TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR FEBURARY 5, 2017 CHINA TRADE RETALIATION UPDATE
What goes around comes around. President Trump has threatened retaliation against China and countries for various misdeeds by raising tariffs. But the Chinese government has now upped the game and responded with its own trade case against US agricultural exports of Sorghum Grain to China.
MOFCOM SELF-INITIATES ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST SORGHUM GRAIN FROM THE US
On December 1, 2017, in the first time in over a decade, the Commerce Department self-initiated an antidumping and countervailing duty case against imports of aluminum sheet from China.
On February 4, 2018, Ministry of Commerce (“MOFCOM”) in China retaliated by self-initiating its own antidumping and countervailing duty case against imports of US sorghum grain. Total China imports of US Sorghum Grain in 2016 were 5,869,000 tons worth more than $1.26 billion USD.
Notices of appearance are due at MOFCOM by February 24th.
In addition to dumping, the case targets large US agricultural subsidies for sorghum grain, such as Crop Insurance Program, Price Loss Protection Program, Agricultural Risk Protection Program, Marketing Loan Program, Export Credit Guarantee Program, Market Access Program and Foreign Market Development Partner Program.
Some of the US companies that may be the targets of this MOFCOM action are: Agniel Commodities, LLC, Attebury Grain, LLC, Big River Resources, Bluegrass Farms of Ohio, Inc., Bunge North America, Inc., Cardinal Ethanol, LLC, Cargill, Inc., Consolidated Grain and Barge Co., DeLong Company Inc., Enerfo USA, Inc., Fornazor International Inc., Freepoint Commodities LLC, Gavilon, Illinois Corn Processing, LLC, International Feed, Louis Dreyfus Commodities, Marquis Grain Inc., Mirasco Inc., Pacific Ethanol, Inc., Perdue AgriBusiness, LLC, The Scoular Company, Southwest Iowa Renewable Energy, LLC, Tharaldson Ethanol Plant I, LLC, United Wisconsin Grain Producers, and Zeeland Farm Services. Attached is a list of more potential US target companies, US exporters of grain sorghum to China
This case is important because it signals the possible start of a trade war with China. The US self-initiates antidumping and countervailing duty cases against China; China self-initiates antidumping and countervailing duty cases against the US.
President Trump has been threatening to levy numerous tariffs against China and other countries, but this Sorghum Grain trade case indicates that there is a price to pay for US tariffs and trade actions. Many in Washington DC are used to dealing with Japan, Taiwan and South Korea with regards to trade, but those countries are dependent on the United States for their national security. Throw a trade rock at those countries, and they rarely throw one back.
China, however, is not dependent on the United States for its national security. Throw a trade rock at China, and they will throw one back. Moreover, this Sorghum Grain case is aimed directly at President Trump’s constituency—agriculture and the rural states.
Both the Wall Street Journal and Investors Business Daily in numerous editorials have warned the Trump Administration that the only major economic issue that could stop the rise in the economy is a trade war. Trump and the Republicans have tied their political star to the rising US economy. But if Trump levies more tariffs against Chinese imports, expect the Chinese government to retaliate and aim its trade guns at products and constituencies that will hurt Trump and the Republicans the most—agriculture.
If anyone has any questions about this case, please feel free to contact me.
US CHINA TRADE WAR JANUARY 25, 2018 SOLAR CELLS 201 UPDATE
Attached is the Solar Cells Presidential Proclamation with Annexes, which was published today January 25th in the Federal Register, FEDERAL REGISTER NOTICE PRESIDENTIAL PROCLAMATION SOLAR CELLS. According to the Annex I (f), the 30% tariff will be applied to imports starting February 7, 2018.
In addition, a number of countries are excluded in Annex 1(b) from the tariff, including India and Ukraine, so long as their share of imports does not exceed 3%.
Within 30 days, the United States Trade Representative’s office (“USTR”) will publish a Federal Register notice, which will allow companies to petition for exclusion. The Proclamation specifically also states that the President has “determined to exclude certain products from this action and goes on to state in paragraph 15, 4:
Within 30 days after the date of this proclamation, the USTR shall publish in the Federal Register procedures for requests for exclusion of a particular product from the safeguard measure established in this proclamation. If the USTR determines, after consultation with the Secretaries of Commerce and Energy, that a particular product should be excluded, the USTR is authorized, upon publishing a notice of such determination in the Federal Register, to modify the HTS provisions created by Annex I to this proclamation to exclude such particular product from the safeguard measure described in paragraph 8 of this proclamation.
Consumer products with solar cells, such as solar-powered backpacks and lanterns, will likely be excluded from the tariffs, but it will be tough to get other products out.
If anyone has any questions about these cases or wants additional information, please feel free to contact me at my e-mail address email@example.com.
JANUARY 23, 2018 UPDATE
A number of clients and news outlets have called me because yesterday, the United States Trade Representative’s office issued its Section 201 determinations in the Solar Cells and Washing Machines 201 cases. The USTR announcements are attached. 201 USTR ANNOUNCEMENT SOLAR WASHING MACHINES President Trump Approves Relief for U.S
This update will address these two remedy announcements and also the decision by the US Supreme Court to look at the Vitamin C Antitrust case.
IT BEGINS? SECTION 201 SOLAR CELLS/WASHING MACHINE DECISIONS
Yesterday, the United States Trade Representative’s office (“USTR”) announced affirmative Section 201 decisions in the Solar Cells and Washing Machines cases and issued tariffs. The question is whether these decisions represent the first layer of bricks that President Trump puts up in a protectionist wall around the US. We will have to wait and see. The real test will be what President Trump does in the Section 232 cases on Steel and Aluminum.
But one interesting point is that Suniva, the US company that filed the Section 201 Solar Cells case, is majority owned by a Chinese Solar Manufacturer, Shunfeng International Clean Energy Ltd.
In the 1980s, as a result in part of a Section 201 case against imports of Automobiles and a Voluntary Restraint Agreement issued by the Japanese Government, Japanese car companies set up manufacturing operations in the United States. Many Chinese solar companies may follow Shunfeng’s lead and set up manufacturing operation in the US. That is especially true as the new Trump Tax Bill kicks in dropping corporate tax rates to 21%.
The remedies for the two Section 201 cases are specifically set forth below.
In the Solar Cells case, the remedy is:
|Safeguard Tariffs on Imported Solar Cells and Modules|
|Year 1||Year 2||Year 3||Year 4|
- First 2.5 gigawatt of imported cells are excluded from the additional
It is still unclear how this will work in the sense that imports of the first 2.5 gigawatt are excluded from the additional tariff. But in talking to one small solar cell importer, at the most during the year they import a total of 1 megawatt. This tells me that the new tariffs first will not be retroactive and second probably will kick in after several months each year, when total imports reach the 2.5 Gigawatt level.
As stated before, these 201 tariffs are applicable to imports from all countries, including China, Malaysia, Germany, Canada and Mexico. When total imports of solar cells and modules reach the 2.5 gigawatt level, the new tariff kicks in. So, for example, if total imports of solar cells and modules into the US reach the 2.5 gigawatt level on May 15th, imports after that will be hit with a tariff.
