[CTC] The Trade Fight That Could Doom Biden’s Industrial Policy

Wed Apr 20 08:54:28 PDT 2022

https://prospect.org/economy/trade-fight-that-could-doom-bidens-industrial-policy/ <https://prospect.org/economy/trade-fight-that-could-doom-bidens-industrial-policy/>
The Trade Fight That Could Doom Biden’s Industrial Policy
By David Dayen
4/20/22

Depending on your optimism, there are either one or two major pieces of legislation left in this session of Congress. A resumption of the Build Back Better process focused on energy is struggling to get going. The other bill, which has variously been known as the U.S. Innovation and Competition Act (USICA), the COMPETES Act, and the Bipartisan Innovation Act, has passed both houses of Congress, and is now in a process known as a conference committee, where the House and Senate find a consensus. (For simplicity’s sake, I’m just going to call it COMPETES.)

On the surface, that shouldn’t be too difficult. There are three major components to COMPETES. The first, an outlay of roughly $52 billion to subsidize an advanced semiconductor sector in the U.S., is virtually identical in the two bills. The second, a competitiveness chapter that enables advanced research through universities, research hubs, and a directorate at the National Science Foundation, isn’t too far off either.
It’s the third part of the bill, the unheralded trade and supply chain chapter, that features wildly different House and Senate versions. “There’s one head going this way, the other that way,” said Lori Wallach, director of Rethink Trade, a division of the American Economic Liberties Project. “The House trade title, I would fight for it as a freestanding bill. That’s a ton of stuff we ought to get done in trade. The Senate bill is like if Frankenstein, Dracula, and the Werewolf had a baby.”
One of the highest-stakes fights in the trade chapter is a House provision that would close the “Amazon loophole,” which allows overseas suppliers of e-commerce companies to directly ship to U.S. customers while avoiding tariffs, taxes, fees, or inspection. This makes it impossible to determine whether goods are bogus, hazardous, or produced with slave labor. The Senate version doesn’t close that loophole, and in fact has several features that put the government to work for Big Tech, policing the world to prevent policies the industry doesn’t like.
How the two sides reconcile this chapter into something that can still get 60 Senate votes is anyone’s guess. There’s a strong desire on Capitol Hill to reauthorize several critical trade policies that have lapsed. And a bill to increase competitiveness with China necessarily must take on trade policy. But the combination of broad interest in semiconductors and competitiveness measures and the Biden administration desperately needing a win could lead to the entire trade chapter being dropped. And if that doesn’t fly, the dug-in positions of the House and Senate could lead to COMPETES not surviving conference at all, despite widespread bipartisan support.
THERE WASN’T SUPPOSED to be a trade chapter in COMPETES. The Senate version of the bill initially contained just the semiconductor and competitiveness pieces. Then, Republicans on the Senate Finance Committee, in conjunction with its chair Ron Wyden (D-OR), suddenly demanded inclusion of the Trade Act of 2021 as a condition of their vote on the broader package. “It came out and then came back in,” Wallach said. “Members didn’t know what they voted for.”
Retrograde policies in the Senate’s Trade Act led the House to add several progressive trade policies they might not have otherwise fought for, to establish a leftward pole in the negotiations. This polarized the trade chapter and created the two diametrically opposed versions.
For example, the Generalized System of Preferences (GSP) is a 1970s-era construct that gives developing countries lower tariffs to spur investments. About $21 billion <https://sgp.fas.org/crs/misc/RL33663.pdf> in goods entered the country duty-free under the program in 2019; GSP expired at the end of 2020 and awaits reauthorization. “The number one item that received a tariff preference was gold chains,” said Roy Houseman, legislative liaison at the United Steelworkers union. “Number 2 and 3 are handbags and jewelry with precious metals. We’re providing tariff cuts for products that primarily benefit wealthy individuals.”
The Senate version of GSP rolls the program back to the George W. Bush era, with no labor or environmental standards as a condition of tariff reductions. The House version builds upon the improved labor and environmental language in the U.S.-Mexico-Canada Agreement (USMCA). Anti-corruption and human rights language was ported over from an African trade bill as well. “It’s like the neanderthal GSP versus if you’re going to do it, here’s the way to do it,” Wallach said.
The Senate version also renews the Miscellaneous Tariff Bill (MTB), a process through the International Trade Commission that allows a U.S. manufacturer to petition for suspending a tariff when a key input is not made domestically. The Senate’s MTB update would allow not just components, but 1,500 finished products to be eligible for the tariff suspension, including auto parts and heating units. Several of the finished products are made in the U.S. The House version excludes finished goods from the MTB.
