With help from Sarah Anne Aarup
PROGRAMMING NOTE: We’ll be off for Thanksgiving this Thursday and Friday but back to our normal schedule on Monday, Nov. 29.
— The reconciliation bill passed by the House on Friday contains the biggest industrial policy push since the New Deal, but now leading Democrats must fight to preserve it in the Senate.
— At the same time, the House and Senate are expected to kick off a conference committee to reconcile their competing anti-China bills, but timing and procedural details remain up in the air.
— And U.S. Trade Representative Katherine Tai is in New Delhi today to try to get the Indian government interested in a broad trade “framework” to counter China in Asia, but sticky issues regarding the World Trade Organization’s upcoming ministerial meeting could complicate talks.
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CAN DEMS’ NEW INDUSTRIAL POLICY PASS THE SENATE? Passage of the House’s reconciliation spending bill on Friday sets up a flurry of negotiations as to what will make it into the Senate’s version — and whether it can win 50 votes.
State-led manufacturing growth: In terms of trade, watch the energy and climate change sections. Tucked in there is a fundamental rethink of American industrial policy, making the government a key driver of investment for new factories, and — hopefully — new jobs.
The House bill allocates $320 billion to support domestic manufacturing, through both industry-specific subsidies and domestic content incentives. There are tax credits for solar panels, electric vehicles, batteries, microchips and other factories, alongside bonus incentives for wind and solar projects to use U.S.-produced materials in their projects.
The aim is to fuel the booming clean energy industry with American-made parts, and backers say the impact could be huge — raising demand for U.S. steel, for instance, by up to 20 percent.
A new Dem approach: Supporters say the provisions amount to the biggest industrial policy push since the New Deal. They also represent a shift in economic thinking for the Democratic Party, where free trade policies have won out over protectionism for decades, and the state has taken a less active role in driving the economy.
But there’s trouble brewing. U.S. allies and foreign automakers are vehemently opposed to the proposed electric vehicle tax credits, which would provide a $4500 bonus to consumers for EVs made with American union labor.
Canadian Prime Minister Justin Trudeau made the tax credits a focus of his visit to the U.S. last week, arguing it would violate the U.S.-Mexico-Canada agreement by discriminating against Canadian cars. That prompted a response from White House Press Secretary Jen Psaki, who said it’s “not the first time” a country looked to support domestic industry with tax credits.
The diplomatic squabble may be resolved by the Senate. Sen. Joe Manchin, the Democrats’ holdout in negotiations, has said he opposes the EV tax credits, telling Automotive News earlier this month that the credit “can’t happen” as he visited a Toyota plant in his state.
Will Dems stand firm? It remains unclear whether Senate Majority Leader Chuck Schumer and Finance Committee Chairman Ron Wyden will fight to keep the EV tax credit in the Senate version, and emails to their offices were not returned last week. Equally uncertain is the fate of the rest of the Democrats’ industrial policy push.
Republicans are ready to pounce, pointing out that the tax provisions aim to make the federal government — and not market forces — a key driver of the American manufacturing economy. Last week, Finance Ranking Member Mike Crapo (R-Idaho) warned that the “rushed and hastily constructed policy proposals” will only “exacerbate inflation” and worsen supply chain disruptions.
Expect those GOP criticisms to amplify as more attention is drawn to the domestic manufacturing incentives in the weeks of Senate debate to come. But Democrats have so far shown some commitment to the provisions, keeping the climate title more or less intact in prior negotiations with Manchin and Sinema, even as they pared back social spending programs.
Unintended consequences? Even if the bill passes, its backers concede that such big changes to the tax code could have surprising economic impacts. One could be to drive investment in robotics and artificial intelligence as companies try to keep labor costs down in their new American factories. “I think we get real job growth coming from it,” said Nat Kreamer, CEO of the clean energy trade group Advanced Energy Economy, “but I think one of the unintended consequences of Build Back Better will be to pull forward the AI and robotics industries as well.” Pros can read more about the industrial policy push here.