The Washing Machines Remedy is set forth below. This is similar to the Solar Cells Remedy in the sense that the first 1.2 million washers will have a lower tariff and the higher tariff will not kick in until after total imports reach the 1.2 million unit level.
Also 50,000 units of covered parts are excluded from the tariff.
|Tariff-Rate Quotas on Washers|
|Year 1||Year 2||Year 3|
|First 1.2 million units of imported
|All subsequent imports of finished
|Tariff of covered parts||50%||45%||40%|
|Covered parts excluded from tariff||50,000 units||70,000 units||90,000 units|
So the point of both remedies is import quickly into the US market. The first imports into the country in the Solar Cells case will have no tariff and in the Washing Machines case will have a lower tariff.
VITAMIN C ANTITRUST CASE RISES FROM THE ASHES
With the Second Circuit Appeal Court ruling in September 16, 2016 against the US importers, many assumed that the Vitamin C antitrust case against the Chinese companies was dead. But on January 12, 2018, in the attached notice, 011218zr_3d9g (1), the Supreme Court announced that it was accepting the importers’ petition for certiorari in the Animal Science Products, et al v. Hebei Welcome, et al., Vitamin C Antitrust case. But the appeal is specifically limited to question 2 raised in the Animal Science Products’ Petition for Certiorari:
- Whether a court may exercise independent review of an appearing foreign sovereign’s interpretation of its domestic law (as held by the Fifth, Sixth, Seventh, Eleventh, and D.C. Circuits), or whether a court is “bound to defer” to a foreign government’s legal statement, as a matter of international comity, whenever the foreign government appears before the court (as held by the opinion below in accord with the Ninth Circuit).
So the question for the Supreme Court is whether the Chinese government’s characterization of its own law is conclusive in the proceeding.
If anyone has any questions about these cases or wants additional information, please feel free to contact me at my e-mail address firstname.lastname@example.org.
US CHINA TRADE WAR JANUARY 20, 2017 BLOG POST
Have been in China and then intensely involved in a steel antidumping and countervailing duty case on cold drawn mechanical tubing (“CDMT”) and only now can come up for air and turn my attention to the blog.
Moreover, there are so many mixed signals coming out of the White House on trade it is difficult to know which way Trump is going to go. As indicated below, the problem is probably retaliation by other countries and agriculture. Trump wants to be tough on trade but half of all US agriculture products are exported. One third of all Iowa corn is exported to Mexico.
Trump cannot kill NAFTA or be so tough on trade that US agriculture exports become the target of retaliation. Trump is winning and the Republicans stand a chance of holding their own in the mid-term elections if the US economy is doing very well. But taking a very protectionist stance by killing imports could very well backfire and hurt the US economy deeply. If the US economy goes down, Trump and the Republicans go down.
But this could be the month where the direction of Trump’s trade policy starts to truly come into focus. President Trump has to decide whether to impose additional tariffs on Solar Cells by January 26th and on Washing Machines by February 4th. But more importantly in the next 90 days, President Trump has to decide whether to impose additional tariffs on steel imports pursuant to Section 232 national security case. After Steel comes aluminum and possibly a new case on uranium. In addition, in the Section 301 case against intellectual property and China, Trump is talking about “fines” against China, whatever that means. Does that mean a trade war with China?
More importantly, the most important development in trade may be the passage of the Trump/Republican tax bill, which has slashed corporate taxes to 21%. This dramatic tax reduction is creating a manufacturing renaissance in the United States. Apple has announced that it is repatriating almost $250 billion from overseas, much of which will be used to create new manufacturing facilities in the United States.
Unemployment, including Black and Hispanic unemployment, is the lowest in decades. One way to cure the trade problem is by making US companies more competitive and that is just what Trump and the Republicans have done.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address email@example.com.
WILL TRADE UPSET THE TRUMP ECONOMIC JUGGERNAUT IN JANUARY 2018?
TO DATE TRUMP HAS NOT IGNITED A TRADE WAR
Despite many warnings of doom and gloom regarding trade, some from this newsletter, President Trump apparently has taken a cautious approach to trade. Although Trump has torn up the Trans Pacific Partnership (“TPP”) and threatened to pull out of the North American Free Trade Agreement (“NAFTA”), Trump so far has gone slow on trade. NAFTA has not been torn up, and to date President Trump has not imposed draconian tariffs on imports of steel and aluminum pursuant to the Section 232 National Security cases, probably in response to the many US producers that use imported steel and aluminum to produce downstream products made of steel. Trump is learning that trade is “complicated”.
The Cold Drawn Mechanical Tubing (“CDMT”) case illustrates the problem with being tough on trade. During the preliminary injury investigation at the ITC, one of my clients Voest Alipine Rotec (“Rotec”) told the US International Trade Commission (“ITC”) that if the ITC reached an affirmative preliminary injury determination, it would move offshore. The ITC went affirmative and as Rotec testified in December at the ITC final hearing, Rotec opened up a new production facility in Mexico to take care of all of its export business, cutting US jobs. When companies cannot get competitive raw materials, including steel products, they move offshore
TRUMP’S POLICIES HAVE CREATED AN ECONOMIC BOOM—CUTTING TAXES AND REGULATIONS WORKS
As indicated below in the article on the Tax Bill, another very important reason for Trump’s go slow approach is that the US economy is climbing upward like a rocket, and President Trump does not want to do anything to damage the trajectory of the economy. On election day, the Dow Jones average was 18,259. It has now climbed to over 26,000 creating over $5 trillion in new wealth. Trump’s policy of cutting regulations and the passage of the Trump tax bill are major reasons for the huge surge in the economy.
Democratic officials under President Obama told the American public to get ready for the new normal—US economic growth domestic product (“GDP”) could not get higher than 2.2% and would never go over 3%. In the first year of the Trump Presidency, the US GDP is 3.2%. With the elimination of regulations and the new Trump tax bill, which cut the corporate tax from 35 to 21%, many economists are now forecasting in 2018 a US GDP above 4%.
When the GDP goes up, all boats rise, and everyone, including the lower and middle class, are better off. Rising GDP means jobs and more jobs, exactly what Candidate Trump promised. Unemployment is the lowest it has been in decade. Hispanic and Black unemployment is the lowest it has been in decades. Manufacturing is having one of its best years since 2004.
When all boats rise that means the lower middle class and middle-class incomes go up also, and that is Trump’s core constituency. The Republican’s road to victory in the upcoming midterms in 2018 and Trump’s reelection in 2020 is dependent upon the economy. As President Clinton himself stated, “It’s the economy stupid.” If the economy is rising, everyone’s income goes up as there are more jobs, which means more voters pulling the Republican lever in the voting booth, and there is a chance the Republicans can hold their own in the mid-terms. The economy goes down and the Republicans will be crushed.
