Stopping or refusing to trade with another nation for political reasons is called

Table of Contents

U.S. President Joe Biden struck many familiar and reassuring notes in his initial foreign policy speeches. He pledged to defend “cherished democratic values” and uphold “America’s abiding advantage.” He promised to repair the country’s strained relations with close allies, stating that “America’s alliances are our greatest asset.” And he rallied the diplomatic corps by declaring “diplomacy is back at the center of our foreign policy.”1

While offering a vision of U.S. reengagement globally, the president also emphasized the need to reinvest at home. Over the past two decades, American households have faced a major financial crisis, significant trade shocks, technological change favoring skilled workers, declining public investment, and the accumulation of climate-related risks—a toxic combination that stoked a populist backlash. In this environment, a full-throated defense of free trade, liberal immigration policies, unfettered capital mobility, and global governance appears to be a political nonstarter. Instead, Biden’s advocacy of a foreign policy for the middle class argues for a domestic-foreign policy mix that delivers more tangible benefits to a broader swath of the American working public while preserving the benefits of economic openness.2

At the same time, realism about the growing constraints on American power abroad has taken hold across the foreign policy community. Two decades of continuous warfare secured only modest improvements in political stability and democratic governance in Afghanistan and Iraq. This disappointment fed calls to rescope the U.S. national security mission, including the full withdrawal from Afghanistan carried out in summer 2021, and to refocus on domestic needs. Meanwhile, Chinese ambitions in technology, trade, military capability, finance and development lending, and institutional influence are contributing to a sense that the United States needs to husband its national resources and get more serious about defining its strategic interests.

In short, the Biden administration faces a difficult balancing act. It needs to better manage the downsides of globalization and counter the significant challenges to democratic capitalism—even as it offers an updated vision of an open, tolerant, and inclusive world order in which the United States continues to play a significant leadership role. To do so effectively, the administration will need to articulate national interests clearly and persuasively and pursue them in a coordinated fashion across many policy domains.

The United States will approach foreign economic policy in a more deliberate and pragmatic manner than in the past. America will continue to defend general principles, like economic openness in the face of increasing protectionism, democratic accountability and the rule of law in the face of growing authoritarianism, and respect for basic human rights in the face of intensifying great power competition. But it will do so with a keener eye on securing good middle-class jobs, protecting the financial and economic stability of households, fostering a global business environment in which American firms of all sizes can thrive, and ensuring a better environmental outlook.

Recoping the U.S. Trade Agenda

After four years of harsh rhetoric and hardball negotiating tactics, the current U.S. administration seems determined to restore a degree of normalcy to the way in which the United States interacts with its trade partners. The administration’s clear embrace of economic diplomacy over economic conflict has calmed the waters and created more political space for negotiation. The new emphasis on diplomatic engagement should not be mistaken, however, for a reversal of the previous administration’s attempt to reshape certain relationships, improve overall burden sharing, and answer domestic calls to address unfair trade practices. In an October 2021 speech laying out her “strategic vision” for trade policy, U.S. Trade Representative Katherine Tai stated,

We need to show that trade policy can be a force for good in the lives of everyday people. We will create durable trade policy that benefits a broad range of stakeholders by rebuilding trust with our workers and aligning our domestic and foreign policies. . . . [We will] work with allies to shape the rules for fair trade in the 21st century, and facilitate a race to the top for market economies and democracies.3

Rozlyn Engel

Rozlyn C. Engel is a nonresident scholar in the American Statecraft Program at the Carnegie Endowment for International Peace, where she focuses on global macroeconomic risks, U.S. economic policy (foreign and domestic), and questions facing the economic intelligence community.

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These goals hardly represent an unbridled return to the neoliberal economic policies of the post–World War II order. Nor do they make for straightforward talks with major trade partners. In sum, the pace of U.S. trade negotiations is likely to remain measured for the near term.

To date, new trade deals have been subordinated to the goal of spurring domestic economic recovery after the coronavirus pandemic and the early foreign policy priorities of global coordination on climate and tax. The July 1, 2021, expiration of the Trade Promotion Authority (TPA), a time-limited power that the U.S. Congress had used to establish trade negotiations, points to this lack of urgency. For now, bold action on major new trade deals, which have proved time consuming to negotiate and difficult to manage politically, is off the table.

Instead, the administration will focus on more issue-specific agreements that can be framed as solving concrete problems and implement upgrades and revisions to existing trade and investment framework agreements. Alongside these efforts, the administration will calibrate its investments in multilateral institutions to maintain the legitimacy and effectiveness of these bodies without tying U.S. hands.

lateral and Regional Trade Deals on a Quieter Track

Bilateral trade deals offer attractive foreign policy wins for countries—from cementing long-standing alliances to gaining toeholds in important regions and from solidifying trade rules to building ties across business communities. For the United States, with its vast national economy, bilateral agreements have also had more limited domestic impacts. This has brought political breathing room at home and a significant degree of leverage with prospective partners.

On entering office, Biden inherited ongoing bilateral trade negotiations with Japan, Kenya, and the United Kingdom. Each deal represented a serious effort by the administration of former U.S. president Donald Trump to take up thorny issues like financial services, healthcare markets, trade capacity building, and digital services. So far, in keeping with its cautious approach to trade, the Biden administration has dampened near-term expectations by refusing to commit to any timelines and allowing the TPA to expire.4 This hesitation reflects the complexity of the core issues, many of which involve trade in services, and a reluctance in the Biden administration to embrace bilateralism too heartily and undermine multilateral institutions. But it also reflects a political calculation that leading with trade is a serious risk in an era marked by populism and nationalism.

