RIP ‘worker-centered trade’: Biden’s global economic agenda stalls

President Joe Biden’s ambitious plans to rewrite the rules of global trade — and blunt Donald Trump’s economic message against him — are running aground just as the nation enters election season.

The chief reason: Biden has failed to sell his self-styled “worker-centered” trade policy to key members of his own party, stoking fears of a backlash at the ballot box from the very workers the president and fellow Democrats are courting.

That reality became clear in San Francisco last November, where Biden planned to unveil his signature trade initiative — an economic pact with 13 other Indo-Pacific nations. At the last minute, Biden’s team unexpectedly punted the trade portion of the talks, after Ohio Sen. Sherrod Brown and other Democrats warned the proposal could hurt workers (and, implicitly, their election prospects). Even if the president’s agenda was designed to staunch the flow of jobs overseas, perception that it wouldn’t was what mattered most for Brown and at-risk Democrats across the industrial Midwest.

“There were some big concerns that we would be retreating back to the day where trade was a race to the bottom, especially for workers,” said Sen. Tammy Baldwin, a Wisconsin Democrat facing a tough reelection campaign this year who, along with Brown and other senators, successfully pressed Biden to pause the Indo-Pacific trade talks. “And, even if their framework wasn’t really a retreat on the progress we’ve made … the perception would be there.”

The about-face from the Biden administration shocked representatives from other Indo-Pacific nations, who had planned to announce the pact during the biggest diplomatic event of Biden’s term — the Asia-Pacific Economic Cooperation summit. Despite Biden’s pledge to continue talks this year, senators and trading partners alike doubt the deal will get done, cognizant that an election year will only accentuate political backlash against trade.

“It’s gone,” Brown said of the trade section of the Indo-Pacific deal. “They backed off it, so it’s done.”

It wasn’t supposed to be this way. Biden’s initiatives were meant to show that his team could resolve the fundamental contradiction in American trade policy: Designing a global trade agenda that serves American interests abroad without sparking a domestic political backlash that could doom both the policies and the president that proposed them.

The high-profile reversal in San Francisco was just the most recent setback in Biden’s trade agenda. U.S. officials have also hit a stalemate in their talks with the European Union to address the tariffs Trump levied on EU steel and aluminum when he was president — an issue key to Midwestern steel workers. The White House has also backed away from a binding trade pact the president pitched to Latin American countries in 2022; U.S. officials are now pushing a more modest, voluntary framework.

Those moves reveal that Biden and Democrats still fear that trade initiatives, even those framed as “worker centered,” could be an electoral liability in battleground states that Trump wooed with a protectionist message in 2016. Though Biden’s team has tried to differentiate its own policy to counter Trump’s agenda, members of his own party now worry those efforts will backfire at the ballot box.

“The politics on this are a bit less nuanced and more anti-trade than some folks in the administration had been thinking when they embarked on this endeavor,” said Peter Harrell, who led the international economics team on Biden’s National Security Council until November 2022. “At the end of the day the voter in Dayton, [Ohio], looks at this and says: trade deals have been bad for me, I don’t want more trade deals. This sounds an awful lot like a trade deal, and I’m against it.”

The administration insists its trade agenda isn’t dead. While trade was jettisoned from the Indo-Pacific talks, the U.S. still struck pacts with Asia-Pacific nations on supply chains, anti-corruption and clean energy, they point out. And Biden’s new global investment agenda — meant to counter China’s aggressive foreign infrastructure lending — also showed signs of progress late last year. Changing the paradigms of global trade is hard, they argue, and the U.S. has made considerable progress already.

“I think that what we are encountering is a resistance to change and a slowness to coming to the realization of what we're trying to do,” U.S. Trade Representative Katherine Tai told reporters after the Indo-Pacific talks collapsed, referring to critics in Congress and on K Street. “But it's happening.”

But outside of the administration, even Biden’s allies concede that the year-end debacle could be a fatal blow for the president’s global economic agenda this term. No trade issues are likely to be resolved with an election looming, they said, so if Biden’s team is to succeed in revamping the global economy, they may have to win reelection first.

“Today, it looks like trade is probably going to be a post-election agenda, and it will obviously look quite different depending on whether we get a Biden term two or a Trump term two” said Harrell. “I think it’s a shame because, while big comprehensive trade deals have never been first term president projects, I feel we should have been able to make some headway.”

A new-look trade framework

The Indo-Pacific deal counted on policy nuance to resolve political discontent with traditional trade pacts. The unpopular part of past global trade deals, Biden’s team reasoned, was that they encouraged job outsourcing by lowering tariffs and offering foreign competitors access to the U.S. market.

