By Jon Hilsenrath and Nick Timiraos
Joe Biden's economic team is taking shape with plans to remake
the Trump administration's approach to economic relations overseas,
with a distinction: agreement with President Trump's assertion that
globalization has been hard on many Americans but differences on
how to address it.
The distinction shows Mr. Trump likely will have a lasting
impact on the direction of U.S. economic policy, even though the
incoming administration is trying to alter important parts of
For many years, peaking in the 1990s, mainstream Democrats and
Republicans championed globalization and trade agreements with
China, Mexico and others as developments that would make Americans
better off. Economists said that there would be winners and losers
as the U.S. imported and exported more, but that the trade-offs
would be manageable.
Mr. Trump's election four years ago in part reflected the toll
that foreign competition took on Americans over two decades of
amped-up globalization, particularly in manufacturing communities
run down by cheap imports. One of Mr. Trump's "America First"
messages was that Washington elites, joining with global companies,
let U.S. workers down with unbalanced trade deals. Another was deep
skepticism of global institutions like the World Trade
Organization, which was formed to resolve international trade
disputes through multilateral rules.
The prime example, in this view, was China, which in the two
decades since it joined the WTO has grown to be the world's
second-largest economy, a massive employer and key market for many
American companies -- while, in the eyes of many officials,
stealing U.S. technology and often skirting international rules.
China disputes allegations that it steals technology or breaks
President-elect Biden's initial economic picks -- most of whom
served in the Obama or Clinton administrations -- still largely
believe in the benefits of globalization and trade, according to
interviews and their public statements. Yet they also have grown
circumspect about the pitfalls of globalization that Mr. Trump
highlighted, including the challenges it imposes on some U.S.
For Mr. Biden's new economic team, the election represents a bid
to address the failings of globalization in a more cooperative
manner with the rest of the world than Mr. Trump. Mr. Biden has
signaled he wants to push allies for help confronting China and
press for more aggressive programs domestically to help Americans
hurt by trade, and aides have signaled a skepticism about using
tariffs as a weapon in trade confrontations.
"There was a clear statement from U.S. voters four years ago,
that the gains from globalization and our economic system needed to
be shared more widely," said Nathan Sheets, a Treasury Department
official under President Barack Obama, now chief economist at
investment-advisory firm PGIM Fixed Income.
Still, Mr. Sheets said, Mr. Biden and his new economic team
disagreed with Mr. Trump's tactics, including the widespread use of
tariffs to advance U.S. interests and his confrontational approach
with traditional allies and international institutions. "The
challenge for the Biden administration," he said, "is to carve out
a third way."
Globalization had its upsides, including cheap goods for U.S.
consumers, more export markets, stronger global growth and
cost-efficient supply chains delivering profits to U.S.
multinationals and their investors. But few economists now dispute
that trade damaged many communities and public support for global
deals. Bipartisan political support for trade was visibly eroding
in 2016 when the presidential candidates of both parties opposed
Washington's entry to the 12-nation Trans-Pacific Partnership,
which later took effect without the U.S.
"I would not call myself a globalist anymore," said Jeffrey
Frankel, a Harvard University professor who worked with former
Federal Reserve Chairwoman Janet Yellen, Mr. Biden's choice for
Treasury secretary, at the Council of Economic Advisers in the
Clinton administration. "The word itself is so damaged. We're
Mr. Biden has said he won't push for new trade deals until the
U.S. gets its domestic house in order. He has also called for the
U.S. to strengthen ties with traditional allies. For supporters of
Mr. Trump's "America First" foreign policy, this might look like
more of the same from the old Washington economic
Michael Pillsbury, an outside adviser to Mr. Trump on China and
a scholar at the Hudson Institute, a conservative research
institution, said he didn't think Mr. Biden would be soft on China
but he did suspect Mr. Biden wouldn't be as interested in the
China-trade issue as Mr. Trump.
