly established as the number one threat to American jobs and competitiveness. A pillar of the Trump Administration economic agenda, the incentives to continue on this path are stronger for Trump, but there is now a strong bipartisan political unity to counter perceived Chinese threats – and the Democratic Party has never been the party of free trade – despite falling into that position by default over the past 4 years of Republican led protectionist measures.
2. The Rhetoric:
There is no competing with Trump when it comes to trade rhetoric. In this regard, Biden strikes a more traditional tone. Still, we cannot overlook that China is again at the front and center of Biden’s economic agenda, with the (aforementioned) 37 mentions across his plans. While the style is different, the policy document rhetoric does clearly show a concerted desire and effort to take on China.
3. The Policy:
Like Trump, Biden promises to continue doubling down on China and other competitors on unfair trade practices. But whereas Trump’s trade war took shape in tariffs and tech and immigration bans, we don’t know what policy tools Biden will use. However, there are interesting signs of a more strategic approach to trade policy.
From what we can read, Biden diverges from Trump’s focus on tariff to also applying sticks directly on American companies. Biden’s plan includes a “claw-back” provision to make firms that outsource jobs return any public investment and tax benefits when they close-down jobs in US. While tariffs have hurt US companies financially, this takes the reshoring battle to the home front and directly engages with companies’ location decisions. How this plays out will be interesting to observe.
What also caught our eye is the focus on bringing the production of key medical supplies (especially PPE), back to the US and make the American medical supply chain independent from Chinese manufacturers. What’s interesting is whether these reshoring initiatives will be limited to medical supply chains, or whether it is the testing grounds for a more expansive reshoring process later on. If it is the latter, we can expect much policy innovation and a different set of challenges for business to navigate.
4. The People.
Personnel is policy goes the saying. In 2016, Trump’s choice of advisors reinforced the tone on the campaign trail. Peter Navarro was a firebrand academic hitherto without an ear in Washington and Robert Lighthizer had spent his whole career litigating against China. Whereas Navarro has remained an ideologue without too much influence on policy, Lighthizer has been the backbone of one of the marquee initiatives of the Trump economic policy – trade.
We can conclude that Biden’s unofficial economic advisors are much less hawkish than the Trump administration’s roster. From what other sources have gathered, several notable Obama-era advisors sit at the top of Biden’s list. Steve Richetti, former Chief of Staff to Biden, played a major role in pushing forward NAFTA and negotiated China’s entry to the WTO during the Clinton Administration. Jennifer Hillman served as a judge on the WTO’s appellate court (now defunct due to the Trump Administrations refusal to confirm new judges) and as general counsel of the USTR. Lastly, there is Mike Froman, the mind behind Obama’s trade policy as US Trade Representative. This is as close to business as usual you can come, including the guy who literally normalized trade relations with China. From this line-up we expect steady hands and multilateral approaches. There are no Navarro bomb throwers here.
Lessons to learn: Biden’s released plan is just a guidepost in what remains a very murky outlook. A few things are clear:
- China remains the focus of economic policy no matter who is in the White House come January
- We see an interesting movement from traditional trade policy (tariffs) to a more industry centric supply chain reengineering focus with potentially large consequences for business
- On tariffs themselves, we are given no assurance from the plan. A lot will ride on possible further negotiations (toward a new deal or ripping up Phase 1) with China before the elections (not much progress happening), and what the deal will look like and what political space that leaves for Biden to maneuver in
- The clearest sign of a return to some sort of normalcy is the Biden people. Their orthodox credentials are the brightest spot so far for businesses