During the first term of President Obama, Democratic Senators and Congressmen were warning President Obama to focus on jobs for the lower and middle-class workers. President Obama ignored the advice and focused on health care and an infrastructure program that did not work. The average American wants a job, not a handout, because jobs lead to the American dream– a house to own and a good middle-class life.
Trump understands this desire and has focused on this core principle, which is exactly what he promised to do as a candidate.
Newt Gingrich, former speaker of the House and Presidential candidate and one of the true thinkers in the Conservative Wing of the Republic party, is predicting a great political surprise—the size of the Republican victory in the midterms. Directly contrary to the many statements of Democrats and pundits in the mainstream media, Gingrich makes the strong political argument that because of the sharp rise in the US economy, Republicans will do very well in the midterms. See http://www.foxnews.com/opinion/2017/12/28/newt-gingrich-get-ready-for-great-political-surprise-2018.html. People may not like the Trump package, but his economic policy so far is working.
SLAMMING TRADE AND STOPPING IMPORTS COULD STOP THE ECONOMIC BOOM
But the one problem with Trump’s economic initiative, which could be the flaw in his and the Republican strategy, is trade. If Trump embarks on a sharp protectionist push, withdrawing from NAFTA and raising tariffs for many products coming into the US, that could drop economic growth like a rock. All the business investor publications, such as the Wall Street Journal and the Investors Business Daily, are warning Trump to go slow on trade and not rip up the global trading system. If Trump decides to create a trade war with other countries, the economy will slow and the Republicans will have no hope of winning the midterms and Trump will be a one term President.
One major reason for that is agriculture. On January 9, 2018 in an editorial entitled “Will Trump Punish the Farm Belt?” the Wall Street Journal raised this very point:
“The U.S. economy is starting to grow at a faster pace, and deregulation and tax reform are pointing to an investment boost in 2018. But the big economic policy question now is whether President Trump is going to dampen this new growth enthusiasm by imposing tariﬀs and kicking oﬀ a global trade war.
That issue was in high relief Monday in Nashville, where Mr. Trump delivered a speech [to the American Farm Bureau] touting his policies for the rural U.S. economy that beneﬁts from free trade. Mr. Trump can rightly point to White House progress on reducing government barriers to growth in American agriculture. . . .
But farmers are scared stiﬀ that Mr. Trump might take a protectionist turn that would impose more government barriers. Highly eﬃcient and productive, U.S. farmers thrive in a competitive global market. But tariﬀs are border taxes that raise costs for U.S. producers and consumers. . . .
Mr. Trump already walloped U.S. farm exporters when he dropped out of the Trans-Paciﬁc Partnership, which has given Europe, Australia and Canada an edge to meet growing Asian demand for high-value farm products. After Japan imposed 50% “safeguard” tariﬀs on frozen beef last July, U.S. imports dropped by a quarter. Imports from Australia, which has a trade deal with Japan and supplies about half of its frozen beef, increased by 30%.
Foreign leaders are working fast to lock in trade deals that are leaving the U.S. behind. In December the European Union ﬁnalized a “cars-for-cheese” pact with Japan that will slash tariﬀs on most dairy, meat and wine to zero from up to 30%. Canada last year reached an agreement with the EU that will make 99% of their exports duty-free.
Mr. Trump is also contemplating tariﬀs against China for stealing U.S. intellectual property. This should be addressed, but the danger is that U.S. agriculture is sure to be a top target for reprisal if the President gets into a trade war with Beijing. China is one of America’s top farm markets, with agricultural exports tripling over the past decade to $21.4 billion, including $14.2 billion in soybeans. Australia and Brazil can replace many U.S. exports in a trade spat.
The greatest danger to the Farm Belt is that Mr. Trump might withdraw from the North American Free Trade Agreement. The U.S. sends about $18 billion a year in farm products to Mexico and $23 billion to Canada, which together account for a third of American farm exports. Since Nafta came into force in 1994, farm exports to Mexico and Canada have more than quadrupled. Soybean exports to Mexico have quintupled. . . .
Responding to Mr. Trump’s trade threats, Mexico is already seeking alternative commodity suppliers. Last year Mexico reached deals to increase imports of wheat from Argentina and corn from Brazil as a hedge against U.S. withdrawal.
Mr. Trump devoted only a couple of lines to trade in his Nashville speech, and we hope it reﬂects what Mr. Trump has learned about trade on the job. More likely, it means Mr. Trump still hasn’t resolved the debate among his economic advisers.
One argument Mr. Trump should hear is that a U.S. withdrawal from Nafta would most hurt states like Iowa and Wisconsin that gave him his election victory. That’s especially true if the U.S. imposes additional protectionist measures—such as steel tariﬀs—that invite retaliation. After the U.S. blocked Mexican trucks from delivering goods across the border in 2009, Mexico slapped tariﬀs on U.S. table grapes, potatoes, juices, almonds and wines.
Trashing Nafta would be among the great self-inﬂicted wounds in history. It would also tell other countries that the U.S. can’t be trusted to keep its word on trade, which would make it impossible to cut the bilateral trade deals the President says he wants. This is a strategy for making America weaker.
Many Senators and Congressmen from Agricultural states, such as Iowa, Wisconsin, Wyoming and Montana, which all voted for Trump, have warned the President to go slow on trade and not tear up the North American Free Trade Agreement (NAFTA). These Agricultural states are part of Trump’s base and one of the major reasons he won the Presidency. In a January 7, 2018 article entitled “Farmers Seek a Tempered Nafta Stance”, the Wall Street Journal further stated:
“When President Donald Trump addresses the U.S. agricultural community Monday, farmers will be looking for signs that a recent push to lobby him in support of the North American Free Trade Agreement has been successful.
That eﬀort, which has included Republican senators from farm states oﬀering charts and graphs illustrating the beneﬁts of the trade deal, has left some hopeful that the administration has softened an earlier tough stance on Nafta. Fueling those hopes has been the president’s refraining from harsh anti-Nafta rhetoric since his last tweet regarding the pact in August.
“We’re doing everything we can to have our voices heard,” said Sen. Deb Fischer (R., Neb.), a rancher and one of several lawmakers who attended a steak lunch with Mr. Trump in December. Sen. Joni Ernst (R., Iowa) brought a chart showing a negative impact of Mr. Trump’s anti-Nafta messages on hog futures. Last week, Senate Agriculture Committee Chairman Pat Roberts (R., Kan.) led another group to the White House to reinforce the message.
White House oﬃcials say Mr. Trump has continued to meet with “stakeholders on all sides” on the issue. One oﬃcial familiar with the strategy said that in staying relatively quiet on Nafta, the president is giving U.S. negotiators maximum leverage in the talks.
Farm-state lawmakers say that in their sessions with him, Mr. Trump has been reassuring about Nafta, which has opened Mexican and Canadian markets to duty-free exports of billions of dollars in U.S. products. . . .