GSP and MTB are at least in both bills, and the pressure to reauthorize the programs could overcome the differences. But the Senate bill does not extend trade adjustment assistance (TAA), which is available to workers displaced by foreign trade. The House bill extends TAA, and the annual appropriation, which was about $634 million <https://crsreports.congress.gov/product/pdf/R/R44153> in fiscal year 2021, would be less than the tariff revenue given up through the GSP program in its last year of operation. The House version of TAA offers a more robust child care allowance to help families attend workforce training, and permanently extends a health care tax credit.
A large portion of TAA expired a year ago—under the current program, workers only qualify if their employer outsourced to a country under a U.S. free-trade agreement, meaning outsourcing to China doesn’t count—and the entire thing will run out at the end of the year. The U.S. is already one of the worst countries in the OECD on spending to upskill the workforce. As Houseman of the Steelworkers, who used TAA to help get a master’s degree in public administration, put it, “we’d be taking one of the most comprehensive job training programs that has been in place since JFK and throwing it into the garbage. We talk about competition but won’t pay for the job training benefits to compete.”
THE SENATE VERSION adds other corporate-friendly policies. Wyden included what is known as a “Special 301” process for Big Tech companies. This requires the U.S. trade representative to issue an annual “watchlist” report on other countries’ digital governance policies, and sanction the worst so-called offenders. The provision lists “censorship” as a trade barrier but doesn’t define that term, meaning that European Union policies attempting to crack down on market power or privacy breaches from platforms would be susceptible to being targeted for “censoring” tech firms. This essentially puts the federal government in a position as a global enforcer against pro-consumer policies that tech platforms claim harm their business.
Elsewhere, the Senate bill creates a new petition process for excluding goods from existing tariffs. And an amendment from Sen. Pat Toomey (R-PA) would give unilateral duty-free status to all medical supplies, in the name of pandemic preparedness. It’s clear that corporate America wants these tariff reductions to continue their policies of outsourcing and globalization. But this would not guarantee supply and would continue the overreliance on China as a concentrated supplier of medical goods, which proved disastrous in the pandemic.
The Biden administration’s supply chain review called for exactly the opposite approach. Meanwhile, the House version spends $45 billion on grants, loans, and loan guarantees to support supply chain resilience on “critical goods,” including public-health and bio-preparedness products. This money could go toward constructing or relocating new facilities, as well as stockpiles of these products. The Senate version’s vision of duty-free access to Chinese goods that will always undercut the U.S. market would essentially nullify the House initiative, and again hinge U.S. public health on the ability to get goods out of one country.
The House has some other elements missing in the Senate trade chapter, including provisions with bipartisan Senate support. It includes a provision from Sens. Sherrod Brown (D-OH) and Rob Portman (R-OH) that increases enforcement of illegal dumping and subsidization of imported goods <https://www.brown.senate.gov/newsroom/press/release/brown-portman-pass-manufacturing-semiconductor-shortage>, and prevents “country hopping,” where China invests in facilities in other countries and routes its exports through there. “We’ve got to pay attention to where the money is going and how these firms are receiving a benefit that in a level free-market environment, these firms wouldn’t be able to avail themselves of,” said USW’s Houseman.
Another bipartisan measure, from Sens. Bob Casey (D-PA) and John Cornyn (R-TX), would screen outbound investment to ensure that critical goods don’t move offshore, underwritten by American investors. That’s in the House bill <https://www.casey.senate.gov/news/releases/casey-applauds-inclusion-of-key-trade-priorities-in-house-competition-bill> but not the Senate’s.
The provision in the House bill with the biggest impact would close the Amazon loophole, which is also called the “de minimis” loophole. Anyone who has flown on international travel is familiar with this from their declaration card when they return to the U.S. Citizens are allowed to bring in a “de minimis” dollar value of goods duty-free, without having to take them through inspections, or pay any taxes or fees. This makes it easier to bring in the key chain you got in Mexico without going through the hassle of the customs process.
In 2016, amid lobbying from large e-commerce firms, the U.S. raised the de minimis threshold from $200 to $800. This is wildly out of line with the rest of the world <https://global-express.org/assets/files/Customs%20Committee/de-minimis/GEA%20overview%20on%20de%20minimis_9%20March%202018.pdf>. Only two countries, Australia and Azerbaijan, have a de minimis threshold at or above the U.S. level, and the overwhelming majority of countries are far lower. “By comparison, China’s de minimis is under $10,” notes a fact sheet sent to Congress by the AFL-CIO labor federation.