Tobin Hansen

Tobin Hansen was a James C. Gaither Junior Fellow in the Carnegie Geoeconomics and Strategy Program.

All this makes the prospects for major regional trade deals particularly dim. However, with the United States now on the periphery of the Asia-Pacific’s two major trade blocs, some countermove seems necessary. Many analysts view an expanded U.S. role in regional economic frameworks as crucial to balancing Chinese economic influence and keeping U.S. businesses competitive across the region. For example, emerging rules of origin across the fifteen members of the Regional Comprehensive Economic Partnership (RCEP) could push U.S. companies to relocate to Asia to remain competitive in those markets.

Meanwhile, the hope that multilateral institutions could nudge China into greater compliance with a rules-based order has faded, pushing U.S. leaders to consider other ways of countering Beijing’s nationalist and expansionist agenda. As Tai noted in October 2021, “We need to take a new, holistic, and pragmatic approach in our relationship with China that can actually further our strategic and economic objectives for the near term and the long term. As our economic relationship with China evolves, so too must our tactics to defend our interests.”5

Because joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) remains politically difficult for the U.S. administration, the United States looks more likely to pursue limited executive-level agreements with key Asia-Pacific partners, like Australia, India, and Japan. These deals would allow Washington to maintain a foothold and exert rulemaking pressure despite lacking CPTPP membership.6 The United States will also use its bargaining power to push for fairer terms from China in certain areas.

Issue-Specific Wins Through Plurilateral Deals

Even as the U.S. administration de-emphasizes major new trade deals, it is teeing up several critical issues for a plurilateral approach. These negotiations aim to shape the future operating system of the global economy through close work with a handful of partners. Given the strategic importance of these discussions, many world leaders would prefer to see them occur in a multilateral setting, where smaller and lower-income countries would have seats at the table. But the complexity of the issues and slow-moving processes in multilateral bodies will probably dictate otherwise.

For the United States, the focus areas include environmental goods, digital economy governance, and capital taxation. They allow the Biden administration to advance specific policy priorities in a more timely and targeted manner than traditional multilateral negotiations or broader trade deals. Some agreements may attempt to regionalize new model language drawn from the United States–Mexico–Canada Agreement (USMCA) and the U.S.-Japan Digital Trade Agreement. Some of this language exceeds that of either the CPTPP or the RCEP, although the challenge of imposing such new rules without awarding deeper U.S. market access remains substantial.

In the best case, such agreements can serve as building blocks for broader arrangements if pursued across regions and issues concurrently. So-called open plurilateralism may help resolve logjams in multilateral forums if enough signatories join a specific agreement over time. Some analysts also argue that these types of deals will be subject to less legal wrangling and, potentially, create more innovative policy solutions.7

A Recommitment to Multilateralism

In recent decades, the growth of bilateral and regional free-trade agreements (FTAs), plus the increasing focus on issue-specific plurilaterals, is pressuring multilateral institutions to better define their unique role in managing international trade. As globalization has proceeded, membership in these organizations—foremost among them the World Trade Organization (WTO)—has become larger and more diverse. Deliberations in these institutions have also grown more tendentious, especially on the scope for rulemaking and the role of the state in the economy. Clarifying the core rationale and strategic functions of these multilateral bodies seems paramount. Hence, a final pillar of the U.S. trade agenda seems to be a recommitment to multilateralism in ways that support effective dispute settlement while safeguarding national sovereignty and principles of market competition.

The WTO has provided a useful forum for settling trade disputes among its members, including for the United States, which has filed the most complaints among WTO members and won the vast bulk of its prior suits.8 Several key losses have created concern among U.S. officials, however, and led the past two U.S. administrations to block appointments to the Appellate Body (AB)—the WTO arm that hears appeals in disputes brought by members—and effectively disable it. In the October 2021 confirmation hearings for Biden’s nominee for U.S. envoy to the WTO, María Pagán, the AB’s future was a subject of intense questioning. In that testimony, Pagán called WTO reform a top priority but also cautioned that “this won’t be easy.”9

Two main issues are at stake for the United States. First, the organization needs to address procedural concerns with the AB, including panel members working on cases after their terms have expired and not abiding by the ninety-day deadline for making decisions. These concerns are fairly concrete and reasonable solutions have been proposed to resolve them, some of which the United States is likely to support. Second, AB decisions have added binding language to WTO agreements, a development to which the United States continues to reject.10 Washington argues that the AB should treat national law as fact and not open to WTO interpretation. This latter point lies at the heart of the impasse, and the United States is highly unlikely to concede on it. Indeed, Biden continues to block AB appointments and retain the leverage bought by the two previous administrations.

Still, continued paralysis in such a central dispute settlement body is not in the long-term U.S. interest. Other countries have begun to create alternative systems as stopgap measures, such as the Multiparty Interim Appeal Arbitration Arrangement among some twenty-two members plus the European Union (EU).11 The longer the AB remains suspended, the more entrenched these other frameworks could become. While Tai has yet to clarify specific U.S. negotiating objectives with respect to AB reform, broader WTO reform has featured prominently in her meetings with international counterparts and congressional testimony. In the latter, she has had to contend with pervasive bipartisan frustration at the sclerotic pace of WTO decisionmaking and growing calls to take a tough stance on Chinese practices seen to hurt U.S. workers and businesses.

