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The Still-Murky Global Trade Waters

24 November 2020   |  

There’s been something of a trend in recent years away from trade pacts among large blocs and toward more bilateral agreements. Naturally, there are notable exceptions—the renegotiated NAFTA and the recently agreed Asia Pacific pact jump immediately to mind—but relative to the number of recently agreed bilateral treaties, the momentum seems to have swung in favor of the latter. Perhaps because bilateral agreements are easier to hammer out—a potentially significant factor in an overall tenser geopolitical environment. Whether it’s that simple or something deeper is at work is up for debate—which we’ll leave to the political scientists—but with some big political shifts among major countries in the offing (namely, the US, China, and the UK), it’s worth evaluating the potential direction of future trade deals as we head into 2021.

United States
From the outset of his administration, President Trump made it clear he preferred bilateral negotiations to multilateral as he believed they provided the US maximum flexibility to obtain favorable terms and protect domestic industry. He acted quickly to demonstrate his commitment to this view, withdrawing the US from then-ongoing Trans-Pacific Partnership negotiations on his first day in office. Since then, the US hasn’t entirely eschewed multilateral or regional trade agreements—e.g., the US-Mexico-Canada Agreement—but many negotiations have indeed been bilateral (e.g., with Japan, the EU, the UK). President Trump also leaned heavily on tariffs as a leverage point in trade negotiations.

Ongoing political uncertainty aside, as we look to 2021, early indications are a Biden administration would start with a review of existing tariffs. On the trade deal front, the waters seem likely to remain murkier until the Senate’s fate is decided, which won’t be until January 4 runoff elections for both Georgia seats. However, if the Republicans retain a majority, it seems unlikely there would be much movement on the trade front, barring the building of a non-partisan coalition—which isn’t outside the realm of possibility given from a historical perspective, the Republican party has typically been the readier supporter of free trade.

When it comes to China, many expect tensions with the US to persist—though Biden is expected to utilize different tactics to pressure China on human rights and the US’s technology concerns.

China’s tensions aren’t just with the US—it’s also amid seemingly testy interchanges with Australia and the EU. China is Australia’s top trade partner, and the EU is China’s—so the stakes are high all around. However, China did recently ink a new 15-country Asia Pacific trade agreement, showcasing China’s regional influence and likely turning up the heat on other negotiators to resolve their differences with one of the world’s largest markets. Then, too, there’s the country’s stated intention to pursue its dual-circulation strategy to drive increased domestic high-tech industry production. TBD how that turns out.

United Kingdom
With Brexit looming, the race is on to secure a trade deal with the EU—that much is obvious. Less obvious is where it stands with other trade partners—Japan aside, with which the UK did recently sign an agreement. And there are some hopeful signs the UK and Canada may reach an agreement before year’s end. But other discussions—notably, with the US—remain up in the air and if anything are even murkier amid US political uncertainty.

Where any of these negotiations go is—as ever—anyone’s guess. But it will be interesting to see whether bilateral negotiations remain the preference or whether—particularly amid an ongoing pandemic which has strained global supply chains—there’s a renewed appetite for multilateral or regional deals.

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