The trade policy space has dramatically shifted over the last decade and continues to evolve as new political trends emerge. Trade has become one of the most uncertain policy areas, yet also the one with the most urgency to advance among some circles. A handful of factors are driving this seismic change in trade policy and its prominent absence on the policy agenda in DC:
China: China policy remains one of the most bipartisan policy areas in Congress as policymakers unite around both economic and national security concerns coming from China’s government. China has been (and still is) a significant trading partner for the U.S. – the largest in 2021 and subsequently losing ground to both Canada and Mexico. The reality is that the most powerful tool to combat China is trade policy and, therefore, policy priorities have emerged that seek a shift away from China – namely Section 301 tariffs on products imported from China. This effort has taken much of the oxygen out of other trade-focused legislative efforts.
The Disappearing “Chamber of Commerce Republican”: A report published at the end of the George W. Bush Administration noted that “President Bush took office with a vision that knocking down barriers to trade could help alleviate poverty, generate prosperity, and promote economic and political freedom around the world. The Administration has acted on the President’s vision.” This political vision almost seems unrecognizable today as policymakers from both sides of the aisle point to trade as the problem, not the solution. The free trade agenda that was a mainstay for Republicans has somewhat disappeared as the traditional business-focused policymaker has been overcome by other less business friendly voices.
The Emergence of Populism and Protectionism: In a sense, the far right and far left are coming together when it comes to trade (although for somewhat different reasons). Populist policymakers are becoming increasingly protectionist and increasingly suspicious of free trade, which they often blame for America’s shrinking manufacturing footprint and middle class. Their response has been to deprioritize trade and substitute it for policies thar are inherently insular, including manufacturing incentives and workforce protections. The theory of comparative advantage is less an economic theory now than it ever was, which has sidelined much of the trade agenda.
Leading Candidates View Trade as Political Risk: The candidates at the top of the ticket for 2024 have little to say about trade – former President Trump has highlighted his desire to increase tariffs across the board on all imported tariffs and the presumptive Democratic nominee - Vice President Kamala Harris - is likely to maintain President Biden's focus on creating barriers for manufacture in China. That is unlikely to change in the near-term.
Trade Policies Are Narrow and Targeted: The areas where there has been action around trade are largely centered on export controls and sanctions, especially as it relates to national security concerns.
So, what does this mean for the trade agenda? The big trade items that remain on the sideline have remain untouched for a considerable amount of time – both the Generalized System of Preferences (one of the most promising policies to incentive movement away from China) and the Miscellaneous Tariff Bill (MTB) that expired in 2020. The de minimis threshold (a policy that if shut down would close the easiest path for organizations in China to undermine U.S. manufacturers and retailers) is also on the sidelines and remains at $800, with a growing call for dramatic reductions or a complete elimination.
There is a strong theory on why this year, after the election, could be the best opportunity to move these issues. Next year, they will have little chance with a new President and Congress (regardless of the election’s outcome) that will be less interested in these policies. Getting them done at the end of the year, when political risk is low, gives business a big win, can largely be messaged as effective China policy, and allows these legislative victories to be proven over time as meaningful policies while the trade debate is focused elsewhere.
Of course, any meaningful movement will take strong champions on Capitol Hill and a loud, unified voice among stakeholders. It will be interesting to see if 2024 becomes a big opportunity for these trade policies or pushes them to a tougher climate next year when domestic manufacturing will no doubt take center stage.
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