Engaging With the International Monetary Fund

The growth of China, India, and other populous developing nations has fed debates about the need to reallocate voting power in international financial institutions. With respect to the International Monetary Fund (IMF), Biden reversed the previous administration’s decision to block a new allocation of special drawing rights (SDRs)—an international reserve asset that supplements the official reserves of IMF members—of $650 billion; the allocation became effective in August 2021.12 Critics of the Biden decision worry that the transfer of U.S. taxpayer dollars will indirectly fund projects in China or other countries with which the United States has poor relations.13 On the other side, supporters argue that increased reserve capacity at the IMF will help countries recover from coronavirus-related shocks and engender greater financial stability. Moreover, the United States can reserve the right to refuse SDR allocations to specific countries.14

While the SDR debate grabbed some initial policy attention, the U.S. administration will soon need to adapt its strategy to meet China’s rising influence inside and outside the Bretton Woods institutions. So far, the Biden administration has not articulated its approach to the Asian Infrastructure Investment Bank (AIIB) or the New Development Bank established by Brazil, Russia, India, China, and South Africa beyond announcing a cooperative campaign with Japan to create a digital alternative to China’s Belt and Road Initiative and floating the idea to other world leaders.

In short, the United States is unlikely to engage in outright collaboration with China’s development initiatives, though some arm’s-length dealings remain possible. For example, the AIIB coordinates with Western-led multilateral development banks—something the United States has tolerated because the AIIB does not finance Belt and Road projects to the same extent as China’s other policy banks.

Coordinating Global Taxation

With the 2017 Tax Cuts and Jobs Act, the Trump administration pushed through a major corporate tax reform that brought the statutory U.S. corporate rate much closer to the global average. The reform also shifted away from worldwide taxation and toward greater territoriality in its treatment of corporate income earned abroad. Together, the two measures aimed to enhance U.S. tax competitiveness and encourage repatriation of U.S. corporate earnings held overseas.

Yet, the act did little to rein in major tax havens, which some wealthy individuals and corporations have been using to minimize taxes. Frustration with the perceived inequity of the current system, the loss of potential revenue to governments, and rising concerns about the relative ease with which growing technology companies could avoid taxation drove conversations about the need for international tax coordination. But the Trump administration expressed little interest in such an effort, and it stalled.

Much of the focus for global capital taxation has centered on the framework to address base erosion and profit shifting—tax strategies that exploit gaps and mismatches in tax rules—proposed at the Organization for Economic Cooperation and Development (OECD). Yearslong discussions have debated the merits of a global minimum tax rate that would fix some of the worst inconsistencies across national tax systems and address growing questions about how to resolve major differences on digital services taxes. With the change in U.S. administration, those discussions got back on track and have finally yielded an agreement.

Global Minimum Tax Rate

In February 2021, U.S. Treasury Secretary Janet Yellen signaled the shift in U.S. policy when she announced that the United States was dropping its demand for safe-harbor provisions, which might have exempted some companies from new OECD tax rules. Then, in April, the administration offered a significant proposal to the OECD, setting out criteria to tax large multinational enterprises. The head of tax administration at the organization, Pascal Saint-Amans, lauded the Biden proposal, saying, “This reboots the negotiation and is very positive.”15 By May, the United States had followed up with a proposed 15 percent floor for the global minimum corporate tax rate.16

In June, the Group of Seven (G7) announced the outlines of a deal that would serve as the road map for a broader OECD framework, and the Group of Twenty (G20) followed suit a few weeks later. By October, the OECD had worked through enough details to reach a political agreement on a two-pillar solution that consists of a global minimum tax rate and a digital services tax regime. The G20 formally adopted the agreement at its summit later that month, calling it “a historic achievement through which we will establish a more stable and fairer international tax system.”17 The G20 then charged the OECD with developing model rules and multilateral instruments to take effect in 2023. To date, 136 countries, representing more than 90 percent of the global economy, have agreed to the reforms.18

The final political agreement put in scope the overseas profits of multinational companies with at least €750 million ($850 million) in global sales revenue.19 Governments can still set local corporate tax rates, but a company’s home country can insist that the company top up taxes owed on overseas earnings to hit a 15 percent minimum. In addition, sales revenue would be taxed on a country-by-country basis according to where sales occur. That is a major shift from long-standing tax standards that have allowed companies to shift profits into low-tax jurisdictions around the world, even when they do little business on the ground there.

Under the new agreement, a government can tax up to 25 percent of a multinational’s excess profit—defined as profit above 10 percent of revenue—that originates in its country. Even so, some argue that the agreement does not go far enough. For example, the place of employment is not included in the tax formulation, only the place of sale, meaning that less revenue will be directed to developing countries, where a large amount of offshore labor in services resides. Furthermore, a range of deductions and exceptions were incorporated into the deal to limit the impact on certain low-tax countries like Ireland, which is home to some large U.S. multinationals, leaving the agreement vulnerable to accusations of favoritism and critiques of business as usual.

In coming months, the global minimum tax rate will likely garner increased political attention in the United States because it must be implemented in 2022 for the agreement to come into force in 2023. Given the highly partisan environment in Washington and the agreement’s ties to the Biden administration’s desire to unwind parts of Trump’s corporate tax reform as a way to fund its domestic policy agenda, the accord will face stiff headwinds.20 For example, the administration had announced plans to raise the corporate tax rate on domestic income to 28 percent from the current 21 percent. But that proposal has now been pulled from pending congressional legislation in light of lukewarm support from some Democrats and uniform hostility from Republicans.21

Digital Services Taxes

A second line of effort in global tax policy concerns digital services taxation. As major online platforms like Amazon, Facebook, and Google have grown into massive social and commercial entities, they have upended the channels through which companies earn revenue. National tax authorities around the world took notice and introduced digital services taxes to capture more of that revenue. These tax proposals raised legitimate questions about where the revenues from online activity should be taxed, but they also seemed squarely aimed at large U.S. tech companies, like like Meta (which operates Facebook) and Alphabet (the parent company of Google), raising hackles in the United States, which saw the taxes as highly discriminatory. Not surprisingly, digital services taxes became part of the broader international debate about global taxation and were successfully folded into the agreement announced in October 2021.

