The Biden administration must forge a delicate balance between improving international trade relations while defending U.S. interests.
President Biden faces obvious immediate threats, such as dealing with the aftermath of the violent protests challenging the legitimacy of the 2020 election and quelling the raging coronavirus pandemic. But the Biden administration also must contend with major foreign and trade policy issues—including how to manage the potentially-hazardous legacy left by the Trump administration.
With respect to international trade, the Biden administration has inherited the Trump administration’s “America First” positions, including a combative posture towards our traditional allies, large tariff increases and an undermining of international trade law, including at the World Trade Organization. These maneuvers, which many consider to have been a failure, require the Biden administration to forge a delicate balance between improving international trade relations while defending U.S. interests.
President Biden will have to negotiate no bigger minefield than with respect to Sino-American relations, where President Trump promised to get “tough” on China and right an unfair dynamic, especially with respect to trade and intellectual property. The Trump administration failed to deliver on its promises, and by most metrics the U.S. relationship with China is worse today than four years ago.
Resetting relations with China will require foreign policy skill and dexterity—and is made all the more challenging when the Trump administration’s last-minute actions, including determining that China has committed genocide against the Uyghur minority in Xinjiang and removing restrictions on diplomatic contacts with Taiwan, are thrown into the mix.
The Biden administration also must negotiate re-engagement with the international human rights system. The Biden administration has already signaled its intention to rejoin international organizations that were abandoned by the Trump administration, such as the U.N. Human Rights Council.
President Biden must also decide the extent to which he will take a position on whether and how U.S. corporations should be held responsible for human rights violations committed abroad. This latter topic was argued before the U.S. Supreme Court on December 1 in the consolidated cases of Nestlé USA, Inc. v. Doe I and Cargill Inc. v. Doe I, with a ruling expected this summer.
To put the challenges Biden is facing in perspective, Ms. spoke to Professor Gregory Shaffer—chancellor’s professor of law at the University of California, Irvine Law and director of the UCI Center on Globalization, Law and Society.
Among the world’s leading scholars on international economic law and the World Trade Organization, Shaffer sat down with Ms. contributor Michelle Onello recently for a wide-ranging discussion on how the Biden administration can, and should, address these formidable challenges. He also gave Ms. a sneak peek into his forthcoming book, Emerging Powers and the World Trading System: The Past and Future of International Economic Law.
Editor’s Note: This interview has been edited and condensed for clarity.
Michelle Onello: President Biden faces historic challenges—domestically with a pandemic, a struggling economy, and divisive political partisanship, but also internationally as he seeks to reposition the U.S. in the world.
What do you see as the Trump administration’s legacy?
Gregory Shaffer: The Trump administration’s legacy is to completely upend the multilateral trading system, and he did so by blocking any movement in the World Trade Organization, even in terms of selecting a new director-general to lead the organization.
The Trump administration launched trade wars not just with China, but with pretty much everyone around the world, and they, in turn, have retaliated against the United States by increasing tariffs on U.S. products.
Normally, this would be addressed through binding dispute settlement at the WTO. But the members of the WTO’s Appellate Body had set terms of four years, and the decision for their replacements was by consensus, which meant that if anybody objected, then a replacement would be blocked. Well, the Trump administration blocked all replacements, and now there is no longer a functioning Appellate Body. It still exists on paper, but there are no members of this body.
And so a WTO member can still bring a case before a panel, but the losing member can appeal that panel’s decision to an Appellate Body which no longer has any members. As a result, there’s no longer a binding dispute settlement system.
Onello: What else will the Trump administration be remembered for?
Shaffer: There’s multiple dimensions to the legacy of the Trump administration.
First is the U.S. relationship with the WTO, and in particular its destruction of a neutral third-party dispute settlement system for trade, which means that trade relations under the Trump administration became based on power, without a sense of a rule of law for trade relations.
Second is very high tariffs. Those high tariffs went from basically an average of 3 percent to over 21 percent for Chinese goods, while the United States also imposed higher tariffs on steel, aluminum and aircraft from Europe, as well as other trading partners.
