TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
TRADE IS A TWO WAY STREET
US CHINA TRADE WAR STEEL/ALUMINUM TARIFFS EXCLUSION NOTICE UPDATE MARCH 18, 2018
Dear Friends,
On March 8th, Trump issued his tariffs of 25% on imported steel and 10% on imported aluminum in the Section 232 National Cases.
Attached are two documents of interest.
Commerce just issued the atttached EXCLUSION FED REG STEEL AND ALUMINUM exclusion Federal Register notice for the Steel and Aluminum Section 232 Cases.
Two important points about exclusion requests. First, there is no time limit. Exclusion requests can be filed at any time, but they must be on specific forms.
Second, foreign producers and US importers need not apply. The only entities that can request an exclusion are the actual US companies using the steel or aluminum in their production process.
The second document is the attached extensive two part retaliation list issued by the EC in response to the Steel and Aluminum tariffs. TWO EU RETALIATION LISTS The document speaks for itself and is very extensive covering numerous different US products exported to the EC.
According to the EU, Part A of the list includes products worth €2.8 billion, which the EU can target with tariffs of 25 percent at any moment after notifying the list to the WTO.
Part B lists those products which would be targeted only after three years. This is because WTO rules allow immediate retaliation only on that amount of trade for which EU steel exports to the U.S. have not increased over the past years.
If anyone has any questions about these documents, please feel free to contact me.
Best regards,
Bill Perry
US CHINA TRADE WAR STEEL AND ALUMINUM TARIFFS UPDATE MARCH 9, 2018
Dear Friends,
On March 8th, Trump issued his tariffs of 25% on imported steel and 10% on imported aluminum.
As explained below, there are some exceptions, but now let the retaliation trade games begin.
The chickens have come home to roost. For too many years, the average American has not been educated on the benefits of trade. With $2.3 trillion in US exports in 2017, the United States has a lot to lose in this trade war.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address [email protected]
Best regards,
Bill Perry
TRUMP’S STEEL AND ALUMINUM TARIFFS
On March 3, 2018, President Trump formally announced the imposition under Section 232, National Security law, of tariffs of 25% against Steel imports and 10% on Aluminum imports. See the attached proclamations, Presidential Proclamation on Adjusting Imports of Aluminum into Presidential Proclamation on Adjusting Imports of Steel into th.
The tariffs will take effect March 23rd “with respect to goods entered, or withdrawn from warehouse for consumption and shall continue in effect, unless such actions are expressly reduced, modified, or terminated.”
The terms “entered, or withdrawn from warehouse for consumption” are Customs terms, which means if steel products have not been entered/imported or withdrawn from a Customs bonded warehouse by 12:01AM on March 23rd, the tariffs will apply to those goods.
A Customs bonded warehouse is where products are stored before entry/importation of the products, in this case, steel and aluminum products, into the United States. So long as the Steel and Aluminum has been entered/imported into the US before March 23rd, it will be ok, but afterwards the products will be hit by a tariff.
The actual steel products covered by the tariff are:
- For the purposes of this proclamation, “steel articles” are defined at the Harmonized Tariff Schedule (HTS) 6-digit level as: 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS
This probably means that all steel products will be covered, but (2) provides:
“In order to establish increases in the duty rate on imports of steel articles, subchapter III of chapter 99 of the HTSUS is modified as provided in the Annex to this proclamation. Except as otherwise provided in this proclamation, or in notices published pursuant to clause 3 of this proclamation, all steel articles imports specified in the Annex shall be subject to an additional 25 percent ad valorem rate of duty with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on March 23, 2018.
Emphasis added.
If this Steel case follows the recent Solar Cells 201 Proclamation process, we will not see the Annex until the Presidential Proclamation is published in the Federal Register in a few days.
But there are doorways for countries and companies to get their products out. For countries that have a “security relationship” with the United States, not Russia or China, they can negotiate a deal with the US. As the Proclamation specifically states in paragraph 9:
Any country with which we have a security relationship is welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports from that country. Should the United States and any such country arrive at a satisfactory alternative means to address the threat to the national security such that I determine that imports from that country no longer threaten to impair the national security, I may remove or modify the restriction on steel articles imports from that country and, if necessary, make any corresponding adjustments to the tariff as it applies to other countries as our national security interests require.