But trade, and Nafta in particular, is foremost on the farm community’s mind. The U.S. in 2016 sent $16.4 billion in agricultural and food products to Mexico and $23.4 billion to Canada, according to government ﬁgures. Farmers worry that without Nafta, the two U.S. neighbors would have the right to put tariﬀs on products from the U.S. and could turn to other countries for supplies of soybeans, corn and other farm products. . . .
“While the president is increasingly listening to the dire concerns of farmers and ag state lawmakers, nobody has a sense of whether he’ll heed their warnings,” said former Democratic Sen. Max Baucus, co-chairman of Farmers for Free Trade, which seeks to preserve existing agreements that lower tariﬀs on agricultural exports. . . .
Labor unions and left-leaning consumer groups have supported the tough stance. But business and farm lobbies have continued to lobby the administration by pointing to the beneﬁts Nafta has brought over the last quarter century.
The farm-state lawmakers say they think they have made a diﬀerence.
“He said quite bluntly he had thought everyone wanted to get rid of Nafta, and that’s not right,” Ms. Ernst said in an interview. “I can’t speak to what the president intends to do going forward, but I think his perspective has changed a little bit.”
After the December meeting, Mr. Roberts said Mr. Trump reassured him about Nafta’s fate. “Before I could even say, ‘Merry Christmas, Mr. President,’ he looked at me and put his thumb up and said we’re going to be all right on Nafta,” Mr. Roberts said on C-Span last month. . . .
In his last public comments on Nafta, at a political rally in Florida, Mr. Trump left open the possibility of any outcome. “We’re gonna hopefully keep Nafta,” he said, then added: “But there’s a chance we won’t. And that’s OK.”
On January 7th the Wall Street Journal published an article by Robert Zoellick, a United States Trade Representative (“USTR”) under President George W. Bush, entitled “ Trump Courts Economic Mayhem”. One point that Zoellick made, which I agree with, is that there are not going to be any new trade agreements under this President because he wants managed trade, not free trade. Trump promised many new trade agreements with other countries, but it takes two to tango and the other countries have a choice on whether to enter in a new trade agreement with the US. As Zoellick stated:
“President Trump’s new National Security Strategy argues that the U.S. must compete in a hostile world. Yet the White House also wants to retreat behind trade barriers. The Trump administration has stacked up a pile of trade cases that will come tumbling down early in 2018. More important than any speciﬁc case is the signal of a strategy of economic defeatism.
The U.S. is ready to block steel and aluminum imports through a rarely used “national security” rationalization. As an alternative, Commerce Secretary Wilbur Ross had tried negotiating capacity cuts in Chinese production, but Mr. Trump waved him oﬀ with a demand for tariﬀs.
Because most of China’s metal exports already face U.S. tariﬀs of more than 80%, Mr. Trump’s tactic will likely trigger retaliation from other countries.
Next up are “safeguards” to block imports of solar panels and washing machines. Imposing “safeguards” doesn’t even require a claim of unfairness. On top of this, last year (through Sept. 20) the Commerce Department conducted 65 investigations of alleged low-cost or subsidized imports. That ﬁgure is a 16-year high, up 50% from the year before. . . .
No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade. That’s why Mr. Trump will use his indictment of China’s intellectual-property practices to justify more protectionism, not solve the problems. During the president’s recent trip to China, when Beijing proposed opening some of its ﬁnancial markets to U.S. companies, the Trump team dismissed this as the old way of doing business. The new way is to block Chinese exports. . . .
The U.S. is abandoning the challenge of setting new trade standards, whether for data, e- commerce or transnational services. America once attracted the world’s talent, but Mr. Trump’s hostility is driving people away. If he pulls the U.S. out of Nafta, even ﬁnancial markets might recognize that his economic isolationism poses a risk to growth.
True competitors honestly assess their weaknesses, adapt and then grow stronger. Those are the qualities that made America great. This will be the year that trade policy could deﬁne Trump’s fearful America.”
COULD JANUARY BE THE MONTH WHEN TRUMP’S TRADE POLICY CHANGES DIRECTION
But there is some indication that Trump is listening to his critics. Trump has told Lighthizer to do no harm in the NAFTA negotiations and to date has not created a trade war with China. But as indicated below in the articles on Solar Cells, Section 301 and the Section 232 Steel and Aluminum cases, President Trump will soon be at a trade crossroads and no one is sure which way he will jump.
TRUMP TAX BILL ALONG WITH CUTTING REGULATIONS HAS LED TO A US ECONOMIC BOOM
Probably the most important development from the trade point of view in the last few months, however, is the passage of the tax bill. Many Democratic politicians, economic pundits and millennials predict that the trickle-down economics of lower taxes and less regulations simply will have no beneficial effect on the US economy and the lower and middle classes. Instead, many economists and millennials advocate the Obama style redistribution, taking from the rich and giving to the poor.
Despite the fact that the Dow Jones average has gone up from 18,259 on the day Trump was elected to over 26,000, these same people strongly believe that Trump simply cannot be responsible for any uptick in the US economy. The economy is rising because of Obama’s policies, but the facts and many economists are refuting the false statements. On January 4th, Apple announced that it would pay $38 billion in taxes to the US government to repatriate $246 billion of overseas profits back to the US. As the Wall Street Journal reported:
“The tech giant said Wednesday it plans $30 billion in capital spending in the U.S. over ﬁve years that will create more than 20,000 new jobs. It didn’t specify how much of that spending was already planned, but said the total will include building a new facility that initially will house customer-service operations, and $10 billion toward data centers across the country. Apple also is expanding from $1 billion to $5 billion a fund it established last year for investing in advanced manufacturing in the U.S.
Apple said its one-time tax payment was the result of recent changes to U.S. tax law, under which companies can pay a one-time tax of 15.5% on overseas cash holdings repatriated to the U.S. The company said in November that it had earmarked $36 billion to cover deferred taxes on its $246 billion.”
Meanwhile, as reported in the Wall Street Journal on January 11, 2018, as a result of the tax bill:
“Wal-Mart Stores Inc. would raise starting pay to $11 per hour for all its U.S. employees and hand out one-time bonuses as competition for low-wage workers intensiﬁes and new tax legislation will add billions to the retailer’s proﬁts.
The giant retailer is the largest private employer in the world with 2.3 million employees, including around 1.5 million in the U.S. Its current starting salary in the U.S. is $10 an hour after workers take a training course. The new wage increase will take eﬀect in February.
This is the third U.S.-wide minimum wage increase at the company since 2015 as it works to improve its 4,700 U.S. stores while investing heavily to compete with Amazon.com Inc. online.
The company said the salary change would add $300 million to its annual expenses and it expects to take a $400 million charge in the current quarter for the one-time bonus. The amount of the bonus will vary based on length of service, reaching up to $1,000 for an individual with 20 years of service.”
As Scott S. Powell, a well-known economist of the Discovery Institute, stated on January 12th in Investors Business Daily, “The Tax Cuts and Jobs Act of 2017 Is Already Delivering”:
“If there is one thing about which most economists understand and agree it’s the law of supply and demand. A derivative of that law is that demand and velocity of transactions tend to diminish as costs increase. While few individuals disagree about this, many in the collective body of economists have become so politicized that when it comes to the cost of variables, such as taxes and regulations, that consensus all but vanishes.