Third is the U.S. relationship with China, which has become highly fraught. We had been addressing China through negotiations, bargaining, and dispute settlement before the WTO; now, with the trade war that the Trump Administration launched, we created what’s called the Phase 1 agreement with China, which is backed by unilateral U.S. enforcement. So, if the United States believes that China has not complied, it simply can retaliate on its own, and China’s only choice is to leave the Phase 1 agreement, which means the trade war further intensifies.
Onello: What should the Biden administration consider as it formulates its international trade policy agenda?
Shaffer: The Biden administration, I believe, will deal with these aspects of the Trump administration’s legacy in the following way.
First, it will re-engage at the World Trade Organization. To start, it stopped blocking the selection of a new WTO director-general. Ngozi Okonjo-Iweala is a Nigerian economist, who had been at the World Bank and who is well-respected. The rest of the membership of the WTO supported her candidacy. She is now the first African and first woman head of the World Trade Organization. Symbolically, it’s a quite significant development, in light of the Biden administration’s advocacy for more diverse leadership within its own administration.
The second aspect will be what to do with ensuring binding, neutral dispute settlement at the WTO. Here, we don’t know what will be the administration’s position on the WTO’s Appellate Body.
The new U.S. trade representative is Katherine Tai. She’s an Asian American who comes out of Congress, and she was in charge of providing counsel to the Democratic side of the Senate. She was central to the Trump Administration’s renegotiation of NAFTA under the US-Mexico-Canada agreement (USMCA), in particular advocating for new labor provisions which the AFL-CIO supported, and which eventually received bipartisan support.
She will have to address U.S. concerns about the WTO Appellate Body interpreting WTO agreements in ways that limit the ability for the United States to adopt import relief measures, in particular, against products from China. I imagine the administration will try to work towards returning to a binding dispute settlement system, but the exact shape that it’ll take, we don’t know.
That’ll be a major domestic political challenge because Biden will have to balance his disposition of wanting to work with international institutions in this area with a need to prioritize domestic policies. He’s inheriting a very fragile economy, especially on account of COVID, a greater distrust towards China, and concerns amongst unions of the impacts of international trade on industry.
Next is with respect to all the tariffs that the Trump Administration imposed. The Trump administration were always saying, “They’re paying these tariffs, and it’s raising all of this revenue.” Well, it’s actually U.S. consumers who pay these tariffs and manufacturing jobs actually declined, especially on account of the handling of the COVID pandemic.
The Biden administration will eliminate the tariffs or try to negotiate elimination of the tariffs with respect to U.S. allies, especially Europe. There will be a move towards working with Europe, cooperatively, as opposed to treating Europe as a trading enemy.
The most challenging aspect will be managing the shift in our relationship with China, because he’ll want to work with Europe to see if we can put pressure on China to change some of its practices, and it’ll be more effective for the United States to do that if it does so in cooperation with allies, given the size of the U.S. and European market when combined, which provides more leverage.
Surveys show the United States, under the Trump administration, became the most distrusted internationally that the country ever has been in recorded history. That is not helpful for advancing U.S. norms and interests. Biden wants to regain that trust with allies and then see if they can cooperate when negotiating with China. He will certainly treat China in a more nuanced way than Secretary of State Pompeo, who would always reference China in speeches as an existential threat, an enemy of the United States, and so forth.
So, in trade matters, Biden is going to want to use tariffs to provide safeguards for American workers, but use them in a more calibrated way—preferably within the umbrella of the multilateral, rules-based, trading system, and preferably working with allies to put pressure on China with respect to particular Chinese subsidy practices that have led to overproduction and gluts of steel on global markets, which decrease prices and lead to the elimination of jobs in the United States.
But even more importantly, we have to create an effective, robust industrial policy, job-creating programs, educational funding, community development programs—and the problem is, Biden is simply not going to get much cooperation from Republicans in Congress, and that’ll create real dilemmas for him. Life will not be easy for him in the trade world.