Also within 10 days of the Proclamation, Commerce is to come up with an exclusion process to get products out of the tariffs, if the products are not produced in the US and if the exclusion request is made by a US company affected by the Tariff. Foreign companies need not apply, only their US importers and more importantly the US steel using customers can apply. The Proclamation specifically states in subparagraphs 3 and 4:
“…..The Secretary . . . is hereby authorized to provide relief from the additional duties set forth in clause 2 of this proclamation for any steel article determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality and is also authorized to provide such relief based upon specific national security considerations. Such relief shall be provided for a steel article only after a request for exclusion is made by a directly affected party located in the United States. , , ,
Within 10 days after the date of this proclamation, the Secretary shall issue procedures for the requests for exclusion described in clause 3 of this proclamation. . . .”
We probably will not know more about the exclusion process until Commerce publishes a notice in the Federal Register.
THE TRADE CHICKENS COME HOME TO ROOST
Although there is an out for negotiations, we can expect other countries, including China and the EC, to retaliate against the steel and aluminum tariffs issued by the US.
But the real lesson of these tariffs is the failure over many past Presidencies to educate the average American about the benefits of trade. President Trump pushed on by Breitbart refers to free traders as globalists. Apparently, any person who believes in free trade does so because he supports the interests of the World and not the United States.
But free traders are not globalists. They strongly believe in free trade because that is in the interest of the United States and the average American. Free trade has caused the US economy to grow multiple times creating millions of jobs for Americans.
The average American simply does not realize that the US exported in 2017 $2.3 trillion in goods and services, $1.5 trillion in goods. Half of all agricultural products are exported and one third of Iowa corn is exported to Mexico.
Pundits who favor the tariffs point to the rust belt states of Michigan, Ohio, Pennsylvania and Wisconsin that voted for Trump, but ignore the agricultural states of Kansas, Iowa, Wyoming, North Dakota, South Dakota, Montana and many other states that voted for Trump. These pundits ignore the farmers.
But of that $1.5 trillion in goods, only $132 billion was agricultural products, exports of industrial supplies and materials at $462 billion and exports of capital goods except automotive at $532 billion were much more important. Exports of Automotive vehicles and parts at $157 billion, consumer goods at $197 billion and export of other goods at $62 billion were also very important.
See the article on my blog, www.uschinatradewar.com, “Trump and Many Americans Simply Do Not Realize How Much the US Exports” and the Commerce Department report on 2017 Imports and Exports attached to that article.
$2.3 trillion in US exports are a lot of jobs and if these tariffs are the first step to a global trade war, many Americans are going to be very badly hurt by Trump’s trade war.
MARCH 3, 2018 UPDATE
Dear Friends,
Trump has his trade war, but it is not just against China. This trade war is the United States against the World. On March 2nd President Trump announced tariffs of 25% on steel imports and 10% on aluminum imports under Section 232 National Security law. Section 232, however, is not a trade exception, such as 201 or antidumping and countervailing duty cases, approved by the World Trade Organization (“WTO”) so that gives the other countries the right to retaliate and they will retaliate.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address [email protected]
Best regards,
Bill Perry
TRUMP’S TRADE WAR AGAINST THE WORLD
On March 1, 2018, President Trump announced that next week he will impose under Section 232, National Security law, tariffs of 25% against Steel imports and 10% on Aluminum imports.
Many countries around the World, including the EU, Canada, Mexico, China and other countries, immediately threatened trade retaliation against US exports. Europe is talking about tariffs on US imports of Harley Davidson Motorcycles, Jack Daniels Bourbon and blue jeans. China is talking tariffs on US agricultural exports, such a Sorghum Grain and Soybeans.
To see the advice the President is getting one has to look no further than the statements by USTR Robert Lighthizer on February 27th, on the Laura Ingraham show on Fox News stating that it was ridiculous to think that we were going to get into a trade war with China and other countries over the 232 cases. But the reaction of numerous countries to Trump’s announcement of tariffs on Steel and Aluminum imports shows that Lighthizer’s statement was ridiculous. Lighthizer is Trump’s principle advisor on trade laws and trade agreements, but this statement shows how Lighthizer truly misjudged the situation.
The major problem is that Lighthizer and Trump are focused on the trade deficits rather than the enormous size of US exports at $2.4 trillion. With $2.4 trillion in exports, there is a lot of targets for retaliation.
