Since President Joe Biden came into office two years ago, the United States has declined to pursue new comprehensive free-trade agreements with other countries, arguing that most Americans have turned against the kind of pacts that promote global commerce but that also help to send factory jobs overseas.
But in recent months, with the rollout of a sweeping climate bill intended to bolster clean energy manufacturing, the lack of free-trade agreements with some of America’s closest allies has suddenly become a major headache for the administration.
The dispute, which centres on which countries can receive benefits under the Inflation Reduction Act, has caused significant rifts with foreign governments and drawn blowback from Congress. And it is helping to reignite a debate over whether the United States should be working to break down trade barriers with other countries — or keep them intact in an attempt to protect American workers.
The law as written offers tax credits for electric vehicles that are built in North America or that are made with battery minerals from the United States and countries with which it has a free-trade agreement.
Those provisions have angered allies in Europe and elsewhere that, despite close ties with America, do not actually have free-trade agreements with the United States. They have complained that companies in their countries would be put at a disadvantage to US firms that can receive the subsidies.
To soothe relations, the Biden administration has developed a complicated workaround, in which it is signing limited new trade deals with Japan and the European Union.
But that solution has vexed lawmakers of both parties, who say that these agreements are not valid and that the administration needs to ask Congress to approve the kind of free-trade agreement the law envisions.
“It’s a fix,” said Edward Alden, a senior fellow at the Council on Foreign Relations who specialises in trade, adding that they were not free-trade agreements “by any reasonable definition of the term.”
The World Trade Organization defines a free-trade agreement as covering “substantially all trade” between countries.
In the United States, such broad agreements need the approval of Congress, although the executive branch has the authority to negotiate much narrower agreements.
Administration officials argue that because the Inflation Reduction Act does not define the term “free-trade agreement,” these narrower pacts are allowed.
But in hearings before the House and the Senate last month, lawmakers criticised the administration for bypassing Congress in making these agreements.
Some lawmakers argued for more traditional free-trade deals, while others voiced support for new deals with higher labour and environmental standards, like the North American agreement Congress approved in 2020.
In her opening statement at the hearings, Katherine Tai, the US trade representative, set out a vision for a trade policy that was different from those of previous administrations, focused more on defending American workers from unfair foreign competition than opening up global markets. Tai said she and her colleagues were “writing a new story on trade” that would put working families first and reflect the interests of a wider cross section of Americans.
Speaking before the Senate on Thursday, Tai said she remained “open minded” about doing more trade agreements if they would help address the challenges the country has today.
The Biden administration has long insisted that past approaches to trade policy — in which other countries gained access to the US market through low or zero tariffs — ended up hurting American workers and enriching multinational companies, which simply moved US jobs and factories overseas.
In contrast, Biden officials have pledged to strengthen the economy and to make the country more competitive with China by expanding the country’s infrastructure and manufacturing, rather than negotiating new trade deals.
The administration is currently negotiating trade frameworks for the Indo-Pacific region and the Americas, and is engaging in trade talks with Taiwan, Kenya and other governments. But, to the dissatisfaction of some lawmakers in both parties, none of these agreements are expected to involve significantly opening up foreign markets by lowering tariffs, as more traditional trade deals have done.
Rep Adrian Smith, R-Neb., who leads the House Ways and Means trade subcommittee, said in the hearing that he was concerned the United States had “lost momentum on trade” even as China continued to aggressively broaden its own partnerships.
“I cannot express strongly enough,” he added, “that the administration cannot just come up with new definitions of what a trade agreement is for some reason, and certainly not to give handouts for electric vehicles.”
“You have to appreciate that we live in a very different world,” Tai responded.
She said the Biden administration sought to adapt its policies to respond “to the world we’re living in, and not the world that we want to live in.”
Part of the pressure stems from the fact that other countries — including China — are continuing to pursue more traditional trade deals that lower their tariffs with trading partners, giving their companies an advantage over businesses based elsewhere. On Friday, British officials announced that they had reached an agreement to join a Pacific trade pact that, despite being devised by the Obama administration, does not include the United States.
— The New York Times
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