TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR UPDATE AUGUST 7, 2017
Dear Friends,
Recently there have been two developments of note in US China trade relations.
NORTH KOREA AND NO SECTION 301 CASE AGAINST CHINA FOR THE TIME BEING
As mentioned in my last blog post, the North Korea crisis is affecting the US China Trade Relationship. The decision of China to back the UN Security Council resolution on sanctions against North Korea has caused the Trump Administration to pull back and not move forward with a Section 301 case against China.
As Politico reported today:
NORTH KOREA SANCTIONS WAYLAY CHINA TRADE PROBE: To be honest, there were conflicting signals from administration officials early last week on the timing of an announcement that Trump would ask U.S. Trade Representative Robert Lighthizer to investigate Chinese policies that compel foreign compel transfer technology and other intellectual property to do business there. Some said the announcement would come Thursday or Friday; others said it was not imminent.
It now appears that the “not imminent” camp was right. The reason was the State Department’s fear of upsetting its successful push for Chinese cooperation on new UN sanctions against North Korea. The new Security Council resolution, which passed 15-0 on Saturday, targets North Korea’s largest source of external revenue by imposing a total ban on the country’s exports of coal, in addition to iron, iron ore, lead, lead ore and seafood.
The resolution imposes “over one billion dollars in cost to N.K.,” Trump wrote on Twitter, referring to a State Department estimate of how much Pyongyang would lose in hard currency in terms of export earnings.
As for the IP probe for China, sources said it could still happen, but there were conflicting signals on how soon. One administration official suggested there might not be an announcement this week because Lighthizer is out of the country.
Emphasis added.
When China helps the US on North Korea, Trump is going to lay back and not attack China over trade issues. As mentioned before, Trump is the first President to overtly link trade deals with foreign policy issues. He has made it very clear to China help us on North Korea and China will get a better trade deal. So far that seems to be Trump’s goal with China.
President Trump is learning that trade is complicated.
SECTION 201 SOLAR CELLS CASE
Many companies have been calling me about the Section 201 Solar Cells case. In that case, the US International Trade Commission {“ITC”) just issued its attached public prehearing report, 2017.08.01 ITC Solar 201 Prehearing Report PUB. The hearing is scheduled for August 15th and the Commission’s injury determination is to be sent to the President on September 22nd.
The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016. Moreover, US producers’ profits and sales have increased in the period.
This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd. The August 15th hearing will be very interesting.
If you have any questions about these cases, please feel free to contact me.
Best regards,
Bill Perry
US CHINA TRADE WAR JULY 31, 2017
Dear Friends,
With the passage of the Trump Executive Order telling agencies, including the Department of Defense (“DOD”), to further study the problem, Trump’s trade war in the Section 232 Steel and Aluminum cases has run into reality—the impact on US downstream producers. With a Greek Chorus of Senators and Congressmen telling the Administration to go slow, the dire warnings by downstream US users of these raw materials, and the threats of retaliation from many foreign countries, President Trump punted and decided to further study the situation. As indicated below, in their comments numerous steel users were telling Commerce not only that Steel Tariffs would seriously damage their companies causing the loss of hundreds of thousands of jobs, but also that the Steel tariffs themselves could damage US national security by cutting DOD suppliers from very important supply lines for raw materials.
Apparently, President Trump and the Trump Administration listened. It is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.
Now is the time for an Emperor has no clothes moment. The problems of the Steel industry go back decades long before Wilbur Ross arrived because of the decision to give big bonuses to management and large pensions to the Steel unions, which the companies simply can no longer fund. These payments led to the failure to modernize and update steel production facilities and also produce specialized types of steel. That failure to produce many specialized types of steel at cost efficient prices has led to screams by US downstream steel producers with millions of jobs at stake.
But with Commerce saying there is no time deadline for the Section 232 Steel report and the Steel Unions crying doomsday and the loss of thousands of jobs, what is the solution?? As explained below, TAA for Companies, not trade protection, is the solution. An alternative solution is needed for the Steel crisis that will not harm national security and injure more US industries. TAA for Companies makes US companies more competitive without affecting the market in any way.
Meanwhile, there is now talk of significant US trade sanctions against China because of North Korea. Commerce also continues to find China a non-market economy country, and the US China Economic Talks fell apart over steel and aluminum, but also, in part, North Korea.
There are also dire warnings about the impact of the Section 201 Solar Case on US solar projects and the loss of thousands of jobs. But the Border Adjustment tax is now officially dead, and USTR has released NAFTA negotiating objectives and the negotiations themselves are scheduled to start up on August 16 with one real issue being the impact on US agricultural exports.