Tough trade decisions loom for Mr. Biden, Mr. Pillsbury said,
including whether to abide by a trade truce Mr. Trump struck with
Chinese leader Xi Jinping last year, whether to begin working again
with the WTO to resolve trade disputes, and whether to restart
semiannual talks with China on economic and security matters. On
some of these issues, such as the bilateral talks Mr. Trump
suspended, Mr. Pillsbury said he suspected Mr. Biden wouldn't veer
too far from Mr. Trump's policies.
At the center of the new economic policy is Ms. Yellen,
currently a senior fellow at the Brookings Institution, who has
publicly challenged Mr. Trump's use of tariffs.
Tariffs make imports more expensive, undermining cost advantages
that foreign competitors might have in the U.S.
Speaking at a Bipartisan Policy Center event in February, Ms.
Yellen said tariffs hadn't been effective, in part because they put
upward pressure on the U.S. dollar. A strong dollar reduces the
cost of imports and makes U.S. exports more expensive on world
markets, hurting their competitiveness. "While the tariffs may make
goods more competitive, the appreciation of the currency will
offset that," she said. "So, I regarded that as not the proper
She added that tariffs had made it more costly for some U.S.
manufacturers to import needed components, hurting their
competitiveness. She welcomed Mr. Trump's trade truce with Mr. Xi,
stopping an escalation of tariffs. At the same time, she agreed
China needed to be challenged.
"I do think the United States has real issues in terms of its
trade relations with China and many valid concerns that are
certainly on the table for discussion," she said. That included
government support for state-owned enterprises, its efforts to
force U.S. firms to transfer high-tech know-how into the country
and its slow pace opening its markets.
A return to pre-Trump policies toward China is unlikely. Some
Obama veterans have said they didn't push China hard enough on
security or economic issues and have learned their lessons. Some
business groups are urging that Mr. Biden give up existing tariffs
on China only in exchange for concessions in other areas. China
hasn't signaled any interest so far on making concessions on its
core economic policies.
Mr. Sheets, who worked with Ms. Yellen at the Federal Reserve
after the 2007-09 financial crisis, said he expected the new
administration to be reluctant to remove tariffs on China but to
explore removing tariffs in other areas that affect allies, such as
steel and aluminum. He also expected the new administration to push
allies to cooperate with the U.S. in challenging China.
Allies in Europe and Asia are bound to demand the U.S. roll back
tariffs on steel and aluminum, and Mr. Biden argued during the
campaign that such tariffs hurt the U.S. economy. But even that
won't be easy, given support for the tariffs by U.S. metal
producers and their unions.
After Ms. Yellen's selection was made official Monday, several
Republicans said her long record of service made her a strong
candidate for the job. But she drew criticism from some. Sen. Josh
Hawley (R., Mo.) told reporters her past support of increased
global trade had been good for corporations but not for
At an event Tuesday where Mr. Biden unveiled his initial picks
in Wilmington, Del., Ms. Yellen pledged to make the Treasury
Department "an institution that wakes up every morning thinking
about you, your jobs, your paychecks."
Ms. Yellen made her mark in economics researching U.S. labor
markets, and at the Fed she often pushed for low-interest-rate
policies to drive down unemployment. She has also spent decades
building up an international Rolodex with finance and central-bank
officials at meetings of the International Monetary Fund, Bank for
International Settlements and other global bodies. In those roles,
she was largely focused on cooperating with allies.
As a top Fed official, Ms. Yellen interacted with Chinese
finance officials for years, and as former San Francisco Fed
president she sought to develop ties with U.S. trading partners in
During and after the 2007-09 financial crisis, finance leaders
sought to coordinate responses to recession. Such coordination
could come back into play now as the U.S. and other countries look
to emerge from the Covid-19 crisis, some analysts said. For
example, that could involve coordinated efforts to use fiscal
policy -- spending increases or tax increases -- to support
Important parts of Mr. Biden's economic team are incomplete,
including the next U.S. Trade Representative, who will play a
central role carving out a tariff strategy, and Treasury and State
Department deputies that will shape Washington's approach with
Administrations often have internal rivalries over the direction
of economic policy. Trump-administration officials feuded over how
aggressively to challenge China and use tariffs, with Treasury
Secretary Steven Mnuchin often seeking to complete deals, Trade
Representative Robert Lighthizer taking a harder line against
China, and trade adviser Peter Navarro pushing a nationalist
Other pieces of Mr. Biden's economic team are falling into
place. Ms. Yellen's prospective deputy, Adewale "Wally" Adeyemo, an
economic adviser during the Obama administration, now president of
the Obama Foundation, has an international mind-set, having helped
Mr. Obama negotiate a trade deal with Pacific allies. The U.S.
never joined the trade agreement.