In late 2018, France was the first major economy to announce a digital services tax, and many other countries followed suit, including Brazil, India, the United Kingdom, and several EU states. Because many of these taxes disproportionately affect U.S. companies, they triggered retaliation from the Trump administration in the form of investigations under section 301 of U.S. trade law. In the first part of 2021, the Biden administration maintained the pressure, even announcing in late March that it was taking “next steps” in its section 301 processes.22 Indeed, Tai reported that six countries had adopted digital services taxes that unfairly hurt U.S. companies and that together their taxes had generated a combined tax liability of $880 billion for U.S. companies.23

As these issues became more intertwined with the global minimum tax deal, however, the Biden administration softened its approach. In June, Tai announced an immediate suspension of tariffs related to section 301 investigations into digital services taxes.24 In negotiations, the United States favored a sector-neutral approach to digital taxation—a major ask from the Digital Economy Group, which represents major U.S. digital companies—and the final global tax agreement adheres to this principle. Yet, until the deal is fully implemented in 2023, the United States has agreed that Austria, France, Italy, Spain, and the United Kingdom can retain their digital services taxes without the threat of U.S. retaliatory tariffs.

Revitalizing the Environmental Agenda

With his immediate commitments to rejoin the 2015 Paris Agreement on climate change and cancel the proposed Keystone XL oil pipeline, Biden marked a sea change in climate policies on his first day in office. The president also invited forty countries to join a climate leadership summit in April 2021, which concluded with the United States announcing an ambitious climate agenda and pledging to take action on numerous fronts. Among them are environment-focused agreements, environmental standards, green financing mechanisms, and new carbon-pricing policies. In November 2021, Biden traveled to Glasgow to attend the United Nations Climate Change Conference (COP26) and deliver on those early pledges to recommit the United States to cooperative climate policies.

Challenges to executing this agenda are significant, such as the twenty-one U.S. states that sued over the Keystone XL pipeline decision and a one-vote Senate majority that rests on a member from coal-rich West Virginia who also chairs the Senate Energy Committee.25 Indeed, the United States’ conspicuous absence from the group of forty countries that pledged at COP26 to stop coal development at home almost certainly reflects these political constraints.26 Even as a younger generation pushes the United States into a greener future, resistance will remain in certain segments of the American electorate and business community.

Greening the Trade Agenda

In her first public speech as U.S. trade representative, Tai observed, “The view that environmental issues are not an inherent part of trade ignores the reality that the existing rules of globalization incentivize downward pressure on environmental protection.”27 She also gave credit to the Trump administration for achieving the “most comprehensive environmental standards” of any U.S. trade agreement in its USMCA negotiation. A week later, Republicans urged Tai to relaunch the Environmental Goods Agreement (EGA), a plurilateral accord devoted to reducing trade barriers on more than fifty climate-friendly goods, such as solar panels, equipment to control air pollution, energy-efficient light bulbs and equipment, and wind turbines.

In the increasingly dynamic arena of trade and environmental sustainability, the U.S. trade representative will pursue many diverse opportunities to green the U.S. trade agenda, like phasing out fossil-fuel subsidies from global supply chains, pursuing anti-subsidy measures at the WTO to protect global fisheries, and setting up more robust environment enforcement actions. The announcement at COP26 that the United States and China will seek to strengthen cooperation on climate-related actions adds to the multipronged effort and the complexity.

Nonetheless, as a medium-term policy focus, the EGA is likely to survive in some form or other for several reasons. First, it connects directly to a reenergized environmental agenda and offers a concrete talking point, allowing the administration to link greener trade with freer trade. Second, because tariffs on these goods tend to be lower in the United States than in many other potential signatories, the U.S. administration can rest its arguments on basic reciprocity principles, which have popular appeal. This gives the agreement bipartisan appeal—no small thing in Washington these days. Over summer 2021, the EGA garnered the support of Democrats in the U.S. House of Representatives and the Cato Institute, a conservative and libertarian think tank.28

Finally, the negotiations are housed within the WTO, which allows the administration to lean into multilateralism even as it pursues a plurilateral deal. This approach also helps blunt criticism that the agreement will narrowly serve the interests of developed economies.29 In late October 2021, former WTO deputy director general Alan Wolff urged progress on these questions and offered the prompt restarting of an ambitious EGA as a prime example of what a multilateral trading system can and should achieve in this arena.30

Financing the Transition

In addition to integrating environmental concerns into trade policy, the Biden administration has committed to strengthening the green finance agenda. In January 2021, Biden directed the preparation of a climate finance plan, which was released as the conclusion of the April summit. On a parallel track, U.S. Special Presidential Envoy for Climate John Kerry publicly pledged that the United States would “make good” on its promise to fund the United Nations (UN)–backed Green Climate Fund. This promise refers to a $2 billion shortfall—out of the $3 billion promised by former president Barack Obama—that neither Obama nor Trump provided to the fund.31

With Biden’s plans on climate finance taking more concrete shape, the United States is signaling a greater willingness to engage in development-oriented spending, albeit in a narrower framework than many lower-income countries would like. The climate finance plan promised to double annual U.S. climate financing to developing countries over the next few years. Although the baseline for that doubling was somewhat vague, Leonardo Martinez-Diaz, a former Obama administration official, estimated that the newly doubled amount would be around $5.6 billion.32 In Glasgow, the United States joined France, Germany, the United Kingdom, and the EU in a joint $8.5 billion pledge to South Africa, signaling a willingness to selectively target developing countries not only with significant emissions problems but also, perhaps, with geostrategic importance.33