New antidumping and countervailing duty cases have been filed against Cast Iron Soil Pipe Fittings and a Section 337 case against Ribbon Cables.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address [email protected]
Best regards,
Bill Perry
TRUMP’S TRADE WAR—TRUMP PUNTS ON THE SECTION 232 STEEEL AND OTHER NATIONAL SECURITY CASES
Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality. Even though Commerce Secretary Wilbur Ross promised to send completed Section 232 reports to the President by the end of June and President Trump promised that July would be the month of trade, nothing has happened to date, except for a Trump Executive Order stating that the Department of Defense and other agencies are to further study the manufacturing base needed to support US national security.
The first problem is an Emperor has no clothes moment—the problems of the Steel Industry go back decades. The Steel industry’s problems boil down to large bonuses to management n the 1970s and 1980s and the large pensions given to Steel unions, which are in place today. Those bonuses and pensions prevented the Steel industry from modernizing their production facilities and also specializing into specific types of steel. Downstream steel users, such as the automotive industry, are moving away from commodity products as raw material steel inputs, and to specialized steel made to order of the downstream user. All industry has become specialized and the US Steel Industry has not modernized so it can no longer produce certain types of steel or produce certain types of steel cost efficiently and that seriously damages downstream steel users that also manufacture in the United States.
That leads to the second big problem the steel industry has only 141,000 jobs while the jobs in the Steel Users industry are in the millions. This is probably the reason that the Department of Defense (“DOD”) woke up. Steel users probably told DOD you want your tank parts?
This is the time for the US Government and Congress to look at another alternative. Tariffs and quotas simply will not save the Steel Industry, but Trade Adjustment Assistance for Companies just might. It is time for the US government to back a proven alternative that has saved 1,000s of US manufacturing companies in the past. A program that both President Obama and President Trump want to write off, but actually has a proven track record of saving US trade injured manufacturing companies without any impact on US market or imports.
In fact, as indicated below, directly contrary to statements of Secretary Ross, many US companies that are receiving trade adjustment assistance are steel users and cannot be competitive with imports because US steel price are higher than world market prices.
What is the TAA for Companies secret sauce? Making US companies competitive again. Only by making US manufacturing companies competitive again will the trade problems really be solved. US industry needs to cure its own ills first before always blaming the foreigners and that is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.
SECTION 232 STEEL CASE
As stated in the last blog post, in response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production. The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”. The Secretary shall also advise the President on potential remedies.
On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, COMMERCE FED REG SECTION 232 NOTICE Section 232 Investigation on the Effect of Imports of Steel on U.S Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce, announced the self-initiation of a Section 232 National Security case against imports of steel from every country. See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.
Commerce held a hearing on May 24th in this case. The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.
In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry.
If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”
Once the President makes his affirmative determination, he will report his decision to Congress, but it is questionable whether Congress can disapprove the decision. The statute also does not provide for any appeal to the Court of International Trade. Commerce also is very protectionist and in antidumping and countervailing duty cases. The only check in trade cases is the injury determination by the independent US International Trade Commission, but there is no such determination under Section 232.
On July 26th Politico reported that the Section 232 Steel and Aluminum cases had stopped:
TRUMP HITS THE BRAKES ON 232 REVIEWS: The Trump administration is unlikely to make any decisions regarding whether to limit imports of steel and aluminum for national security reasons any time soon, after the president himself told The Wall Street Journal on Tuesday that “we don’t want to do it at this moment.”
The administration had already missed its initial deadline of wrapping up the pair of Section 232 reports by the end of June, and Trump indicated Tuesday that was in part because of various regulations regarding any decisions. . . .
Back of the queue: Trump was confident that his administration would eventually be “addressing the steel dumping,” which he called “a very unfair situation.” He did not, however, indicate the action would be imminent: He started by saying it would come “very” soon, but then backed off and said it would be “fairly soon.”
It will also likely come after other high-profile items on his policy agenda are completed. “We’re waiting ’til we get everything finished up between healthcare and taxes and maybe even infrastructure,”
The initial report on the Trump decision was a July 25th article in the Wall Street Journal in which Trump stated that with regards to the Section 232 Steel case, “we don’t want to do it at this moment” because of the complexity of the issue. Trump further stated:
“You can’t just walk in and say I’m doing to do this. You have to do statutory studies … It doesn’t go that quickly.”
The Wall Street Journal reported that Trump started to say he would make a move “very” soon but stopped himself and instead said “fairly soon.”
Trump also stated that the steel issue is “a very unfair situation”, and that any final decision would not be made until work is done on other major initiatives. As Trump stated:
“We’re waiting till we get everything finished up between healthcare and taxes and maybe even infrastructure.”
On July 26, 2017, it was reported that a Commerce Department spokesman refused to suggest a revised date for its determination on whether to impose new national security trade restrictions on steel imports saying only that the President’s comments “speak for themselves.”
On July 27th, before House Ways and Means, Commerce Secretary Ross indicated sympathy with comments from users where certain steel and aluminum products were not produced domestically, but had no sympathy with the argument that steel prices could be so high as to hurt downstream producers stating that is the nature of dumping and what eventually happens when “we let imports run amok.”
