6 big trade predictions for 2023

Morning Trade surveyed trade minds: What’s your biggest, boldest prediction for trade policy in the new year? Here’s what six experts see coming down the pike in 2023.

The senator who cast the pivotal vote on the Inflation Reduction Act has vowed to clarify the intent of the law after the Treasury Department shared much-anticipated guidance on the implementation of electric vehicle tax credits.

It’s Tuesday, Jan. 3. Welcome to Morning Trade. Happy New Year! As we turn the calendar and look ahead, what do you foresee for the US trade agenda this year? Share your off-the-record hopes and skepticisms with your host at [email protected] or via Twitter DM.

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WHAT TRADE WATCHERS PREDICT FOR 2023: President Joe Biden’s trade agenda came into sharper focus over the last year. His administration launched an economic initiative in the Indo-Pacific, tightened export controls on Chinese entities and embraced industrial subsidies that angered key trade partners.

The year ahead is expected to bring developments on all of those efforts, of course. But there is bound to be more progress and conflict to come as Biden settles into his third year in the White House and faces, for the first time in his tenure, a chamber in Congress controlled by his opposition.

So, what comes next? Here’s what six seasoned trade officials told Morning Trade:

Congress will challenge Biden on trade: “A Republican-led House and Democratic-led Senate will find common ground in urging the Biden administration to aggressively pursue new trade initiatives to support American businesses and workers and strengthen foreign policy ties. Look for a bipartisan group of lawmakers to press for the launch of commercially meaningful trade agreements with the United Kingdom and key partners in the Western Hemisphere. Also look to Congress for action on key programs like the Miscellaneous Tariff Bill and Generalized System of Preferences and encouragement and oversight over US leadership on the global digital economy and IP protection, trade ties with China and the administration’s continued use of tariffs.” — Jake Colvin, president of the National Foreign Trade Council

Trade tensions with China will grow: “We’re going to stay in this mode of enforcement-focused trade for the foreseeable future. There’s a fair amount of activity on the enforcement side of China — whether it’s for forced labor, whether it’s for intellectual property, whether it’s for circumvention of anti-dumping and countervailing duties. There is a frustration with the way that China has managed its trade relationship with the United States and that frustration has been festering dating back to when I was in office nine years ago. It’s just reached a boiling point where we are destined to have a more aggressive posture for the foreseeable future.” — Francisco Sánchez, co-head of Holland & Knight’s international trade practice and former undersecretary of Commerce for trade

Industrial incentives will boost Biden’s climate agenda: “At last, 2023 will launch America’s most significant leap forward in the high-tech ecosystem, characterized by the rapid growth of domestic supply chains and national security measures that more aggressively regulate transfers of critical assets and technologies abroad. Across sectors, industrial policy will favor technologies that advance the administration’s climate change goals. And as American innovation accelerates, Congress and the Biden administration will expand national security restrictions on technology transfers to China and other countries of concern, and new restrictions on offshoring national security assets and critical capabilities will likely emerge.” — Nazak Nikakhtar, partner at Wiley Rein and former assistant secretary of Commerce for industry and analysis

Digital protectionism will attract new attention: “A slowing economy and new political constraints on the domestic agenda will turn attention to foreign markets as an engine of prosperity and jobs – and thus the need to finally get serious about trade barriers impeding US companies. Highly export-dependent sectors like digital trade will regain support as critical to US global competitiveness, resulting in a less sanguine view of the digital protectionism the EU is methodically putting into place (and attracting followers), and the implications for US interests of the extractive and redistributionary aspects of such policies. While concluding binding rules to avoid such barriers is not realistic within the year, particularly without Trade Promotion Authority, laying the groundwork for meaningful negotiation and leveraging the goodwill of groupings like the Indo-Pacific Economic Framework will create a more positive trade dynamic.” — Jonathan McHale, vice president for digital trade at the Computer & Communications Industry Association and former deputy assistant US trade representative

