Leibowitz: Quite a Year…in Trade and Other Things

What the next 12 months will bring, we certainly don’t know. With all the turmoil in the world, what strikes me is the inability of humans to control, contain or otherwise manage so many things. Maybe it’s just me, but I feel that inability to manage more acutely than I have in many years.

Just today (Sunday), we heard that Sen. Joe Manchin is a “no” on the Build Back Better bill. It’s too early to say what tipped the scales for him. Maybe it’s a bunch of issues that could not be worked out. We do know that Canada and Mexico are implacably hostile to one piece of the bill, the provision (on page 1870 of the bill) that would grant a tax credit for electric vehicles made in the U.S. with union labor. Canada and Mexico have pronounced that provision as a violation of the new USMCA and WTO international trade rules.

Build back better is not the only trade initiative that raised the hackles of allies. Buy America rules early in the year have not had too much effect on trade flows, but they could in the future. And the new deal with the European Union on steel and aluminum trade could be replicated with other countries, especially Japan and the UK, scrapping tariffs on some trade in exchange for managing the quantities by imposing a “tariff rate quota.”

If the WTO were still effective, the U.S. policies would be in real trouble. But the WTO was effectively neutered by a hit on the WTO Appellate Body, first delivered by President Trump and continued by President Biden. The Appellate Body functioned as a “supreme court” for international trade rules. There are now no members of the Appellate Body, which means that WTO disputes cannot be resolved unless the countries involved agree on alternate methods of dispute settlement.

With the absence of any enforcement of the rules, countries have widely ignored those rules. The U.S.-EU agreement, and subsidies such as the electric vehicle tax credit, are only two examples. Other countries have done equally radical things.

Politically, managed trade seems to be a rare example of bipartisan agreement. Nationalism has been with us for a long time; patriotism even more. But nationalism is not always the right answer, and managed trade keeps yesterday’s industries around longer and delays the onset of tomorrow’s industries. Some recognition of that fact is warranted. Politicians and interest groups need to understand that there are people out there whose lives would be made better by more competition rather than less. At the same time, the industries that suffer from increased international competition are in need of help to adjust to new competitive realities. Our Safeguard statute is a tool to balance those things. Under President Trump, Safeguard measures were imposed to help large washing machines and solar panels and cells. However, the evidence that those industries have used their protection to get better is not encouraging. The temporary nature of import relief under the Safeguard statute is one of its best features. Perhaps, when a perfect solution is not available to balance the interests of protected industries and the rest of us, we should have more safeguards and less managed trade.

I read a thought-provoking article about the current tension (dare I say “conflict?”) between the U.S. and Russia. It was written by a man who spent most of his career as an intelligence operative during the Cold War, when the USSR was the enemy. After 2000, Russia under Putin began a long-term effort to reconstitute the Soviet Union. The latest spat over Ukraine is a continuation of that effort.

Clearly, the international order needs attention. Build Back Better does not really pay attention. All good intentions have a cost, and they can be killed by a war that nobody wants. A mistake in Taiwan, China or Ukraine could derail everything. The unity of the U.S. and its allies would go a long way toward deterring military action. Talk-talk is better than war-war. Maybe Russia and China are competitors, but maybe the tactics we’ve been trying aren’t working and need to be revised. Unity with our friends may require easing up on trade restrictions, and new thinking may be more successful than old thinking in dealing with our adversaries.

Now that it appears the Build Back Better bill as we have seen it evolve is not going to work, what will? Some of the features of Build Back Better have broad, even bipartisan support, such as the enhanced child tax credit. The $1.7 trillion official cost (many think it will be much higher if certain “temporary” programs are extended) is too high to get 50 votes in the Senate. What provisions will get more than 60 votes? If there are none, it’s a campaign issue for 2022. That campaign will start in January.

In short, President Biden and his team have a tough assignment—keep the Democratic coalition together while trying to rework Build Back Better and make it of a manageable size. Congress and the president need to recognize that everything cannot be done at once.

To all my friends, those I’ve met and those I haven’t, I wish you all a peaceful and joyous Holiday Season and the best for the New Year.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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