After the briefing, Congressional representatives stated that tariffs and/or quotas will be delayed for a while longer. The Representatives indicated that during the meeting Ross had read the President’s statement from the Wall Street Journal that “we don’t want to do it at this moment” and that the Administration would most likely take action “fairly soon.”
On July 26th it was also reported that that the United Steelworkers union (“USW”) had stated that Trump decision to delay a Section 232 determination on steel imports could have “devastating” consequences on the US Steel industry and the jobs in that industry as foreign trading partners rush to export steel to the U.S. under a long-delayed threat of tariffs. As USW President Leo Gerard stated:
“Since the President announced an investigation in April, attacks on the U.S. steel sector have skyrocketed, with imports up 18 percent. Trading partners have targeted the U.S. market for fear that the United States will finally stand up for its producers and workers and protect our national security.”
Gerard acknowledged that trading relationships in the steel sector are “complex.”, but went on to state:
“But enough time, attention and investigation have passed to know what needs to be done. Steel, the foundation of our national security, is crumbling under the onslaught of foreign imports. Much of that is illegally traded.”
Meanwhile, even before the July 25th statement, on July 5th Kevin Brady, Chairman of House Ways and Means, urged the President to take it slow. Brady stated:
“Our advice to the President has been pretty public: Take your time, get it right. We want to make sure that however the White House frames their ultimate action, that it doesn’t punish our allies who are trading fairly. And we want to make sure it doesn’t give a green light to those trading unfairly to do more of it. And it’s important, too, that whatever that ultimate decision is that it actually works for America and doesn’t backfire.”
Brady acknowledged that overcapacity in the global steel market was causing problems for domestic producers. But he called for a “balanced” solution that takes into account other interests as well.
On July 7th it was reported that the Department of Defense intended to drill down on the Steel Report and was “tapping the brakes on any potential effort by President Donald Trump to hit steel imports with tariffs of up to 25 percent.”
On July 21st President Trump issued an Executive Order ordering a thorough review of the national defense industrial base and the government to gather information about whether U.S. companies can meet the commercial demand for national security goods including steel, aluminum, circuit boards and flat-panel displays.
Under the terms of the executive order, an interagency group will present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.
The attached Executive Order, Presidential Executive Order on Assessing and Strengthening the Manufacturing a, specifically stated in part:
Presidential Executive Order on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States . . .
By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:
Section 1. Policy. A healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States. The ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains. Modern supply chains, however, are often long and the ability of the United States to manufacture or obtain goods critical to national security could be hampered by an inability to obtain various essential components, which themselves may not be directly related to national security. Thus, the United States must maintain a manufacturing and defense industrial base and supply chains capable of manufacturing or supplying those items.
The loss of more than 60,000 American factories, key companies, and almost 5 million manufacturing jobs since 2000 threatens to undermine the capacity and capabilities of United States manufacturers to meet national defense requirements and raises concerns about the health of the manufacturing and defense industrial base. The loss of additional companies, factories, or elements of supply chains could impair domestic capacity to create, maintain, protect, expand, or restore capabilities essential for national security.
As the manufacturing capacity and defense industrial base of the United States have been weakened by the loss of factories and manufacturing jobs, so too have workforce skills important to national defense. This creates a need for strategic and swift action in creating education and workforce development programs and policies that support job growth in manufacturing and the defense industrial base.
Strategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains is therefore a significant national priority. A comprehensive evaluation of the defense industrial base and supply chains, with input from multiple executive departments and agencies (agencies), will provide a necessary assessment of our current strengths and weaknesses.
Sec. 2. Assessment of the Manufacturing Capacity, Defense Industrial Base, and Supply Chain Resiliency of the United States. Within 270 days of the date of this order, the Secretary of Defense, in coordination with the Secretaries of Commerce, Labor, Energy, and Homeland Security, and in consultation with the Secretaries of the Interior and Health and Human Services, the Director of the Office of Management and Budget, the Director of National Intelligence, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Trade and Manufacturing Policy, and the heads of such other agencies as the Secretary of Defense deems appropriate, shall provide to the President an unclassified report, with a classified annex as needed, that builds on current assessment and evaluation activities, and:
- identifies the military and civilian material, raw materials, and other goods that are essential to national security;
- identifies the manufacturing capabilities essential to producing the goods identified pursuant to subsection (a) of this section, including emerging capabilities;
- identifies the defense, intelligence, homeland, economic, natural, geopolitical, or other contingencies that may disrupt, strain, compromise, or eliminate the supply chains of goods identified pursuant to subsection (a) of this section (including as a result of the elimination of, or failure to develop domestically, the capabilities identified pursuant to subsection (b) of this section) and that are sufficiently likely to arise so as to require reasonable preparation for their occurrence;
- assesses the resiliency and capacity of the manufacturing and defense industrial base and supply chains of the United States to support national security needs upon the occurrence of the contingencies identified pursuant to subsection (c) of this section, including an assessment of: . . .