Currently, climate mitigation projects—ones that reduce emissions from existing sources—garner the vast majority of green finance dollars.34 These projects are usually found in emerging markets, where investing in the improved sustainability of an existing industry often provides a healthy return on investment to funders. The subsequent benefits from reducing those emissions are experienced globally, creating broad social returns. But another category of climate-related spending involves climate adaptation projects, which typically help communities prepare for impacts of climate change and thereby provide more localized benefits. Consequently, these projects usually entail smaller financial and social returns, making them less popular with possible funders. To meet some of these needs, the U.S. administration has pledged to triple its contributions to funds dedicated to climate adaptation projects, possibly up to $1.5 billion, which represents a modest shift in green finance.35

Along the same lines, the administration has directed the U.S. International Development Finance Corporation (DFC) to reach a net-zero investment portfolio by 2040. The corporation has hired its first chief climate officer and established a $50 million fund to provide technical assistance on green finance in developing countries.36 An early example of the potential for innovation in this space is the DFC’s backing of Belize’s 2021 debt restructuring, in which the country agreed to pay back its new blue bond via spending on marine conservation in its waters.37 The administration also directed the Millennium Challenge Corporation to deepen its investments in climate-smart development.

Pricing Carbon

The carbon-pricing debate is taking on international dimensions as the EU seeks to finalize its Carbon Border Adjustment Mechanism. Under the scheme, an imported good would be taxed according to the carbon intensity of its production. The implications for U.S. exporters, especially farmers and energy-intensive manufacturers, are significant, and the plan has already forced a U.S. response, with Kerry arguing that the EU carbon border tax should be a “last resort.”38

The U.S. position reflects the historically weak political support at home for a domestic carbon tax, which would be needed to comply with WTO rules that prohibit discriminatory taxes against foreign goods. Moreover, the implementation of a carbon tax would be subject to heated debate in the United States, given the levy’s possible pass-through to American households, its regressive nature, and its implications for American businesses. Progressives tend to favor more comprehensive redistributive schemes that address a range of social concerns, while conservatives generally prefer direct rebates of tax revenue in the form of carbon dividends.

For now, the U.S. administration seems set on making concessions in other key areas and then seeking flexibility with the EU. The Biden administration’s pledge to halve U.S. emissions by 2030 relative to a 2005 baseline—together with its wide array of other climate-friendly policies, including many undertaken jointly with EU partners—should help in this regard and strengthen Washington’s hand as it seeks future waivers for U.S. exports.

Cooperation With China

As the world’s two largest carbon emitters, the United States and China will need to cooperate—or, at least, compete constructively—on reducing greenhouse gas emissions, advancing green technology, and devising adaptation strategies in the coming decade. But many wonder whether climate issues can be kept separate from other areas of ever-increasing geopolitical tensions and whether a more realistic framework needs to be considered.39 With the announcement at COP26 of enhanced climate cooperation between the two countries, the United States seems intent on maintaining political space for more sustained dialogue and calming the waters.

At the April 2021 climate leadership summit, Chinese President Xi Jinping reiterated his 2020 commitment to reach peak emissions by 2030 and Beijing’s continued adherence to the principle of common but differentiated responsibilities among nations. This concept calls on developed countries to accommodate developing countries’ climate change reduction timelines and be more generous with green financing. The United States has partly accepted this principle, but Kerry has questioned the value of climate commitments by states such as China when the timelines are too long.40

As for taking historic responsibility for climate change, the United States has acknowledged its role in past emissions in previous international agreements and regularly releases public data on its cumulative greenhouse gas emissions. However, Washington will resist efforts to link its past emissions too tightly to current and future obligations. Instead, it will choose to pay down its emissions debt in a more discretionary manner, such as by financing global mitigation efforts, providing green technologies to lower-income countries, and reducing emissions at home.

With limited prospects for extensive cooperation on lowering emissions, the most likely arena for U.S.-China coordination seems to involve shared capacity building in the development and deployment of green technologies. Electrification of vehicle fleets, energy-efficient infrastructure building, and cooperative standard setting are possible focus areas. That said, leaders face an increasingly securitized technology space and a growing desire to create fully independent supply chains, including for the rare-earth elements needed to make electric vehicle batteries. The Biden administration has minimal political room to appear soft on China, so cooperation here would require accountability measures to mollify the national security community and concerned constituencies.

Securing a Healthy Digital Economy

As the global economy moves online, competing visions have emerged over digital regulation, digital taxation, forced transfer of digital intellectual property rights, and data storage and transfer. In the EU, a universalist approach has arisen that champions privacy protections for individuals, and this is enshrined in article 8 of the union’s Charter of Fundamental Rights and evidenced in its General Data Protection Regulation. In China, a more particularist stance has emphasized data sovereignty and the importance of state-level interests, as shown in Beijing’s insistence on national sovereignty carve-outs in international data agreements. In the United States, a more utilitarian approach has welcomed market forces that enable private data flows, upheld intellectual property rights, and adopted a looser regulatory environment, with ex-post accountability placed on companies for breaches that compromise personal data.

In the decades ahead, societies will stand to gain enormously from a healthy, robust, and competitive information environment. Perhaps these potential gains will be enough to spur creative problem solving and resolve conflicts at the global level. But it is also possible that interstate rivalries and fundamental debates about the values that should govern the digital economy will feed fragmentation and degrade the digital ecosystem. Over the long term, global and national data governance schemes will need to reach greater harmonization—a major strategic endeavor that will require sustained leadership and compromise. Until then, U.S. policy attention will focus on near-term efforts, like the rules governing digital trade and international taxation of digital services, as Washington seeks to advance its model of a more open and dynamic digital ecosystem.

