With the White House set to have a new occupant come January 20, we will surely see policy changes across the board in 2021 and trade policy will be no exception.
Below are our thoughts on what we can expect.
Though President-elect Biden is unlikely to boast of being a “Tariff Man,” he clearly sees the Section 301 tariffs as justified. In a recent interview, Biden made clear he would not immediately remove the tariffs.
At the same time, there will be pressure on Biden to do away with at least some tariffs, especially as most of the exclusions granted by USTR have expired. And contrary to President Trump, he will not be bound by his own punchy rhetoric.
However, eliminating tariffs would open up the new administration to attacks on different flanks. Economic nationalists will see a lack of commitment to reshoring efforts. Labor will see a failure to exact a price for China’s poor labor and environmental protections. China hawks will a lifeline that dissuades U.S. importers from looking for alternatives to Chinese supply chains. Social justice activists will see a blind eye to China’s human rights abuses. And it is hard to see any potential concessions from China that would mollify any of these constituencies, some of which are critical to Democrats.
Taking this into account, I do not expect major changes to the current tariff regime. It is very likely that we will see product-specific rate reductions or eliminations, and perhaps a revamped exclusion process. But overall look for more of the tariff burden to remain than to go away.
2. Forced Labor
The use of forced labor, in particular prison labor, has for some time been a risk for importers of Chinese products. However, the campaign of oppression waged by Beijing on ethnic minorities from Xinjiang (mostly, but not only, Uighurs) has brought the issue to the forefront.
It is one thing for manufacturers to broker deals with local prisons, and a completely different one for forced labor to be an intrinsic component of what the Biden campaign itself has described as genocide.
The United States has been responding in the form of sanctions, orders to keep Xinjiang products out of the country, and legislation. However, much of the response has been based on a somewhat incomplete understanding of the problem. While any product made in Xinjiang presents is a red flag, the exploitation of Uighurs and others is taking place across China. Any Chinese supply chain could potentially be tainted, even if no part of it is geographically in Xinjiang.
There will be those calling on the administration to be “pragmatic” and “not do anything rash” about the forced labor issue. However, the same coalition that supports tariffs will find in the issue of forced labor a perfect illustration of their concerns, as well as powerful argument in favor of a continuing hard line on trade. Apart from the ethical considerations, the use of forced labor provides Chinese manufacturers with an advantage with which their competitors elsewhere simply cannot contend.
Looking ahead at the rest of the year, I do not expect a major shift in how the U.S. government approaches the issue, but the enforcement focus will continue. Additional entities will be sanctioned or prevented from importing their products into the United States, and DOJ may look for landmark prosecutions.
For those who were hopeful the U.S-China trade war would usher in large-scale reshoring of American industry, Vietnam’s gains at the expense of China are nothing to celebrate. However, for those concerned with the overall geopolitical threat China represents, those gains are something of a bright spot. The country’s consolidation as a manufacturing powerhouse demonstrates that, in at least some cases, there are supply chain alternatives to China. Moreover, stronger ties with Vietnam are of inherent value, not least because of its strategic location, both generally and in relation to China.
At the same time, there is much to boo about Vietnam. As is China, it is an unrepentant dictatorship that has built its success on the back of a poorly protected workforce and environmental degradation. Many Chinese companies have skirted the tariffs and other trade actions by setting up shop in Vietnam, in some cases as mere waystations for the transshipment of Chinese-made goods. While Vietnam cannot really be faulted for welcoming the Chinese factories, the bottom line is Americans may soon being to sour on “Made in Vietnam.”
The Treasury Department has already labeled Vietnam as a currency manipulator. In addition, there has been an uptick in the number of antidumping and countervailing duty (AD/CVD) investigations on Vietnamese products.
Look for increased focus on Vietnam in 2021. Reshoring advocates will increasingly turn their guns on Vietnam, more AD/CVD investigations will be started, and U.S. Customs to continue to subject Vietnamese imports to increased scrutiny, as it tries to ferret out illegal transshipment.
Any other hot takes out there?