Why Joe Biden can stall in lifting US tariffs

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Hello from Washington, where president-elect Joe Biden’s team quietly rumbles on with the task of appointing new administration figures, even as it waits for Donald Trump to concede the election.

A new US trade representative is not usually one of the first appointments to be made, so we’ll have to wait longer for that. But in the meantime, the Biden team has a pile of immediate trade problems to start thinking about. One is the US tariffs on steel and aluminium — particularly on Europe — which are the subject of our main piece today. Our Person in the news is Simon Coveney, Ireland’s foreign minister, while our chart of the day is taken from Martin Wolf’s article, “Why inflation could be on the way back”.

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Many economists have argued that on balance tariffs have caused US job losses

If President Donald Trump’s trade policy had to be summed up in a single word, it would be “tariffs”. During his time in office, US tariffs have been put on billions of dollars’ worth of imported goods. Even more tariffs have been threatened, but never materialised, such as those on German vehicles.

Incoming president Joe Biden inherits a lot of tariffs. Trump used unusual means to apply them, repurposing antiquated laws for present day political ends. If the Biden administration wants to make good with European allies, one of the things that will require immediate attention will be the Section 232 steel and aluminium tariffs on Europe — notionally in place to protect US national security.

These pose a conundrum — they cause a diplomatic problem for Biden, but he faces domestic support for them from some key groups. Telling allies that you see them as unreliable and believe they might stop exporting goods to you only serves to annoy them. There are Democrats who think for this reason alone steel and aluminium tariffs should be removed. 

Then there is the World Trade Organization. Biden wants to help repair and reinvigorate it, as it limps along without a confirmed director-general or a functioning appellate body. But he needs to make sure his plans are not drowned by the tide of American scepticism over the existence of the WTO, which is seen by both Republicans and Democrats as soft on China.

Both China and the EU have cases against US national security tariffs lodged at the WTO. Hearing them would involve the WTO deciding what is and is not a legitimate national security interest — something that would turn the stomachs of bipartisan lawmakers who would undoubtedly see this as an affront to US sovereignty. A lot of diplomatic effort, and a willingness to remove those tariffs on Europe, at least, will be needed to stop the WTO being put on the spot.

Domestically, political sentiment on the tariffs is mixed. Much of US industry has railed against them, because the bulk of the metals industry imports the raw materials and processes them. The higher import costs squeeze margins. On the other hand, many of the big unions have both supported the tariffs and backed Biden, if even anecdotally their members were split. AFL-CIO, which boasts 12.5m members, supported the introduction of steel and aluminium tariffs and endorsed Biden. United Steelworkers has backed steel and aluminium tariffs, and also endorsed Biden.

That doesn’t mean the tariffs are popular among all workers. While they have helped protect raw steel and aluminium producers from import competition, many economists have argued that on balance the tariffs have caused job losses, not led to job creation, because of higher input costs and the effects of retaliatory duties.

But economic sense and politics do not always align when it comes to tariffs. In their book, Good Economics for Hard Times, Nobel Prize-winning economists Esther Duflo and Abhijit Banerjee point out that there’s a big gap between what economists think and what the general public thinks. In a 2018 survey conducted by Chicago Booth university, senior economics professors from across the political spectrum were asked whether they thought US duties on steel and aluminium improved the welfare of Americans — 93 per cent either “strongly disagreed” or just disagreed that the tariffs improved Americans’ lives. The remainder did not respond. Duflo and Banerjee said they put the same question to a representative sample of Americans as part of a separate survey — one-third said they thought the tariffs improved Americans’ welfare.

There’s also a gap between the way economists think and the way trade negotiators think. Economists tend to do whatever is economically most useful, but negotiators tend to ask what they will get in return for removing tariffs — even if they are not in the best interests of their country. 

Whatever view it eventually comes to, the new administration will be able to stall for time. It can say that it will conduct careful, evidence-based policy and that it must look carefully at the steel and aluminium tariffs, which it can blame on Trump for now. The status quo will be to leave them in place. The tariff man might be leaving the White House — but the tariffs will be around for a while longer. 

Charted waters

Are we about to move into a new era of unexpectedly high inflation, rather than the below-target inflation we are used to? Many dismiss this view, writes Martin Wolf. But the boy who cried wolf was right the last time. A book just out is crying wolf insistently. Notably, it states that, as a result of today’s fiscal and monetary largesse, “as in the aftermath of many wars, there will be a surge in inflation, quite likely more than 5 per cent, or even on the order of 10 per cent in 2021”. That would change everything.

Person in the News

Ireland’s Simon Coveney says Brexit talks must be resolved this week. © Yves Herman/Reuters

Who is it?

Simon Coveney, Ireland’s foreign minister

Why is he in the news?

Coveney warned British prime minister Boris Johnson this week that the outstanding issues in the Brexit talks must be “resolved in principle this week”.

Mr Coveney told Sky News: “If you want to use sporting parlance, this is move week. We have got to make big progress this week, hopefully we have got to get the big issues resolved in principle this week.”

He also repeated that any trade deal would not be approved by the EU unless Johnson dropped his threat, contained in his internal market bill, to break commitments on Northern Ireland in his withdrawal treaty.

Britain and the EU can see the “landing zones” for a free trade agreement, according to Ireland’s prime minister Micheál Martin.

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