Indeed, to listen to many of the pundits and experts there seems to be confusion, denial and disagreement about how the cost of regulations and taxes actually affect economic activity. . . .
Recently, Princeton economics professor and former vice chairman of the Federal Reserve Alan Blinder stated in the Wall Street Journal that there was little economic evidence “that tax benefits showered on corporations will translate mostly into higher wages and vastly faster economic growth.”
It’s not at all difficult to grasp the reasons for the markedly different economic performance of the Obama years as compared to what we have experienced in just one year of the Trump administration. Obama’s best year of his two terms delivered a 2.6% growth rate, and he was the only president in some 88 years (since Herbert Hoover) to have failed to deliver economic growth of 3% in any one year he was in office.
In contrast, in the first two full quarters of the Trump administration, the economy experienced 3.2% growth.
During his eight years, Obama oversaw an output of some 3,069 regulatory rules and nine new taxes that were part of the Obama Care health law, adding nearly $900 billion in costs to the U.S. economy, and a record 572,000 pages to the Federal Register. In contrast, in his first 11 months, Trump has eliminated some 66 significant rules while adding only three, which equates to a ratio of 22 to 1 — far exceeding the standards of his Executive Order 13771 requiring 2 old rules to be eliminated for every new one added.
The stock market closed out 2017 with a record increase for the eighth year of economic expansion, largely due to deregulation and anticipation of tax cuts.
No sooner had the ink dried on President Trump’s signature on the Tax Cuts and Jobs Act of 2017 on December 22, then more than a dozen companies, such as AT&T, Comcast NBC, Boeing, American Airlines, Southwest Airlines and Kansas City Southern, announced special $1,000 bonuses to more than 300,000 employees, and tens of billions of dollars of spending increase on plant, capacity, facilities and workforce development.
2018 has come in like a lion with the Tax Cuts and Jobs Act delivering more headline news. Now it’s reported that more than one million American workers at some 60 companies will be receiving pay raises and/or bonuses — undeniably attributable to the reduction of corporate tax rates from 35% to 21%. Wells Fargo, PNC, Bank of America, Fifth Third Bank, and BB&T, to name just a few — all cranked up minimum wages paid to $15/hour and spread the new-found wealth anticipated from tax savings in generous bonuses to more than a hundred thousand employees.
President Trump said from the beginning that lowering tax rates, simplifying the tax code, and making American companies more competitive would be the fuel that propels our economy to new heights.
It’s baffling that political bias can obviate empirical evidence and common sense. One surely doesn’t need a Ph.D. in economics to grasp how tax and regulatory costs affect behavior.
By helping companies become more competitive through lower tax rates, a simplified tax code, incentivized capital investment, and removal of regulatory barriers, President Trump and the Republican Congress have actually delivered, in the first year of working together, the essential foundation to make America great again.”
On January 17, Stephen Moore, another well-known economist, stated in Investors Business Daily in an article entitled “Trump Tax Cut Is Already Working”:
“With the recent announcement of Walmart’s increasing starting wages and Fiat Chrysler’s opening a new plant (with 2,500 jobs) in Michigan, there are now more than a hundred companies that have offered bonuses and benefit hikes to their workers due to the tax cut. An estimated 1 million workers have benefited. This after less than one month.
Liberals disparage all of this as a “publicity stunt.” To hundreds of thousands of families, this is a wonderful stunt, and let’s hope to see a lot more examples of it in the weeks and months ahead.
The stock market has reached multiple new highs since the tax bill took effect on Jan. 1. Workers are more optimistic about the job market than any time in at least a decade.
I helped work with candidate Donald Trump to refine this tax reform plan, and I was ridiculed as too optimistic on how it might help the economy. But already Trump’s economic accomplishments have managed to exceed my lofty expectations. The tax cut isn’t the only factor here, but you’d have to be wearing ideological blinders to not see a link.
We are also learning that taxes influence how politicians behave. . .
California and New York officials are investigating whether their states can convert income tax payments into tax-deductible charitable contributions to the state government. Good luck with that.
Why would they go to all this trouble if taxes didn’t matter to constituents? . . . .
that charities are subject to the old adage: If you tax something, you will get less of it.
Well, yes, every politician in America should hold that thought — especially when they contemplate higher taxes on work, profits, savings and so on. But in this case, higher growth from lower tax rates is likely to lead to more income, and thus more, not less, charitable giving — just as we saw in the 1980s when tax rates fell from 70% to 28%.
The timeless economic lesson here is that taxes profoundly influence how and where we live our lives. We tax cigarettes and booze because we want people to consume less of them. There are proposals all over the country to tax soda pop, sugar and carbon emissions so we consume or produce less of them.
So why is it so hard to accept the reality that if we lower taxes on virtuous activities — work, investment, starting a business or saving for retirement — we will get more of these? And why is anyone surprised that this is already starting to happen?
By the way, government officials in China, Mexico, India and much of Europe are angry about America slashing its corporate tax rate from 35% to 21%: That giant sucking sound is capital and jobs from all over the world coming to low-tax America.
Meanwhile, Democrats in Congress — every one of whom voted against the tax bill — keep running around the country saying that their top agenda item, if they win the midterm elections, is to repeal this policy that is already creating jobs. Wouldn’t it be wonderful if they started rooting for America rather than against it?”
But even before the tax bill, Maria Bartiromo, the well-known Fox Business consultant, was telling her friends buy US stocks. As Ms. Bartiromo stated in a December 14, 207 article entitled “Dow 24000 and the Trump Boom”:
“I’m not in the habit of giving stock tips or making market calls. I’ve never claimed to be an investment strategist. But after spending years reporting on business and ﬁnance, I was convinced on the night of Nov. 8, 2016, that the conventional market wisdom was way oﬀ target. . . .
When I sat down around 10:30 on election night for a Fox News panel discussion, Dow futures were down about 700 points. Markets like certainty; it was understandable that some investors were selling. Mr. Trump seemed to present more uncertainty than Hillary Clinton, who was essentially promising a continuation of the Obama administration. Mr. Trump’s talk about ripping up the North American Free Trade Agreement, for example, created big unknowns and potentially signiﬁcant risks.
The election night selloﬀ turned out to be a huge buying opportunity. Companies had been sitting on cash—not investing or hiring. Obama Care compliance was a nightmare for many business owners. It made them wonder what other big idea from Washington would haunt them in the future. Mrs. Clinton was likely to increase business costs further, while Mr. Trump had vowed to reduce them. Even in the middle of the election-night market panic, the implications for corporate revenue and earnings growth seemed obvious.
The next morning, with the Trump victory conﬁrmed, I told my colleague Martha MacCallum that I would be “buying the stock market with both hands.” Investors began doing the same.