The Quad will turn to trade barriers: “The quadrilateral dialogue between the US, Japan, Australia and India was first proposed by the late Japanese Prime Minister Shinzo Abe in 2007 as a ‘democratic security diamond’ but failed to take hold until 2017. Since then, the Quad has taken on increasing importance in the region despite a proliferation of trilateral and plurilateral arrangements. While heretofore it has had a strategic and security focus, expect that to change in 2023 as the Commerce ministers and others start to convene in the quadrilateral meetings. The Biden administration and its Quad partners are under pressure to demonstrate that the Quad is not a military grouping. At the same time, the region has been highly critical of the United States’ lack of a trade strategy in the Indo-Pacific. A Quad commercial track, along with the Indo-Pacific Economic Framework, could align policies and develop initiatives to mitigate supply chain risks.” — Nisha Biswal, senior vice president for international strategy and global initiatives at the US Chamber of Commerce and former assistant secretary of state for South and Central Asian affairs

Trade equity will focus on developing nations: “2023 may finally be the year for inclusive and sustainable trade. 2022 saw the first-ever WTO Gender Congress and a new Memorandum of Understanding between the United States and African Continental Free Trade Area that recognized the ‘mutual interest of inclusive sustainable development.’ The question remains, however, inclusive and sustainable trade for whom? As trade tensions among larger economies dominate and the traditional model for trade agreements falls short on addressing distributional issues, the room for breakthrough is with developing economies and a model that rebalances the gains of trade and allows for more collective approaches.” — Katrin Kuhlmann, faculty co-director and visiting professor at Georgetown Law’s Center on Inclusive Trade and Development

NEW TENSIONS OVER EV TAX CREDITS: Here’s one trade rift that will spill over into the new year: the dispute over US tax credits for North American-made electric vehicles.

The Treasury Department released much-anticipated insight into its plans for implementing the subsidies that Congress approved in the Inflation Reduction Act earlier this year. The agency indicated it will broadly define countries that have a “free trade agreement” with the US, potentially allowing more foreign automakers to access some of the tax credits. A separate tax credit for clean commercial vehicles could also benefit overseas manufacturers that lease cars to consumers through dealerships.

Congressional battle brewing: While a long regulatory process must play out before the agency’s thinking becomes formal, the announcement nevertheless incensed the lawmaker whose vote made the legislation possible.

Sen. Joe Manchin (DW.V.) said Treasury’s interpretation “bends to the desires of the companies looking for loopholes and is clearly inconsistent with the intent of the law.” The guidance, he continued, “only serves to weaken our ability to become a more energy secure nation.”

Manchin didn’t stop there. He also pledged to introduce legislation when the Senate returns to Washington that “further clarifies the original intent of the law and prevents this dangerous interpretation from the Treasury from moving forward.”

Treasury responds: The Biden administration did not back down. Treasury insisted it “is simply following the tax laws and the IRA as written.” And its tax credit guidance for leased vehicles, the department added, are based on tax laws that are “longstanding, settled and clear.”

As for trading partners: The European Union called the clean commercial vehicle tax credit guidance a “win-win” for both countries, while noting that its automakers would be eligible for the benefit “without requiring changes to established or foreseen business models.”

But it still wants EU-produced vehicles to be eligible for the $7,500 tax credit for electric vehicles that are made in North America using critical minerals from the US or countries with which the US has a free trade agreement.

The White House has been negotiating with the EU, as well as South Korea and Japan, on that issue for months. A National Security Council spokesperson said “these are regular conversations and we expect conversations to continue.”

— The US officially scrapped trade benefits for Burkina Faso on Jan. 1 due to its “unconstitutional change in government,” per the Office of the US Trade Representative. The decision was previously announced.

— Biden’s actions to crack down on Beijing’s tech development will do more to hinder the Chinese economy than Trump ever did, POLITICO’s Gavin Bade reports.

— The head of the International Monetary Fund warns that slower growth in the US, Europe and China will be a drag on the world economy, Reuters writes.

– South Korean exports further declined in December in a bad sign for global commerce, according to Bloomberg.

— China is deepening its economic ties across Asia at a time when the US wants nations to be less dependent on Beijing, The Wall Street Journal reports.

THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [email protected], [email protected] and [email protected]. Follow us @POLITICOPro and @Morning_Trade.

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