U.S. trade policies likely to soften after Biden becomes president

David Hardin, who raises pigs, corn and soybeans on his Hendricks County farm, says U.S. trade with China has “somewhat normalized” since the tariff tumult of 2018. (IBJ photo/Eric Learned)

The incoming Biden administration is widely expected to embrace a more multinational approach to U.S. trade policy, moving away from the “America first” strategy embraced by President Donald Trump.

“We know there will be changes under a Biden administration. He’s more of an internationalist,” said David Hardin, a farmer who raises pigs, corn and soybeans on his Danville farm in Hendricks County.

Everything Hardin produces has been affected by the back-and-forth tariffs that the United States and China imposed on each other’s exports beginning in 2018.

Hardin, who saw pork prices plummet after China imposed a 25% tariff on U.S. pork in April 2018, said trade has “somewhat normalized” since then. In part, that came from a deal the United States and China reached early this year in which China agreed to increase its purchase of U.S. goods and services in 2020 and 2021.

The approval this spring of the U.S. Mexico Canada Agreement, the replacement for NAFTA, also helped, Hardin said.

But, observers say, Trump’s trade policies altered international trade in ways that might endure long after Joe Biden takes office.

In particular, the tariffs pushed some Hoosier manufacturers to rethink and diversify their supply chains, moving them out of China and into relationships with other countries—relationships that will likely stick.

Hicks

“We shifted a lot of our supply chains away from China,” said economist Michael Hicks, director of Ball State University’s Center for Business and Economic Research.

Starting in 2018, the Trump administration imposed tariffs on a host of Chinese imports, ranging from steel and aluminum to machinery to electronics components. In response, China imposed its own tariffs on a variety of U.S. goods, including pork, soybeans and other agricultural products; aluminum; and motor vehicles.

Danville farmer David Hardin saw pork prices plummet back in 2018, after China imposed a 25% tariff on U.S. pork. (IBJ photo/Eric Learned)

The tariffs were especially relevant to Indiana, which is the nation’s top steel producer. It’s also the state most dependent on manufacturing, which relies on steel.

Tariffs, essentially a tax, are paid by the party that buys the item. So, for instance, a Hoosier manufacturer that gets components from China will end up paying any tariffs associated with those components. The manufacturer might pass along part or all of those costs to its customers.

Having a pandemic follow so closely on the heels of the trade war has only made manufacturers more skittish about doing business with China.

Butters

“The reality of it is, businesses don’t like uncertainty,” said Andrew Butters, an assistant professor of business economics and public policy at Indiana University’s Kelley School of Business.

As companies shifted out of China, production moved to a host of other countries, including Thailand, Vietnam and Korea, Hicks said.

Moving to a new supplier represents a significant undertaking, he said, because it involves traveling to meet with the company and with local officials, securing necessary approvals and other steps. Because of all that effort, a company that has established new ties isn’t necessarily going to abandon that supplier even if the Biden administration abolishes Trump-era tariffs.

“Those relationships aren’t going away,” Hicks said.

Doris Anne Sadler, president of the World Trade Center Indianapolis, said the trade war has pushed Hoosier companies to explore trade with nations that might not have been on their radar screens.

Sadler

“It has given us the opportunity to open up new markets,” Sadler said.

The World Trade Center Indianapolis works with small and medium-size businesses that want to buy and sell goods internationally.

As an example, Sadler cited India as a good trading partner for Indiana companies. India has expertise in certain industries represented in Indiana, including tech and pharmaceuticals. It is also a fast-growing economy, and companies there are eager to do business with the United States, Sadler said. “India’s an easier place to do business, frankly, than China.”

Thailand is another promising market, she said, because the country is working to build up its medical-device manufacturing industry.

So how exactly will the Biden administration approach trade policy?

On the www.joebiden.com campaign website, Biden’s “Made in America” plan pledges to work with U.S. allies “in a coordinated effort to pressure the Chinese government and other trade abusers to follow the rules and hold them to account when they do not.”

The lengthy plan does not mention tariffs at all. On Tuesday, Biden New York Times columnist Thomas Friedman that he doesn’t plan to remove existing China tariffs right away.

Instead, Friedman wrote, Biden plans to first review the existing agreement with China and consult with allies in Asia and Europe. “I’m not going to make any immediate moves, and the same applies to the tariffs,” Biden told Friedman.

Biden’s multinational approach differs from Trump’s go-it-alone strategy in which the United States withdrew from international trade agreements such as the Trans-Pacific Partnership.

Returning to a multinational strategy should create more stability for Hoosier companies engaged in foreign trade, Sadler said. “It’s much more stable in the long run to have multiple countries agree to something because it’s harder to change [the agreement].”

Joining with allies will also give the United States a greater chance of success in forcing China to adopt new trade practices, Hicks said. “I would imagine Joe Biden would go back slowly to something that mimics the benefits of the Trans-Pacific Partnership.”

Kiely-Heider

Shannon Kiely-Heider, the director of international government relations at Columbus-based Cummins Inc., said the company supports the multilateral approach to trade that it expects Biden to adopt.

Cummins has more than 60,000 employees and does business in more than 190 countries and territories around the world, including China.

Even after making changes to its supply chain, passing along some costs and sharing other costs with suppliers, Cummins told IBJ in September 2019 that it expected to see $100 million in annual costs associated with the China tariffs.

