Global economic relations are at a turning point in the wake of recent systemic shocks and the U.S. must update its trade and economic policy accordingly, the president’s annual economic report to Congress says. The report thus appears to be an attempt to justify the “new story” on trade the Biden administration has been working to create and the related measures it is pursuing.
The report acknowledges the benefits of an open global trading system that since World War II has been focused on reducing barriers to trade and investment. These policies have resulted in global supply chains that have supported flows of goods and services across borders that have yielded proven benefits: lower costs for businesses and consumers; jobs and higher wages for workers in export industries; flows of knowledge across borders that spur productivity gains and innovation; increased resilience to supply disruptions; and alternative markets for businesses when domestic demand is low.
However, the report finds a number of downsides to this system as well. Market incentives and current trade rules do not always align production and trade flows with broader social, political, environmental, or national security objectives. Increased competition from imports over time has hurt employment and earnings outcomes for some groups of workers. Longstanding concerns about the role of international trade in rising income inequality, along with concerns about the greenhouse gas emissions embedded in the consumption of tradable goods and services, have led to calls to reassess and update the approach to trade policy. And recent crises like the COVID-19 pandemic and Russia’s invasion of Ukraine have highlighted how quickly global trade flows can be disrupted and how vulnerable undiversified supply chains can be.
The U.S., its allies, and its partners “have thus reached a turning point in international economic policy,” the report states. On one hand, it is desirable to maintain the benefits associated with international trade and investment and to facilitate the growth of these benefits in the digital sphere. On the other hand, the focus of trade policy needs to expand beyond reducing barriers to include supporting increased resilience to global supply shocks; limiting the ability of adversarial powers to weaponize economic integration; preserving fair competition in the presence of large, non-market economies; and minimizing exposure to cybersecurity and regulatory risks.
The report concludes that new policy approaches are needed to confront both existing and emerging vulnerabilities while preserving the benefits of global trade, emphasizing that the policy decisions made now “will reverberate in international trade and investment for some time.” While the report does not indicate what those new approaches or policies might entail, it does emphasize the importance of close collaboration between the U.S. and its allies and partners in pursuing them.
Unsurprisingly, the report holds up initiatives like the Indo-Pacific Economic Framework as indicative of the way the Biden administration is pursuing this goal, highlighting in particular its emphasis on (1) high-standard, inclusive, free, fair, and open trade commitments, (2) supply chain transparency, diversity, and coordination, (3) cooperation on clean energy, decarbonization, and infrastructure, and (4) tax, anti-bribery, and anti-corruption enforcement. Other examples cited include ongoing efforts on supply chains with the European Union, Canada, Mexico, Japan and others; coordination of sanctions against Russia; and digital trade work at the World Trade Organization.
However, the Biden administration is facing growing pushback on many of these efforts from members of Congress, both Republicans and Democrats. Lawmakers brought many of their issues to the fore in recent congressional hearings and have been steadily introducing legislation to address perceived shortcomings.
For more information on U.S. trade policy and how it may impact your business, please contact Nicole Bivens Collinson at (202) 730-4956 or via email.
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