TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR OCTOBER 20, 2017
Dear Friends,
Having just returned from a month-long trip to Europe, the trade situation under the Trump Administration has heated up to the boiling point, but the target is not just China. The Trump Administration appears to be attacking all trade with the firm belief that all prior trade deals that the US entered into were a raw deal. NAFTA negotiations are at a standstill, and many believe Trump’s real intention is to kill NAFTA.
The United States is at a trade crossroads and apparently Trump and his supporters have decided to become much more protectionist, while the rest of the World is moving to free trade agreements.
As also stated below, directly contrary to statements by Trump supporters, the Trump trade policy is not a continuation of President Reagan’s trade policy. Although President Reagan took pragmatic trade actions when he had to, he was a strong free trader and we know that was his position because he said so.
President Trump is very protectionist and truly does not want free trade deals. He ripped up the TPP with no attempt at renegotiation. He has made such strong demands of Canada and Mexico that he knows they will reject with the purpose of eventually killing the deal.
The decisions on TPP and NAFTA have been taken without any real idea of the negative ramifications, the costs, of terminating these deals on US farmers and corporations, many of which have interconnected supply chains that have been finely calibrated to produce lower cost consumer products so as to be competitive with lower priced imports of that final product from China. Many believe that the real effect of killing NAFTA will be to move production to China or other lower cost countries.
Moreover, Trump won the election because of rural states and the farmers in those rural states but US agriculture is dependent on exports. When Trump slams trade, he slams his own constituents, farmers in the rural states, which elected him as President.
One of the other losers in the Trump trade policy besides agriculture will be the high tech companies because these two sectors will bear the brunt of the trade retaliation that is coming.
Trump wants to protect the low tech industry, the Steel industry with its 141,000 jobs and the heck with everyone else.
The Trump trade policy is based on one arrogant presumption—the US market is the largest in the World and the rest of the World must kowtow, come on bended knee, to get into the US and that fact gives the US leverage. But that fact is no longer true. The 11 countries in the TPP have a larger market than the US. China has a larger market than the US.
In fact, Canada and Mexico already can fall back on trade agreements they have with other countries, such as Europe. The United States does not have that luxury. The US decision by both Trump and the Democrats to go protectionist is further isolating the US in the trade area and is having and will have major negative economic ramifications on the US economy. The chickens will come home to roost.
Maybe instead of ripping up trade agreements and making US producers less competitive it is time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition. Maybe the US should turn to an existing program, which has saved companies injured by imports, the Trade Adjustment Assistance for Firms/Companies program.
Commerce has made antidumping and countervailing duty investigations more political, but the EC wants to change China’s nonmarket economy status to allow a case by case determination.
But there is no sympathy for Bombardier in the Boeing fight at the Commerce Department in Civil Aircraft Preliminary determinations as Bombardier refused to cooperate with the Commerce Department’s antidumping investigation leading to a decision of all facts available. So there will be no negotiated agreement in that case. Bombardier has decided to jointly produce the plans with Airbus at its Mobile, Alabama plant, but it is questionable whether that will really work.
The US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Section 201 case and now it moves to remedy phase.
USTR has also initiated a section 301 case against forced technology transfers in deals with China, but not many companies showed up for the USTR hearing. This may reflect the point made by my partner, Dan Harris, in his August 30, 2017 article “China US Trade Wars and the IP Elephant in the Room” that many US companies make the mistake of simply handing over their IP rights to Chinese joint venture companies with no protection. The US government cannot protect US companies from stupid mistakes.
Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.
In a decision near and dear to my heart, USTR is charging ahead with a Wine case against BC and Canada at the WTO and now EC, Australia, Argentina and other countries are interested. Canada and BC’s protectionist position on Wine play right into Trump’s argument that NAFTA is not a free trade agreement.
China has filed an antidumping and countervailing duty case against the United States. More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade issue could well become the most important issue in upcoming elections.
If Trump makes unwise protectionist decisions, the US economy will be hurt, jobs will be lost and he will lose in the next election.
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
TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA
Prior to his election, with Trump complaining during the election about China so many times, many voters would have believed that Trump’s primary target in the trade area would be China.
But nine months after his inauguration, it is becoming clearer that Trump’s real target is trade in general. We are at a trade crossroads, and the Trump Administration with substantial support from the Democrats apparently has decided to move down a very protectionist road.
Trump and his Administration firmly believe that the United States has gotten a raw deal in all the trade deals it has entered into. In effect, Trump sees trade as economic warfare and the United States is losing the war. When economic competition from imports causes problems for US companies, it must be unfair trade caused by unfair trade deals.
Although Trump will mouth free trade, when Trump pulled out of the Trans Pacific Partnership, it was the first Free Trade Agreement that the United States had ever refused to join. As described below under the Costs article, this action has put US exporters, including farmers, at a distinct cost disadvantage in World markets and caused enormous economic damage to Trump’s own constituents, workers and farmers. Many experts believe that there is a better than 50% chance that Trump will pull out of NAFTA. See articles below from Wall Street Journal and John Brinkley at Forbes about the costs of pulling out of NAFTA.
But killing the TPP and potentially killing NAFTA gores the agriculture ox. This is the one fly in the ointment, flaw in Trump’s entire economic strategy. If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election. In contrast to arguments made by Trump supporters, rural states are not just manufacturing, they are farmers, agriculture, and one half of all US produced agricultural prorducts is exported.
In addition to agriculture, high tech companies will also be hit as they are perfect retaliation targets and all the side agreements on digital and IP protection in the TPP Agreement have died and will die.
Trump supporters attack not only the trade deals, but the WTO itself because ceding power in a trade deal or to the WTO is giving away the sovereignty of the US people. The WTO’s job, however, is to provide a forum for negotiations and adjudication of trade disputes between different sovereign countries. The United States simply cannot dictate its trade policy to other sovereign countries. It must negotiate trade agreements. If that be globalism, then so be it.
The real issue is what is the US interest in trade negotiations. The trade deals that the Trump supporters attack were negotiated by the US government and then approved by Congress. Are all treaties that create multi-government organizations as a forum for negotiations and adjudication of international disputes to be attacked because they result in giving away US sovereignty? If so, the World returns to 1914, World War 1, and the Guns of August. The United States has to negotiate with other sovereign countries. And in negotiation with other sovereign countries, the United States does not always get everything it wants to get. That is the essence of negotiations.
As stated before, the simplistic Trump approach to trade is that the United States is the largest market in the World and countries must kowtow to get into the US market. But that is no longer true. The remaining countries in the TPP represent a larger market than the US. That is why during the push for Trade Promotion Authority in the House of Representatives, House Speaker Paul Ryan stated that 75% of all consumers are outside the United States.
The Trump supporters also look at economic competition as economic warfare and, therefore, the United States must win each trade deal. But as stated below, President Reagan himself believed that economic competition is good for the United States because it is the essence of free markets.
WOULD PRESIDENT REAGAN HAVE SUPPORTED TRUMP’S ECONOMIC PROTECTIONIST NATIONALISM?—I THINK NOT
One of the basic arguments of the Trump supporters in the Trade area is that Trump’s trade policy is simply an extension of Reagan’s trade policy and, therefore, President Ronald Reagan would have supported the protectionist economic nationalism of Donald Trump. In effect, these supporters argue all trade deals in the past, including NAFTA and China’s entry into the WTO, were raw deals that hurt the US working man. These supporters argue that the trade deals are the reason for the loss of millions of US manufacturing jobs and even a major reason for the US budget deficit. Therefore, President Reagan would have opposed all of these trade deals.
But I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department. I do not remember the Reagan trade policy in the same way as being overly protectionist. I remember a President, who was the most Free Trade President of my generation, who firmly believed in the power of the free market and economic competition. Although President Reagan took tough trade actions as needed, he also knew that in the long run protectionism would not work because the US companies themselves would only become weaker. Reagan’s real trade policy is indicated by his actual words and actions, not summary statements by conservative pundits.
Reagan also understood that when dealing with trade, we are dealing with the interests not only of the United States, but the interests of other countries. Although the US should always represent its own interests first, it cannot dictate the outcome to other countries, because it does not have the power to do so. The EC, China, Mexico, Canada, Japan, and Australia are sovereign countries too, and they have a say in international trade negotiations.
On October 14, 2017, at the Values Summit in Washington DC, Fox Contributor Laura Ingraham stated that Reagan was an economic populist and pointed to the 45% tariff issued by President Reagan in the Harley Davidson Motorcycles case and the large duties of 100% against Japanese electronics, such as semiconductors. She then argued that President Trump’s stance on trade was simply a continuation of the Reagan trade policy. See https://www.youtube.com/watch?v=qofqnUHPGnc.
During the speech, Ingraham stated that every Free Trade Agreement must be either rewritten or repealed and that Trump like Reagan understands the working class and the need to protect US industry and jobs. She pointed to present USTR Robert Lighthizer, the former Deputy USTR under Reagan, as an example of Trump’s sterling trade policy.
But I too worked in the Reagan Administration and later under Robert Lighthizer. I simply do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it. In the Harley Davidson Motorcycles case, for example, which happened when I was in the General Counsel’s office at the US International Trade Commission, Harley brought a case under Section 201, the Escape Clause, allowing Harley to get short term temporary protection from imports. After winning the case and after Reagan issued a temporary tariff on imports of motorcycle subassemblies from Japan (Japanese companies had manufacturing facilities in the US too), Harley after only two years asked the Reagan Administration to lift the temporary tariff because it had adjusted to import competition.