Onello: What parts of this agenda can Biden do via executive order?
Shaffer: He could end the provactive tariffs immediately that Trump imposed on allies. He also eventually could remove the tariff increases on products from China that Trump imposed in violation of U.S. treaty commitments and relaunch the binding dispute settlement system at the WTO.
But doing all that without ensuring that there is a stronger social safety net, universal health care and improved living standards for most Americans will be a challenge. Fingers will be pointed by his political opponents that he’s weak on China, that he’s making America not so great again, whatever he does. This will occur even though the U.S. trade deficit under Trump with China increased. And even though net manufacturing jobs in the United States under Trump’s tariffs did not fare well, and they plummeted with his handling of the COVID pandemic.
But that doesn’t end the fact that in the United States there is greater job precarity and less unionization. Jobs in traditional sectors are decreasing. Technology is becoming more important, which is also putting at risk what formerly were considered to be good jobs that came with healthcare insurance.
To deal with this domestic challenge, Biden needs the cooperation of Congress, and Republicans will want him to fail so that they can then better position themselves in the midterm elections. So, it’s going to be hard.
Providing community funding for job training, job enhancement and community development will be dependent on Congress, and that’s a major reason why we have this skewed unequal economic system that we have.
Onello: Are there “traps” that have been set that the Biden administration needs to be aware of, and how can they avoid them?
Shaffer: The shift in economic policy reflects, in some ways, a traditional Democratic/Republican shift. As soon as Republicans come in, they cut taxes and restrict social welfare benefits, and then the Democrats come in and they provide more assistance once more.
For the human rights community, it’s going to be an immense shift with the Biden administration coming back in power because basically the Trump administration left the human rights field for the most part, globally, and did so dramatically.
But the trade realm is more complicated simply because working-class Americans who have drifted towards the Republican Party have suffered, and so, you’ve got to provide them with some sense of economic hope. When communities get hit with lost jobs, that’s a huge shock, and Biden is going to have to manage that with constrained domestic resources.
Onello: I’ve heard it argued that some see the positions of the Trump administration with respect to China as actually good for Biden, because they give him more leverage.
Shaffer: I agree. The world of liberal democratic and social democratic parties is so hungry for a return of the United States as a constructive force in global fora that there’ll be less pushback with respect to U.S. measures than there had been because they will want to work with the Biden administration.
With China, he comes in with tariffs of over 21 percent, and he doesn’t have to remove those without a negotiation. They’ll use this as leverage to try to get some sort of deal with China.
My own view is that he should retain the ability to raise tariffs when Chinese goods are imported in large quantities and threaten industry and jobs. There is a consensus view within Washington, DC, on both sides of the aisle, that the U.S. should be tough on China. I think the focus should be on prioritizing domestic policies and equipping and protecting U.S. constituents from trade’s potentially adverse distributive impacts, while harnessing its benefits.
Onello: On Dec. 1, the Supreme Court heard oral arguments in the consolidated cases of Nestle USA v. Doe and Cargill Inc. v. Doe, brought on behalf of the children that were enslaved on cocoa farms in West Africa against two major chocolate producers.
Can you give us a brief description of the case and your assessment of how the court might rule and a little bit about the business and human rights implications of the case from your perspective?
Shaffer: We have a statute that goes back to 1789 called the Alien Tort Statute, which permits foreigners to bring a claim before a U.S. court for a tort which was committed in violation of the law of nations. This was a statue that no one paid much attention to for about 200 years, but in the 1980s, human rights groups started to support victims in bringing claims against individual defendants, for example, who had engaged in torture. Mass claims subsequently began to be brought against corporations for aiding and abetting human rights violations.
This particular case involves Nestle and Cargill, who purchase chocolate from growers in West Africa. The allegation is that farmers there have employed child labor and that it constituted a form of forced labor or slavery.
The plaintiffs maintain that Cargill and Nestle aided and abetted and were transferring funds with full knowledge that they were financially benefitting from these practices of slave labor, child labor and forced labor, and these are clear violations of customary international law—the law of nations.