Digital Trade and Data Transfers

As governments try to address public concerns about privacy and security, the growth of new and conflicting rules for digital business practices is creating risks for the global digital economy, including many U.S. information companies. Worries about the direction of these restrictions led the Obama administration to develop digital trade provisions for the Trans-Pacific Partnership and led the Trump administration to roll many of those provisions into the USMCA in November 2018 and the U.S.-Japan Digital Trade Agreement in October 2019.

Both administrations sought to establish basic rules for the nondiscriminatory treatment of digital products, acceptance of electronic authentication methods, electronic transfer of information across borders, digital intellectual property rights, and more. While the U.S.-Japan agreement took a cautious approach on issues that impinged on national law and international treaties, it found ways to enable cross-border data flows, limit data localization, and enforce consumer protections for trade in digital products. Several of these issues are now being taken up in the reopened U.S.-India trade talks and have entered into on-and-off trade dialogues with other developing nations, like Kenya.

Another priority for the United States will be to resolve its ongoing dispute with the EU over the Privacy Shield framework, which the European Court of Justice struck down in 2020. The Privacy Shield offered legal certainty to companies that transfer EU citizens’ data to the United States for commercial purposes. The European court determined that the framework did not offer adequate protection due to excessive surveillance of noncitizen data by the U.S. government, particularly the intelligence community.41 The court also raised concerns about some of the standard contractual clauses used in the industry.

In March 2021, the Biden administration pledged to “intensify negotiations” on an enhanced shield.42 With discussions advancing through the summer, the U.S. Chamber of Commerce announced its full support for a new EU-U.S. Privacy Shield that “brings legal certainty to data transfer mechanisms” and estimated that the “data transfer relationship” is worth about $7.1 trillion to the two parties.43 Revisions to the framework seem likely to include limits on bulk intelligence collection, mechanisms to adjudicate complaints about U.S. collection efforts, or a more comprehensive legislative solution in the United States to enhance data protection.

Global Data Governance

In 2019, around the same time that the United States was solidifying several bilateral digital trade deals, Japan launched a major global initiative, known colloquially as Data Free Flow With Trust. It aimed to enhance cooperation on cross-border digital flows by creating a tractable policy architecture for digital governance and providing an ongoing policy dialogue within the G20, called the Osaka Track.44 The OECD is working on a similar effort. Some analysts suggest these multiple lines of effort could provide a useful focus for U.S. reengagement in Indo-Pacific trade and serve as the building blocks for a major plurilateral agreement on digital trade.45 Such a deal would knit together the digital provisions in the CPTPP and numerous upgrades made by countries throughout the region, ensuring that the United States plays a role in the Indo-Pacific’s growing digital economy.

Despite promising movement on some digital trade issues among subsets of countries, broader multilateral progress has lagged. Currently, eighty-six members of the WTO are negotiating an e-commerce agreement, but concerns about “e-readiness” among lower-income countries and the potential for data—and, therefore, value—to be extracted from their populations have struck a political chord.46 Developing countries also voice worries about how the growth of digital trade will erode customs revenues, how their limited regulatory and technical capacities will hinder compliance, and how the power wielded by the world’s largest information companies will undermine national sovereignty. The split between developing and developed countries continues as India and South Africa push back against a G7 proposal to prohibit customs duties on electronic transmissions and continued limits on digital technology transfers to developing economies.47

A Divided America Reengages Globally

After decades of rapid globalization, technological change, and declining public investment, the U.S. public is skeptical, restive, and divided. In 2016, Trump won the White House by offering an economic nationalism that rejected global cooperation as ineffective and argued for an America First mentality. In 2020, despite losing the presidential election, he increased his support by 11 million votes.48 This is the political reality of the United States today.

Since taking office, Biden has repeatedly declared that “America is back” and rededicated the country to its extensive set of international alliances and agreements.49 He has appointed a seasoned foreign policy team that reflects those ideals. He has reversed Trump administration decisions to withdraw from international commitments and upped U.S. contributions to fight the coronavirus and climate change. While the Trump administration represented a turn inward, the Biden administration seems set to turn outward. But it is doing so with a caveat.

Notes

1 “Remarks by President Biden on America’s Place in the World,” The White House, February 4, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/04/remarks-by-president-biden-on-americas-place-in-the-world/.

2 Salman Ahmed and Rozlyn Engel (eds), Making U.S. Foreign Policy Work Better for the Middle Class, Carnegie Endowment for International Peace, 2020, https://carnegieendowment.org/files/USFP_FinalReport_final1.pdf.

3 “A Conversation With Ambassador Katherine Tai, U.S. Trade Representative,” Center for Strategic and International Studies, October 4, 2021, https://www.csis.org/analysis/conversation-ambassador-katherine-tai-us-trade-representative.

4 Aamer Madhani, “Britain’s Boris Johnson Presses Biden for New Trade Deal,” AP News, January 24, 2021, https://apnews.com/article/joe-biden-global-trade-health-coronavirus-pandemic-jen-psaki-332faf002eb52c7db6429704b7c8ff9b.

5 “A Conversation,” CSIS.

6 Thomas L. Friedman, “Biden Made Sure ‘Trump Is Not Going to Be President for Four More Years,’” New York Times, December 2, 2020, https://www.nytimes.com/2020/12/02/opinion/biden-interview-mcconnell-china-iran.html?auth=login-google.

7 Brendan Vickers, “The Relationship Between Plurilateral Approaches and the Trade Round,” E15 Initiative, December 2013, https://e15initiative.org/wp-content/uploads/2015/09/E15-Functioning-of-the-WTO-Vickers-FINAL.pdf.