Contrast that tariff relief with the tariff relief provided to Mr. Lighthizer’s client in the Steel Industry—30 plus years of protection from imports from many, many antidumping (“AD”) and countervailing duty (“CVD”) orders issued under US AD and CVD laws. That is not temporary tariff relief; that is permanent tariff relief. Despite that protection for decades, the US steel industry has declined with Bethlehem Steel going out of business, just as President Ronald Reagan himself predicted. Trade protection only slows the decline of industries; it does not cure the disease.
Ms. Ingraham’s speech parallels the statements she recently made in her book “Billionaire at the Barricades”, which articulates very well the thinking and many of the arguments from the Trump Administration and his supporters against trade and trade agreements in general. In the book, Ms. Ingraham states, “Except for Reagan, all modern presidents of both parties campaigned as populists but governed as globalists.” And that Conservative Populists “are against huge trade deals and international organizations like the World Trade Organization because they take power out of the hands of voters and give it to a far-away and often hostile global elite.” Page 43.
Ingraham also attacks all trade deals, especially NAFTA, the North American Free Trade Agreement between Mexico and Canada, and China’s entry into the WTO, along with the WTO itself. With regards to NAFTA, Ingraham states:
“but Perot and millions of Americans—the kind who don’t worship at the Wall Street Journal’s altar of globalism and internationalism for profit’s sake—knew it was a raw deal for workers and bad for America. The biggest “tell” that NAFTA was going to be a boon for elites and a bust for everyone else was the fact that George H. W. Bush and Bill Clinton (as well as their Donor Class” pals) all supported the monstrosity.”
Billionaires at the Barricades at 313 (footnotes omitted).
According to Ingraham, Clinton promised that NAFTA would:
“create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone . . .Clinton not only lied, he made a “pledge” to the American working class who opposed NAFTA that they would receive “gains.”
They received pink slips instead.
The populists’ NAFTA predictions proved painfully prescient. Between 1993 and 2013, the U.S. trade deficit with Mexico and Canada went from $17 billion to $177.2 billion. . .
The effects on American workers have been even more catastrophic. EPI data concluded that in just 10 years, NAFTA was responsible for displacing 851,700 American jobs. To put that in context, that’s more people than live in Columbus, Ohio. “All of the net jobs displaced were due to growing trade deficits with Mexico”. .. .The destruction of nearly one million jobs and the implosion of American manufacturing—that’s Bill Clinton’s NAFTA legacy.”
Billionaires at the Barricades at 385 to 389.
But Ingram forgets to mention that since NAFTA was enacted, total trade among these three countries has increased from $290 billion in 1993 to $1.1 Trillion in 2016 and that trade was not solely imports, but also US exports to those countries. According to the US Chamber of Commerce, six million US jobs are dependent on US trade with Mexico.
Ingraham then goes on to attack the decision to let China into the WTO:
“If NAFTA had unleashed a flood of dangerous economic currents crashing into the American working class, his [Clinton’s] decision to pave the path for China’s entry into the World Trade Organization (WTO) by giving it Permanent Normal Trade Relations (PNTR, now known as Most Favored Nation) status swelled into an outsourcing tidal wave. Millions of American manufacturing jobs were washed out to sea – the South China Sea, that is. . . .
It is “one of the most important foreign policy developments” if you want to understand the destruction of American manufacturing. It is also “one of the most important foreign policy developments” for understanding how millions of U.S. manufacturing jobs were vaporized in record speed, even as China grew at a steroidal rate of muscular economic growth.
Let’s start with the basics. The World Trade Organization was officially created during Bill Clinton’s presidency in January 1995, but it had existed in other forms since 1948. . . .
“Seventeen years hence, it is difficult to overstate the economic destruction wrought by China’s entry into the WTO and Congress and President Clinton’s decision to grant the Chinese permanent” “Most Favored Nation status. A 2016 analysis published in the Annual Review of Economics concluded that between 1999 and 2011, America lost between 2 and 2.4 million jobs. Others, like the left-leaning Economic Policy Institute, put the American jobs loss figures even higher at 3.2 million jobs, when calculated between the years 2001 and 2013.50
The brutal economic reality was a cruel reversal of Clinton’s promises: all the gains were on the Chinese side, all “the losses and devastation were America’s. American manufacturing jobs were eviscerated. From 2001 to 2011, U.S. manufacturing jobs plunged from 17.1 million to 11.8 million.51 That’s a loss of 5.3 million manufacturing jobs, a figure that’s nearly the population of the entire state of Minnesota.
The narrowing of the trade deficit between the United States and China never materialized either. To the contrary, it exploded. In 2000, the annual trade in goods deficit with China stood at a towering $84 billion. After Clinton ushered China to the front of the line, the trade deficit more than quadrupled to a jaw-dropping $367 billion by 2015. The year before America let China join the WTO (1999), the United States accounted for 25.78 percent of world GDP. By 2014, that figure had dropped to 22.43—the lowest it has been in government records going back to 1969, according to the Economic Research Service of the U.S. Department of the U.S. Department of Agriculture. In 1999, China’s annual GDP was $1.094 trillion. In 2015, it was more than $11 trillion. In 1999, the U.S. national debt was $5.7 trillion (the good ol’ days!). Today, after the big government globalist policies of the last several presidents, U.S. national debt stands at a mind-bending $20 trillion.”
Id. at 415, 417, 427-431 (footnotes omitted).
Let me make one point very clear. The China WTO Agreement is not a Free Trade Agreement. Before China entered the WTO, it was already exporting substantial exports to the US. I know because I represented Chinese companies and US importers in many antidumping cases long before China entered the WTO. What China’s entrance into the WTO allowed the US to do was to gain leverage with China by putting Chinese trade practices into a forum, the WTO, which gave the US the ability to call some of China’s trade practices into account and discipline them. The United States has brought many cases against China at the WTO and won many and caused China to change its trade practices, but it should be noted that China has brought cases against the US at the WTO, especially in the antidumping and countervailing duty area, and won many too.
As Charlene Barshefsky, the USTR, who negotiated the US China WTO Agreement, recently stated to the Wall Street Journal in answer to the question whether China’s entry into the WTO accounted for its enormous economic growth:
”No, I don’t think he’s right. If you go back to the mid-1990s, you saw a China that was already growing at about 8%, 8.5% a year, with the world’s largest standing army, a nuclear power, a permanent member of the U.N. Security Council, a fifth of the world’s population, a reformist premier, Zhu Rongji, and willing to orient toward the West.
In the course of doing the WTO negotiation, China opened its market. The U.S. didn’t alter its trade regime, nor did any other country alter its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.
The key point is that, in the context of a country as large as China entering, were there protections built into the agreement to prevent, for example, unexpected surges of imports? And indeed, there were—a mechanism almost never used by the very industries Steve Bannon is pointing to, although it would’ve been entirely protective of their interests.”
To see what Ms. Barshefsky believes is the real China trade problem see the video at https://www.wsj.com/articles/the-impact-of-china-joining-the-wto-1495504981.
During that interview, Barshefsky pointed to the real China problem. After 2006 China has shifted to a more protectionist trade policy pushing US and other foreign companies and foreign imports out of China. The Trump trade policy rightly so could demand more reciprocity from China and demand that China drop its barriers to US imports and investment.
On the other hand, killing all trade with China is not the answer. Although Ms. Ingraham points to the deficits, China has become the largest importer of US products. On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily states:
“But didn’t the flood of Chinese factory-made goods to the U.S. decimate American manufacturing during this period? That’s a myth. As the U.S. Federal Reserve’s monthly manufacturing index shows, from 2000 to 2006 American factory output rose a healthy 11.5%. It wasn’t decimated by the surge in Chinese exports to the U.S. It only crashed when the financial crisis hit. . . .
We hope a negotiated solution can be found. At the same time, we might want to think seriously about it before we back a giant U.S.-China trade war that could make all of us, Americans and Chinese, much worse off.”
In addition, when Ms. Ingraham quotes economic data from left leaning groups, she should keep in mind that these groups are very big supporters of labor unions, which provide the backbone of the Democratic Party. Labor unions traditionally have been very, very protectionist, anti-free market and economic competition, very anti-Republican and very pro- Democratic party. That is why Senator Chuck Schumer, who Ingraham does not like, supports the Trump protectionist trade policy, but Schumer believes that Trump is not being protectionist enough. Chuck Schumer’s views are not the views of President Ronald Reagan.
But Ms. Ingraham also states that:
“Trump’s critics would do well to examine the election data on working-class rural Americans—a group who overwhelmingly went for Trump’s message of economic nationalism. Rural voters accounted for nearly one out of five votes in 2016 and were a pivotal part of Trump’s successful Rust Belt strategy. NBC News exit polls revealed that Trump beat Clinton 57 to 38 percent among Michigan’s rural voters (Romney carried the same group but by only seven percentage points). Among Pennsylvania rural voters, Trump destroyed Clinton 71 percent to 26 percent . . ..”
Id. at 1163-1164.
But Ms. Ingraham herself should also watch out because many of those rural voters are farmers and agriculture is dependent on exports. Those rural voters could turn against Trump and the Republican party and that is why Republican Senators and Congressmen from rural states are so concerned about Trump’s trade policy. Farmers want trade agreements, even if Trump and his manufacturing supporters do not. That is why after listening to the complaints of Republican Senators and Congressmen from agricultural states along with complaints of US Ambassador to China and former Iowa Governor Terry Branstad, Trump told Lighthizer in the NAFTA negotiations to do no harm.