WHEN DO WE GET TO THE CHINA BILLS? Alongside (or after?) the Senate debates reconciliation, lawmakers still have to finish up work on their broad measure to confront China economically.
Schumer last week sought to force the House to move on its anti-China legislation by including the Senate’s version in the National Defense Authorization Act. But after some in the House objected, he relented and struck a deal with House Speaker Nancy Pelosi to hold a conference committee on the China bills.
But when that will happen is still unclear. The House has passed some of the parts of its legislative package, like bills to enhance U.S. science funding, but it hasn’t taken the key element of its package, the EAGLE Act, up on the floor yet. With the House back home until after Thanksgiving, that doesn’t appear imminent.
The procedural issue matters for final negotiations on the bill. Separate processes could give the Senate more sway over the final package, as its version has already passed the upper chamber with broad bipartisan support. But connecting the two would give the House some leverage, since they could threaten to hold up the military bill over any serious China disagreements.
Key provision to watch: Last week, Sen. John Cornyn (R-Texas) and Sen. Bob Casey (D-Penn.) tried to slip an amendment that failed during the Senate’s China bill negotiation into the NDAA. The provision would establish a government oversight board for companies making investments in security-related sectors overseas, and sparked enough ire from industry groups back in June to be defeated during floor negotiations. Whether the senators will continue that push if the China bill is taken out of the NDAA remains to be seen, but Casey has said for months he’s still looking for vehicles to get the measure passed.
And speaking of investment screening, the POLITICO Europe team tells us that the European Commission is expected to present its first report on foreign direct investment screening on Tuesday, according to an EU source. Likely with Chinese companies’ investments in certain ports and other important projects across the world in mind, the screening mechanism was set up last year and aims at having better oversight over when foreign companies invest into critical infrastructure in the EU.
TAI LANDS IN INDIA FOR TOUGH TALKS AFTER S. KOREA VISIT: Tai is in New Delhi today and tomorrow as she continues the Biden team’s tour across Asia to sell U.S. allies on a new trade “framework” to confront China.
Last week, Commerce Secretary Gina Raimondo said that pact, still in the early stages, would be “more flexible” than a traditional trade deal, and wouldn’t require action from Congress. But there’s still big open questions as to what the deal would cover, or whether India, which has been at loggerheads with the U.S. on key trade initiatives, would sign on.
Last week, former USTR Susan Schwab told POLITICO that the Indian government is “systematically undermining” progress on agreements at the World Trade Organization’s ministerial conference that starts on Nov. 30. While the U.S. aims to keep the discussions this week on bilateral issues, “it’s almost unavoidable for them to engage on MC12,” said Mark Linscott, a former USTR official now with the Atlantic Council.
Tai will land in New Dehli after visiting Seoul, South Korea, where she held a roundtable discussion with former Korean Minister for Trade Yoo Myung-hee and female trade experts from the Ministry of Trade, Industry and Energy, the Ministry of Foreign Affairs, along with representatives from American and Korean companies, USTR said in a readout.
SPANISH OLIVES WIN AT WTO: Brussels can largely claim victory over Washington in its case against Trump-era duties imposed on Spanish ripe olives. In a World Trade Organization panel report released on Friday, arbiters ruled in favor of the EU in three of the four claims the bloc brought to the WTO.
Win 1: The panel judged that the EU didn’t specifically dole out large amounts of subsidies to Spanish olive producers, contrary to what the U.S. claimed.
Wins 2 & 3: Brussels also won its challenge of a section of U.S. trade law that imposes an import duty on subsidized goods that is equal to the subsidy itself. And the panel agreed with the EU that the U.S. made a mistake in how it calculated the countervailing duties of ripe olives from the company Aceitunas Guadalquivir.
But but but the EU lost its claim against how Washington calculated the damage these cheaper Spanish imports caused to U.S. olive producers.
Refresher: In 2018, the Trump administration imposed duties on Spanish…