- exclusive or dominant supply of the goods (or components thereof) identified pursuant to subsection (a) of this section by or through nations that are or are likely to become unfriendly or unstable; and the availability of substitutes for or alternative sources for the goods identified pursuant to subsection (a) of this section;
- identifies the causes of any aspect of the defense industrial base or national-security- related supply chains assessed as deficient pursuant to subsection (d) of this section; and
- recommends such legislative, regulatory, and policy changes and other actions by the President or the heads of agencies as they deem appropriate based upon a reasoned assessment that the benefits outweigh the costs (broadly defined to include any economic, strategic, and national security benefits or costs) over the short, medium, and long run to:
- avoid, or prepare for, any contingencies identified pursuant to subsection (c) of this section;
- ameliorate any aspect of the defense industrial base or national-security-related supply chains assessed as deficient pursuant to subsection (d) of this section; and
- strengthen the United States manufacturing capacity and defense industrial base and increase the resiliency of supply chains critical to national . . . .
DONALD J. TRUMP
THE WHITE HOUSE, July 21, 2017
Emphasis added.
EMPEROR HAS NO CLOTHES —STEEL INDUSTRY PROBLEMS HAVE BEEN GOING ON FOR DECADES BECAUSE OF ITS FAILURE TO MODERNIZE DESPITE 40 YEARS OF PROTECTION FROM STEEL IMPORTS
After graduating from law school, in the late 1970s I went to work for a law firm in Washington DC and one of our clients was Bethlehem Steel Shipbuilding. In the Spring of 1979, at a firm party, one of the heads of the company told me all I want to do is stop in the imports. After joining the US International Trade Commission (“ITC”) in October 1980 I watched Bethlehem Steel file case after case against steel imports. In 1985 while at the ITC, I asked the head of Bethlehem Steel’s Sparrow’s Point Factory how important the Continuous Castor was to Bethlehem Steel. He replied, “We’ve bet the company on the continuous castor”. Bethlehem Steel bet too late. The Korean steel producers already had the continuous castors.
Later, my former boss, the former ITC General Counsel, represented Bethlehem Steel for decades bringing trade cases against steel imports. The US steel industry has had 40 years of protection from steel imports and yet it continues to decline. Bethlehem Steel after 40 years of protection from steel imports is now green fields.
On July 14, 2017, former ITC Commissioner Dan Pearson of the Cato Institute summarized some of these problems in a Market Watch article entitled “Trump would further damage U.S. manufacturing if he restricts steel imports” stating:
“In a recent hearing on the investigation, Secretary Ross made clear that highly protectionist measures are under consideration. What Ross didn’t address is whether additional steel import restrictions would harm the U.S. economy.
Unfortunately, they certainly would. Our country may be only weeks away from presidential action that would further damage the competitiveness of the broad manufacturing sector.
Five points are particularly relevant:
First, it’s not clear there is any legitimate national security justification for invoking Section 232. There is no doubt that much U.S. military equipment requires steel. The key question is how best to obtain specific types of steel needed for various national-security applications.
Most steel used by the military comes from domestic suppliers, such as United States Steel Corp. . ., AK Steel Holding Corp. . . and Nucor Corp. . . . or from countries with which the United States has amicable relations. Keeping the U.S. market open to steel imports would assure that the military will have access to both foreign and domestic steel products needed to maintain national security. If the Pentagon wishes to ensure domestic sources for some products, it could establish long-term contracts with U.S. mills—no import controls are required.
Second, potential Section 232 restrictions must be viewed in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products, making steel one of the country’s most protected sectors. As a result, U.S. prices for many steel products are significantly higher than world prices, greatly disadvantaging American manufacturers that require steel as an input.
Third, any additional import restrictions would do far more harm to steel-using manufacturers than any benefit that could accrue to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers. Manufacturers that use steel as an input employ 6.5 million, 46 times more.
Steel mills account for a rather narrow slice of the overall U.S. economy: $36 billion in 2015, equaling only 0.2% of U.S. gross domestic product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion – 29 times more – or 5.8% of GDP.
Any government action to drive steel prices even higher by further restricting imports will hurt steel- consuming manufacturers. Their costs will rise, thus reducing their competitiveness relative to companies in other countries. Carrier, the company that in December said it wouldn’t shift 800 jobs from Indianapolis to Mexico after all, is hardly the only firm that could reduce its steel costs by shifting production overseas.
Fourth, other nations likely would retaliate. When a foreign power acts arbitrarily to curtail its imports, negatively affected exporting countries aren’t amused. Since the United States is only a minor exporter of steel, retaliation likely would be focused on innocent, export-competitive sectors. The United States is the world’s largest exporter of military equipment, so those firms may be targeted.