8 Jennifer A. Hillman, “The United States Needs a Reformed WTO Now,” Council on Foreign Relations, July 29, 2020, https://www.finance.senate.gov/imo/media/doc/29JUL2020Hillman~CoFRSTMNT.pdf.

9 “Opening Statement—María L. Pagán,” U.S. Senate Finance Committee, October 26, 2021, https://www.finance.senate.gov/imo/media/doc/Maria%20Pagan%20DUSTR%20Geneva%20Opening%20Statement%20FINAL.pdf; “Hearing to Consider the Nomination of Maria L. Pagan, of Puerto Rico, to Be a Deputy United States Trade Representative (Geneva Office), With the Rank of Ambassador,” U.S. Senate Finance Committee, October 26, 2021, https://www.finance.senate.gov/imo/media/doc/Maria%20Pagan%20Senate%20Finance%20Committee%20QFRs.pdf.

10 “Hearing,” U.S. Senate Finance Committee.

11 Terence P. Stewart, “WTO Dispute Settlement Body Meeting of August 28, 2020—How Disputes Are Being Handled in the Absence of Reform of the Appellate Body,” Washington International Trade Association, August 29, 2020, https://www.wita.org/blogs/disputes-appellate-body/.

12 “IMF Managing Director Announces the US$650 Billion SDR Allocation Comes Into Effect,” International Monetary Fund, August 23, 2021, https://www.imf.org/en/News/Articles/2021/08/23/pr21248-imf-managing-director-announces-the-us-650-billion-sdr-allocation-comes-into-effect.

13 James M. Roberts, “Will Biden Force U.S. Taxpayers to Fund a Massive International Monetary Fund Bailout of China?,” Heritage Foundation, February 5, 2021, https://www.heritage.org/monetary-policy/commentary/will-biden-force-us-taxpayers-fund-massive-international-monetary-fund.

14 Maurice Obstfeld and Edwin M. Truman, “The New SDR Allocation Will Benefit All Countries,” Peterson Institute for International Economics, March 25, 2021, https://www.piie.com/blogs/realtime-economic-issues-watch/new-sdr-allocation-will-benefit-all-countries.

15 James Politi, Aime Williams, and Chris Giles, “US Offers New Plan in Global Corporate Tax Talks,” Financial Times, April 8, 2021, https://www.ft.com/content/847c5f77-f0af-4787-8c8e-070ac6a7c74f.

16 Liz Alderman, Jim Tankersley, and Eshe Nelson, “U.S. Proposal for 15% Global Minimum Tax Wins Support From 130 Countries,” New York Times, July 1, 2021, https://www.nytimes.com/2021/07/01/business/global-minimum-tax.html.

17 “G20 Rome Leaders’ Declaration,” Group of Twenty, October 2021, https://www.g20.org/wp-content/uploads/2021/10/G20-ROME-LEADERS-DECLARATION.pdf.

18 “International Community Strikes a Ground-Breaking Tax Deal for the Digital Age,” Organization for Economic Cooperation and Development, October 8, 2021, https://www.oecd.org/tax/international-community-strikes-a-ground-breaking-tax-deal-for-the-digital-age.htm.

19 “OECD/G20 Base Erosion and Profit Shifting Project: Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalisation of the Economy,” Organization for Economic Cooperation and Development, October 8, 2021, https://www.oecd.org/tax/beps/brochure-two-pillar-solution-to-address-the-tax-challenges-arising-from-the-digitalisation-of-the-economy-october-2021.pdf.

20 “Finance Committee Questions for the Record,” U.S. Senate Committee on Finance, January 21, 2021, https://www.finance.senate.gov/imo/media/doc/Dr%20Janet%20Yellen%20Senate%20Finance%20Committee%20QFRs%2001%2021%202021.pdf.

21 Letter to U.S. Treasury Secretary Janet Yellen, U.S. House of Representatives Committee on Ways and Means, April 8, 2021, https://gop-waysandmeans.house.gov/wp-content/uploads/2021/04/Letter-to-Sec.-Yellen-OECD-4.pdf.

22 “USTR Announces Next Steps of Section 301 Digital Services Taxes Investigations,” Office of the U.S. Trade Representative, March 26, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/march/ustr-announces-next-steps-section-301-digital-services-taxes-investigations.

23 Ana Monteiro, “U.S. Forges Ahead on $1 Billion Tariff Plan Over Digital Taxes,” Bloomberg, April 5, 2021, https://www.bloomberg.com/news/articles/2021-04-05/u-s-forges-ahead-on-1-billion-tariff-plan-over-digital-taxes.

24 “USTR Announces, and Immediately Suspends, Tariffs in Section 301 Digital Services Taxes Investigations,” Office of the U.S. Trade Representative, June 2, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/june/ustr-announces-and-immediately-suspends-tariffs-section-301-digital-services-taxes-investigations.

25 Josh Lederman, “21 Republican-led States Sue Biden Over Keystone XL Rejection,” NBC News, March 18, 2021, https://www.nbcnews.com/politics/joe-biden/21-republican-led-states-sue-biden-over-keystone-xl-rejection-n1261356.

26 Brad Plumer and Lisa Friedman, “Over 40 Countries Pledge at U.N. Climate Summit to End Use of Coal Power,” New York Times, November 4, 2021, https://www.nytimes.com/2021/11/04/climate/cop26-coal-climate.html.

27 “Remarks From Ambassadaor [sic] Katherine Tai on Trade Policy, the Environment and Climate Change,” Office of the U.S. Trade Representative, April 2021, https://ustr.gov/index.php/about-us/policy-offices/press-office/speeches-and-remarks/2021/april/remarks-ambassadaor-katherine-tai-trade-policy-environment-and-climate-change.