So, then the questions are: First, can a U.S. corporation be liable for a tort in violation of the law of nations? And if the answer to that is no, which Justice Kavanaugh has said when he was an appellate judge, then case dismissed, the corporation cannot be liable.
The second issue is the Court had held that the Alien Tort Statute didn’t apply extra-territorially in an earlier case (named Kiobel) from a few years back. According to Justice Robert’s decision, a plaintiff would thus have to show that the alleged tort “touched and concerned” the territory of the United States “with sufficient force.”
If the corporations win the case, then cases against them under the ATS will be immediately dismissed before U.S. courts. For the human rights community, this has become an important pressure point on corporations to hold them accountable, to ensure that in countries where there’s no rule of law, there are safeguards to make sure that corporations are not purchasing goods that are produced with slave labor, forced labor, or child labor.
The current conservative Supreme Court has cut back on the use of the Alien Tort Statute; they’ve been very skeptical on these types of cases involving acts that take place abroad. Nonetheless, from oral argument, my sense is that there is a chance that the Court will actually hold that the statute can apply to U.S. corporations.
Onello: You will soon publish a book entitled Emerging Powers and the World Trading System: The Past and Future of International Economic Law, and I just wanted to ask you if you could give us a brief summary of the book and explain what motivated you to write it.
Shaffer: It’s a fascinating story because I started writing and researching in this area almost 20 years ago, and the world shifted under our feet, particularly after the Trump administration came into power. So, by the end of the book, the central question became a paradox: Why is it that the United States became a revisionist power and upended the very world trade system that it had created. Normally one thinks of emerging powers as revisionist powers, not the incumbent power.
The international trade law system was basically created by the United States after it was victorious in World War II, and then it was revamped after the U.S. victory in the Cold War, following the collapse of the Soviet Union and Eastern European countries’ move to join the European Union and NATO as part of the “West.”
After the WTO’s creation in 1995, developing countries said that the WTO’s rules were rigged in favor of the United States and Western countries. In addition, the United States had the legal, technical know-how to enforce the rules against others, while developing countries lacked such know-how. U.S. corporations would hire U.S. law firms who then would work with the U.S. Government, as I explained in an earlier book, Defending Interests. So, for the developing world, while it looked like the rule of law, they felt it was biased in favor of large countries with the technical know-how and financial clout to use it, which is a common challenge with law.
So I started asking the question, what can developing countries do to defend their interests? I worked with an NGO in Geneva, looking into the development of “trade law capacity,” which is a key concept in my new book. How could they build the legal know-how within their governments, their private sector, and their civil society to be able to engage effectively in this new legal system?
But the paradox emerged because the United States became the system’s wrecking ball under the Trump administration. The United States turned against the very system that it created, and the countries who complained about the WTO suddenly became its defenders.
So, the book then assesses how did this happen, and what can be done? As to how it happened, I note a double-edged shift in inequality. On the one hand, inequality’s been reduced globally given the basic economic rise of China, and to a lesser extent, India and (for a time) Brazil. They, in the process, developed trade law capacity to take on the United States and Europe at the WTO.
On the other hand, inequality rose within the U.S. to an extent not seen since the 1930s, leading to political polarization and the rise of populism. Greater job precarity and a greater sense of inequality created political possibilities for the election of a nationalist, nativist politician in Trump. And that’s the reason why the Biden Administration’s positions on trade are going to be so important, and so challenging if the administration is to thread the needle of retaining an international, rules-based system, while at the same time, ensuring that it benefits working Americans, and not primarily elites.
Go deeper on how the U.S. can rebuild global relationships by tuning into Episode 18 of the Ms. podcast, “On the Issues With Michele Goodwin”: How Does the U.S. Rebuild Global Relationships? (with Penelope Andrews, David Kaye, Gregory Shaffer and Lyric Thompson).
Listen here:
Or head to the episode landing page for a full transcript:
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