Online shopping companies have figured out how to use de minimis to their advantage. According to Rep. Earl Blumenauer (D-OR), who authored the House measure <https://blumenauer.house.gov/media-center/press-releases/congressman-earl-blumenauer-or-03-applauds-house-passage-america> that would revert the de minimis threshold back to $200, more than two million packages per day <https://www.cbp.gov/newsroom/stats/trade> entered the U.S. under the de minimis threshold last year. Nearly one million per day came via air shipment from China. These numbers have rocketed upward since the 2016 change to the threshold.
Chinese third-party sellers on Amazon, for example, can directly ship to customers <https://www.msn.com/en-us/money/news/why-is-us-customs-law-helping-amazon-and-china-and-not-us-manufacturers-and-retailers/ar-AAQhEFx>, often in separate boxes to keep under the $800 threshold, and avoid fees or inspection. Domestic manufacturers have alleged that companies hold special training sessions with Chinese exporters, telling them how to exploit de minimis. Companies have also encouraged shipping goods to distribution centers just outside the United States, where packages are broken up to get under the de minimis threshold and sent to households.
Not only does this evade taxes, but it makes it impossible to detect counterfeit or defective goods entering the country. Congress just passed a law banning entry to goods produced with Uyghur forced labor in the Xinxiang region of China. But if those goods fall under the de minimis threshold, there’s no way to inspect them.
“China’s proven business and regulatory behavior means we can be certain some products have been made with forced labor, contain illegal substances, and violate patent protection for American products, as well as theft of intellectual property,” Rep. Blumenauer said. “Simply put, it makes shipping jobs overseas easier. By ending de minimis treatment for certain countries, American consumers will be made safer and American workers will have a greater ability to compete.”
USUALLY IN CONFERENCE COMMITTEES, the path to a compromise is easily seen. Here, there’s such significant variance between the House and Senate that the endgame is hard to discern.
Compounding this is that the trade chapter isn’t seen as a major feature of the bill, despite its critical components. COMPETES supporters like Rep. Ro Khanna (D-CA), who is on the conference committee, told the Prospect that the “core of the bill” is the semiconductor and competitiveness pieces. “I am for getting that to the president’s desk as fast as possible,” he said. “We could bracket everything else for another time.” Khanna did say he would support reducing the de minimis threshold back to $200 and other parts of the House version.
But other conference committee members have made the trade chapter a priority. “I’ll be fighting for Ohio priorities to help us build new domestic industries in critical technologies, and combat trade cheats like the Chinese government, which spends billions targeting American manufacturing and our industrial base,” said Sen. Brown, one of five Democratic senators who voted for the Senate version of COMPETES with the bad trade measures to get to conference, but who formally announced support <https://www.casey.senate.gov/imo/media/doc/competes_trade_title_letter.pdf> for the measures in the House trade chapter. Brown’s office said his trade enforcement bill that’s in the House version would be a priority, and that nothing in the bill should undermine American production and manufacturing.
There’s also the fact that Republicans could prefer to let the conference committee linger, to prevent another achievement for President Biden and Democrats before the midterms. But according to legislative aides, there’s enough interest in both getting domestic investments and preventing the expiration of key trade measures that failure is not an option. “This legislation must have a strong trade title,” said Rep. Blumenauer. “In legislation that is intended to boost America’s economic competitiveness with the rest of the world, it is critical that the trade title complements that goal.”
But these imperatives appear to be at cross-purposes. Severing the trade chapter appears to be a nonstarter. But typically the Senate, with its need for 60 votes to break a filibuster, tends to win out in these intra-chamber fights. And House Democrats are extremely unlikely to accept a trade chapter that includes handouts to outsourcing corporations and Big Tech. Henry Connelly, a spokesperson for House Speaker Nancy Pelosi, told the Prospect that the Speaker “supports the carefully crafted House bill.”
The House’s trade chapter aligns with the purposes of the bill, which is to rebuild domestic supply chains and production. The Senate version appears to be in direct conflict. You could see a trade-off scenario, with the House accepting some concessions and the Senate accepting others. But that would require some ingenuity. “Democrats are ready to die in a ditch over TAA, which Republicans don’t want,” said Wallach. “Wyden is pushing his special 301, I don’t think the House will take that. I don’t know what trade-offs could be done to make it survivable.”
Arthur Stamoulis
Citizens Trade Campaign
(202) 494-8826

-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://lists.citizenstrade.org/pipermail/ctcfield-citizenstrade.org/attachments/20220420/4d77d447/attachment-0001.html>