REVENGE OF THE FREE TRADERS: 2022 was a year that shook the neoliberal policy consensus in Washington. From Biden's new industrial policies (CHIPS and IRA) to his more hawkish stance on China, both the White House and Congress undermined the commitment to free trade and free markets that had animated American economic policy for decades. But already, 2023 looks like it could be a year of pushback from the old economic guard. In the White House, Congress and abroad, wounded free traders are trying to bend the historical narrative back from the Neo-Keynesian new protectionism that's been on the rise in recent years. EO's stalled: In the White House, there are signs that the new economic agenda against China may have hit the skids. The administration has yet to follow up its October microchip rules with a widely expected executive order regulating American investments in China. And another order limiting Chinese firms' access to American data has been subsumed by the roiling internal debate over how to handle the TikTok video app. Outbound investment holdup: The latest speed bump comes from continued efforts by the Treasury Department to delay the outbound investment order and limit its reach, with Secretary Janet Yellen reportedly asking this month for more time to consult with allies on the order, according to Axios. That could mean the ultimate action will focus more on quantum computing and AI, and not biotechnology and clean energy — two sectors singled out by national security adviser Jake Sullivan for action — according to the report. A scaled back order along those lines would represent a victory the China doves — forces in the administration that want to slow the rush to strategic decoupling. And that's not just Yellen. The economic agencies (Treasury and Commerce) since the Trump administration have been more skeptical about the rush to scrutinize American business in China. It would also be a defeat for the China hawks, led by Sullivan, who have worked for more than a year to craft the order. Back in September, Sullivan said the administration would not just target microchips and AI, but would look to curtail China's biotech and clean energy industries as well. Hawk's departure felt: Since Sullivan's speech, the NSC's lead staffer on those efforts, Peter Harrell, has departed the administration. His replacement, Obama veteran Christina Segal-Knowles, is respected, but not as hard-charging on the China economic security issues, former U.S. officials with knowledge of her said. That may give Yellen and other doves an opportunity to stall the NSC's economic security campaign. Yellen-He meeting: In another sign that Yellen is looking abroad this year, Treasury announced she will meet with Chinese Vice Premier Liu He in Switzerland on Wednesday. The meeting — their first in person — is the latest sign of a mini-thaw in relations with Beijing since Biden and Xi Jinping spoke in November, and comes ahead of Secretary of State Tony Blinken's expected trip to China next month. Further delays: Any aggressive economic measures against Beijing could spoil that trip, so many observers expect any new executive orders to wait until after Blinken returns. But by that time, the House and Senate may have cracked open their outbound investment review bills with hopes of influencing the process. Both the Senate Banking Committee — cut out of the process last year — and incoming House Republicans are keen to put their stamps on the outbound investment review process, and that could complicate things further. There's no guarantee any of it gets done, and Republicans won't be eager to give Biden any big wins. That has some China hawks concerned. "I worry about what some Republicans are headed on this in the House, that they'll play the blame game rather than have constructive policy," Sen. Bob Casey (D-Pa.), sponsor of the outbound investment bill in the Senate, said before the holiday break. New GOP trade ideas: In the meantime, some Republicans are trying to reshape their free trade-favoring agenda for the new Chinese challenge. Last week, Finance Committee member Sen. Bill Cassidy (R-La.) introduced a discussion draft along with Rep. Maria Salazar (R-Fla.) that would incentivize companies to move supply chains from China to the U.S. and Latin America, while establishing a path for Central and South American nations to join the U.S.-Mexico-Canada Agreement. It remains to be seen if the "Americas Act" will have legs in the new Congress, but its introduction shows how the GOP is trying to refashion its trade policies for the new economic era. MANCHIN REBRANDS IRA IN DAVOS: As free traders push back at home, some of the leaders of the new protectionist movement are also engaging in a rebranding of the recent economic efforts. In Davos, this week, Washington lawmakers are trying to convince their European allies that the U.S. isn't actually newly protectionist — despite the hundreds of billions in new domestic manufacturing incentives approved last year. At least, not compared to their hosts. It's "hyper hypocritical" for Europe to criticize American protectionism, West Virginia Sen. Joe Manchin (D) told our colleagues at Davos this week, arguing that essentially what is good for the goose is good for the gander. "That bill was designed to basically strengthen the United States so that we can help our allies and friends, which need it right now," Manchin said. "And if anybody needs it, the EU needs it. And without that, we're not going to be and maintain the superpower status of the world if we're not energy independent." TAI IN BRUSSELS: U.S. Trade Representative Katherine Tai is in Brussels over the next couple of days to talk trade. More specifically, she's there to "emphasize the importance of U.S.-European cooperation" on everything from Russia's war in Ukraine to "confronting" China and building more resilient supply chains, according to her office. Today, she's meeting with her EU counterpart Valdis Dombrovskis, and the agenda is brimming with topics. The American version: Tai's focus during her encounter with Dombrovskis is likely to be on the Trade & Tech Council and the global steel and aluminum arrangement, according to the USTR statement. The point will be to "affirm the importance of the transatlantic relationship." The European version: But Dombrovskis won't let Tai sidestep the painful topic of the U.S. Inflation Reduction Act. Brussels is fuming about the U.S. law over what it sees as unfair American competition, and it's been front and center of Europe's new industrial policy push. "Obviously one of the topics on the agenda will be the U.S. Inflation Reduction Act," Dombrovskis told reporters reporters ahead of Monday's meeting with EU finance ministers, adding that the finance ministers will even discuss the problematic U.S. legislation over breakfast. More homework: Dombrovskis made clear that Brussels isn't satisfied yet with European companies' treatment under the new American law. He acknowledged there's been progress on tax credits for e-cars but said that "we are continuing to work on, for example, supplies and inputs into batteries." Beyond IRA: But it's not just Washington's fault, the Latvian commissioner added. "The issues that the EU industry are facing are not limited to [the] Inflation Reduction Act," Dombrovskis said. "If you look at the broader competitiveness issues, high energy prices, this is something that we need to address." This means adjusting state aid rules, he added, which is something that EU competition chief Margrethe Vestager is working on.
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