In her book, Laura Ingraham points to Reagan’s history, but misses an important point Reagan lived through the Great Depression and he firmly believed that the protectionist policies in the 1930 Smoot Hawley tariff act, which “protected” the US by increasing tariffs on almost every import, made a depression into the Great Depression. How do I know? Because President Ronald Reagan said so.
On June 28, 1986, President Reagan from his ranch in Santa Barbara gave the attache speech, BETTER COPY REAGAN IT SPEECH, on International Trade. This speech is in effect a point by point rebuttal that Reagan was an economic nationalist. So I would say to Ms. Ingraham to paraphrase Robert Dole, do not distort Ronald Reagan’s record. I have quoted the entire speech to show that it came directly from President Reagan and is not a characterization. As Reagan himself stated in the speech:
My fellow Americans:
This coming week we’ll celebrate the Fourth of July and the birthday of the Statue of Liberty, dedicated one century ago this year. Nancy and I will be in New York Harbor for the event, watching fireworks light the sky over the grand old lady who welcomes so many millions of immigrants to our shores. But I’ve often thought that Lady Liberty also represents another symbol of our openness to the rest of the world. With the ships plying the waters of New York Harbor beneath her, she reminds us of the enormous extent of our trade with other nations of the world.
Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.
That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flim flammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.
You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.
By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.
Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.
And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.
And that’s why I wanted to talk with you today about some legislation that the Congress now has before it that is a throwback to the old protectionist days. It greatly cuts down my flexibility as President to bargain with and pressure foreign governments into reducing trade barriers. While this legislation is still pending before the Senate, it has already passed the House of Representatives. So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity. Yes, the politicians are back at it in Washington. And should this unacceptable legislation continue to move through the Congress, I’ll need your help in sending them a message. So, please consider our talk today an early warning signal on free and fair trade, a jobs and growth alert. And stand by, I may need your help in resisting protectionist barriers that would hinder economic growth and cost America jobs.
Until next week, thanks for listening, and God bless you.
Emphasis added.
I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department. I too saw the Reagan trade policy and I do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it. I saw President Ronald Reagan appoint the most free trade Commissioners in its history to the US International Trade Commission—Susan Liebeler and Anne Brunsdale — and they certainly were not economic nationalists. These free trade ITC Commissioners used to frustrate Robert Lighthizer in cases brought by the US Steel industry because they refused to go affirmative in certain cases and put antidumping and countervailing duty orders in place.
Let me say at the outset, I am not a Libertarian. I have no problem with trade policy that hammers countries to open markets. I have no problem with a domestic policy of low taxes and less regulation. We need to make our companies, farmers and workers more competitive by giving them back the money they have earned.
I also believe that making America great again and putting America’s interests first is a correct policy position. I am not a globalist, but firmly believe that we first must know what America’s interest is.
But as indicated below, in the post on Trade Adjustment Assistance for Companies, I firmly believe, like Ronald Reagan, who personally approved of the program, that an answer to the trade crisis is not more protectionism, but finding ways to make US companies more competitive.
Like Ronald Reagan, who was a free trader, I do not believe in putting up protectionist trade barriers, which are not temporary and can stay in place for 30 plus years, such as antidumping and countervailing duty orders against steel that wipe out imports and make downstream companies less competitive, is in the interest of the United States.
As President Reagan himself stated, “the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition,” and competition is what makes and will make America great again.
Like Ronald Reagan I do not believe that protection in the long run saves the industries it is trying to protect. Robert Lighthizer for decades at Skadden, Arps represented US Steel in the Steel Trade Wars. My former boss, Mike Stein, represented Bethlehem Steel for decades in the Steel Wars along with Lighthizer, but where is Bethlehem Steel today after 40 years of protection from steel imports—green fields. Green fields when the steel industry has been protected to some degree for decades from steel imports.
Why? Despite the protection from steel imports, Bethlehem Steel management and union did not take the protection and adjust to import competition so as to make their production facilities more competitive. In the 90s, when given protection in a Section 201 case from imports, US Steel bought Marathon Oil. All the trade protection the US can provide will not save the companies if they want to give their workers exorbitant pensions and their management large bonuses and reduce their own competitiveness in the World market.
Antidumping orders against steel imports have led to a higher US steel price than the World market price. Steel, however, is a raw material input and the antidumping orders against Steel have led to US antidumping orders brought by injured US industries against imports of ironing tables, folding metal tables and chairs, wind towers, stainless steel sinks, boltless steel shelving, steel nails and a myriad of other products that use US steel as a raw material input. The disease of the steel industry has spread to the downstream steel using industries.
During the speech Laura Ingraham asked what is the problem with trade protectionism? One major problem is that trade is a two-way street and what the United States does to one country that country can do back to the United States. The United States cannot dictate trade policy to the other countries in the World because they are sovereign too. Also the entire world is moving to an open market, when the US appears to be moving backward to a protectionist US market. This puts US companies and farmers at a distinct cost disadvantage because it means US exports cannot compete on a level playing field, by Trump’s choice
Lighthizer’s and Trump’s answer to trade problems is simply to put up one more brick and build the protectionist wall higher against imports. If Ms. Ingraham wants a history lesson, I suggest she look at two countries—recently Japan and less recently China, who followed that same strategy. In the 1980’s when I was at the ITC and Commerce, the big trade target was Japan. Having worked in Japan I knew that it had numerous non-tariff trade barriers, which blocked many US exports. Then in the early 1990s Japan’s economy imploded and it entered into the lost decades in large part because of its own trade policy, which explains why Prime Minister Abe wants the TPP.
China also did exactly what Laura Ingraham is proposing. China closed down and its economy took a nose dive and went back to the Dark Ages. It took Deng Xiaoping and later Zhu Rongyi to open up China. China grew not because of the United States, but because it opened its economy up as it was in China’s economic interest to do so. Many US companies have joint ventures in China. When GM was having economic problems in the Obama Administration, the one part of the company it was trying to save was its China operations because the GM Buick was the number one selling car in China. If the US shuts down, it too like China will go back to the dark ages.
Essentially, Trump appears to be adopting the mercantilist trade policies that he has condemned. With its focus on trade deficits in manufacturing, Trump’s trade policy appears to be that the only trade deals we want are those where the US has a trade surplus. That is not the way the World works.
THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—THE COSTS OF NOT DOING THE TRADE DEALS
As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and is on the verge of killing the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.
During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believe the US did not get enough. Senator Orin Hatch wanted more on biologics and other Senators and Congressmen wanted a a better deal.
But the big problem at the Trump Presidential and Congressional level with regards to these trade agreements was and is the failure to calculate the cost of not doing these trade agreements or of terminating them. Keep in mind the only party that is more protectionist than Donald Trump is the Democrats. Also with Steve Bannon’s attacks on “establishment” Republicans, free traders in the Republican party are becoming few and far between.
The Bannon and Trump approach reveal fatal misunderstandings. Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other. The US decision to go the Protectionist route means it has given up competing and has created an open road for the economic competitors of US, including EC, China, Mexico, Canada, Australia and other countries, who are all moving in to replace US exports in those markets. Trump’s and Bannon’s policy combined with the Democrat’s protectionist policies mean the US will lose the economic war because of the US failure to compete in the international economic marketplace.
The arrogance of the Steve Bannon and the Trump trade policy is based on the principle that the United States is the largest market in the World, and this gives the US leverage and, therefore, countries must kowtow and bend their head to get into the US market. Although that principle may have been true twenty years ago, it is simply no longer true.
The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block. Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.
Also in many ways, with 1.37 billion people China has a larger market than the US. In 2006, at a speech in Beijing, the US Commercial Attaché stated that 75% of all Chinese, including rural Chinese, have a color television set. Now that is close to 95% of 1.37 billion. That is a larger market than the US with its 323 million.
But it is the costs of terminating the TPP deal, which are becoming much more clear.
As stated in my last newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening. Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets. This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.
In that blog post, I quoted extensively from the attache August 7, 2017 article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine. To summarize some of the points in that Politico article:
for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.
The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.
A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.. . .
In other words, the entire World is moving in the direction of President Ronald Reagan to a more open free trading market, which would have benefitted US companies greatly. The US is following Trump’s trade policy and moving backward to a more closed protectionist market.
The article went on to state the numerous free trade agreements being negotiated by the other countries in the TPP and now those Agreements are putting US farmers at a distinct disadvantage. EC pork farmers, which already exports as much pork to Japan as the United States does, have an advantage of up to $2 per pound over U.S. exporters. European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, have a 15 percent tariff advantage over U.S. exporters.
When Donald Trump pulled out of the TPP, Japan turned around and offered the same deal to the EC, which the United States had spent two excruciating years extracting from Japanese trade officials. The United States is now left out.
Four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance are opening negotiations with New Zealand, Australia and Singapore.
Australia is selling beef at a lower price than the US to Japan. Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors.
With the TPP, economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.
Over the first five months of 2017, U.S. exports to Japan of chilled pork, which is preferable to frozen meat, are up 2 percent over the previous year. But exports of chilled pork from Canada, a prime competitor, are up 19 percent. Likewise, in frozen pork, U.S. exports are up 28 percent. But exports from the EU, the leading competitor, are up 44 percent.
Now there are more indicators that Canada, Mexico and Japan are turning away from US imports because of the Trump protectionist positions.