The United States also is the world’s largest agricultural exporter; farm and food products would be vulnerable across the board.
Fifth, a country that imposes import restrictions always reduces its own economic welfare. This is true even if other countries don’t retaliate. Economists have understood since the work of David Ricardo that it is unwise to try to be self-sufficient when others are able to provide products at lower costs.
Import restrictions lead to inefficient resource use, lowering national economic welfare in the process. In other words, consumers are hurt more than protected industries are helped.
The Section 232 process may be intended to inflict pain on foreign nations by curtailing their exports. We can’t be sure whether U.S. import restrictions will hurt other countries, but we can be certain that restrictions will hurt America. Limiting steel imports creates a genuine threat to economic growth and prosperity. It is very difficult to build a stronger national defense when the economy is getting weaker.
But shouldn’t something be done to help steel mills and their workers as they deal with import competition? The Department of Commerce should think seriously about proposing enhanced economic adjustment assistance. It would be good public policy to encourage this historically protected industry to restructure and adapt to free trade in steel. . . .
My former boss, who later represented Bethlehem Steel for decades in trade cases, in the early 2000s told me that the problem with steel is that the employment in the entire US steel industry is less than one high tech company.
CONCERNS OF DOWNSTREAM STEEL INDUSTRIES
On May 31, 2017, public comments were filed at the Commerce Department on the Section 232 Steel case. My last newsletter contained numerous comments from large associations representing steel users, including the American Automotive Policy Council (“AAPC”) and the truck and engine manufacturers association warning about the devastating impact high steel tariffs would have on the automotive and truck industry. Not only would restraints on Steel imports damage downstream industries, but they would also damage the national security of the United States. Many suppliers to the US DOD are dependent on imported steel made to certain specifications to make the downstream products to DOD specifications. In many cases, US steel producers no longer produce steel to the specifications required by the DOD and many downstream users, such as the US automotive industry.
Thus the AAPC stated;
Although sympathetic to the challenges the steel industry faces, we are concerned that if, as a result of this Section 232 investigation, the President were to increase tariffs on foreign steel or impose other import restrictions, the auto industry and the U.S. workers that the industry employs would be adversely affected and that this unintended negative impact would exceed the benefit provided to the steel industry from this Executive action.
Steel is a critical input into the manufacture of automotive products. The price of steel in the United States is already significantly higher than in the markets where our competitors build the majority of their cars and trucks. This puts U.S. automakers at a competitive disadvantage.
The Association of Equipment Manufacturers warned not only about the devastating impact on their industry, but went on to warn that steel tariffs would have a negative impact on US national security stating that US equipment manufacturers:
must source steel from international producers because the steel’s formula matches a specific spec required to ensure a piece of equipment’s proper function and performance that is not otherwise available in the United States. Inhibiting access to foreign steel will force manufacturers to procure steel from a domestic supplier that may not match required specifications, thus degrading the quality and performance of the equipment and risking operational safety concerns. In cases where a particular type of steel is available from domestic suppliers, a sudden surge in demand will likely lead to extended procurement timeframes and delays in the manufacturing process.
Since equipment manufacturers provide parts and equipment to the Department of Defense, in fact, high tariffs on imported steel could, in effect, damage the national security of the United States.
The Forging Industry Association representing the US forging industry also stated:
As noted above, the steel forging industry supplies many products essential to national security, including numerous tank and automotive forgings for combat vehicles, small caliber weapons forgings, ordnance forgings, and forgings used in building airplanes, helicopters, ships and submarines. . . .
US steel forgers rely almost exclusively on domestically-produced SBQ steel. . . . The “globally competitive prices” are critically important – if the price for domestic SBQ steel is higher in the U.S. than anywhere else in the world due to tariffs or trade restrictions, then we begin to see less imports of raw material and more imports of downstream products. . . .
In effect, when current trade laws are used to remedy injury in one subsector of the economy, such as steel, they often shift the injury to another tier within the manufacturing sector.
The Industrial Fastener Institute representing the US Fastener industry warned that:
Fastener manufacturing is a major consumer of metals, including steel. Since fasteners can be made anywhere in the world, the U.S. industry is dependent on access to adequate supplies of globally priced raw materials such as steel to remain globally competitive. . . .
However, even with a healthy domestic industry, history has shown that fastener manufacturers must sometimes import raw material because the particular types of steel needed are not available in the quantities, quality or form required. (Fasteners are made out of round form, not sheet, flat or bar products.) By some accounts, the U.S. steel industry is able to produce only about 70 percent of the total steel consumed in the U.S. . . .
The Motor & Equipment Manufacturers Association was even more explicit about the potential negative impact of this case on US national security:
Our industry is closely associated with the U.S. defense industry. . . . Adjustments to steel imports that prevent our members from obtaining the type of steel they need in a timely manner or increases to production costs would jeopardize our ability to manufacture in the United States and to provide these critical products to the U.S. defense industry. . . .