So, Biden’s team decided it would simply leave tariffs and market access out of the negotiations and engage on what it saw as positive aspects of trade, like encouraging higher labor and environmental standards abroad, along with coordination on supply chains, anti-corruption and clean energy. That approach has animated its trade talks not just in Asia, but Latin America and elsewhere.

“The administration’s theory is if the U.S. doesn't offer market access, then the U.S. shouldn’t have an adverse political dynamic,” said Harrell.

That approach to trade had some immediate benefits for Biden — like cutting out Congress. Any trade agreement that adjusts tariffs or market access rules would trigger a vote from the legislature, opening a gauntlet of negotiations. Take those parts of the deal off the table, and the administration figured it could strike a so-called “executive agreement” with other nations and not worry about Capitol Hill.

The Biden administration's most significant goal was to use trade to raise labor and environmental standards in other nations — as opposed to past deals that incentivized outsourcing to nations with lower standards. Tai and her allies aimed to turn that paradigm on its head, using the promise of foreign investment to encourage a “race to the top” on domestic rules.

In traditional trade deal talks, other economies would usually expect something in return for instituting the labor and environmental rules that the U.S. wants — namely, lower tariffs and more access to the U.S. market. That wouldn’t change in this negotiation just because the U.S. wanted tariffs off the table.

But instead of that traditional quid-pro quo, Tai’s strategy started with an appeal to trading partners’ self interest. Foreign trading partners — particularly U.S. allies in the Indo-Pacific region including Japan and South Korea — should want to raise their labor and environmental standards for the good of their own workers, Tai argued, and other nations agreeing to do the same could create a rising tide that lifted workers across multiple economies.

But there was another, more implicit, motivation as well. If foreign trading partners brought their labor and environmental standards closer to those in the West, they would be in a better position to benefit from the other side of Biden’s international economics agenda — a surge in infrastructure project financing backed by the U.S. and Western banks. Those initiatives, meant to combat China’s Belt and Road initiative, were negotiated under the non-trade portions of the Indo-Pacific pact, as well as separate infrastructure programs Biden unveiled at the G-20 summit earlier last year.

Indo-Pacific economic flop

Less than a week before the scheduled unveiling of the Indo-Pacific pact, administration officials remained optimistic a final deal was in sight, telling reporters they expected to announce most of the pact’s trade provisions in San Francisco, some of which would be legally binding.

But that never came together. In the final rounds of negotiation, some countries continued to object to new labor and environmental standards without getting more in return from the U.S. government. The self-interest argument simply wasn’t enough.

“It’s not a secret that the United States for a while now has pushed for high standards in these areas and that some of our trading partners find that difficult,” said a senior administration official, granted anonymity to discuss ongoing negotiations. “Even though that can be the case, the United States — especially under President Biden — is not going to back away from the importance of these things.”

Back in Washington, lawmakers were aghast. Congressional Democrats had complained for months that the administration hadn’t properly consulted with Congress on the negotiations. Now, with labor and environmental provisions in doubt, their skepticism morphed into outright opposition.

Just a week before the pact’s planned unveiling, Brown, the chairman of the Senate Banking Committee, told his colleagues at a lawmaker lunch that he would publicly oppose the entire package unless Biden dropped the trade pillar completely. Facing a tough reelection in increasingly Republican Ohio this year, the third-term senator said he would rather have no deal than a deal that lacked binding labor and environmental protections.

“I want there to be trade between nations,” Brown insisted after derailing the deal. But “I don’t want it to be about corporate giveaways and hurting workers.”

Other Democrats quickly piled on. Senate Finance Chairman Ron Wyden — increasingly frustrated with the administration over what he viewed as inadequate consultation on the Indo-Pacific negotiations — said he endorsed Brown’s view.

“I am going to oppose flawed trade proposals,” Wyden told POLITICO. “And what we have seen thus far on trade is Congress being pushed to the side, and I consider that to be flawed.”

Both Brown and Senate Majority Leader Chuck Schumer called the White House to urge it to drop trade provisions. The message from lawmakers was simple: the Indo-Pacific trade provisions could hurt Brown, Baldwin and Biden’s reelection campaigns, giving Republicans an opening to paint the deal as a job-outsourcing global trade agreement.

It was a particularly penetrating criticism for Tai. Since the start of the administration, she had urged Biden to tread lightly on trade issues, saying the backlash over the Trans-Pacific Partnership, a far more ambitious 12-nation agreement negotiated by former President Barack Obama, was a key to Trump’s 2016 victory over Hillary Clinton in a handful of Midwestern swing states.