COSTS OF PULLNG OUT OF NAFTA AND TPP
CANADA
In an October 16, 2017 article in the Globe and Mail, “Canada must prepare for life after NAFTA” former Canadian trade negotiator Gordon Ritchie stated:
“The Canadian government (as well as the provinces, business and labour) is now forced to contemplate life without a free-trade agreement. While this is far from a preferred choice, it would not be the end of the world. In the absence of a bilateral agreement, the most-favored-nation rules of the World Trade Organization would apply and offer many of the same protections. Tariffs would be restored, but at a much lower level than before the free-trade agreement, averaging roughly 3.5 per cent on shipments to the United States. Unquestionably, existing economic linkages would be put under stress but most would survive. This is clearly not the option the Canadian government would prefer but it could be better than what is currently on offer from the Trump administration.
Meanwhile, the impact on U.S. businesses would be just as severe if not more so. In an unprecedented statement, the U.S. chamber of commerce, the broadest and perhaps most influential business lobby, came out strongly against dismantling NAFTA, which it earlier estimated underpinned about 12 million American jobs.”
MEXICO
On October 16, 2017 in an article entitled “Mexico Braces for the Possible Collapse of Nafta”, the New York Time reported:
“Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy would adapt without the deal that has guided relations between the neighbors for a quarter-century. . .
President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.
Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State. . . .
Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open.
Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.
The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.
“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments. . . .
If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.
The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.
Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead. . . .”
JAPAN
Despite Japanese noises of a bilateral trade agreement with the US after meetings with Vice President Pence, on October 15, 2017 in the attached article entitled “Japan exasperated by Trump’s trade policies”, Japan exasperated by Trump’s trade policies – POLITICO, Politico reported:
“As U.S. farmers suffer under high tariffs, Japanese officials are in no rush to cut a new trade deal with the United States.
TOKYO — Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.
The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region.
Meanwhile, there is growing evidence that the failure of the TPP is taking a sharp toll on rural America. In August, the volume of U.S. sales of pork to Japan dropped by 9 percent year over year, a serious blow to farmers who had been preparing for a big increase in sales because of lower tariffs in the TPP.
Instead, other countries that export meats, grains and fruits have seized on their advantage over American growers and producers in the wake of the U.S. pullout from the TPP. And a new Reuters poll shows Trump’s favorability in rural America — once a great stronghold — dropped from 55 percent last winter to 47 percent in September. The poll also showed a plunge in support for Trump’s trade agenda among rural voters. . . .
in interviews with POLITICO, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral — two-nation — deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.
“Our prime minister has made it quite clear that we respect the U.S. decision. … That is our official position, but I think withdrawal from TPP is very wrong,” said one senior official. “Honestly, it has diminished many of things that the U.S. has achieved in the region.”
In response, Japan has continued negotiating with American trade competitors, striking a political deal on a landmark free-trade agreement with the European Union in July while continuing to work toward closing a deal with the 11 remaining members of the TPP. In interviews, the senior Japanese officials made clear their ultimate goal is to persuade the United States to rejoin the TPP.
“In the conduct of our affairs with the United States, we need to have leverage,” said one former senior Japanese Cabinet official. “In order for us to convince the U.S., we need to have our own leverage, and our own leverage needs to be free-trade agreements [with U.S. competitors].”
There are some signs the Japanese strategy is working. Republicans in Congress, many of whom were TPP supporters, are expressing impatience with the administration and a conviction that U.S. agricultural industries are suffering because of tensions unleashed by the TPP pullout.
“We cannot allow much more time to lapse in creating opportunities to have other agreements, and especially when you look at Japan,” said Rep. Dave Reichert of Washington state, chairman of the House Ways and Means Trade Subcommittee, as his panel wrapped up a hearing last week on trade opportunities in the Asia Pacific region.
Trump himself has shown no sign of second- guessing his pullout from the TPP, which he described in an interview with Forbes magazine this month as “a great honor.”
“I consider that a great accomplishment, stopping that. And there are many people that agree with me,” he said. “I like bilateral deals.” . . . .
Perdue’s comments came amid growing frustration in the farm belt. U.S. producers expect to continue losing market share in meat exports to other countries, even as domestic production reaches an all-time high, until something is done to address high import tariffs on the other side of the Pacific. Japan remains the top market for U.S. beef, and exports are up 22 percent from a year ago, but the impact of a recent hike in tariffs on frozen beef from 38.5 percent to 50 percent — a move that would have been avoidable if the TPP had been in force — will soon be felt, the U.S. Meat Export Federation predicts. The volume of pork exports of pork to Japan, the leading market for the U.S. in terms of value, dropped by 9 percent in August year over year. . . .
But Japan is in no rush to do so, according to the interviews with senior Japanese officials, who suggested that their country’s frustrations with the Trump administration are vast. . . .
For the ever-powerful career officials who sit in the unadorned buildings lining the leafy streets of Tokyo’s government district, there is one concern about the U.S. president that overrides all others: Trump’s determination to measure the effectiveness of trade deals in terms of which side sells more to the other.
Indeed, there are many people in the United States who share the view that free trade grows the global pie, with competition serving to promote efficiency and let countries take advantage of their own assets — such as the vast farming sector in the center of the United States, which has no parallel in Japan. . . .
Trump’s view, backed up by “American first” rhetoric, presumes that countries are inherently competitors, and that there are clear winners and losers.
“We want to avoid the relationship turning into a zero-sum game,” said a senior Japanese official.
“Each country has its own policy objectives, but Japan does not see trade deficits or surplus as the only driving force for trade negotiations,” said another senior government official. “A rules-based system is very important.”
Thus, Japanese officials are watching closely as the Trump administration renegotiates the North American Free Trade Agreement through ongoing talks with Canada and Mexico. To support its America- first agenda, the administration is threatening to blow up the 23-year-old trade deal and unravel complex supply chains that have grown over the life of the pact.
“They’re watching NAFTA and, frankly, in East Asia, they’re saying if the United States is so stupid as to screw up its agreements with its continental powers in Canada and Mexico, what can we in East Asia expect from these guys?” said Robert Zoellick, who served as President George W. Bush’s chief trade negotiator and later as World Bank president. “That’s a realistic question.” . . .
The failure of the TPP is a subject of contention between the two men — because Japan not only risked its economic future in hopes of a multinational trade deal but also pinned much of its national security hopes on the deal.
The need to counter the growing clout of China is an all-consuming priority in Tokyo, and Japanese officials felt that with the TPP they were on the verge of a genuine breakthrough, tying the United States, Canada, Vietnam, Mexico, Chile and other large nations on both sides of the Pacific into an economic alliance greater than anything China could muster. . . .
Seeking to fill the void left by the TPP, China has accelerated the pursuit of its own mega-deal with other Asian nations, called the Regional Comprehensive Economic Partnership, or RCEP.
The United States leaving TPP “created a vacuum in the region, that’s for sure,” the official said. “It’s why RCEP is gaining momentum. That is why the government is asking the U.S. to come back to the TPP. We keep continuing to say so.” . . .
“The Japanese government has no mind of going back to the table for a bilateral negotiation,” said another senior official. “TPP was risky for Abe; a bilateral will require an even bigger leap.”
AGRICULTURE
On September 11, 2017 in article in Bloomberg entitled, “Four Ways to Rebuild Consensus on Agricultural Trade, The U.S. is losing ground fast to global rivals in Asia”, two former US Senators Max Baucus and Richard Lugar stated that they had formed a new group, Farmers for Free Trade stating:
“The financial health of American farmers depends on trade. In what remains the “breadbasket of the world,” U.S. farmers export half of all major commodities they grow, contributing to a projected trade surplus of $20 billion this year alone and supporting millions of direct and indirect jobs. At a time when American farm incomes have been rapidly declining, trade is what’s helping to keep farmers, ranchers and many rural communities afloat.
Not so long ago, we served in Washington D.C. when these realities were well understood. It was a time when bipartisan support for opening new markets to our farmers was assumed and expected. As globalization took hold, we understood that trade agreements were our only tool to ensure that American wheat, soy or beef could out-compete other countries’ products vying for the same markets. It was a consensus that delivered for millions of American farmers. Today, that consensus has faded.
American agricultural trade is facing risks not seen in a generation. Public attitudes toward trade agreements have shifted as protectionist sentiment has grown. Threats of tariffs on U.S. trading partners invite the specter of retaliation. Meanwhile, our competitors plot to assume the mantle of global supplier the U.S. has long occupied.
We need to rebuild consensus on agriculture trade. It must be one that incorporates the position of American farmers; that reflects the needs of rural communities; that is echoed by state and local leaders, and that seeks to heal the deep fissures on trade in Washington D.C.
We believe that consensus can be built around four important steps.
First, we need to get off the sidelines and get back in the business of negotiating trade agreements. The U.S. currently does not have a single ongoing trade negotiation that gives our farmers access to the rapidly growing Asian market. Our absence in Asia means that China is quickly moving into the void with its own trade deals that outflank U.S. agricultural producers. One of those China-led deals, the Regional Comprehensive Economic Partnership, involves 15 other Asia-Pacific countries with growing middle classes, many of whom are clamoring for the agricultural bounty the U.S. once supplied.
Meanwhile, agriculture powerhouses like Canada, New Zealand and Australia are cutting bilateral deals that provide preferential treatment for their commodities.