MEMA member companies need specialized steel that either is not available at all in the U.S. or is not available in sufficient quantities. Certain foreign steel producers worked closely with MEMA member companies to develop the specialized steel and this type of collaboration benefits the U.S. by improving products. Continued access to these types of steel are critical to our industry. Attached to these comments is a non-exhaustive list of steel products that must be excluded from any import adjustments (see Appendix I). Several of our member companies are submitting exclusion requests directly as well. . . .
Motor vehicle component and systems manufacturers are the largest employers of manufacturing jobs in the U.S. and many of these companies import steel of all types, including specialized steel products, to manufacture goods in the U.S. that are then sold to the U.S. defense industry, U.S. government and consumers. Disrupting American manufacturing operations or increasing costs through adjustments to steel imports would not benefit the national security of the United States. Such adjustments to steel imports would, in fact, detrimentally impact U.S. employment, compromising our economic and national security.
The National Electrical Manufacturers Association (“NEMA”) stated in its comments:
Some electrical steels are imported into the U.S. because they are not available from domestic or North American suppliers. Loss of access to these materials would cause grave harm to NEMA manufacturers, who would no longer be able to manufacture and supply DOE-compliant products, and their customers – which include U.S. electric utilities as well as tens of thousands of industrial, commercial, and defense/national security facilities – but would have no effect on domestic or North American steel manufacturers, since they do not manufacture/produce or offer for sale those materials today.
Like the chorus in a Greek tragedy, US manufacturers that rely on steel as a key raw material input cried their warning that not only would imposing restrictions on steel imports injure downstream steel manufacturers, but also US national security itself. President Trump now appears to be listening.
ALUMINUM
The other Section 232 case that is behind steel is Aluminum. On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries. Attached are documents related to the Case, Aluminum Presidential Memo Summary ALUMINUM FED REG PUB Section 232 Investigation on the Effect of Imports of Aluminum on US National S. The hearing was on June 22, 2017 and the video of that hearing can be found at https://www.youtube.com/watch?v=k3Bnwi3DWHg.
But in a letter to Commerce, 44 Senators and Representatives argued that the ongoing investigation under Section 232 could include aluminum imports that have little to do with national security but is used to make things like food and beverage cans. The Congressional representatives and Senators stated that specific type of rolled can aluminum sheet and primary aluminum “could yield import restrictions or tariffs on these products – a result that would not increase their availability in the U.S. but would necessarily impose additional costs to American end-users and American consumers.”
The National Foreign Trade Council said in comments filed on behalf its 200 member companies in sectors including energy, capital goods, transportation, consumer goods, technology, health care products, services, e- commerce and retailing “We believe that imposition of high tariffs or restrictive quotas on aluminum products is not an appropriate response” to concerns that excess capacity in China has led to the closings of many aluminum smelters in the United States. The NFTC went on to state:
“Many of the industries that rely on aluminum as an input are themselves suppliers for our nation’s defense- related needs, building the ships, aircraft, machinery, high technology weapons and other goods that a modern military demands.”
In contrast to the Commerce lack of data in the Section 232 Steel case, however, in the Aluminum case, in June 2017 the US International Trade Commission (“ITC”) has just issued the attached fact finding report on the US aluminum industry, ITC ALUMINUM PUBLICATION, which is based on questionnaires sent to US producers.
TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS
As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies injured by imports.
Donald Trump’s proposed budget, however, would 0, zero, out the trade adjustment assistance for companies program. Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.
The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports. Instead the TAA for Companies program works with US companies injured by imports to make them more competitive. The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.
In fact, many of the companies receiving trade adjustment assistance are steel users or downstream US manufacturing companies, which have been injured by US trade actions. They are the collateral damage caused by US trade actions.
A cursory analysis comparing companies in the TAA for Firms program to trade actions (AD, CVD, etc.) in 2015 revealed a strong correlation between those companies and trade actions. TAA for Firms works with small, medium sized, mostly manufacturing companies that encounter business declines linked to import competition. ITC maintains a list of current AD/CVD cases, which, when combined with other known trade actions, yielded 116 unique product descriptions. Between 2005 and 2015 1,654 companies entered TAAF – publicly available information provides a brief description of these companies’ products. For the TAAF companies, 70% of the product descriptions match with trade actions. Steel actions alone match with 31% of the TAAF companies.
On the one hand, this is not surprising, trade actions occur in industries with concerning levels of trade, therefore, one would expect trade impacted companies in those industries. This only supports the assertion that TAAF is being applied where it should be expected.
