The convergence of national security and economics led to the adoption under the Biden administration of another tool that has a significant impact on trade and climate change: industrial policy. Again, the White House is taking a narrower approach, this time focusing on strategic industries, but making the most of the US government’s funding potential to support the ambitious package. It also includes requirements for local content intended to promote indigenization. Production capacity further complicates trade relations. The Biden administration identified green technology as a critical area early on, and the Anti-Inflation Act is a key path to unlocking these investments.
Steel and aluminum tariffs
During his term, former President Trump invoked “national security” to impose significant trade barriers to imports of a wide range of goods, including those at the center of trade and climate discussions. Under Section 232 of the Trade Expansion Act of 1962, the president has broad authority to adjust imports (using tools such as tariffs) if the imports are determined to pose a threat to U.S. national security. have. Under this process, the Trump administration enacted multiple tariffs on steel and aluminum in the name of national security. The Biden administration has kept some of these measures in place, with notable exceptions such as replacing tariffs on steel and aluminum in the European Union, the United Kingdom, and Japan with tariff quotas (TRQs), which would allow more There are ongoing EU negotiations on a number of tariffs. Permanent Arrangement.
Article 301 Customs duties
In addition to the Section 232 “national security” tariffs used to block Chinese goods from accessing the U.S. market, the Trump administration also adopted tariffs under Section 301 of the Trade Act of 1974. In March 2018, President Trump announced tariffs of up to $60. The value of imports from China is $1 billion. As a result, the Office of the United States Trade Representative (USTR) has imposed 25% tariffs on approximately $50 billion worth of goods. The first tariffs on $34 billion worth of goods began on July 6, 2018, and the remaining $16 billion began on August 23, 2018. Combined, the Tax Foundation estimates these amounts to a $12.5 billion tax increase. In September 2018, the administration imposed an additional 10% tariff on $200 billion worth of Chinese goods, raising the collection by $20 billion. By May 2019, these tariffs had increased to 25%, adding an additional $30 billion. In August 2019, it was announced that a new 10% tariff would be imposed on $300 billion worth of additional goods, which was later adjusted to 15% on $112 billion worth of goods.
Overall, trade-weighted average tariffs increased from 1.4% to 2.8% from 2016 to 2019. By December 2019, the “Phase 1” trade agreement with China resulted in further tariff deferrals and reductions in existing tariffs, reducing associated revenues. 8.4 billion dollars. Nevertheless, when the issue was resolved, trade barriers between the US and China had risen significantly, and it was up to President-elect Biden to decide how to approach trade with China. .
During its first three years in office, the Biden administration left most tariffs on China in place and directed the USTR to begin a policy review, effectively delaying a decision on whether to extend or end the barriers. Ultimately, the White House told Trade Representative Katherine Tai that approximately $18 billion in Chinese imports across several “strategic sectors” including steel, aluminum, semiconductors, EVs, batteries, critical minerals, and solar cells will be sold. The government ordered the government to implement a series of gradual tariff increases. , land cranes, medical products, etc. But some of these products are critical inputs needed to accelerate the green transition, and they also happen to be areas where Chinese suppliers are highly competitive.
There is no evidence that either candidate aims to lower these barriers to Chinese goods. However, this does not mean that both administrations will have the same approach to trade with China. On the other hand, the Harris administration is likely to aim to keep tariff levels where they are and continue to focus on key sectors deemed critical to U.S. economic security. Harris has repeatedly criticized the Trump campaign’s broader tariff proposal as an unfair “sales tax” on U.S. consumers, but in reality she faces a tough political uphill battle in eliminating barriers already in place. I’m going to do it.
Meanwhile, President Trump has already promised to take a tough stance on tariffs on Chinese goods. During his campaign, President Trump proposed a variety of measures, including blanket tariffs of 10% to 20% on all imports and steep tariffs of 60% to 100%, especially on Chinese products. The campaign also promised to phase out imports of “essential goods” from China over the next four years. According to the current White House analysis of sectors deemed critical to national security, these will include inputs used to accelerate the green transition. President Trump has also floated the idea of imposing 100% tariffs on countries that refrain from using the US dollar in trade, which would almost certainly include China. The sectoral plan includes 100% tariffs on imported cars, especially those made in Mexico by Chinese companies. The Republican platform supports the implementation of tariffs of 10% or higher on foreign goods more generally, and allows for reciprocal tariffs in response to high foreign tariffs on US goods.