Take the example of beef. According to the National Cattlemen’s Beef Association, as of this week, the U.S. has now lost out to Australia on more than $165 million in beef sales to Japan. That happened because Australia cut a trade deal with Japan in 2015, and we recently walked away from one.
These sharp competitive disadvantages are becoming the norm, and while it’s difficult to calculate all the untapped gains the U.S. has lost, the numbers are clear on how we reverse the trend. Since 2003, U.S. agricultural exports to countries we do have trade agreements with increased more than 136 percent.
Second, we need to remove the threat of retaliation against U.S. agriculture. Our trading partners are not novices when it comes to whom and what they retaliate against when the U.S. runs afoul of our international commitments. U.S. farmers are always target number one.
That is because our trading partners know it is the economic engine for so many states, and because the pain inflicted is immediate and acute.
For example, the last time Mexico retaliated against the U.S., their targets included everything from corn, to apples, to almonds and grapes. The Department of Agriculture estimated that those measures cost U.S. growers close to $1 billion in lost sales.
We know there are onerous trade practices that must be addressed through diplomacy and other mechanisms for setting disputes. But threatening our closest trading partners with blanket tariffs, border taxes or aggressive enforcement actions risks a trade war that would have no winners.
Third, we need to modernize NAFTA in a way doesn’t erode the enormous gains it has delivered for American farmers and ranchers. That means working to eliminate any remaining tariff and non-tariff barriers, simplifying packaging and labeling requirements, and improving agriculture opportunities through e-commerce platforms.
But it also means doing no harm to a pact that — according to the Farm Bureau — has resulted in an annual jump of agriculture exports from $8.9 billion in 1993 to $38 billion last year.
The Trump administration has a real opportunity to expand on those gains. They should do it quickly and thoughtfully so we can turn to the task of keeping pace with our competitors.
Finally, to rebuild consensus on trade, we need to organize and educate. We know there are officials in the administration and in Congress who understand the value of agricultural trade. Yet, recent trade debates have too often become a microcosm of our broader partisan politics.
To support this effort, we’re launching a bipartisan, not-for-profit organization called Farmers for Free Trade, to build a coalition of farmers, mayors and community leaders in congressional districts across the country. This isn’t only about the over 1 million U.S. jobs supported by agriculture trade, but also the secondary and tertiary jobs it creates in rural communities: from growers, harvesters, processors, and packagers to grain elevator operators, railroad workers, truck drivers and port operators.
Rebuilding consensus on trade begins in the heartland and capitalizes on the great strength of American farmers and ranchers. If we can do that, America wins.”
U.S. ANTI-TRADE STANCE AIDS EU
Meanwhile who benefits from the US decision to turn toward protectionism, other countries and the EU. Jyrki Katainen, the European Commission’s vice president for jobs, growth, investment and competitiveness recently stated:
“We are willing to negotiate with third countries all the time – it’s part of our economic strategy. And now we have seen that many countries have been concerned about rising protectionism and entities which undermine the multilateral system, so they have been contacting us.”
The Wall Street Journal article below outlines the negative impact of terminating NAFTA on the US automobile industry.
US CHAMBER OF COMMERCE
Instead of listening to the protectionist steel industry and the unions, maybe it is time for the Trump Administration to listen to the winners in the Trade World. On October 10, 2017, in Mexico City, U.S. Chamber of Commerce President Tom Donohue spoke out against the Trump administration’s approach to negotiating the North American Free Trade Agreement, which he said has been riddled with “unnecessary and unacceptable” poison pill proposals from the U.S. side. As Donohue stated:
“All of these proposals are unnecessary and unacceptable. They have been met with strong opposition from the business and agricultural communities, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. Ladies and gentlemen, we’ve reached a critical moment, and the Chamber has had no choice but ring the alarm bells.
“[NAFTA withdrawal] would abruptly slam the door on future negotiations because those governments have made it very clear they won’t negotiate with a gun to their head. The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts.”
Donohue specifically criticized the foolish reliance on the need for the agreement to reduce the U.S. trade deficit:
“The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is not only the wrong way to measure who’s ‘winning’ on trade, it’s the wrong focus, and is impossible to achieve without crippling the economy.”
NAFTA NEGOTIATIONS HAVE STALLED
On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA. On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES:
On October 18th, Politico reported that the NAFTA negotiations are at a standstill as Canada and Mexico have rejected the strident US proposals and potentially insurmountable disagreements on areas ranging from auto rules of origin to dairy market access and a sunset provision. The next round is to start on November 17th in Mexico.
At the closing press conference, the Canadian and Mexican trade ministers attacked the United States for making impractical demands and an overall unwillingness to compromise.
US Robert Lighthizer responded:
“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners. As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.
We have seen no indication that our partners are willing to accept any change that will result in a rebalacing and a reduction in these huge trade deficits. Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantages.”
In a press briefing in his private conference room, Lighthizer later stated that his primary goal is to reduce the trade deficit and:
“take away what I consider to be in many cases artificial incentives to encourage investment overseas that are not market based. If we get that right, we’ll have an agreement that the president will be enthused about and at that point if the president is enthused, I think the Congress will be enthused.”
Lighthizer has also argued that NAFTA is just frosting on the cake for major corporations:
“I think it’s possible to take a little of the sugar away and have them say, ‘Yeah we’re still doing pretty well. I understand that everybody that’s making money likes the rules the way that they are. That’s how it works and they can make a little less money or make more money in a different way and we can get the trade deficit down and we can also have what I consider at least in the investment realm to be a market-based investment decision. I think if we do that business will be fine, and if we do that labor will come along and say this is a step in the right direction and it’s worth changing the paradigm in doing that.”
On October 16, 2017, in an article entitled Trump’s NAFTA Threat”, the Wall Street Journal made the opposing argument.
“Donald Trump is threatening again to terminate the North American Free Trade Agreement if Canada and Mexico don’t agree to his ultimatums.
If this is a negotiating tactic of making extreme demands only to settle for much less and claim victory, maybe it will work. Otherwise Mr. Trump is playing a game of chicken he is playing a game of chicken that he can’t win
Mr. Trump’s obsession with undoing Nafta threatens the economy he has so far managed rather well. The roaring stock market, rising GDP and tight job market are signs that deregulation and the promise of tax reform are restoring business and consumer confidence. Blowing up Nafta would blowup all that too. It could be the worst economic mistake by a U.S. President since Richard Nixon trashed Bretton-Woods and imposed wage and price controls.
U.S. demands in the Nafta renegotiations which returned to Washington last week-are growing more bizarre. U.S. Trade Representative Robert Lighthizer now wants to add a sunset clause, which would automatically kill it in five years unless all three governments agree to keep it. In other words, the U.S. proposes to increase economic uncertainty and raise the incentive for businesses to deploy capital to more reliable investment climates.
The U.S. also wants to change Nafta’s “rules of origin” for autos. Cars now made in North America can cross all three borders duty-free if 62.5% of their content is Nafta-made. Mr. Lighthizer wants to raise that to 85% and add a sub clause requiring 50% be made in the U.S.
Mr. Lighthizer needs to get out more. Nafta’s current rules-of-origin for autos are already the highest of any trade agreement in the world, says John Murphy of the U.S. Chamber of Commerce. Raising them would give car makers an incentive to source components from Asia and pay America’s low 2.5% most -favored-nation tariff. A higher-content rule would hurt Mexico, but it won’t bring jobs to the U.S
It’s hard to overstate the damage that ending Nafta would inflict on the U.S. auto industry. Under Nafta, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. As Charles Uthus at the American Automotive Policy Council said last week, Nafta “brings scale, it brings competitiveness, it brings efficiencies [and] synergies between all three countries, and it brings duty-free trade.” Its demise would be “basically a $10 billion tax on the auto industry in America.”
Last week the Boston Consulting Group also released a study sponsored by the Motor & Equipment Manufacturers Association that found ending Nafta could mean the loss of 50,000 American jobs in the auto-parts industry as Mexico and Canada revert to pre Nafta tariffs.
Mexico has elections next year and no party that bows to unreasonable demands by Mr. Trump can win. The Mexican political class appears willing to call his bluff, which is making American business very nervous. More than 300 state and local chambers of commerce signed an Oct. 10 letter to Mr. Trump imploring him to “first ‘do no harm’ in the Nafta negotiations.”
It noted that 14 million American jobs rely on North American daily trade of more than $3.3 billion. “The U.S. last year recorded a trade surplus _o f $11.9 billion with its NAFTA partners when manufactured goods and services are combined,” the letter said. “Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada.”
Ending Nafta would be even more painful for U.S. agriculture, whose exports to Canada and Mexico have quadrupled under Nafta to $38 billion in 2016. Reverting to Mexico’s pre-Nafta tariff schedule, duties would rise to 75% on American chicken and high-fructose corn syrup; 45% on turkey, potatoes and various dairy products; and 15% on wheat. Mexico doesn’t have to buy American, and last week it made its first wheat purchase from Argentina-30,000 tons for December delivery.
Canada and Mexico know that ending Nafta will hurt them, but reverting to pre-Nafta tariff levels could hurt the U.S. more. Mr. Trump can hurt our neighbors if he wants, but the biggest victims will be Mr. Trump’s voters.”
On October 16, 2017, in an article entitled “Trump Trying To Destroy NAFTA with Pin Pricks Instead Of A Sledgehammer” John Brinkley at Forbes outlined the US demands in the NAFTA negotiations and why they are being rejected:
“It appears increasingly likely that NAFTA is headed for the trash heap. People involved in the re-negotiation of the 23-year-old trade pact are pessimistic about its chances for survival, because the Trump administration seems bent on causing its death by 1,000 cuts.