On the other hand, the variety of companies in the TAAF program is surprising to anyone who looks closely – they certainly do not fall into predictable categories. The variety of products and level of specialization among manufacturing companies is astounding. The TAAF companies are not the subjects of the trade actions, but the downstream buyers of those products. That one category of product, steel, would match so often, strongly stands out. An often heard anecdote from the TAAF program, quotes the business owner who says his cost of raw materials exceeds the cost of the finished imported product. It was only after performing this analysis that recollection confirmed that the anecdote was most often repeated related to companies using steel as a raw material.
It should be emphasized that this was a cursory analysis. TAAF firms are thought to be a fraction of those experiencing trade impact. The level of analysis consisted only in rough comparisons of rough descriptions. Perhaps more surprising is that with over 45 years of TAAF program operation and what has become a vast national debate about manufacturing and jobs, no thorough analysis of trade impact exists. We do know there is a lot of it in a lot of different products and industries. And we strongly suspect that the experience of TAAF confirms the damaging downstream impact of trade actions. The good news is that TAAF companies tend to recover and grow. Some consistent outcomes of the program are longevity of companies, sales increases that exceed the economy and industry levels, strong productivity growth, and job growth that at least recovers lost jobs and one can infer, preserves many more.
In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure. Yet the program does not interfere in the market or restrict imports in any way.
Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget. Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury. In his budget, Trump increases TAA for Workers, but kills TAA for Companies. Yet to retrain the worker for a new job, the average cost per job is $5,000. To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.
Moreover, TAA for Firms/Companies works. In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today. For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.
But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job. Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.
TRUMP AND CHINA
US CHINA’S NORTH KOREA PROBLEM MAY MEAN ROCKY TRADE PROBLEMS
Recently, at a speech to Chinese government officials, when asked what the major trade issues are between China and the US, I mentioned North Korea. During the election campaign, Donald Trump often pointed to China as a source of the many trade problems for US companies.
At the Mar -A -Lago meeting with Xi Jinping, however, Donald Trump appeared to step back and explicitly linked Chinese help with North Korea to a better trade deal between the two countries. This is the first time a US Administration has directly linked a foreign policy objective with a trade relationship.
But now Trump is frustrated because he believes China is not helping enough with North Korea and wants to develop a “cogent China strategy”. On July 31st, based on conversations with administration officials,Politico reported that the Trump Administration is considering “a handful of economic measures to punish China, with a final decision coming as soon as this week . . . .. The article goes on to state:
Trump’s aides met over the weekend to discuss options, including trade restrictions or economic sanctions, and they will continue those conversations today. It remains too early, however, to say what the president might decide, the officials said. . . .
The decision may come as the president grows increasingly frustrated with Beijing over its handling of the North Korea missile situation, including Friday’s latest intercontinental ballistic missile test. “I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!” Trump said on Twitter over the weekend.
On the trade front, Trump has also long complained about what he sees as unfair trade practices by Beijing, and he has been encouraged particularly by some of the harder-line aides in his administration – like chief strategist Steve Bannon and Office of Trade and Manufacturing Policy Director Peter Navarro – to crack down on China.
To read more about this issue, please see the attached July 31st article from Politico, Trump plan on China may come as soon as this week – POLITICO.
CHINA STILL A NONMARKET ECONOMY COUNTRY IN CVD CASES
On July 25th, since the argument was made that China is a market economy country in the Aluminum Foil case, Commerce released the attached memo, DOC CHINA BANKING NONMARKET, starting that the interest rates set by Chinese banks are not set by market forces and thus no Chinese bank interest rates can be used in CVD cases. This memo indicates that Commerce is not going to treat China as a market economy country in antidumping and countervailing duty cases any time soon.
STEEL AND ALUMINUM PROBLEMS STOP US CHINA TRADE NEGOTIATIONS
On July 19th, optimism was reported at the start of the U.S.-China Comprehensive Economic Dialogue. Chinese Vice Premier Wang Yang stated “The giant ship of China-U.S. economic and trade relations is sailing on the right course.”
But on July 20th the optimistic tone changed as the disagreement over excess Chinese steel and aluminum production capacity along with North Korea problems stopped the conference in its tracks. China refused to agree to specific cuts in steel and aluminum production capacity and the United States was unwilling to move onto other concerns.
Chinese Vice Premier Wang Yang stated:
“Let me stress here that dialogue and negotiation are different from each other. The core objective of negotiation is to have visible and tangible results, but the primary task of dialogue is to increase mutual understanding, mutual trust and consensus.
“Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both.
“President Trump said, ‘Coming together is a beginning, keeping together is progress and working together is a success. China is ready to work together with the U.S. and make sure this CED will build on existing achievements and achieve win-win results.”
NAFTA NEGOTIATIONS
The United States, Canada and Mexico will sit down together for the first round of talks to formally reopen NAFTA on Aug. 16 in Washington.
On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.
SOLAR 201 ESCAPE CLAUSE CASE
On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”). On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case. If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.
At the ITC, Section 201 cases are a two stage process. The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.” The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.
