Tai Says Lowering Tariffs 'Insensitive' to US Economic Dynamics

U.S. Trade Representative Katherine Tai said there is no interest in offering Taiwan "a very, very comprehensive, maximally liberalizing, aggressively liberalizing agreement." Tai, who was speaking at the Aspen Security Forum Dec. 7, was asked if the administration would pursue a free trade agreement with Taiwan, since Congress passed a bill welcoming such a negotiation. "We're not doing that with anybody right now," she added.

Tai said that lowering tariffs is "insensitive to the dynamics in the global economy and the U.S. economy," and she said that while trade agreements that lowered domestic tariffs in exchange for the partner country lowering its tariffs for U.S. exports may have made sense in the 1980s and 1990s, that approach was "maybe starting to show its age in the 2000s." She also said she doesn't see a way of changing tariffs that produces a more resilient supply chain. Referring to the Indo-Pacific Economic Framework, she said, "This is not the TPP." The Trans-Pacific Partnership was an FTA negotiated with many of the IPEF countries, concluded during the second Obama administration, and abandoned by President Donald Trump on his first day in office.

Tai was interviewed by David Westin from Bloomberg, and he asked about people's disappointment that the IPEF trade pillar is not very close to being done, while the other three pillars have been completed.

"Regardless of what we were planning to do or celebrate at [the] APEC [conference] in November of this year, we had a very full 2024 negotiation agenda," Tai said, referring to reports that the administration abandoned the idea of announcing "early harvests" in the ongoing work to reach agreement. She said there are 10 issue areas in the trade pillar, and "We’ve made significant progress to achieving consensus in five and a half of them."

"We will continue with that, we’re committed to continuing with it, and we have partners who have told us that they are excited and committed to continue negotiating with us through next year," she added.

Westin questioned whether trade negotiations could be fruitful in a presidential election year, and she said due to the way the administration has designed and scoped the negotiations, she doesn't think they would be politically perilous. "I'd say this, the lessons we’ve learned from the past, let’s say, seven years on trade, mean that we can’t ever ignore the domestic political consequences of what we’re doing in trade."

Westin asked Tai why, given the administration's interest in using trade to advance the fight against climate change, there isn't a carbon border adjustment tax in the U.S. yet.

"I would say you're talking to the wrong person. That question needs to go to the U.S. Congress," she said.

However, she added that the negotiation of a global steel and aluminum arrangement with Europe is an important effort to tackle climate change through trade.

"The Biden administration’s perspective is, with respect to global overcapacity and global market distortions in steel and aluminum, that is a fact we have to contend with. We have to be able to be a steel producer in the global economy, including for national security reasons, but also for basic economic reasons. But we shouldn’t be taking that on alone. The distortions that are happening in the global marketplace are happening to our partners too. So we joined forced with the Europeans to say, let's figure out how we can liberalize and normalize trade between us in steel and aluminum, but work together to defend our economies against unfair trade and unfair production. And create incentives for cleaner trade and cleaner production."

She said the fact that the EU is implementing a carbon border adjustment tax for steel and aluminum, among other products, is helpful. "We gave ourselves two years -- we realized this fall that we're going to need more time. And we are committed in the Biden administration... to staying at the table and working on this issue with Europe because it is so important and so foundationally important to creating a template for what we might do more broadly."

On enforcement of existing trade agreements, Tai focused on the rapid response labor mechanism. She said it was "not an accident that 90% of the cases we have brought have been in the auto sector." She said that as a result of the re-do of a union election at a GM factory in Silao, the workers won a new contract that hiked wages by 10% two years in a row, after years of flat wages.

"This is one of the cornerstones of what we call the worker-centered trade policy," she said.