An inexplicable aspect of this is that there is no constituency in the United States for NAFTA’s termination.
Not even the most fervent NAFTA-haters — e.g., the AFL-CIO, the Sierra Club, Public Citizen’s Global Trade Watch, and Democratic House members from Rust Belt states — have demanded the death of NAFTA. Businesses large and small, farmers and ranchers, mayors of most American cities and most members of Congress want NAFTA to stay in force. No one of note has said NAFTA has to go. So, whose interests is President Trump trying to protect?
It’s clear that what he would like to do is simply withdraw from the agreement, which he can easily do by providing Canada and Mexico six months’ notice in writing. But instead, his negotiators have tabled several proposals – poison pills would be a more apt description – that they know the Canadians and Mexicans won’t accept. This will allow Trump to blame them for NAFTA’s demise.
“Issues are being put on the table that are practically absurd,” former Mexican Jaime Serra told Reuters during the fourth round of talks, which ended Sunday. “I don’t know if these are poison pills, or whether it’s a negotiating position or whether they really believe they’re putting forward sensible things.”
Here are four of them:
A sunset provision that would automatically terminate NAFTA after five years unless all three countries vote to keep it in force.
Deletion of NAFTA Chapter 19, which allows parties to defend themselves against dumping and illegal subsidies by one another.
A so-called opt-in provision to NAFTA’s investor-state dispute settlement (ISDS) chapter.
A change to automotive rules of origin that would make it more difficult for Canada and Mexico to export cars to the United States.
Let’s look briefly at each of these.
A five-year sunset clause would add so much uncertainty to NAFTA’s future that businesses in all three countries would be reluctant to plan and invest with regard to cross-border trade. It would also trigger a renegotiation of NAFTA every five years.
Scrapping Chapter 19 would end 23 years of fairness and equality in the way the three NAFTA parties pursue anti-dumping and illegal subsidy cases. Conservative opponents of Chapter 19 say it impinges on U.S. sovereignty by requiring the government to adhere to a supranational system. That is an argument based on principle. It has no practical merit.
ISDS allows a private company operating in a foreign country to challenge an action by that country’s government that hurts the company. Allowing one country to opt in or out of ISDS would be like allowing a driver who is pulled over for speeding to opt out of having to obey the law against speeding – sorry, officer, I have my own speed limit and it’s higher than yours.
NAFTA requires that 62.5% of the content of NAFTA-built cars and light trucks originate in the U.S. if those vehicles are to be exported duty-free to the U.S. The Trump administration wants to raise that to 80%. This is a purely protectionist measure that would raise the price of cars sold in the United States, including those made here.
The governments of Mexico and Canada vehemently oppose these proposals and others the administration has presented. But Trump has said, no problem, if the NAFTA renegotiations don’t work out, he’s willing to negotiate separate bilateral free trade agreements with the two countries.
It’s apparent that what he really wants is to get rid of Mexico. He has said most illegal Mexican immigrants were rapists and murderers, vowed to build a wall along the Mexican border, threatened to invade the country to rid it of some unspecified “bad hombres,” and threatened to impose a 20% border tax.
And we’re to believe that he wants to sit down with the Mexican government and negotiate a free trade agreement in good faith?
Yeah, right.”
TRUMP THREATS ARE NOT WORKING WITH THE US SOUTH KOREA TRADE AGREEMENT
Meanwhile, South Korean Trade Minister Kim Hyun-chong recently indicated that Seoul is willing to let President Donald Trump kill the pact, rather than bow to unreasonable U.S. demands for concessions to bring bilateral trade more into balance.
Kim also stated that cutting trade ties with South Korea will only push the country, as a matter of necessity, economically closer to China, the source said.
US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL
Recently there has been a distinct difference in the antidumping and countervailing duty area. Friends have told me that internally at Commerce all countervailing duty and antidumping duty determinations go to the Secretary’s office of his personal review. That was not true when I was at the Commerce Department during the Reagan Administration.
Countervailing duty and antidumping determinations are legal proceedings that are subject to Court review. The Court of International Trade and the Court of Appeals for the Federal Circuit can overturn as not based on substantial evidence on the record if there is not a factual underpinning for the Commerce Department decisions.
If politics become a large part of the case, that is a reason for the Court to overturn Commerce decisions as arbitrary and capricious and not based on substantial evidence on the record.
Every time Commerce issues a determination in an antidumping and countervailing duty case, Commerce Secretary Wilbur Ross makes a personal statement. When the Countervailing Duty preliminary determination of 212% in the Bombardier Civil Aircraft case was issued, Secretary Ross stated:
“The U.S. values its relationships with Canada, but even our closest allies must play by the rules. The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”
In past newsletters, I have argued that Commerce is a hanging judge in AD and CVD determinations finding dumping and subsidization in close to 100 percent of the cases. But in contrast to a China case, where Commerce uses fake numbers, in a market economy case against Canada, for example, Commerce is to use actual domestic prices and costs to determine dumping and actual government payments to determine subsidization in the case and actual commercial values in that country to value them. Thus, in counseling foreign companies in antidumping and countervailing duty cases, if they are in market economy countries, I tell them that they can use computer programs to run their numbers and make sure that they are not dumping. Also companies can usually figure out whether they have taken subsidies from the Government.
As indicated in the Article about the Bombardier/Civil Aircraft case below, however, although the AD and CVD rates were very high at 219% and 79%, Commerce did give reasoned decisions as to how it calculated those high rates.
NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.
Just before the countervailing duty preliminary determination in the Civil Aircraft from Canada case, I was interviewed by BBC radio and by various investment companies asking me for my views on the case. During those interviews, I emphasized that the US countervailing duty and antidumping cases against Canada were legal proceedings and that the Commerce Department’s preliminary determinations were normal operating procedure pursuant to the US antidumping (“AD”) and countervailing duty (“CVD”) law. The Commerce Department must follow the statutory requirements of the AD and CVD law, and these preliminary determinations were not political decisions. They were legal decisions made pursuant to the law and the statutory deadlines in those laws.
With all the political arguments from both the Canadian and UK Governments in the wind, during those interviews, however, I also suggested the case could result in a negotiated suspension government to government agreement, much like happened in the Canadian Lumber case. After the CVD preliminary determination, USTR Lighthizer also mentioned the possibility of a government to government negotiated deal in the Bombardier case.
But then Commerce issued a preliminary CVD rate of 219.63%. Immediately the Canadian government complained about the unfairness of the decision, and the UK government threatened a trade war with the US because Bombardier has a production plant in Northern Ireland.
Commerce issued the very high CVD rate as indicated in the attached Commerce Department’s Issue and Decision Memo, 2017.09.26 Aircraft Prelim I&D Memo, because of the massive equity infusion of $1 billion by the Quebec Government directly into Bombardier, making it in effect a state-owned company, much like the Chinese state-owned companies.
The entire purpose of the US CVD law and CVD laws in general is that private companies should not have to compete in commercial markets against the Government and that is just what has happened.
Although the argument is made that Boeing is financed by its military sale of airplanes to the US government, Boeing itself is a publicly traded company on the New York stock exchange and certainly has not received $1 billion in a direct equity infusion into the company by a Government to finance its production operations.
But then Bombardier seriously damaged its own chances for a negotiated government to government suspension agreement because Commerce issued an antidumping preliminary determination of 79.82% antidumping rate based on All Facts Available (“AFA”) because Bombardier refused to provide sales information regarding its contracts with Delta and Air Canada and cost information.
Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation. The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response. The EC takes the same position. If a respondent refuses to cooperate in EC antidumping and countervailing duty cases, the EC will use all facts available.
I firmly believe that because of the decision not to cooperate with Commerce, the Trump Administration will refuse to do a suspension agreement in this case. Commerce will not reward bad behavior in AD cases. A company cannot refuse to cooperate with Commerce and give them the information they need to make a decision and then expect Commerce to give it a political deal.
Also the UK threat of a trade war indicates an ignorance of how AD and CVD law works, which is understandable because all AD and CVD cases in the EC are handled in Brussels. As stated above, these preliminary determinations were legal determinations under the US AD and CVD law, which are based on the WTO Antidumping and Countervailing Duty Agreements and agreed to by all countries in the WTO, including Canada, the EC and through the EC, the UK.
Bombardier argued that it could not provide the sales information because the airplanes had not been exported to the US. As indicated in the attached AFA memo, ANTIDUMPING AFA BOMBARDIER, the US Antidumping Law, which is based on the WTO Antidumping Agreement, covers “sales” and in the absence of sales offers for sale. As the AFA Memo states:
Additionally, section 772 of the Act defines export price and constructed export price as the price at which merchandise under consideration is first sold or agreed to be sold. Moreover, 773(a)(1)(B) of the Act states that normal value is the price at which:
the foreign like product is first sold (or, in the absence of a sale, offered for sale) for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade and, to the extent practicable, at the same level of trade as the export price or constructed export price.