The new administration's Council of Economic Advisers, headed by
Cecilia Rouse, a Princeton University labor economist, has a focus
on U.S. workers, including how they are affected by competition
with low-cost workers abroad.
"With open trade there are winners and losers," Ms. Rouse said
in a 2019 interview with Worth magazine. "The losers are really
losing, and we need to take care of them and take on more nuanced
models of international trade as a result."
Mr. Frankel said there needs to be increased focus on domestic
workers left behind by trade, technology and unequal education,
with more spending domestically on preschool, infrastructure and
health. He said Democrats have long backed this approach, and were
impeded by Republicans.
The new administration could move to recast other aspects of Mr.
Trump's international economic policies. Some observers see the new
administration backing away from Mr. Trump's aggressive use of
sanctions. Mark Sobel, who worked in the Treasury Department for
four decades under different administrations and now is at the
Official Monetary and Financial Institutions Forum, a London-based
think tank, said he sees Mr. Biden reserving sanctions for the most
urgent national-security objectives and using them in concert with
other nations, rather than unilaterally.
Mr. Trump's liberal use of sanctions at times led other
countries to seek workarounds that limited their use of the dollar.
Some former U.S. policy makers have expressed concern that
overrelying on sanctions in the long run could thus undermine
confidence in the dollar as a reserve currency. The dollar's
primacy has its benefits -- including making it cheaper to borrow
from investors overseas.
"The Obama administration clearly used sanctions. They weren't
shy about that," said Mr. Sobel. "But they tried to build
multilateral support for their sanctions to a much greater
While the new administration is likely to seek to preserve the
dollar's relevance in global trade and finance, it might tolerate
some weakening in the currency's trade value without saying it very
explicitly, said Mr. Sheets. That would help U.S. exports and even
out U.S. imbalances in global trade.
"The most interesting part of the Yellen pick will be what she
decides to say on the dollar," said Marc Sumerlin, a senior
economic adviser to President George W. Bush, now managing partner
at economic consulting firm Evenflow Macro. Market participants
once hung on every Treasury secretary's word about the currency.
They are not as sensitive to these utterances as they used to be,
but investors would take note if Ms. Yellen signaled an interest in
or tolerance for a weaker currency, he said.
Administrations under Presidents Clinton and Obama called for a
strong dollar, though they didn't want it to get too strong. Mr.
Bush's administration called for a strong dollar but tolerated its
weakening after a sharp run-up that hurt U.S. exporters in the
Mr. Trump took a different course, often tweeting overt support
for a weaker dollar.
Currency could be an area for negotiation between the Biden
administration and China. Beijing allowed its currency, the yuan,
to appreciate between 2005 and 2014, then allowed staggered
depreciations that hurt the U.S. trade position. The yuan has been
depreciating again since June.
If Chinese officials allow their currency to rise, that could
take some pressure off U.S.-China relations and set a stage for the
removal of some tariffs, Mr. Sheets said.
A stronger yuan would increase China's appetite for foreign
goods since it would have more buying power, and undermine its
export advantages. The yuan was a primary focus for U.S. officials
for many years. A succession of Treasury officials flew to Beijing
to press China to allow the currency to appreciate and let market
forces play a larger role in guiding its direction.
--Bob Davis contributed to this article.
Write to Jon Hilsenrath at firstname.lastname@example.org and Nick
Timiraos at email@example.com
(END) Dow Jones Newswires
December 01, 2020 16:37 ET (21:37 GMT)
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