The conflation of national security and economics has led to the adoption of another tool under the Biden administration, with significant implications for the trade and climate landscape: industrial policy. Here again the White House has adopted a narrow approach, this time in terms of focusing on strategic industries, but is utilizing the full might of the U.S. government’s funding potential to support ambitious packages—with local-content requirements that were meant to accelerate indigenization of production capabilities further complicating trade relations. The Biden administration identified green technologies early on as a critical sector, and the Inflation Reduction Act has been the chief pathway to unlocking these investments.
Steel and Aluminum Tariffs
During his term, former President Trump invoked “national security” to impose significant trade barriers on imports of a wide array of goods, including ones at the center of the trade and climate conversation. Under Section 232 of the Trade Expansion Act of 1962, the president has broad power to adjust imports (using tools such as tariffs) if incoming goods are found to be a threat to U.S. national security. Under this process, the Trump administration enacted multiple tariffs on steel and aluminum in the name of national security. The Biden administration has kept some of these measures in place, with notable exceptions, including replacing tariffs with tariff-rate quotas (TRQs) on steel and aluminum from the European Union, United Kingdom, and Japan—leading to ongoing EU conversations around a more permanent arrangement.
Section 301 Tariffs
Beyond the Section 232 “national security” tariffs used to block Chinese goods’ access to the U.S. market, the Trump administration also employed tariffs based on Section 301 of the Trade Act of 1974. In March 2018, President Trump announced tariffs on up to $60 billion of Chinese imports. This prompted the Office of the U.S. Trade Representative (USTR) to implement a 25 percent tariff on about $50 billion worth of goods; initial tariffs on $34 billion worth of goods began on July 6, 2018, with the remaining $16 billion starting on August 23, 2018. Together, the Tax Foundation estimates that these equated to a $12.5 billion tax increase. In September 2018, the administration imposed an additional 10 percent tariff on $200 billion worth of Chinese goods, raising the tax collected by $20 billion; by May 2019, these tariffs increased to 25 percent, adding another $30 billion. In August 2019, a new 10 percent tariff was announced on $300 billion of additional goods, later adjusted to 15 percent on $112 billion.
Altogether, the trade-weighted average tariff increased from 1.4 to 2.8 percent from 2016 to 2019. By December 2019, a “Phase One” trade deal with China led to the postponement of further tariffs and a reduction in existing ones, cutting associated revenues by $8.4 billion. Nevertheless, when the dust settled, trade barriers between the United States and China had risen significantly—leaving the incoming Biden presidency to decide how to approach trade with China.
The Biden administration largely left the tariffs on China in place during the first three years of his term, directing USTR to undertake a review of the policy—effectively delaying having to decide whether to extend or terminate the barriers. Ultimately, the White House instructed U.S. trade representative Katherine Tai to implement a series of incremental tariff hikes on approximately $18 billion of imports from China across several “strategic sectors,” including steel, aluminum, semiconductors, EVs, batteries, critical minerals, solar cells, ship-to-shore cranes, and medical products. However, some of these products are critical inputs needed to accelerate the green transition and happen to be areas in which Chinese suppliers are highly competitive.
There is no evidence that either candidate will aim to lower these barriers on Chinese goods. This does not mean that the approach to trade with China would be the same in either administration, however. On the one hand, a Harris administration would likely aim to keep tariff levels where they are and continue focusing on key sectors considered critical to U.S. economic security. Although Harris has repeatedly criticized the Trump campaign’s more expansive tariff proposals as an undue “sales tax” on U.S. consumers, in practice she would face a steep uphill battle politically in removing barriers that are already enacted.
On the other hand, Trump has already promised a heavy-handed approach to tariffs on Chinese goods. During his campaign, Trump has proposed various such measures, suggesting blanket tariffs of 10 to 20 percent on all imports and significantly higher tariffs, from 60 to 100 percent, on Chinese goods in particular. The campaign has also pledged to phase out imports of “essential goods” from China over the next four years; under the current White House analysis of sectors deemed critical to national security, these would include inputs used to accelerate the green transition. Trump has also floated the idea of imposing a 100 percent tariff on countries that move away from using the U.S. dollar in trade, which would almost certainly include China. Sector-specific plans include a 100 percent tariff on imported cars, especially targeting those made in Mexico by Chinese companies. The Republican platform more generally supports implementing tariffs of 10 percent or higher on foreign goods and allows for reciprocal tariffs in response to high foreign tariffs on U.S. products.
