U.S. Retreats Further on Free Trade

"Muscular moves against two foreign companies last week showed how Washington has abandoned its embrace of international openness and now champions a more nationalist, protectionist economic vision.

First, the House voted overwhelmingly to ban or force a sale of TikTok, the Chinese-owned video app. Then, President Biden released a statement opposing Japan-based Nippon Steel's bid for United States Steel, which he said should stay in U.S. hands.

It is still unclear what fate awaits TikTok and U.S. Steel given the legal and political obstacles. But the actions demonstrate that national-security considerations are bleeding into ever-larger swaths of American life and economic activity.

That could chill foreign investors' and companies' willingness to do business in the U.S. In the short term, favoring American ownership might help boost domestic companies and some workers. In the long term, though, standard economic theory says that barriers to imports and foreign investment can raise costs for consumers and deprive American workers and companies of know-how and capital.

Until 2016, leaders in both parties generally bought into the so-called Washington consensus: openness to foreign trade and investment, and minimal government interference in markets. Donald Trump, when he was president, broke decisively with that by imposing tariffs on China and allies, and Biden has continued many of those policies.

In a speech last year, Biden's national security adviser, Jake Sullivan, called the new approach the "new Washington consensus." That worldview calls for a mix of tariffs and subsidies to support important domestic industries, such as steel, semiconductors and automobiles, and reverse a decadeslong decline in American manufacturing prowess. Freewheeling global trade helped lower consumer prices, but at the expense of U.S. workers and national security, the thinking goes.

Still, the transition from the old to the new consensus is proving anything but smooth. At times, it conflicts with legal and regulatory norms, while businesses and some foreign allies resist the shift.

Lawmakers have long suspected TikTok might share details of its American users with Beijing, or amplify China's preferred political narrative. In 2020, Trump made several attempts to force the sale to an American owner.

While a judge blocked one of those attempts, and Biden dropped it, TikTok's challenge to another divestiture order remains an open case.

Rather than pursuing that litigation, the Biden administration sought to negotiate an agreement with TikTok to resolve concerns about Beijing's influence. Those negotiations stalled after U.S. officials wouldn't accept anything less than a sale. Unsure of prevailing in court, officials instead pursued a legislative ban. Biden has said he would sign the House-passed bill, but the legislation's fate in the Senate is uncertain.

Biden's opposition to Nippon Steel's $14.1 billion purchase of U.S. Steel is in many ways more groundbreaking. Japan is a treaty ally of the U.S., and U.S. Steel isn't a direct supplier to the military. The deal, like most potentially sensitive foreign takeovers, is already being reviewed by the Committee on Foreign Investment in the U.S.

"Obviously it's highly unusual for the president to make a statement about a case that's pending with Cfius, and that statement is in tension with the open investment policy that President Biden and other presidents have espoused," said Stephen Heifetz, a partner at Wilson Sonsini Goodrich & Rosati. "I don't think it necessarily precludes the deal from proceeding."

Cfius can recommend that the president block a takeover, though it rarely does. In his statement Thursday, Biden didn't explicitly say he would block the takeover.

His opposition to the deal is rooted in union concerns that workers would lose jobs and the optics of a foreign takeover of the Pittsburgh-based steelmaker when Pennsylvania could determine the outcome of November's presidential election.

Business groups in Washington attacked Biden's statement. "It is imperative that the Cfius review proceed; and if, as expected, it reveals no national security concerns, the sale should proceed," the U.S. Chamber of Commerce said in a statement.

The new nationalism is at odds with Biden's push to expand adoption of electric vehicles. To nurture the U.S. industry, Biden's Inflation Reduction Act provides its maximum $7,500 EV tax credit as long as the vehicle is assembled in North America and doesn't have Chinese materials in the battery.

Chinese companies, however, are the acknowledged leaders in EV batteries.

China rocketed to become the world's largest car exporter last year, and U.S. officials worry it could overwhelm American efforts to build its own electric-vehicle industry."

 1. U.S. News: U.S. Retreats Further on Free Trade. Duehren, Andrew.  Wall Street Journal, Eastern edition; New York, N.Y.. 18 Mar 2024: A.4.