Leibowitz on Trade: Biden's Saudi Visit Signals Climate on the Backburner

But this year, there were a great deal of other things going on. The Saudi leader, Mohammed bin Salman (MBS), is under intense criticism for his hand (which he denies) in the murder of journalist Jamaal Khashoggi and has been called a “pariah” by President Biden. Yet there the President was on Saudi soil.

As I’ve discussed before, the US wants Saudi Arabia to increase oil and gas production to reduce inflation and limit Russian energy revenues. Saudi Arabia and the United Arab Emirates (UAE, another member of the GCC) are two of the largest oil producers in the world. President Biden wants them to increase production immediately. Very few oil producing countries are able to switch on significant oil production. Saudi Arabia and the UAE are two of them.

They appear to be playing hard to get but want to show cooperation. They expressed willingness to increase production in response to an increase in demand, but not unconditionally. An OPEC+ meeting is scheduled for early August, and the United States reportedly is pressing Saudi Arabia and UAE to urge a supply increase at that meeting.

The outcome is far from guaranteed. Russia is not a member of OPEC, but it is one of 10 oil-producing countries that coordinates with the 13 members of OPEC. It will be present at the Aug. 3 OPEC+ meeting.

Meanwhile, progressives in the United States are boiling mad at Senator Joe Manchin III, who has pulled the plug on a scaled-back “Build Back Better” agenda that included policies to address climate change. Those same progressives want to end dependence on fossil fuels. The anti-Russian initiatives this week run counter to their objectives. The President’s agenda is no longer on life support—it’s worse than that.

We are still awaiting a presidential decision on whether to terminate or pare down tariffs on China that were imposed by the Trump administration in 2018. American businesses that rely on imports from China are pressing for elimination of the China tariffs, or at a minimum the expansion and extension of numerous exclusions from these tariffs.

As I noted last week, there are talks ongoing with China that include the tariffs as one agenda item. USTR is always looking for something to get in return for cutting tariffs. But China points out that cutting tariffs is also in the US interest because of their inflationary effects. So far, no discernible progress with China.

The press continues to speculate that steel and aluminum Section 232 tariffs will not be eliminated because they involve “national security.” This is a dubious claim. (Full disclosure, I represent plaintiffs in litigation over the Section 232 tariffs.) The tariffs seem to be more about politics than defense readiness.

Domestic steel production has not been appreciably affected by the Section 232 measures. Since 2010, domestic steel production has been anything but volatile. Other than the outlier pandemic year of 2020 (72.8 million metric tons), domestic production varied from a high of 88 million tons in 2012 to a low of about 78 million tons in 2016. The Section 232 measures have not led to increased domestic steel production, although they have led to increased prices and profits for steel companies.

The Biden administration clearly has little to no interest in removing protection from domestic steel companies and workers in the runup to the 2022 elections. Commerce Secretary Gina Raimondo has telegraphed publicly that the steel and aluminum tariffs are not likely to be touched.

Finally, the US dollar has risen significantly against major foreign currencies. Against the Euro, the dollar has increased from 94.4 Euro cents to 99.1 cents, or about 5% in the last four weeks. That is a major change for such a short time. The British pound has weakened by a similar percentage since June 20. The dollar’s rise has been largely due to the efforts by the Federal Reserve to stem inflation by raising interest rates. It will not go down any time soon.

The effect of these currency changes is to make imports less expensive and US exports more expensive abroad. These effects will likely increase the trade deficit in the future. The importance of global trade to future inflation is likely to increase if the dollar continues to increase. Remember the Plaza Accord in the 1980s, which committed major countries to slow the increase in value of the dollar against other currencies. A rising dollar is not a good thing for the economy. Perhaps a similar meeting will be in the offing soon.

The politics of these issues will continue to get more interesting as the November election approaches. Progressives want action on climate change. They are not willing to compromise on the basis of the immediate international crisis in Ukraine or the inflation we are now experiencing. But Sen. Manchin’s stance against a climate agenda is based on stemming inflation. Immediate climate action is unlikely. Moderates see a more immediate need to hold the international alliance against Russian aggression, which requires increased energy production, including of fossil fuels.

Progressives are outraged at President Biden’s fist bump with Crown Prince Mohammed bin Salman in Saudi Arabia last Friday, preferring the “pariah” designation. But moderates see the need to work with Saudi Arabia to increase energy production and thereby hold the Western alliance together against Russia. Only last week, the Prime Minister of Italy, Mario Draghi, resigned over inflation and the Russian energy situation, which affects Italy greatly.

President Biden has many difficult decisions to make. Where will he come down?

Lewis Leibowitz

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