Industrial Policy
In addition to tariffs, the Biden administration has turned to industrial policy as a means of assuring the country’s economic security. When it comes to climate, the most significant effort is the Inflation Reduction Act (IRA), which represents the largest climate investment in history, allocating $370 billion to boost the green economy. This includes $250.6 billion for clean energy, $47.7 billion for manufacturing, $46.4 billion for environmental initiatives, $23.4 billion for transportation and EV adoption, $20.9 billion for agriculture, and $4.7 billion for water infrastructure. The IRA primarily uses grants, tax incentives, and loan guarantees, with corporate tax credits making up about $216 billion of the energy and climate funding. The act also provides production tax credits (PTCs) for solar projects and “technology-neutral” PTCs and investment tax credits (ITCs) for renewable energy sources such as wind, solar, geothermal, and hydropower. Projects beginning construction before 2025 can benefit from these credits if they meet domestic content requirements. To qualify, companies must certify that all the iron, steel, and manufactured components in their power-generating facilities are U.S.-produced, with a minimum of 40 percent of manufacturing costs coming from the United States for projects launching before 2025 (increasing incrementally to 55 percent after 2026).
Aside from the domestic content requirements above, the IRA’s support for the U.S. EV industry has become a particularly abrasive trade issue. The EV tax credits have sparked tensions with European leaders, who argue that local-content and final-assembly requirements disadvantage their manufacturers and violate the World Trade Organization (WTO)’s nondiscrimination principle, which mandates equal treatment for foreign and domestic goods. Some EU policymakers also saw the IRA as a threat to European industries, as its incentives could lead to the relocation of clean energy businesses. It appears that these worries have been overstated; diversions of investments from Europe to the United States, while they did occur, happened more rarely than anticipated. Nevertheless, the United States’ turn to industrial policy, featuring robust local-content requirements, is a critical variable in the transatlantic climate and trade conversation.
Critical Minerals Agreements
The Inflation Reduction Act also includes content rules related to critical minerals. These require that a certain percentage, which would increase over the next decade, of a battery’s critical minerals be sourced from the United States or a country with which it has a free trade agreement (FTA). This requirement severely limits how many partners can contribute to U.S. battery supply chains, as many mineral and material inputs are sourced and processed in countries that are not current U.S. FTA partners. The Biden administration aimed to get around this restriction by negotiating “critical minerals agreements” (CMAs) with nations with extractive and/or processing capabilities, enabling their industries to partake in the IRA’s incentives. It successfully negotiated such a CMA with Japan. However, negotiations with other partners, including Indonesia and the European Union, halted in the face of significant blowback from Capitol Hill, broadly due to two issues. Some members of Congress were frustrated that the Biden administration failed to properly consult them on negotiating these CMAs: The U.S. Constitution gives Congress authority to regulate trade, but the Biden administration has by and large relied on executive powers to make deals. In addition, lawmakers on both sides of the aisle felt that the administration was too elastic in its definition of what constitutes a “free trade agreement” for the purposes of the IRA.
A Trump presidency, with its underlying skepticism of the IRA’s aims but also an inclination to prioritize domestic industries over foreign ones whenever possible, would likely not pursue CMAs. On the other hand, a Harris White House would be more willing to undertake these negotiations, provided a backlash from Congress becomes unlikely. The Senate is currently favored to flip to Republicans, who would be inclined to keep IRA requirements more stringent. In addition to the fact that Europe’s current extractive and refining capabilities are low, this context likely puts a U.S.-EU CMA low on the Harris priority list.
The 2025 U.S. Tax Conversation’s Role in Climate and Trade Policy
Climate and trade issues will likely be caught in the crossfire of the U.S. tax policy conversation next year. A critical challenge for the next president in 2025 will be the debate over tax policy. Several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) will expire that year. The TCJA significantly altered the U.S. tax landscape, impacting various income groups differently. Low and middle-income families benefited from an increased standard deduction and a higher child tax credit, though they did not see substantial gains from rate cuts. In contrast, high-income earners reaped the majority of benefits, with the top 0.1 percent receiving average tax cuts of $252,300. However, wealthy individuals also faced a $10,000 cap on state and local taxes (SALT) deductions, limiting their previous tax advantages. For businesses, the TCJA reduced the top corporate tax rate from 35 percent to 21 percent, which was intended to stimulate investment but led to significant government revenue losses, estimated at $100–150 billion annually.
Former president Trump has not yet provided a comprehensive tax plan for his current reelection campaign, but he has proposed several tax-related ideas, including extending provisions of the 2017 TCJA that are set to expire, reducing the corporate income tax rate further, and exempting both tips and Social Security benefits from taxation. He has also floated the idea of replacing the individual income tax with tariffs.