“Access to the best supply chains globally is critical to our ability to make the most technologically competitive products,” Kiely-Heider told IBJ via email. “Free trade agreements allow us tariff-free access to supply chains and the markets in which we compete.”

Butters, the IU professor, said he expects the Biden administration to take a “fairly strong stance” against China with regard to that country’s trade practices.

Biden’s Made in America plan includes pledges to confront China on specific trade practices, including “state-sponsored cyber espionage against U.S. companies,” currency manipulation and other efforts to undercut U.S. manufacturing.

Trump frequently described China’s trade practices as unfair, using words like “ripped off” and “theft.”

Hicks said this is one area in which he agrees with Trump’s views on trade. “Virtually every country that trades with China has a legitimate beef about how it conducts its business.”•

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11 thoughts on “U.S. trade policies likely to soften after Biden becomes president

  1. Anti-China views are pervasive across the political spectrum. One of the few things trump has done well is to clamp down on Chinese abuse of global trade.

    1. No, Nicholas. Ask any economist not employed by the Trump administration, and he or she will tell you that tariffs are not good for the economy and that American consumers pay the tariffs through higher prices. Yes, there are reasons to go after the Chinese for dumping steel and for intellectual property theft, but that’s not what Trump’s tariffs were focused on. They were instead focused on a trade imbalance with China. Trump never understood trade, which isn’t a surprise since he doesn’t read and certainly never cracked open an economics book. To this day, Trump thinks the US having a trade deficit with a country means the US is sending mon trade deficit means we’re sendin to this day that the US having a trade deficit means that country is making money off the U.S. Trump couldn’t pass Economics 101.

    2. Yes, Paul. What I’ve said is accurate. You’ve taken it and applied your own personal spin. I did not say every decision he made was a good one. I said clamping down on Chinese abuse of global trade is a good thing. Punitive tariffs are only one component of that agenda. There’s plenty of support across the aisle for the tariffs as well as a host of different items including currency manipulator status. And tariffs may be bad for consumers in the short term, but someone needs to stand up to Chinese theft of IP, dumping, currency manipulation, labor abuses, and environmental abuses.

  2. Excellent comment and a good summary of the whole issue, Nicholas, thanks: “And tariffs may be bad for consumers in the short term, but someone needs to stand up to Chinese theft of IP, dumping, currency manipulation, labor abuses, and environmental abuses.” AMEN across the board.

    Two ancient adages come to mind: “An ounce of prevention is worth a pound of cure,” and even terminally anti-Trump “intellectual” Paul O. ought to be able to understand Barney Fife’s famous admonition to, “Nip it in the bud.”

  3. While speculation regarding what the Biden adminstration might do is an interesting topic, the inference that it is ‘incoming’ is certainly speculation as well. Given the election fraud surrounding Biden and current lawsuits for illegal ballots, dead voters, cyber hacking and vote switching, ‘incoming’ is questionable at best. It’s not over.

  4. Whether an ecosystem, population, or trading partners, diversity has many benefits. It typically is a marker of a “healthy” system.

    Before Trump the rationale was we’ll use capitalism to help the oppressed Chinese people have a better life under the Communist Chinese Party (CCP) dictatorship. Before and during the Obama years the control of the CCP over the citizen subjects tightened steadily. You don’t have to be a college economics professor to understand the CCP is a cruel regime that imprisons and executes dissenters that express opposition to the government. Witness the cruel treatment of human beings in Hong Kong and the Uighurs in Xinjiang. The rationale to help the Chinese people by trading with the Chinese government has not worked effectively. The communist dictatorship government continues to oppress the Chinese people.

    America has a schizophrenic culture that consumes mountains of Chinese made goods because they are cheap …, and in the same breath deplores companies that have goods mad in sweatshops where workers suffer abusive living and working conditions.

    President Trump was the first US president in modern times to call a time-out on China. The result was hardship and distress for American farmers and importers because over many decades, American consumers and companies have developed a steady diet for cheap Chinese made goods, and become very fat on that diet. The result of the Trump policies was that many jobs returned to the US from China, and as the article above describes, new trading partners from different countries were acquired. (Thus the more healthy “diversity” of keeping your eggs in many baskets).

    Let’s hope that Joe Biden and his administration have been taking notes on administering the tough medicine for America to swallow of reigning China in not only for the purpose of establishing a level playing field of fair trade policies, but for the more important purpose of applying pressure so the Chinese will rise up and overthrow the CCP. The Chinese people deserve humane leadership …, far better than what they have had for the last 100 years …, ever since Moscow Marxists sent emissaries to China in 1920/21.

    Raising the standard of living of the Chinese people through increased trade is certainly not bad, but the rationale that increased trade will topple the cruel dictatorship of the CCP is a very low probability outcome. It simply has not worked. The corrupt CCP dictators have used much of the trade proceeds to build a powerful military of 2.8 million soldiers. We need a trade policy that puts pressure on the CCP. Trump accomplished that. Let’s hope Biden will adopt similar strategies.

  5. Any time the USA exits a trade agreement (TPP) that relinquishes sovereignty to a foreign tribunal, is a positive move. Biden also has a 1.5 billion dollar Chinese problem with the emoluments clause of the USC.

  6. Quote: The incoming Biden administration is widely expected to embrace a more multinational approach to U.S. trade policy, moving away from the “America first” strategy embraced by President Donald Trump.

    And still, liberals scratch their head over why hard-working Americans would vote for Trump.

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