U.S. markets have added $6 trillion in value since the election, with investors around the world wanting in on America’s new growth story. The Federal Reserve Bank of Atlanta is now forecasting the third straight quarter of U.S. gross domestic product growth around 3%.
It’s not just an American growth story. For the ﬁrst time in a long time the world is experiencing synchronized growth, which is why Goldman Sachs and Barclays among others have recently predicted 4% global growth in 2018. The entire world beneﬁts when its largest economy is healthy, and the vibrancy overseas is reinforcing the U.S. resurgence.
As the end of the Trump administration’s ﬁrst year approaches, it’s a good time to review the progress of the businessman elected on a promise to restore American prosperity.
Year One has been nothing short of excellent from an economic standpoint. Corporate earnings have risen and corporate behavior has changed, measured in greater capital investment.
Business people tell me that a new approach to regulation is a big factor. During President Obama’s ﬁnal year in oﬃce the Federal Register, which contains new and proposed rules and regulations, ran to 95,894 pages, according to a Competitive Enterprise Institute report. This was the highest level in its history and 19% higher than the previous year’s 80,260 pages. The American Action Forum estimates the last administration burdened the economy with 549 million hours of compliance, averaging nearly ﬁve hours of paperwork for every full-time employee.
Behind these numbers are countless business owners who have told me they set aside cash for compliance, legal fees and other costs of regulation. That money could have been used to fund projects that strengthened their businesses. President Trump has charted a new course, prioritizing the removal of red tape and rolling back regulations through executive orders. The Federal Register page count is down 32% this year. Mr. Trump says red tape becomes “beautiful” when it is eliminated, and people who manage businesses certainly agree. . . .
Much has changed this year. Companies from Broadcom to Boeing have announced they’ll move overseas jobs back to the U.S. American companies hold nearly $3 trillion overseas and may soon be able to bring that money home without punitive taxation. Businesses have begun to open up the purse strings, which is why things like commercial airline activity are rising substantially as executives seek new opportunities. Companies are looking to invest in growth. . . .
After reaching Dow 24000, where can markets and the economy go from here? I’m not going to make predictions, but it stands to reason that the economy is better oﬀ when federal policy doesn’t discourage people who have a demonstrated ability to work, earn, spend and invest.”
On January 7, 2018, Charles Gasparino, another business reporter for Fox News, stated in the New York Post, “On the economy, Trump Has Been Crazy Like a Fox”:
“With the Dow crossing 25,000, it’s worth pointing out the pitfalls that could reverse some of those gains — and how to avoid them.
One thing we don’t have to worry about is the economic sanity of President Trump.
In fact, it’s safe to say that the current president, for all his temperamental flaws and petty insecurities, makes his tightly wound predecessor, Barack Obama, look like a raving madman when it comes to showing sense on economic growth. Armchair psychiatrists are having a field day diagnosing the president’s mental state from afar, especially after his increasingly bizarre tweeting, but the market says otherwise.
Consider: The United States had one of the highest corporate tax rates in the world — so high that companies (and jobs) were fleeing to places like Ireland. That’s why it was perfectly sane to lower the corporate tax rate from 35 percent to 21 percent as Trump just did, and presto: Corporations are announcing plans to hire more workers, and the economy, which was expected to slow after seven years of weak growth, is heating up. The markets are predicting that growth with their surge.
Likewise, regulations have been strangling businesses for years while making it difficult for banks to lend to consumers and small business. Trump went out and hired perfectly sane regulators who basically pulled the federal government’s boot off the neck of the business community.
It was described to me as a de facto tax cut by one business owner that gives him leeway to hire more people. A major win for the working class.
And since so many of my fellow journalists are at it, let me do a little psychoanalysis of what an economically insane person might do as president.
An insane president would threaten a significant tax increase immediately upon taking office following a financial crisis, and then eventually impose one on individuals and small businesses still in recovery.
He’d impose job-crushing regulations on these same businesses as unemployment rose. He’d put a cumbersome mandate on businesses that upends the entire health care system just as the economy was finally turning a corner.
A really insane president would blow nearly $1 trillion on a stimulus plan with little planning and direction, wasting much of the money on boondoggles (see: Solyndra) and then laugh at the lack of “shovel ready” jobs created. He’d then try to spread his delusion to the masses, telling them to ignore historically low wage growth, anemic economic growth and the massive amount of people who dropped out of the work force because the stock market rallied, thanks in large part to the Fed printing money instead of his own fiscal policies.
Is Barack Obama crazy? No, but his post-2008 economic policies were. Are all Trump’s tweets sane? No, but smart investors with lots of skin in the game think his policies are perfectly rational, and that’s why the markets are soaring along with the prospect of economic growth.
Can Trump just sit back and act like a clown for the rest of his presidency as the economy and markets lift all boats? No again. Relying on the markets or the economy to disguise abhorrent presidential behavior is a fool’s game. Corrections always occur, and will occur if corporate earnings don’t match the investor enthusiasm built into Dow’s recent rise.
An unexpected burst of inflation that would force the Fed to raise interest rates could hurt both stocks and GDP. Trump might indulge his inner populist and engage in a trade war with China, or repeal NAFTA, both of which would undoubtedly hurt economic growth and stocks.
For all the good things about the business side of the tax reform bill, other parts are more complicated: Small businesses got a sliver of the tax breaks given to corporations; same goes for working-class people who don’t pay much in federal income taxes in the first place. But people who do pay a lot may get crushed when tax season rolls around. Individuals in high-tax states (like New York) could get hammered because the plan barely lowers the top rate and plugs so many deductions.
To pay for their higher taxes, these people could curb their personal spending, meaning less economic growth and possibly lower stock prices.
But none of these hiccups suggest a madman is at the helm of the US economy, which is something to consider the next time you hear Donald Trump is crazy.”
After sending out my newsletter, Harry C. Moser, President of the Reshoring Initiative contacted me and stated:
“Nice piece. I attach our data showing that reshoring and FDI job announcements in 2017 were up over 200% from 2016 to about 240,000, confirming your thesis. “
See his attached powerpoint. Reshoring & FDI trends 4 slides
WILL 2018 BE THE YEAR OF THE US CHINA TRADE WAR?
As indicated above, the real concern is whether this January and 2018 will be the year a trade war start with China followed by a NAFTA crackup.
In November 2017 I was in Beijing during the Trump visit. Xi Jinping and Chinese government officials know how important Trump is to their own economy and they gave Trump a “state visit plus”. Chinese television stated that no US President was given such a welcome since President Nixon. To see pictures and a video of Trump’s visit to China from Chinese television, which was broadcast all over China, see https://www.dropbox.com/sh/sx2x6qpy7cf77a1/AAAFty0_SwObgVvT-tXbVknVa?dl=0.
During and after the China visit, the US press stated that President Xi played Trump, but the Chinese media at the same time was saying that Trump played President Xi.
But pundits are predicting that 2018 is the year of the US China trade war. I suspect that although President Trump will issue tariffs in the Section 201 Solar Products and Washing Machines cases, there will be no real trade war so long as the Chinese government opens up its own economy to foreign investment and imports. Lighthizer is favoring changing Investment guidelines under CFIUS to ban all Chinese investment in areas where China bans US investment. Essentially reciprocity.
