Biden’s Trade Policy Stresses Investment in U.S. Jobs

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The Biden administration may be less than a month old, but its early words and actions have provided clear signs of where trade policy is headed and what that means for businesses.

Washington politics and policy are lining up to create a trade environment that will incentivize companies to build up their North American supply chains and invest in expanding production capacity in the United States.

While that doesn’t preclude efforts to outsource some operations or to expand sales operations internationally, it marks a fundamental shift from the long-term trend towards offshoring.

Despite the bitterly fought presidential election, trade is one area where Democrats and Republicans have moved into significant alignment. While Democrats may have disliked the unilateral approach of former President Donald Trump’s trade policy, they largely approved of its results: higher tariffs and an emphasis on creating U.S. jobs.

Under President Biden, we’re likely to see a more predictable, multilateral approach to the big trade issues like China and World Trade Organization reform, making it easier for businesses to plan. Meanwhile, the new presidential administration is set to maintain and strengthen policies to bring back American manufacturing and jobs.

There are four keys to this emerging trade approach already visible.

The ballooning trade deficit

The U.S. net trade deficit hit a record $68 billion 2020 in November, the highest in 14 years. That provides a compelling platform for Biden to argue the need for more export-focused policies. The massive deficit also provides the impetus for the White House and Congress to pursue labor-focused policies, signaling to corporate leaders that there will be advantages—through tax and other incentives —to producing more in the U.S.

The administration has already committed to a “worker-centered” trade policy rather than one focused on opening markets for U.S. firms abroad. Biden has proposed a 10{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} tax credit for companies that create U.S. jobs as well as a 10{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} penalty for those who move operations overseas.

Tariffs here to stay

Biden’s first action on tariffs was to raise them rather than lower or remove any. The president reinstated tariffs on aluminum exports from the United Arab Emirates, reversing Trump’s last-day decision to exempt the country. The move was a sign that Biden is unlikely to walk away from most of the tariffs that have been imposed in recent years, including on China, and may even consider fresh ones. Labor unions, a key political constituency, applauded his move on the UAE.

Buy American

On January 25, Biden launched a revamped Buy America program that is expected to impact about $200 billion of the $600 billion of goods and services that the federal government buys each year. His executive order increased the domestic content threshold and clamped down on waivers to Buy American rules, a common loophole for companies to meet the “Made in America” test.

The United States-Mexico-Canada Agreement

The “new NAFTA” was agreed to under the previous administration and went into law in mid-2020. With Biden committed to maintaining the law, companies finally have the certainty they need to decide their North American supply chain. The USMCA, which stiffens local content standards, will encourage more inbound investment for the region, creating more capital available for local investment and production.

Combined, these developments signal much-needed clarity and a clear change in incentives for companies with multinational operations. The policy environment will support companies that rebalance their operations to make the United States and North America a bigger part of their manufacturing footprint. It suggests a future in line with Foxconn CEO Terry Gou’s vision of a “G2” world in which a unified supply chain splits into two—one focused on China and the other on the U.S.

Combined with the low U.S. interest-rate environment, the new direction in trade policy should make it an excellent time for businesses to focus on investments in automation and capital equipment to expand their U.S. operations and make them more efficient.

Lou Longo is international consulting practice leader at Plante Moran.