The eventual collapse of Biden’s deal felt all too familiar to trading partners after the U.S. reversal on the TPP last decade. Trump withdrew from that agreement as one of his first official actions when he took office.

“We understand the political environment in which the Americans are dealing with these sorts of issues,” Australian trade minister Don Farrell told POLITICO in San Francisco shortly after the trade pillar was jettisoned. “Nobody wants to see a repeat of the 2016 situation with the Trans-Pacific Partnership.”

The fallout

In public, trading partners put on a brave face, each pledging to continue the Indo-Pacific economic conversations this year. When regional leaders unveiled the rest of the pact onstage with Biden in San Francisco, only Singapore’s prime minister even mentioned the jettisoned trade portion of the deal, saying “it takes time to work through sensitive areas,” adding conspicuously — “and choose the best moment to commit to the deal.”

But behind the scenes, foreign delegations were less sanguine. The U.S. decision to pull the plug on trade “came as quite a shock,” said a delegation member from an Asian nation, rubbing tired eyes underneath their glasses as they rushed between meeting rooms in a cavernous San Francisco hotel. “We’ve done seven rounds” of negotiation already, said the person, granted anonymity because they were not authorized to speak about the deal. “Everybody is drained out.”

“We are very pessimistic” about finishing the deal in 2024, added another official from an Indo-Pacific nation in San Francisco, also speaking on the condition of anonymity because they were not authorized to talk to the press about the negotiations. “Next year is an election year.”

It’s unclear which nations objected to the labor and environmental provisions, but the developing countries in the pact — such as Malaysia, the Philippines, Thailand and Indonesia — would have the most reason to oppose them. During his remarks at the APEC CEO summit, Philippines President Ferdinand Marcos Jr. decried nations that “discriminate” on trade based on labor and environmental rules.

Marcos did not specify exactly which environmental policies his government opposes. But in an interview with POLITICO the next day, his own trade minister said the Philippines had no objection to U.S. demands in the talks.

“In the context of the [the Indo-Pacific pact], we are aligned with the overall direction of having higher standards when it comes to the environment,” Secretary of Trade and Industry Alfredo E. Pascual told POLITICO. “In fact, for us, we like that because that is a way for us to differentiate the Philippines [from] other countries who might be having problems.”

In remarks to reporters, Tai said she believed the problem was less with the foreign governments themselves, and more with the guidance they got from Western consultants and business lobbies who clung to the old paradigms of free trade and globalization.

“I think it might be the fancy consultants that they have hired in Washington advising them not to” agree to higher labor and environmental standards, Tai said. Those same corporate interests, she added, had been “kicking IPEF like a lonely dog in a back alley for the past year and a half.”

The road ahead

The Biden administration stresses that its broader global economic agenda in the Asia-Pacific remains on track. The Indo-Pacific agreement won’t address trade issues for now, but countries finalized voluntary agreements on supply chain coordination, anti-corruption and clean energy.

More significantly, the administration announced a new infrastructure partnership that it says will help open up access to Western financing for Indo-Pacific nations that want to build clean energy projects or other forms of infrastructure.

That agenda has made some legitimate strides. In San Francisco, Commerce Secretary Gina Raimondo unveiled tens of billions of dollars in new funding for infrastructure projects in the region, much of it coming from the likes of Western financial institutions like Citi or Blackrock, whose CEOs flanked Raimondo at the kickoff event.

Those advances in the administration’s investment agenda are welcome, said Harrell. But they remain “base hits” and not “not triples or home runs” in the twin races against climate change and Chinese influence.

And many trading partners want to see more. In addition to completing the Indo-Pacific pact’s trade provisions, the Philippines wants to open negotiations on a critical minerals deal with the United States that could see it gain access to some of the tax incentives for electric vehicles created by Democrats’ landmark 2022 climate law, the Inflation Reduction Act.

Japan has already signed such an agreement, and talks are underway with the European Union on a similar one, but Pascual, the Philippines minister, said his country’s talks with the U.S. have not yet started. From his perspective, the U.S. should want that deal more than the Philippines.

“I've been to China eight times just this year — seven of those are in the past three months — because of very serious intention, very serious discussions with [Chinese] high tech companies who would like to invest in the Philippines for mineral processing, for [wind energy] turbines, blades, for monopiles — for renewable energy,” Pascual said.

“Our intention is to add value to our minerals,” he added. “But if the U.S. is slow on that, I’ll tell you, the Chinese are very aggressive.”

Part of an occasional POLITICO series: The Changing Landscape of Global Trade.