28 James Bacchus and Inu Manak, “Free Trade in Environmental Goods Will Increase Access to Green Tech,” Free Trade Bulletin no. 80, Cato Institute, June 8, 2021, https://www.cato.org/sites/cato.org/files/2021-06/free-trade-bulletin-80.pdf.

29 Jaime de Melo and Jean-Marc Solleder, “What’s Wrong With the WTO’s Environmental Goods Agreement: A Developing Country Perspective,” VoxEU, March 13, 2019, https://voxeu.org/article/what-s-wrong-wto-s-environmental-goods-agreement.

30 “Defining Success for MC12,” Peterson Institute for International Economics, October 29, 2021, https://www.piie.com/sites/default/files/documents/wolff-2021-10-29.pdf.

31 Jess Shankleman, “John Kerry Says U.S. Will ‘Make Good’ on Climate Finance Pledge,” Bloomberg, January 25, 2021, https://www.bloomberg.com/news/articles/2021-01-25/john-kerry-says-u-s-will-make-good-on-climate-finance-pledge.

32 Chloé Farand, “US Pledges to Double International Climate Finance at Earth Day Summit,” Climate Home News, April 22, 2021, https://www.climatechangenews.com/2021/04/22/us-pledges-double-international-climate-finance-earth-day-summit/.

33 Jeff Mason, Andrea Shalal, and Emma Rumney, “South Africa to Get $8.5 Bln From U.S., EU and UK to Speed Up Shift From Coal,” Reuters, November 2, 2021, https://www.reuters.com/business/environment/us-eu-others-will-invest-speed-safricas-transition-clean-energy-biden-2021-11-02/.

34 Rob Macquarie et al., “Updated View on the Global Landscape of Climate Finance 2019,” Climate Policy Initiative, https://www.climatepolicyinitiative.org/wp-content/uploads/2020/12/Updated-View-on-the-2019-Global-Landscape-of-Climate-Finance-1.pdf.

35 Martinez-Diaz estimated the level was $500 million in the late Obama years. See Farand, “US Pledges.”

36 “U.S. International Climate Finance Plan,” The White House, April 2021, https://www.whitehouse.gov/wp-content/uploads/2021/04/U.S.-International-Climate-Finance-Plan-4.22.21-Updated-Spacing.pdf.

37 Marc Jones, “Analysis: Belize Offers Ocean ‘Blue’ Print With Debt-for-Reef Swap,” Reuters, November 5, 2021, https://www.reuters.com/business/cop/belize-offers-ocean-blue-print-with-debt-for-reef-swap-2021-11-05/.

38 Leslie Hook, “John Kerry Warns EU Against Carbon Border Tax,” Financial Times, March 12, 2021, https://www.ft.com/content/3d00d3c8-202d-4765-b0ae-e2b212bbca98.

39 “U.S.-China Joint Statement Addressing the Climate Crisis,” U.S. Department of State, April 17, 2021, https://www.state.gov/u-s-china-joint-statement-addressing-the-climate-crisis/.

40 Timothy Puko, “John Kerry Says U.S. Will Hold China to Account on Climate Pledges,” Wall Street Journal, April 13, 2021, https://www.wsj.com/articles/kerry-says-u-s-will-hold-beijing-to-account-on-climate-pledges-11618338675?mod=article_inline.

41 “EU Data Transfer Requirements and U.S. Intelligence Laws: Understanding Schrems II and Its Impact on the EU-U.S. Privacy Shield,” Congressional Research Service, March 17, 2021, https://crsreports.congress.gov/product/pdf/R/R46724.

42 “Intensifying Negotiations on Transatlantic Data Privacy Flows: A Joint Press Statement by European Commissioner for Justice Didier Reynders and U.S. Secretary of Commerce Gina Raimondo,” European Commission, March 25, 2021, https://ec.europa.eu/commission/presscorner/detail/en/statement_21_1443.

43 “Transatlantic Data Flows: Moving Data With Confidence,” U.S. Chamber of Commerce, September 20, 2021, https://www.uschamber.com/technology/data-privacy/transatlantic-dataflows.

44 “Data Free Flow With Trust (DFFT): Paths Towards Free and Trusted Data Flows,” World Economic Forum, May 2020, http://www3.weforum.org/docs/WEF_Paths_Towards_Free_and_Trusted_Data%20_Flows_2020.pdf.

45 Wendy Cutler and Joshua P. Meltzer, “Digital Trade Deal Ripe for the Indo-Pacific,” Brookings Institution, April 5, 2021, https://www.brookings.edu/opinions/digital-trade-deal-ripe-for-the-indo-pacific/.

46 Isabelle Durant, “Developing Countries and Trade Negotiations on e-Commerce,” United Nations Conference on Trade and Development, February 19, 2021, https://unctad.org/news/developing-countries-and-trade-negotiations-e-commerce.

47 Amiti Sen, “At WTO, India and South Africa Call for Inclusive Development of Global e-Comm,” Hindu Business Line, November 10, 2021, https://www.thehindubusinessline.com/news/national/at-wto-india-and-south-africa-call-for-inclusive-development-of-global-e-comm/article37426016.ece.

48 Ford Fessenden, Lazaro Gamio, and Rich Harris, “Trump Found More Than 10 Million New Voters. They Were Not Enough,” New York Times, November 17, 2020, https://www.nytimes.com/2020/11/17/us/trump-found-more-than-10-million-new-voters-they-were-not-enough.html.

49 “Remarks by President Biden at the 2021 Virtual Munich Security Conference,” The White House, February 19, 2021, https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/02/19/remarks-by-president-biden-at-the-2021-virtual-munich-security-conference/.

Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.

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