Hello from Washington, from where Joe Biden has flown to Wisconsin, in a bid to sell his $1tn infrastructure plan to voters even as the bipartisan deal’s prospects were thrown into doubt over the weekend.
Our main piece today is on the US president’s expiring authority to pass trade deals without too much in the way of oversight from Congress. We take a look at what it is, what it means and why Biden doesn’t want it any more.
Charted waters looks at whether economists think the US central bank, the Federal Reserve, can keep inflation under control.
Why Biden thinks the TPA isn’t worth saving
To most ears, a piece of US legislation called the Trade Promotion Authority sounds dull. But when it was last renewed in 2015 it sparked an unusual fight that saw former president Barack Obama buoyed by Republicans and corporations, and mostly abandoned by his own Democrats.
Why the fuss? The TPA grants the president authority to go out and negotiate trade deals, sets out the objectives of US trade policy and also governs how those deals, when signed by negotiators, then pass through Congress for ratification. Crucially, it offers “fast track” protections that mean trade agreements are closed to amendments and are given straight Yes or No votes. Most importantly, it expires tomorrow, and Biden shows no signs of pushing for its renewal.
So why not bother renewing it? A few reasons.
First, as it did back in 2015 when the TPA was last renewed, it’s likely to cause what we Brits like to call “a scene” up on the Hill, and among political types generally. Back in 2015, trade unions and environmentalists lined up to oppose the TPA being given to Obama. AFL-CIO president Richard Trumka said it would only lead to “more lost jobs and lower wages”. Even now, in this new era of the “worker-centric trade policy” (to quote one of the Biden US Trade Representative’s favourite and most used phrases), there are people welcoming the expiration of the TPA. The Institute for Agriculture and Trade Policy, for example, criticises provisions in the existing TPA that stop US trade negotiators addressing greenhouse gas emissions, and argues that there should be more consultation with Congress earlier in the negotiating process. Biden would need to ask for renewed authority, and then lawmakers would need to agree on trade policy objectives, to roll over the act. We’re actually in an era of bipartisanship on trade policy, but there is no doubt Democrats and Republicans would find things to argue about. Finding agreement would take work.
Second, and relatedly, Congress is already quite busy with Biden’s domestic agenda. When it comes to international matters, the global tax deal is likely to be given the oxygen ahead of a TPA. There just isn’t the will to spend political capital on trade legislation just now. Renewing it is unlikely to be easy. It will involve lawmakers setting aside some time to debate (to put it politely) the guiding ideological and economic principles of US trade policy.
Third, the Biden administration has said it’s not particularly interested in striking new free trade agreements. It’s doing some new trade engagement, notably with Taiwan, but mostly it seems to be more focused on enforcing the US-Mexico-Canada trade agreement.
Fourth, there are plenty of people happy to point out that the TPA hasn’t necessarily meant a swift passage of things through Congress, even when it’s in force. The theory is that the TPA reassures the US’s negotiating partners that the US negotiators can cash the cheque and get the eventual deal through Congress quickly. But even with the TPA in force, this seems not necessarily to be the case. The US-Mexico-Canada agreement, for example, was fought hard over up on the Hill. Negotiations between Republican lawmakers, Democratic lawmakers, now-US Trade Representative Katherine Tai and then-USTR Bob Lighthizer were just as important as the negotiations between the US and other countries.
Despite the TPA not being quite as powerful as it might at first glance seem, British folk have very much been upset by not making the deadline — new trade deals needed to be basically finished by April 1 to be covered. In London, there’s the view that opening the text of the deal to any and all amendments would be, as they say, a nightmare. Straight up or down votes tend to attract only major objections, rather than inviting the free-for-all that opening the text is likely to result in. Most trade folks in DC agree that having the TPA in place is pretty key for trade agreements to be successfully struck, so letting it expire does scupper progress on any UK-US deal.
So what now? Excitingly, we think nothing will happen. Our prediction is that Biden will not bother opening a big contentious trade debate on the Hill before the midterm elections in 2022 — why would he? He possibly may not even do it after that. But we’ll see.
Charted waters
There’s fewer hotter topics in macroeconomics right now than whether or not we’re about to see a resurgence of inflation after decades of subdued price pressures.
Where you stand on that topic depends, to a degree, on your view on trade issues. For how long are the supply chain bottlenecks that we’ve seen emerge during the pandemic going to continue to drive up prices? Will China no longer be a deflationary force in the global economy?
While some of the financial commentariat are panicking right now, it appears that economists are more assured that the Fed can keep inflation reasonably under control. The chart below, the result of a survey produced by the Financial Times and the Initiative on Global Markets at the University of Chicago’s Booth School of Business shows that the bulk of respondents, comprising more than 50 practitioners of the dismal science, think expectations for inflation five years from now will remain at less than 3 per cent in 2022. Claire Jones
Trade links
The FT has an important piece looking at how discussions on a global floor for corporate tax, being held right now at the OECD, are going. As expected, not everyone is as much of a fan of the idea as the advanced economies. China, India, eastern European countries and developing nations have all raised objections to the deal, struck by the G7 group of leading economies earlier this month.
Japan is last in space. That’s according to a new study (Nikkei, $), which finds that the Asian country ranks lowest in cyber space capabilities compared with 14 big nations, despite being a leader in information and communications exports for decades. Nikkei also reports that international mobile phone brands Nokia and Samsung are increasingly choosing to manufacture in Bangladesh to avoid high import tariffs and get direct access to its large and growing population.
The EU’s director-general for trade Sabine Weyand wants to see the Biden administration distance itself more from the US trade policies seen during the Trump era. (Bloomberg, $) Aime Williams and Claire Jones
Source: Economy - ft.com
