Team Biden Is Changing Your Trade Policy

President Biden and his international trade team have distanced themselves even further from the American retail industry. It appears they are planning to change retail’s core trade definitions that are critical for sourcing products and essential to the supply chain. This, of course, is a tad frightening but retailers must decide if this new thought process is a help or a serious hurt. Biden’s trade team is promoting a new global middle class, as they believe this is the better option for the future – versus the more immediate problem of being able to freely move products across the globe.

At first glance, one could think this chatter is inconsequential – but, as a retailer who relies on international trade, take a closer look and it is downright scary. Team Biden is seriously engaged in re-defining the word “people” in a manner that would make it appear that USA retailers, sourcing executives, and consumers are not the people they are designing trade deals for. In the new Biden scenario, people who trade are now placed in a different category. It’s more like they have been moved to the metaverse, in an effort to elevate a yet undefined global middle class. This may be all well and good, but many see this as an opportunity to ignore serious (and immediate) trade issues back on earth, while Team Biden theorizes about America’s role in global trade priorities.

Speaking at the National Press Club in Washington on June 15^th, United States Trade Representative Katherine Tai discussed the Biden Administration’s “new approach to trade (that) recognizes people as more than just consumers.” Their new trade definition of people – is that they are “also producers – the workers, wage earners, providers, and the community members that comprise a vibrant middle class.”

As the word “people” is significantly generalized to include “more than just consumers,” retailers should seriously worry that traditional trade deals will fall by the wayside and that renewable trade deals will lapse and – more important – new trade deals will be nonexistent. For American retailers, USA trade policy is the only game in town, and it is the people’s policy.

In reality, most retailers live, die, sink, and swim by the norms of international trade. For Team Biden to put trade into the metaverse of intellectual philosophy – well – that is not what retailers signed up for. The government, in a retailer’s mind, is supposed to work for the people, not spend time defining who the people are.

On April 29^th, President Biden’s National Security Advisor Jake Sullivan spoke at the Brookings Institution. He alarmed retailers when he hinted about “moving beyond traditional trade deals to innovative new international partnerships focused on the core challenges of our time.” He also said that “the world needs an international economic system that works for our wage-earners, works for our industries, works for our climate, works for our national security, and works for the world’s poorest and most vulnerable countries.”

In context, the Biden Administration believes that brands seem to only care about their consumers. USTR Tai is calling for a shift in current trade policy that “moves away from a narrow focus on creating benefits for consumers.” She says that “the pursuit of efficiency and low costs above all else has led to vulnerable and high-risk supply chains.” Ambassador Tai calls this “a race to the bottom, where exploitation is rewarded, and high standards are abandoned in order to compete and survive.”

Ambassador Tai also says that “when efficiency and low cost are the only motivators, production moves outside our borders.” While that statement may be true for some retail sectors, it is not true for all. In the final analysis, Ambassador Tai says that the Biden Administration has set their target by “using trade as a race to the top.”

One needs to pause here and think about what the Administration is saying.

NSA Jake Sullivan and USTR Tai have articulated the new Biden trade philosophy. Rather than be critical of the direction, retailers must ascertain that Team Biden understands the concept that all sectors of retail are not the same. For example, many fashion retailers believe this directive will not work for apparel, footwear, and accessories – which is highly import dependent.

Before the Biden Administration fully digresses into their new operational mode, there is an serious need for them to recognize that current retail trade problems must be resolved – before they can experiment in new philosophies. Retail is in trouble and, for much of the suffering, only the government can help to resolve the issues. Several trade programs must be renewed, and extra tariffs should be expunged. There are also two million uninspected packages arriving daily under the di minimis program – which allows $800 per person/per day as duty/tariff free – that undermines the entire direct-to-consumer ecosystem. In addition, American seaports remain out of control. They continue to receive products on ships America doesn’t own, headed to domestic ports that we don’t control, run by labor groups that only answer to themselves.

On one hand, Team Biden tells fashion retailers to exit China from sourcing product, and on the other it blocks the exit doors. Team Biden tells the industry to utilize AGOA (the African Growth & Opportunity Act) – but pulls the plug on Ethiopia (after substantial investments have been made). Team Biden neglects to early-renew the AGOA program but, by doing so, no one can plan for the future. The government sent the industry to Myanmar, but their government was overthrown. They sent the industry to Haiti, but the Haitian government dissolved with no plan to early-renew the trade agreements. The government also sent the industry to Nicaragua but threatens to pull the plug on trade relations. All in all, it just gets harder and harder to be a retailer and to source products.

In addition, since the China based Uyghur Forced Labor Prevention Act (UFLPA) was passed, inbound shipments from China and countries outside of China are being stopped at the ports to be inspected and checked for violations of the law. At the same time these goods are delayed, U.S. Customs has yet to figure out the best way to handle the qualification of inbound products and test/trace for their authenticity.

Further, when brands try to make and procure items in the USA, the cost to produce the products remains relatively high and the productivity fairly low. As the fashion industry tries to make more in the USA, the government could work to encourage production. However, when the military comes calling for required “made in USA” items like uniforms, the procurement experts make every effort to give the orders to the Federal prison system – to be assembled by inmates using a private USA Corporation (aligned to the Department of Justice) called UNICOR.

With all the manufacturing and trade obstacles lining their path, retailers continue to wonder who USA trade deals belong to. Do they belong to the people who use them, or to federal officials who are trying to rationalize how trade should be conceptualized?

Not to be totally negative about the new line of thinking, but retailers on the ground right now are struggling – at the same time that Team Biden is conceptualizing and not acting. This entire thought pattern brings us directly to the great economist Milton Friedman, who once said: “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”