industrial policy
In addition to tariffs, the Biden administration has also turned to industrial policy as a way to ensure the country’s economic security. When it comes to climate change, the most important initiative is the Inflation Control Act (IRA), which represents the largest climate change investment in history, allocating $370 billion to promote a green economy. This includes $250.6 billion for clean energy, $47.7 billion for manufacturing, $46.4 billion for environmental initiatives, $23.4 billion for transportation and EV adoption, $20.9 billion for agriculture, and $4.7 billion for water infrastructure. Included. The IRA relies primarily on subsidies, tax breaks, and loan guarantees, with corporate tax credits accounting for about $216 billion of energy and climate financing. The law also provides for production tax credits (PTCs) for solar power projects and “technology-neutral” PTCs and investment tax credits (ITCs) for renewable energy sources such as wind, solar, geothermal, and hydropower. I am. Projects that begin construction before 2025 can benefit from these credits if they meet domestic content requirements. To qualify, companies must certify that all steel, manufacturing components in power generation facilities are produced in the U.S., and that at least 40 percent of manufacturing costs for projects starting by 2025 are sourced from the U.S. (increase in stages by 2025 and 55 percent from 2026 onwards).
Apart from the domestic content requirements mentioned above, IRA support for the U.S. EV industry has become a particularly thorny trade issue. The EV tax credit has caused tensions with European leaders, who say local sourcing and final assembly requirements disadvantage domestic manufacturers and the World Trade Organization (WTO), which mandates equal treatment of foreign and domestic products. They claim that this violates the principle of non-discrimination. Some EU policymakers saw the IRA as a threat to European industry because its incentives could lead to the relocation of clean energy businesses. These concerns appear to be overblown. While diversion of investments from Europe to the United States did occur, it was more rare than expected. Nevertheless, the shift towards US industrial policy characterized by strong local content requirements is an important variable in the transatlantic climate and trade conversation.
important mineral agreements
The Inflation Control Act also includes content rules relating to critical minerals. These require that a certain percentage of critical minerals in batteries (increasing over the next 10 years) be sourced from the United States or countries with which it has free trade agreements (FTAs). This requirement severely limits the number of partners that can contribute to the U.S. battery supply chain, as many mineral and material inputs are sourced and processed in countries that are not current U.S. FTA partners. The Biden administration seeks to circumvent this restriction by negotiating “critical mineral agreements” (CMAs) with countries with mining and/or processing capacity that allow their industries to participate in IRA incentives. I was aiming for it. We succeeded in negotiating such a CMA with Japan. However, negotiations with other partners, including Indonesia and the European Union, were halted due to two main issues, in the face of significant opposition from parliament. Some members of Congress are frustrated that the Biden administration did not properly consult these CMA negotiations. The U.S. Constitution gives Congress the power to regulate trade, but the Biden administration has generally relied on executive branch authority in making deals. Furthermore, MPs on both sides felt that the government was being too flexible in defining a “free trade agreement” in line with the IRA’s purposes.
President Trump is unlikely to pursue the CMA, as he is fundamentally skeptical of the IRA’s purpose, and at the same time tends to prioritize domestic industry over foreign industry whenever possible. Harris’ White House, on the other hand, would be more willing to engage in such negotiations if there was less chance of pushback from Congress. The Senate currently favors Republicans, who tend to keep IRA requirements stricter. This situation, along with the fact that Europe’s current extraction and refining capacity is low, could put the US and EU CMAs lower on Harris’ priority list.
The role of the 2025 U.S. tax dialogue on climate and trade policy
Climate and trade issues are likely to become part of the barrage of debates over U.S. tax policy next year. An important issue for the next president in 2025 is the debate over tax policy. Several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) will expire in the same year. The TCJA significantly changed the U.S. tax environment, impacting different income groups differently. Although low- and moderate-income households did not benefit significantly from the rate cuts, they did benefit from the expansion of the standard deduction and child tax credit. In contrast, high earners reaped the lion’s share of the benefits, with the top 0.1 percent receiving an average tax cut of $252,300. However, wealthy individuals are now subject to a $10,000 state and local tax (SALT) deduction, which has previously limited their tax benefits. For businesses, the TCJA lowered the top corporate tax rate from 35 percent to 21 percent. Although this was intended to stimulate investment, it caused significant revenue losses for the government, estimated at $100 billion to $150 billion annually.
Former President Trump has not yet laid out a comprehensive tax plan for his current re-election campaign, but he has made several proposals, including an extension of the expiring 2017 TCJA provisions, further reductions in corporate tax rates, and tax exemptions. Proposes tax system-related ideas. Tips and Social Security benefits are both available through taxes. He has also floated the idea of replacing personal income taxes with tariffs.