Opening up Chinese barriers to US trade and investment is a strategy every Administration has followed with China be it Bill Clinton, George W. Bush or Barak Obama. Trump, Wilbur Ross and USTR Lighthizer will keep up extreme pressure on China to open its markets to US exports and investment. If China refuses, there could well be a trade war. But such a trade war would be for the right reason.
But if Trump puts up protectionist high tariffs on Solar Cells, Washing Machines, steel, aluminum products, and China imports, that will be when the damage to the economy will happen.
SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS
In the attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, Presidential Memorandum for the United States Trade Representative whitehouseg, 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 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.
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.”
On January 18th, it was reported that President Trump was considering a big “fine” as punishment for China’s alleged theft of intellectual property. In an interview, Trump stated,
“We have a very big intellectual property potential fine going, which is going to come out soon.”
Although Trump did not define what he means by “fine,” Section 301 allows the US to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies.
Trump further stated:
“We’re talking about big damages. We’re talking about numbers that you haven’t even thought about.”
Trump said he will be discussing this action in his State of the Union address on January 30th. Trump also recently stated that he hopes there will not be a trade war with China. “I don’t think so, I hope not. But if there is, there is.”
NAFTA PROBABLY WILL NOT BE TERMINATED. IF IT IS, REPUBLICANS, INCLUDING TRUMP, CAN KISS THE ELECTIONS GOODBYE
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 January 28th, there will be a major NAFTA negotiation round in Montreal.
But because of the warnings of the impact of a termination on the US economy and his own constituents, President Trump probably will not terminate NAFTA. Negotiations will be slow, but the three countries eventually will come to a deal. On January 17, 2018, Politico reported that Senator Chuck Grassley of Iowa, who if very concerned about the impact of a withdrawal from NAFTA on agriculture, is now feeling more optimistic:
“Sen. Chuck Grassley said he took “some comfort” in Trump’s recent remarks at the American Farm Bureau Federation’s convention in which the president refrained from directly threatening to withdraw from NAFTA. . . .
Grassley also warned that if negotiations aren’t completed by a self-imposed March deadline and that deadline is not extended, “then there is no hope of agreement” because of the upcoming Mexican presidential election and the 2018 midterm elections in the U.S. Upon hearing that Trump said he would be “a little bit flexible” with regards to a NAFTA decision based on Mexico’s July election, Grassley said that “ought to give some comfort to the people that he is fairly reasonable on a timetable.”
On January 17th in an article in the Wall Street Journal entitled “Killing Nafta Would Ruin American Farmers”, Karl Rove, a well-known Republican strategist, predicted that if President Trump withdraws from NAFTA, that would hurt farmers and they would not vote Republican in the midterms or for Trump at reelection time:
“In a Wall Street Journal interview last week, President Trump said if he were to “terminate” the North American Free Trade Agreement, it “would be frankly a positive for our country.”
This bluster could be a negotiating ploy before the next trilateral Nafta talks, set for Jan. 28 in Montreal. If not, Mr. Trump should stop threatening. Withdrawing from Nafta would immediately kill American jobs, while handing Democrats the midterm elections on a silver platter. . . .
Nafta is especially important to American farmers and ranchers. U.S. agricultural exports to Mexico and Canada were $8.9 billion in 1993, before the agreement kicked in. Today, they are $39 billion, accounting for 30% of America’s farm exports.
These exports are critical in many states with key elections this year. In North Dakota, which Mr. Trump won by 36 points, Republicans want to ﬂip the Senate seat held by Democrat Heidi Heitkamp. But the state’s commerce commissioner, Jay Schuler, says North Dakota exports 84% of its crops—worth $3.5 billion—to Mexico and Canada. Withdrawing from Nafta would subject those products to high foreign tariﬀs in force before the deal took eﬀect, leaving farm families very unhappy.
Republicans also hope to ﬂip Senate seats in Missouri and Indiana, both of which Mr. Trump carried by 19 points. The GOP is ﬁghting to keep governorships in Iowa and Kansas, which the president won by 9 points and 21 points, respectively.
These campaigns will be much more diﬃcult if farm economies are ruined by Nafta termination. Missouri is a major producer of corn, soybeans, beef and turkey; Indiana of corn and soybeans; Iowa of corn, soybeans and pork; and Kansas of wheat, corn and beef. Much of this is exported to Mexico. If the U.S. pulled out of Nafta, Mexican tariﬀs would snap back to 75% on American chickens, high-fructose corn syrup and potatoes, 45% on turkey, and 25% on beef. . . .
Then there are the car-making states. In the almost quarter-century since Nafta went into eﬀect, the U.S. auto industry has built a hemispheric supply chain to help it compete with European and Asian auto makers.
Indiana, Michigan, Ohio and Tennessee each have important Senate races, and all but Indiana have governor’s contests, too. In each of those states, at least 9% of the workforce is tied to autos, and in Michigan the ﬁgure is 20%. Their exports of cars and auto parts range from $5.9 billion in Tennessee to $26 billion in Michigan.
If Mr. Trump made good on his Nafta threat, he would disrupt the auto industry’s supply chain, making American-made cars more expensive at home and less competitive abroad. Does he really want to blow up these states’ economies—along with those of roughly a dozen other states with auto production (including Missouri, Pennsylvania and West Virginia)?
I haven’t even gotten to the crucial elections in border states like Texas and Arizona, which are important way stations for trade with Mexico and whose economies would face major diﬃculties if Nafta disappears.
In discussing Nafta, Mr. Trump keeps getting his numbers wrong. Last week he declared that the U.S. has a $71 billion trade deﬁcit with Mexico and “we lose $17 billion with Canada.” Actually, after counting sales of goods and services, the trade deﬁcit with Mexico in 2016 was just $55.6 billion. With Canada, the U.S. ran a $12.5 billion surplus.
Does Mr. Trump ignore the U.S. advantage in services—everything from insurance to banking to logistics—because it undermines his anti-Nafta case? Or, despite coming from the service industry himself, does he think service jobs are less worthy than manufacturing ones? Try defending that proposition to employees at Travelers (a big insurance player in Canada) or FedEx and UPS (which provide logistics and shipping there) or Wal-Mart (Mexico’s largest retailer) or MetLife (which insures 78% of Mexican government employees) or Citibank (which owns Mexico’s second-biggest bank).
Any trade agreement that is two decades old needs updating. Nafta is no exception, especially given the growth of e-commerce and the digital economy. But bad policy is bad politics. Killing Nafta would damage Republicans in agricultural, auto and border states and help elect more Democrats in 2018, strengthening the party’s impeachment eﬀorts. Mr. President, it isn’t worth it.”
THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—NO TRADE DEALS TO DATE OR ON THE HORIZON—MAYBE TIME TO RENEGOTIATE THE TPP??