In addition, as previously mentioned, under 19 CFR 351.102(b)(43), the term “sale” includes a contract to sell. Furthermore, a Ways and Means Committee report describes the reason for amending the countervailing duty law, along the lines of what already existed in the antidumping duty law, to make clear that the Department could initiate countervailing duty cases and render determinations in situations where actual importation had not yet occurred but a sale for importation had been completed or was imminent. The House Report explained that “{a}ntidumping law has, since its inception, applied not only to imports, but to sales or likely sales. This report additionally explained that the amendment (including the phrase “or sold (or likely to be sold) for importation” in section 701(a) of the Act) was “particularly important in cases involving large capital equipment, where loss of a single sale can cause immediate economic harm and where it may be impossible to offer meaningful relief if the investigation is not initiated until after importation takes place.” This logic described in the House Report is relevant in this antidumping duty investigation as well. For these reasons, the Department appropriately requested information related to Bombardier’s purchase contracts for merchandise under investigation in the United States and the home market.
According to Commerce, Bombardier only submitted arguments in response to sections B through D of the questionnaire. It did not provide the facts to support those arguments. Under US AD law, however, Commerce Department decisions and respondent’s arguments have to be based on the facts on the Administrative Record. When there are no facts, Commerce will use All Facts Available.
Through intermediaries, I have been told that Bombardier refused to release that information to Commerce because of fear it would be released to Boeing. If that is true, it reveals the failure of Bombardier’s outside lawyers to discuss how Commerce Department Administrative Protective Orders work in AD and CVD cases. Under US AD and CVD law, only outside counsel, not Boeing’s inside counsel, are granted access to Bombardier information and if those outside lawyers reveal that information to Boeing, they can be disbarred. Trade counsel in the US take very seriously the APO requirements under the US AD and CVD Law. In addition, Bombardier’s outside counsel has had access to Boeing’s confidential information under Administrative Protective at the US International Trade Commission so there is simply no sympathy for Bombardier’s arguments.
Finally, the latest news is that Bombardier is asking Airbus to take a majority share in its production of C Series Aircraft and Airbus will shift the production to Mobile, Alabama to get out of the case. Boeing has argued that Boeing’s move will not have an effect on the case because any orders issued will cover parts.
But that is not quite correct. The jurisdiction in AD and CVD cases is in rem over the things, products, being imported into the US. So the critical issue is how did Boeing describe the products to be covered by the case and that are in the Scope of the Merchandise Section in the Federal Register notice issued by the Commerce Department.
The Scope of the Merchandise Section in the Federal Register notice states that the AD and CVD orders will cover imports of:
“aircraft, regardless of seating configuration, that have a standard 100- to 150-seat two-class seating capacity and a minimum 2,900 nautical mile range, as these terms are defined below. . . .
The scope includes all aircraft covered by the description above, regardless of whether they enter the United States fully or partially assembled, and regardless of whether, at the time of entry into the United States, they are approved for use by the FAA.”
The scope does not include “parts thereof” language so the real question is whether Customs will consider any parts imported into the United States to be “partially assembled” civil aircraft.
The key point is that the desperate measure to joint venture with Airbus, however, means Bombardier has given up on a government to government Suspension Agreement to settle the case. I suspect Bombardier will have major problems going forward.
SECTION 201 SOLAR CELLS 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.
The ITC had to 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 reached an affirmative injury determination in the case on September 22, 2017, and now it has entered a remedy phase on which remedy to recommend to the President.
The Commission will issue its report to the President on November 13, 2017 and the President within 60 days must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.
Although the ITC remedy phase is important, the real remedy will be determined by President Donald Trump with the assistance of the USTR after November 13th.
On October 3, 2017, the ITC held a hearing in the remedy phase. The proposed remedies from the parties are:
The petitioners, Suniva and SolarWorld Americas, in their public briefs, proposed two remedies: a tariff plus a price floor for solar cells, or a tariff plus a quota. The two companies agree that the commission should choose one.
The Solar Energy Industries Association, the users coalition, along with solar producer SunPower, argued that a tariff will result in the loss of 62,800 jobs in 2018 and 80,000 jobs in later years. Tariffs will simply increase the price of panels, which will kill solar projects. SEIA in its brief also argued that if tariffs are imposed, the big winner will be Arizona-based thin-film manufacturer First Solar, which does much of its manufacturing in Malaysia.
At the hearing, Suniva and SolarWorld requested a 32-cent-per-watt tariff on crystalline silicon photovoltaic cells. Suniva continued to push for a price floor on solar panels of 74 cents per watt, while SolarWorld wants a quota on imported cells and panels to cap import supply; both support each other’s idea in the alternative. In its brief, Suniva stated:
“The crisis caused by foreign market overcapacity now facing the U.S. CSPV cell and module industry is so extreme, the financial losses so great, that, to be effective, any remedy … must be bold, extensive and multifaceted. [A] strong and effective remedy is required to stop the industry’s bleeding, and then provide breathing space for this American-invented manufacturing technology to grow and thrive.”
But SEIA, which maintains that such trade barriers will devastate the entire U.S. solar industry by raising prices and crippling demand, says the two manufacturers are failing for internal and not external reasons and have asked for more help than the government can grant. Since the ITC must recommend a remedy by mid-November with Trump then to decide within 60 days, SEIA offers these alternatives: technical assistance and job training assistance from government agencies, and an import licensing fee to fund manufacturing growth.
The interesting point is that Suniva and Solar World failed to submit an adjustment plan to the ITC to show, in direct contrast to Harley Davidson, how they will adjust to import competition if they are given relief.
SEIA argued in its brief:
“The commission should rely on its trade policy expertise to create and recommend constructive advice instead of resorting to trade restraints. Denying the existence of the tens of thousands of jobs that are at stake, denying the reality and importance of grid parity, and denying the domestic industry’s internal problems in favor of scapegoating imports will not help the industry or serve the national interest.”
TRUMP AND CHINA
But what about developments regarding trade with China, as indicated below new trade cases are being filed against China in the antidumping and countervailing duty area and for IP violations under Section 337.
During her speech mentioned above, Laura Ingraham argues that there is no remedy if imports come into the US that infringe US intellectual property rights. That simply is not true.
Under Section 337, 19 USC 1337, Petitioners holding valid IP rights can filed a Section 337 case at the US ITC and after a year long proceeding, the ITC will issue an order excluding the infringing imports at the border.
In addition, if the imports infringe US trademarks or copyrights, Petitioner can go directly to Customs, which will exclude the infringing exports at the border.
In addition, if Chinese exports infringe US intellectual property rights, such as trademarks and copyrights, a US company can go directly to Chinese Customs and stop the export of infringing exports.
But with China’s decision to help on North Korea, I suspect that during Trump’s visit to China in November deals will be reached. But as Charlene Barshefsky has indicated in her speech to the Wall Street Journal above, the real problem is China’s decision to close down areas to US investment and put up barriers to US imports.
In light of the US position in the NAFTA talks, we can expect the US to demand reciprocity. Trump and Congress may well take the position that we will close off the US market to the Chinese investment in the same areas where China blocks US investment in. The US should also consider closing off Chinese imports into sectors where the US cannot export into. That is reciprocity.
There are many fights to come.
SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD
In the attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, 301 INITIATION NOTICE, President Trump pulled the trigger on the Section 301 Intellection property case against China. The Section 301 investigation could take a year and probably will lead to negotiations with the Chinese government on technology transfer. If the negotiations fail, the US could take unilateral action, such as increasing tariffs, or pursue a case through the World Trade Organization. Unilateral actions under Section 301, however, also risk a WTO case against the United States in Geneva.
The notice states that the USTR will specifically investigate the following specific types of conduct:
First, the Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies. Moreover, many U.S. companies report facing vague and unwritten rules, as well as local rules that diverge from national ones, which are applied in a selective and non-transparent manner by Chinese government officials to pressure technology transfer.
Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China. For example, the Regulations on Technology Import and Export Administration mandate particular terms for indemnities and ownership of technology improvements for imported technology, and other measures also impose non-market terms in licensing and technology contracts.
Third, the Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.
Fourth, the investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.
The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission. During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions. Juergen Stein, CEO of SolarWorld Americas stated that his company was a victim of Chinese “state-sponsored hacking and theft” while it was pursuing his AD and CVD cases against China. Stein further stated that this “greatly weakened SolarWorld’s first-mover status, and again left SolarWorld vulnerable to China’s relentless effort to take over the U.S. solar industry through the sale of solar cells and panels below the cost of production,”
Just one other company, American Superconductor Corp., testified that it had been badly hurt by Chinese theft of its intellectual property. The company accused a Chinese state-owned enterprise, Sinovel Wind Group, of stealing its intellectual property. AMSC has lost over $1.6 billion in company value and 70 percent of its workforce over the past six years as a result, AMSC President Daniel Patrick McGahn said.
“We believe that over 8,000 wind turbines – most owned by large Chinese utility state-owned enterprises – currently are operating on stolen AMSC IP I personally believe such actions should have consequences. The negative impact of Sinovel’s IP theft on the financial health of AMSC has been dramatic.”
A third company, ABRO Industries, said it had learned to work within the Chinese intellectual property protection system to address problems when they arise. William Mansfield, director of intellectual property at ABRO, also urged the Trump administration to refrain from rash action, stating, “The time for gunboat diplomacy is long since past.”
Acting Assistant USTR for China Terry McCartin, commenting on the dearth of business witnesses, said some companies had expressed concern “about retaliation or other harm to their businesses in China if they were to speak out in this proceeding.”
But as indicated in an article by Dan Harris, the problem may be that US companies on their own gave away their IP because of bad business decisions. The US government cannot protect US companies from the consequences of bad business decisions. See August 30, 2017 article by Dan Harris entitled “China-US Trade Wars and the IP Elephant in the Room”, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html.
