Biden is failing to deliver on promise to heal the transatlantic rift

Global trade updates

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Hello again from Washington DC, where the summer weather is cooling into autumn (or fall) and people are slowly resuming in-person meetings. We have several transatlantic visitors set to come to town this week and next, including EU commissioner for internal markets Thierry Breton, EU trade chief Valdis Dombrovskis, and WTO director-general Ngozi Okonjo-Iweala. On which note, today’s piece takes a look at the faltering mood music accompanying European and American relations on trade (and broader foreign policy).

We also have in town a large UK delegation, including British Prime Minister Boris Johnson. British officials told reporters that the UK had been weighing up asking to join the USMCA trade bloc.

Trade folks are rightly sceptical that this would be a good idea for the UK. It doesn’t really provide a workaround for the things blocking a potential US-UK deal, like disagreement over agrifood standards (also known as the “chlorinated chicken” issue).

The Brits have previously floated the idea that the US might join the Comprehensive and Progressive Trans-Pacific Partnership (which is not going to happen any time soon, in our view), so perhaps joining existing multilateral clubs is the UK’s new strategy for sidling up to the US given the bilateral deal is on the rocks. It doesn’t seem like a strong negotiating position to us, though.

Charted waters looks at how direct investment between China and the US has collapsed.

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Biden’s European record is mixed so far

One of Joe Biden’s big promises was to repair the broken transatlantic relationship. A few months ago it looked as though he was delivering, with European officials incredibly pleased with the halting of hostilities over Airbus-Boeing, which saw the suspension of tariffs on $11.5bn of transatlantic trade. But this week, things haven’t looked so rosy. The Aukus spat, combined with European anger over the US’s chaotic withdrawal from Afghanistan, is threatening to bring down the mood.

Some of these issues are more about national security and defence than pure trade and economic co-operation. But the mood is important. As my colleague Alan Beattie pointed out in Monday’s Trade Secrets, national security interests and trade are becoming increasingly intertwined. Supply chain security, especially when it comes to items with potential military uses like semiconductors and rare earths, is talked about in the trade sphere. 

Which brings me to the forthcoming trade and technology council, which has 10 working groups, some of which discuss supply chain security, export control co-operation, investment screening and misuses of technology. Because of the Aukus submarine spat, the French were pressing the European Commission to postpone the talks. European officials are weighing up whether to move the talks, which were supposed to happen in the rust-belt town of Pittsburgh (the US trade representative has been doing a good amount of touring states to push the benefits of Biden’s trade policy for workers), back to October.

What conclusions to draw from this? Well, things are not being repaired very quickly. Biden’s record so far is mixed at best.

Europeans have downplayed the importance of the TTC: one diplomat told Trade Secrets that it was just “a nice get-together” that was floated during the Trump years so that everyone had something positive on their calendars amid the doom and gloom of the infernal trade wars. But Thierry Breton, the EU commissioner for internal markets, told the FT earlier this week that there was a growing feeling in Europe that something was “broken” in the transatlantic relationship. Breton was keen to point out that the disgruntlement was about much more than the TTC. Now, even the success of the Airbus-Boeing truce seems dimmed. “We’ll see what happens”, Breton told the FT, “it’s not a big win”. As we said at the time, avoiding details and not really writing anything down seemed to be the order of the day. (In our opinion, the suspension of all those tariffs does seem like quite a win, but we agree the original arguments over aircraft subsidies remain unresolved and will probably re-emerge down the road.)

The Covid-related travel ban — another source of European annoyance — has now been lifted, but after a long delay and much lobbying from diplomats. The steel and aluminium tariffs remain in place. And quite a few European embassies in Washington were privately furious with the way the trade-related intellectual property (Trips) waiver for vaccines was suddenly announced. As one diplomat told us at the time, it was ludicrous of the US to pretend it was the saviour of the world when it came to distributing jabs when it was at the time sitting on a pile of AstraZenecas that it couldn’t even use.

As for the TTC, whenever it is now, nobody seems to quite know what to expect from it in terms of concrete outcomes. Dombrovskis is still expected to show up in DC early next week, according to the US Chamber of Commerce, which is planning meetings with him. (Ngozi Okonjo-Iweala will meet US trade representative Katherine Tai, too.) We’ll be interested to see what smoke signals emerge on classic WTO-related arguments like appellate body reform, and/or the US’s vociferous (but also vague) support for the Trips waiver . . . just to bring back some old favourites to our list of transatlantic trade beefs.

Charted waters

Today, we bring you the latest instalment in our long-running series highlighting the cost of diplomatic fallouts on trade. It’s unsurprising that faltering relations between the US and China have had a major impact on foreign direct investment between the two countries.

However, the scale of the hit — especially to Chinese investment in the US — has been substantial. As the chart below shows, the past five years have seen Chinese FDI into the US fall 85 per cent from almost $50bn in 2016 to less than $10bn in 2020. Claire Jones

Column chart of Foreign direct investment ($bn) showing Direct investment between US and China plunges

Trade links

It seems the British government has woken up to the reality that a trade pact with the US is not exactly a priority for officials on the other side of the Atlantic, with Boris Johnson now refusing to commit to getting a deal by the next general election. Don’t say we didn’t warn you.

More on China’s CPTPP application. David Henig, UK director at the ECIPE think-tank, has an interesting piece on Borderlex asking how much we want to integrate Beijing in the world trading system.

As Narendra Modi prepares to travel to Washington to meet the quad of lawmakers from the US, India, Japan and Australia, India’s health ministry said (Nikkei, $) that Covid vaccine exports would resume next month. Aime Williams and Francesca Regalado

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