Biden doubles down on Trump's protectionist policies
If there was ever a doubt about how entrenched “America First” has become as a public policy doctrine in U.S. politics, the first 100 days of the Biden administration are illustrative.
For starters, Biden has gone to great lengths to cast himself as the opposite of the previous president. He has rejoined the Paris Agreement on Climate Change and has put “building back better” to reduce greenhouse gas emissions at the top of the U.S. post-pandemic agenda and he’s raising taxes on individuals and corporations. In short, the contrast with Donald Trump is stark.
Yet on trade policy, Trump and Biden are virtually indistinguishable. The Biden administration is saying all the right things on holding China’s feet to the fire, they have not moved quickly to restore key dispute resolution functions at the WTO – much to the chagrin of exporters around the world – and there’s no real sense a Biden administration has any burning desire to negotiate comprehensive and ambitious trade deals around the world. And in some cases, the U.S. president is going even further than the Trump administration did to put America first.
For example, in a speech last week marking his first 100 days as U.S. president, Joe Biden held firm on strict Buy American policies as a key part of his post-pandemic recovery plan.
While exemptions are possible within the new executive order issued in January, Biden told Congress in his remarks that he has "strenuously limited" the ability of cabinet members to grant them.
"American tax dollars are going to be used to buy American products, made in America, to create American jobs. That's the way it's supposed to be, and it will be in this administration," the president said.
The boon for American firms and fallout for foreign companies could be significant. The U.S. government spends nearly $600 billion in government procurement and has put together a $2.2 trillion infrastructure package called the American Jobs Plan.
Biden noted the new restrictions are trade compliant, but time will tell if there are unintended consequences, especially for Mexico and Canada that have highly integrated and interconnected supply and value chains with U.S. companies.
The stricter executive order also incentivizes U.S. companies to restrict their own supplier networks to U.S.-only companies if they hope to tap into federal stimulus cash.
On the surface, Buy American is very much like the “support local” sentiment that exists everywhere, especially during the pandemic.
To be fair, it sounds well and nice, and at first blush is hard to disagree with. Yet at its core, it is bound to fail. Limiting competition leads to less choice and higher costs. Increased costs lead to higher prices – which consumers end up paying. And in the long run, protectionism discourages companies from becoming more innovative and productive.
Take food, and other essentials that have continued to drive global trade throughout the pandemic as an example. If it weren’t for free and open trade, food would have become scarce, extremely expensive or both. Instead, thanks to the fact that vital supply and value chains have remained functioning around the world, food prices have not spiked and generally, shortages have not occurred.
In short, an idea that sounds good in theory quickly unravels in practice. If Buy American is taken too far, it will lead to uncompetitive firms, higher prices for consumers and highly integrated supply chains disrupted.
In the short term, protectionism appears to be good politics. However, in the long run, it is bad policy for sure. As Biden dives further into the protectionist deep end, global traders will need to watch closely.