CHINA NME STATUS
On the question of China’s nonmarket economy status in AD and CVD cases, in light to the expiration of the 15-year deadline in the China-WTO Agreement on December 16, 2016 and a Chinese case in the WTO, the EU on October 3rd reached agreement with the European Council and Parliament to overhaul its antidumping procedures. Pursuant to the Agreement, the EU will decide the issue on a case-by-case basis, leaving it up to the EU Government to determine whether a Chinese industry has demonstrated enough independent from the Chinese government.
In the announcement, the EU stated:
“The new legislation introduces a new methodology for calculating dumping margins for imports from third countries in case of significant market distortions, or a pervasive state’s influence on the economy. The rules are formulated in a country- neutral way and in full compliance with the EU’s WTO obligations.”
EU Trade Commissioner Cecilia Malmström further stated:
“Having a new methodology in place for calculating dumping on imports from countries which have significant distortions in their economies is essential to address the realities of today’s international trading environment. The commission has repeatedly stressed the importance of free but fair trade and the agreement today endorses that view.”
WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA
In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, a case which is near and dear to my heart, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia, according to a WTO document circulated on Monday.
According to the US complaint:
“The BC wine measures provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves. The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called store within a store.”
According to prior statements from the government and the industry backing the case, many retailers in Canada have not taken the necessary steps to set up their “store within a store” to sell foreign wine, likely because of the high costs associated with controlled access and separate cash registers.
According to the complaint:
“These measures appear to be inconsistent with Canada’s obligations … because they are laws, regulations or requirements affecting the internal sale, offering for sale, purchase or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin.”
In the following months, Argentina, Australia, the European Union and New Zealand all asked to join the case, according to the World Trade Organization website.
USTR asserts the provincial regulations discriminate against imported wine because they only allow wine from British Columbia to be sold on regular grocery store shelves. In contrast, imported wine may only be sold in the province’s grocery stores through a so-called store within a store.
“British Columbia’s discriminatory regulations continue to be a serious problem for U.S. winemakers,” USTR spokeswoman Amelia Breinig said. “USTR is requesting new consultations to ensure that we can reach a resolution that provides U.S. wine exporters fair and equal access in British Columbia.”
In fact, BC Wine regulations are probably the most protectionist in the World, worse than China requiring the equivalent of an 80% tariff to sell imported wine. BC protectionist measures on wine simply feed right into the Trump argument on NAFTA that it is not a free trade agreement.
SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED
The Section 232 Steel and Aluminum cases appear to have stalled for the time being. No news on the Section 232 front raises the question what can be done for US Steel and Aluminum companies injured by imports without distorting the US market and expanding the problems. Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products. Such a remedy would probably result in the loss of 100s of thousands of US job.
That is the problem with purely protectionist decisions. They distort the US market and simply transfer the problems of the steel industry to other downstream industries.
But does that mean the US government should simply let the US Steel industry and other manufacturing industries die? The election of Donald Trump indicates that politically that simply is not a viable option.
Although Joseph Schumpeter in his book Capitalism, Socialism and Demcracy coined the term “creative destructionism”, which conservatives and libertarians love to quote, they do not acknowledge the real premise of Schumpeter’s book that capitalism by itself could not long survive. Schumpeter himself observed the collateral damage created by pure capitalism.
So what can be done for the steel and other manufacturing industries? Answer work with the companies on an individual basis to help them adjust to import competition and compete in the markets as they exist today. Moreover, there is already a government program, which can serve as a model to provide such a service—the Trade Adjustment Assistance for Companies Program.
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 stop wallowing in international trade victimhood and to cure its own ills first before always blaming the foreigners. That is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.
TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS
As stated above, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition. This program has a true track record of saving US companies injured by imports.
This was a problem personally approved by President Ronald Reagan. 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 on an individual basis 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.
But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.
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.
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. To retrain the worker for a new job, the average cost per job is $50,000. 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 TAA for Companies has been cut to the bone. On August 22, 2017, in the attached press release, US Commerce Department Announces $133 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.
Are such paltry sums really going to help solve the manufacturing crisis in the Steel and other industries? Of course not!!
But when the program was originally set up, the budget was much larger at $50 to $100 million. If the program was funded to its full potential, yes steel companies and other companies could be saved.
To those libertarian conservatives that reject such a program as interference in the market, my response is that this program was personally approved by your icon, President Ronald Reagan. He understood that there was a price for free trade and avoiding protectionism and that is helping those companies injured by import competition. But teaching companies how to be competitive is a much bigger bang for the buck than simply retraining workers. And yes companies can learn and be competitive again in the US and other markets.
NEW TRADE CASES
ANTIDUMPING AND COUNTERVAILING DUTY CASES
PTFE RESIN
On September 28, 2017, the Chemours Company FC LLC filed AD and CVD cases against imports of Polytetrafluoroethylene (PTFE) Resin from China and India.
FORGED STEEL FITTINGS
On October 5, 2017, the Bonney Forge Corporation and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed AD and CVD cases against imports of Forged Steel Fittings from China Italy and Taiwan.
UNIVERSAL TRADE WAR CONTINUES
FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES
CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN
HYDRIOC ACID FROM THE US and JAPAN
On October 16, 2917, China Ministry of Commerce (“MOFCOM”) published the attached initiation notice of antidumping investigation against Hydriodic Acid from the USA and Japan, Initiation Notice_Hydriodic Acid_EN. The alleged dumping margin on the US imports is 36.09% and Japanese imports is 41.18%
The Target companies in the US are: USA: Iofina Chemical, Inc.; IOCHEM Corporation and Ajay North America, LLC
The Target Companies in Japan are: SE Chemicals Corporation, NIPPOH CHEMICALS CO., LTD. and TOHO Earthtech, Inc.
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.2017.37 Team’s newsletter-EN Vol.2017.38 Team’s newsletter-EN Vol.2017.39 Team’s newsletter-EN Vol.2017.40
SECTION 337 AND IP CASES
NEW 337 CASES AGAINST CHINA
REUSABLE DIAPERS
On September 19, 2017, Cotton Babies, Inc filed a section 337 case against imports of Certain Reusable Diapers, Components Thereof, and Products Containing the Same. The respondent companies named in the complaint are:
Alvababy.com, China; Shenzhen Adsel Trading Co., Ltd.d/b/a Alva, China; and Huizhou Huapin Garment Co., Ltd., China.
AMORPHOUS METALS
On September 19, 2017, Metglas, Inc. and Hitachi Metal, Ltd. filed a section 337 case against imports of amorphous metals and products containing same. The named respondents in the case are:
Advance Technology & Materials, China; AT&M International Trading Co., Ltd., China; CISRI International Trading Co., Ltd., China; Beijing ZLJG Amorphous Technology Co., Ltd., China; Qingdao Yunlu Energy Technology Co., Ltd., China; Dr. Hideki Nakamura, Japan; and Mr. Nobrou Hanai. Japan.
LED LIGHTING
On September 21, 2017, Philips Lighting North America Corp. and Philips Lighting Holding B.V. filed a section 337 case against imports of LED Lighting Devices and LED Power Supplies. The named respondents in the case are:
Feit Electric Company, Inc., Pico Rivera, California; Feit Electronic Company, Inc., (China), China; Lowe’s Companies, Inc., Mooresville, North Carolina; L G Sourcing, Inc., North Wilkesboro, North Carolina; MSi Lighting, Inc., Boca Raton, Florida; RAB Lighting Inc., Northvale, New Jersey; Satco Products, Inc., Brentwood, New York; Topaz Lighting Corp., Holtsville, New York; Wangs Alliance Corporation d/b/a WAC Lighting Co., Port Washington, New York; and WAC Lighting (Shanghai) Co. Ltd. , China.
REUSABLE RAZORS
On September 27, 2017, The Gillette Company LLC filed a section 337 case against imports of Certain Shaving Cartridges, Components Thereof and Products Containing Same. The named respondents in the case are:
Edgewell Personal Care Company, Chesterfield, Missouri; Edgewell Personal Care Brands, LLC, Shelton, Connecticut; Edgewell Personal Care, LLC, Shelton, Connecticut; Schick Manufacturing, Inc., Shelton, Connecticut; and Schick (Guangzhou) Co., Limited, China.
BEVERAGE CONTAINERS
On September 28, 2017, YETI Coolers, LLC filed a section 337 case against imports of Insulated Beverage Containers, Components, Labels, and Packaging Materials. The named respondents are:
Alibaba (China) Technology Co., Ltd., Hong Kong; Alibaba Group Holding Limited, c/o Alibaba Group Services Limited, Hong Kong; Alibaba.com Hong Kong Limited, Hong Kong; Alibaba.com Singapore E-Commerce Private Limited, Hong Kong; Bonanza.com, Inc., Seattle, Washington; ContextLogic, Inc. d/b/a Wish, San Francisco, California; Dunhuang Group, China; Hangzhou Alibaba Advertising Co., Ltd., Hong Kong; Huizhou Dashu Trading Co., Ltd., China; Huagong Trading Co., Ltd., China; Tan Er Pa Technology Co., Ltd., Hong Kong; Shenzhen Great Electronic Technology Co., Ltd., China; and SZ Flowerfairy Technology Ltd., China.
If you have any questions about these cases or about the Trump Trade Crisis, NAFTA, FTAs, , including the impact on agriculture, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, 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