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 may kill the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada. Even though NAFTA may ultimately be renegotiated, the real problem is that with Trump’s policy of weaponizing trade agreements, no other country will enter into a trade agreement with the US. As Robert Zoellick, the former USTR under Bush, states above:
“No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade. That’s why Mr. Trump will use his indictment of China’s intellectual-property practices to justify more protectionism, not solve the problems.”
As stated above, that is a huge problem for US farmers because almost 50% of farm products produced in the US are exported.
During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believed the US did not get enough and many Senators and Congressmen wanted a a better deal.
On January 21, Tokyo will be hosting TPP talks for the other 11 countries that have decided to go forward with the TPP. Maybe President Trump should consider a renegotiation of the TPP. If the other 11 countries refuse to renegotiate the deal with the US, nothing lost, but the other 11 countries might be very interested if the US indicated possibly joining the TPP but under very strict conditions. The appeal of the US market is huge to the other countries and that would give President Trump and USTR Lighthizer the chance to show off their negotiating skills. Moreover, that would be one way for the US and Trump’s constituents, especially in the Agriculture area, to get a trade agreement they can benefit from with a number of other countries. Nothing ventured, nothing gained
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 then proposed a remedy to the President.
The Commission issued its report to the President on November 13, 2017. The United States Trade Representative (“USTR”) has held remedy hearings. and President Trump must issue his remedy determination on January 26th. Many Solar Cells users along with newspaper editorials have urged the President to do nothing because of the bad impact on downstream solar companies, but many commentators expect the President to issue tariffs against solar cell imports.
President Trump also faces a February 4th deadline to impose trade relief in response to the ITC 201 Affirmative decision on Washing Machines.
SECTION 232 STEEL AND ALUMINUM CASES PICK UP—SECTION 232 STEEL REPORT GOES TO THE PRESIDENT
As mentioned in the last newsletter, the Section 232 Steel and Aluminum cases appeared to stall, but the cases picked up steam again. On January 11, 2018, the Commerce Department sent the final Section 232 Steel Report to the President. On that day Commerce announced:
“Today Secretary of Commerce Wilbur Ross formally submitted to President Donald J. Trump the results of the Department’s investigation into the effect of steel mill product imports on U.S. national security. After this submission, by law, the President has 90 days to decide on any potential action based on the findings of the investigation.”
Commerce will release a public report after the President makes his decision in 90 days.
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.
NEW SECTION 232 CASE AGAINST URANIUM IMPORTS
On January 16th, Ur-Energy USA Inc. and Energy Fuels Resources Inc. filed a section 232 petition at Commerce claiming that imports of uranium from state-owned and state-subsidized companies in Russia, Kazakhstan and Uzbekistan now fulfill 40 percent of U.S. demand, compared to the less than 5 percent satisfied by U.S. production. The Denver-based companies claim that imports from China will grow in the coming years. The companies also argue the volume of imports from Russia will only grow after a decades-old agreement that restricted imports from that country in exchange for suspending anti-dumping duties expires in 2020. The Petition states:
“The U.S. uranium industry needs immediate relief from imports that have grown dramatically and captured almost 80% of annual U.S. uranium demand. Our country cannot afford to depend on foreign sources — particularly Russia, and those in its sphere of influence, and China — for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America’s nuclear Navy, and supplies 20% of the nation’s electricity.”
NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.
Recently, a number of reporters have contacted me about the Civil Aircraft from Canada, Bombardier-Boeing, case because the US International Trade Commission (“ITC”) will vote on the injury case on January 26th. I have told the reporters that there is a 95% chance that the ITC goes affirmative and that Antidumping and Countervailing Duty orders are issued.
As stated in prior newsletters, I have no sympathy for Bombardier because the Quebec Government directly invested $1 billion into Bombardier’s production process, which resulted in a very high CVD rate. The entire purpose of the US CVD law and CVD laws along with WTO Subsidy Agreement and the WTO Civil Aircraft Agreement is that private companies should not have to compete in commercial markets against the Government and that is just what has happened at Bombardier.
Also Bombardier refused to participate and cooperate in the Commerce Department’s antidumping case, which was a fatal error, resulting in a very high Antidumping Rate based on All Facts Available. 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 would take the same position.
WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA
In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, 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.
On January 16th, the Australian Government jumped into the case, challenging the Canadian government’s handling of wine sales, accusing Ottawa of practices that appear to discriminate against imported wine. Australia says that the Canadian government and four provinces – British Columbia, Ontario, Quebec and Nova Scotia – use taxes, duties and a range of distribution, licensing and sales measures that unfairly affect imported wine. It argues that such practices are in violation of the 1994 General Agreement on Tariffs and Trade. Australian Trade Minister Steven Ciobo stated:
“While it would have been preferable to resolve this issue bilaterally, it is appropriate to commence dispute proceedings given the lack of progress.”
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 into the Trump argument that NAFTA is not a true free trade agreement.
TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS
As stated in numerous past newsletters, 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.
In addition, 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, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers for the TAA for Firms/Companies program.
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 RECENT TRADE CASES
ANTIDUMPING AND COUNTERVAILING DUTY CASES
ALUMINUM SHEET-FIRST SELF-INITIATED COMMERCE CASE IN MANY YEARS
On November 28, 2017, the Department of Commerce (Commerce) announced the self-initiation of antidumping duty (AD) and countervailing duty (CVD) investigations of imports of common alloy aluminum sheet from the People’s Republic of China (China). This is the first time Commerce has self-initiated an antidumping and countervailing duty case in probably over 10 years.
SODIUM GLUCONATE, GLUCONIC ACID, AND DERIVIATIVE PRODUCTS
On November 30, 2017, PMP Fermentation Products, Inc. filed AD and CVD cases against imports of Sodium Gluconate, Gluconic Acid, and Derivative Products from China and France.
PLASTIC DECORATIVE RIBBON
On December 27, 2017, Berwick Offray, LLC filed AD and CVD cases against imports of Plastic Decorative Ribbon from China.
LARGE DIAMETER WELDED PIPE
On January 17, 2018, American Line Pipe Producers Association filed AD and CVD cases against imports of Large Diameter Welded Pipe from China, Canada, Greece, India, Korea and Turkey.
UNIVERSAL TRADE WAR CONTINUES
FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES
CHINESE ANTIDUMPING CASES AGAINST US
BUTAN-1 FROM US, TAIWAN AND MALAYSIA
On December 29, 2017, China’s Ministry of Commerce initiated an antidumping investigation against Imports of Butan-1-ol from US, Taiwan and Malaysia. The four US companies targeted by the case are:
1) Eastman Chemical Company
2) The Dow Chemical Company
3) BASF Corporation
4) OXEA Corporation
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.2018.01 Team’s newsletter-EN Vol.2018.02 Team’s newsletter-EN Vol.2018.03.
SECTION 337 AND IP CASES
NO NEW RECENT 337 CASES AGAINST CHINA
If anyone has any questions about these cases or about the Trump Trade Crisis, Taxes and Trade, 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.