Notices of appearance at the ITC were due on June 22nd at the ITC. During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017. Prehearing briefs are due at the ITC on August 8, 2017. Posthearing briefs will be due at the ITC on August 22nd.
If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.
On June 26, 2017, Green Tech Media in the attached article, Suniva and SolarWorld Trade Dispute Could Halt Two-Thirds of US Solar Installat, along with a report estimated that if the ITC reaches an affirmative determination and if Trump adopts the solar import trade tariffs Suniva and SolarWorld Americas are seeking, such an action could wipe out as much as 65.5 percent of solar projects that are expected to be built in the U.S. from 2018 through 2022.
The GTM article further states:
Suniva’s and SolarWorld’s new trade dispute would strike a devastating blow to the U.S. solar market, erasing two-thirds of installations expected to come on-line over the next five years.
If the petition is successful, shockwaves will be felt across all segments of U.S. solar. Utility-scale solar is most at risk, with more than 20 gigawatts already at risk of cancellation if module prices fall back to 2012 levels.
The report determined that such a trade action would “cause unprecedented demand destruction”, and went on to state:
If Suniva’s and SolarWorld’s proposal is approved by the U.S. International Trade Commission and President Trump, there will be a new minimum price on imported crystalline silicon solar modules and a new tariff on imported cells. Put together, the U.S. could miss out on more than 47 gigawatts of solar installations. That’s more than what the U.S. solar market has brought on-line to date.
On July 24th, Reuters reported:
Installations in the United States last year hit a record. Jobs are mushrooming too. The domestic industry now employs more than 260,000 people, according to The Solar Foundation, most of them construction workers hammering panels on rooftops and erecting utility-scale solar plants in the nation’s blistering deserts.
But signs of a chill are already visible as the industry waits to see how President Donald Trump responds to a recent trade complaint lodged by a Georgia manufacturer named Suniva. The company has asked the administration effectively to double the price of imported solar panels so that U.S. factories can compete. About 95% of cells and panels sold in the U.S. last year were made abroad, with most coming from China, Malaysia and the Philippines, according to SPV
That has the solar industry bracing for the worst. Panic buying has sent spot prices for solar panels up as much as 20 percent in recent weeks as installers rush to lock up supplies ahead of potential tariffs.
Skittish U.S. energy customers are putting some solar projects on hold. Manufacturers are eyeing other markets to develop. And some investors are running for cover. Funding for large U.S. solar deals fell to $1.4 billion in the second quarter, down from $3.2 billion in the first quarter and $1.7 billion a year earlier, primarily due to concerns about the trade case, according to research firm Mercom Capital Group.
Developers of solar farms that provide utilities and big companies with energy are particularly vulnerable; panels account for as much as half of the cost of their projects.
A steep rise in panel prices “could be huge and disastrous for large-scale solar,” said Tom Werner, chief executive of San Jose-based SunPower Corp . . ., a top U.S. solar company that is majority owned by France’s Total . . … “Developers are alarmed and planning.”
BORDER ADJUSTMENT TAXES (“BAT”) ARE FINALLY DEAD
On July 27th it was reported that White House and congressional leaders agreed to drop the BAT as they move to comprehensive tax reform. The proposal, which would have placed a tax on all imports, had been a very important part of House Republicans’ tax reform blueprint as a way to pay for a corporate tax cut. House Speaker Paul Ryan, House Ways and Means Chairman Kevin Brady, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, and National Economic Council Director Gary Cohn said in a statement.
“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,
[W]e are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.”
NEW TRADE CASES
ANTIDUMPING AND COUNTERVAILING DUTY CASES
CAST IRON SOIL PIPE FITTINGS FROM CHINA
On July 13, 2017, the Cast Iron Soil Pipe Institute filed an antidumping and countervailing duty case against Cast Iron Soil Pipe Fittings from China.
FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES
UNIVERSAL TRADE WAR CONTINUES
CHINA AD/CVD NEWSLETTERS
Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law, Team’s newsletter-EN Vol.2017.27 Team’s newsletter-EN Vol.2017.28 Team’s newsletter-EN Vol.2017.29
SECTION 337 AND IP CASES
NEW 337 CASES AGAINST CHINA
RIBBON CABLES
On June 30, 2017, 3M Company and 3M Innovative Properties Company filed a Section 337 case against Shielded Electrical Ribbon Cables. The proposed respondents are Amphenol Corporation, Wallingford, Connecticut; Amphenol Interconnect Products Corporation, Endicott, New York; Amphenol Cables on Demand Corporation, Endicott, New York; Amphenol Assemble Technology (Xiamen) Co., Ltd., China; Amphenol (Xiamen) High Speed Cable Co., Ltd., China; and Amphenol East Asia Limited (Taiwan), China.
If you have any questions about these cases or about Trump and Trade, the impact on downstream industries, the Section 232 cases, North Korea US China trade problems, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.
Best regards,
Bill Perry