February 2022 Volume 4

WASHINGTON UPDATE

Washington D.C. Highlights & Expectations for 2022 By Alex Perkins

Well, President Biden and his team took office just over a year ago and in that time, we’ve gotten a sense of where they stand on trade policy and where they’re headed. But before we get into that, it’s important that we level set. And here’s the rub: hoping this Administration will pivot back to a Bush/Obama-style trade policy is wishful thinking, at best. Longing for the good old days, as some are apt to do, is wasted time. For better or worse, or both, a populist trade policy is the new normal. While trade populism had been lurking in the shadows for years, it started to go mainstream in 2016 when Presidential candidates Clinton and Sanders came out in opposition to the Trans-Pacific Partnership Agreement and became the full-fledged trade policy reality during the Trump years. While the rhetoric has been more measured since President Biden took office, the actual trade policy hasn’t shifted much and that’s unlikely to change in 2022 and beyond. So free trade is out, and managed trade is in. Policy makers are less concerned about consumers and more concerned about manufacturers. You’ll hear a lot of talk about supply chain resiliency, but almost none about just-in-time supply chain efficiency. In the past, to address unfair Chinese rules, U.S. officials would have called for high level dialogue and relied upon WTO binding dispute settlement; now they are more likely to pursue legislative action, like the U.S. Innovation and Competition Act, or unilateral tariffs to level the playing field for U.S. companies, workers, and farmers. There's little Administration or Congressional appetite in either party for new free trade agreements. While the Biden Administration has recently floated the idea of an Indo-Pacific Economic Framework, details remain sparse and what has been shared suggests that it won’t be especially robust. Finally, trade enforcement is in and trade facilitation is out – this is most clearly evidenced in the forced labor context. Biden Administration officials often refer to a “worker centered, inclusive” trade policy and using trade as a tool to advance the President’s Build Back Better agenda. What they’re talking about is essentially trade populism, and more often than not, this paradigm has driven the Administration’s decision-making – from its handling of the Section 232 tariffs on steel and aluminum imported from the EU, Japan and South Korea; to blocking imports of silica- based products from Hoshine Silicon Industry Company on forced labor grounds; to ratifying the Trump Administration’s decision to unilaterally reinterpret the USMCA auto rule of origin after the agreement entered into force. Even where policy decisions on their face do not seem to reflect this agenda – like the resolution of the

Boeing/Airbus dispute or the determination that Vietnam was not manipulating its currency and thus Section 301 tariffs were unwarranted – the decisions advanced another, larger populist goal: countering China’s ascendancy, by engendering allies’ support to work in concert with the United States. Looking to 2022, past is prologue, and we can expect more of that same approach – and outcomes. Here are a few highlights in terms of what to expect: Section 232 Tariffs On January 1st, the steel and aluminum tariffs on EU imports were lifted and replaced with tariff rate quotas. While some expected cookie cutter agreements with other allies to be quickly negotiated, this has not transpired. While talks began last fall with Japan regarding the tariffs on their steel and aluminum imports, progress with the talks appear to have slowed. Despite repeated entreaties from across the Atlantic, talks with the UK are just beginning and are complicated by the threat that post-Brexit UK-EU friction poses to Ireland/Northern Ireland border-related commitments made in the 1998 Good Friday Agreement peace deal. So, this could take a bit of time. U.S. - China Trade Policy The Phase 1 Deal with China expires at the end of January, and it is readily apparent that China has not met its purchase and other commitments. As U.S. Secretary of Agriculture recently said, “here's the deal with Chinese friends [sic], they're about $16 billion light over what they committed to purchase.” There are reports that the White House is considering a Section 301 Chinese subsidy investigation that could be used to justify new tariffs, giving the Administration additional leverage to use to persuade China tomeet its Phase 1 deal commitments and make further concessions to level the playing field for U.S. companies, workers, and farmers. Post- conclusion of the Phase 1 deal, the Administration could announce the subsidy study as the next step, paving the way for new tariffs later this year. It should also be noted that USTR reopened the Section 301 tariff exclusion process last fall for roughly 500 products previously covered by exclusion extensions and there are rumors that another round of exclusions may be under consideration. More generally, especially given it’s an election year, the Administration will continue to use export controls, sanctions and other trade tools to counter China. In late June, the Administration will gain a powerful new weapon via the Uyghur Forced Labor Prevention Act, which establishes a rebuttable presumption that any good produced

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FIA MAGAZINE | FEBRUARY 2022