Secretary Wilbur Ross states that steel tariffs are about jobs and security and simply leveling the playing field. See https://www.bloomberg.com/news/videos/2018-03-02/wilbur-ross-says-steel-tariffs-are-about-jobs-and-security-video.
On March 2, 2018, Trump tweeted, “trade wars are good, and easy to win.” But in wars be they trade wars or real wars, no one really wins everybody loses.
Both the Wall Street Journal and Investors Business Daily both disagree with the Trump trade war. On March 2, 2018, the Wall Street Journal stated in an editorial entitled “Trump’s Tariff Folly, His tax on aluminum and steel will hurt the economy and his voters”, stated:
Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms. The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.
Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8. American factories are humming, and consumer and business confidence are soaring.
Apparently, Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more. “We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,” Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.
No, they won’t. The immediate impact will be to make the U.S. an island of high-priced steel and aluminum. The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.
Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.
Instead of importing steel to make goods in America, many companies will simply import the finished product made from cheaper steel or aluminum abroad. Mr. Trump fancies himself the savior of the U.S. auto industry, but he might note that Ford Motor shares fell 3% Thursday and GM’s fell 4%. U.S. Steel gained 5.8%. Mr. Trump has handed a giant gift to foreign car makers, which will now have a cost advantage over Detroit. How do you think that will play in Michigan in 2020?
The National Retail Federation called the tariffs a “tax on American families,” who will pay higher prices for canned goods and even beer in aluminum cans. Another name for this is the Trump voter tax.
The economic damage will quickly compound because other countries can and will retaliate against U.S. exports. Not steel, but against farm goods, Harley-Davidson motorcycles, Cummins engines, John Deere tractors, and much more.
Foreign countries are canny enough to know how to impose maximum political pain on Republican Senators and Congressmen in an election year by targeting exports from their states and districts. Has anyone at the White House political shop thought this through?
Then there’s the diplomatic damage, made worse by Mr. Trump’s use of Section 232 to claim a threat to national security. In the process Mr. Trump is declaring a unilateral exception to U.S. trade agreements that other countries won’t forget and will surely emulate.
The national security threat from foreign steel is preposterous because China supplies only 2.2% of U.S. imports and Russia 8.7%. But the tariffs will whack that menace to world peace known as Canada, which supplies 16%. South Korea, which Mr. Trump needs for his strategy against North Korea, supplies 10%, Brazil 13% and Mexico 9%.
Oh, and Canada buys more American steel than any other country, accounting for 50% of U.S. steel exports. Mr. Trump is punishing our most important trading partner in the middle of a Nafta renegotiation that he claims will result in a much better deal. Instead he is taking a machete to America’s trade credibility. Why should Canada believe a word he says?
***
Mr. Trump announced his intentions Thursday, so there’s still time to reconsider. GOP Senators Orrin Hatch (Utah) and Ben Sasse (Nebraska) spoke up loudly against the tariffs, but a larger business and labor chorus is required. Mr. Trump is a bona fide protectionist so he won’t be dissuaded by arguments about comparative advantage. But perhaps he will heed the message from the falling stock market, and from the harm he will do to the economy, his voters, and his Presidency.
The Investors Business Daily followed suit stating in a March 2, 2018 editorial entitled “Sorry, Mr. President: Your Trade Protectionism Will Cost The U.S. Dearly”:
Trade: Protectionism is a political feel-good policy that does nothing for the economy. It’s a big cost with very few tangible benefits. That’s why President Trump has made a big mistake in imposing big tariffs on steel and aluminum.
We understand, of course, that President Trump feels beholden to his constituencies in the U.S. who have been hurt by foreign competition, particularly in basic industries like steel and aluminum. But the 25% tariff on steel and 10% tariff on aluminum that Trump seeks to impose will lead to higher prices for all, the loss of thousands of jobs and a political-crony windfall for a handful of big companies. . . .
We have no doubt that what Trump says is true. But if so, it should be remedied through trade talks, not a trade war.
And make no mistake: The broad nature of Trump’s tariffs, hitting all exporters to the U.S., will invite some kind of retaliation from those who’ve been hit.
Already, EU Commission President Jean-Claude Juncker is threatening to respond in kind: “We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk,” he said. “The European Union will react firmly and commensurately to defend our interests.” . . .
Beijing is already looking at imposing trade penalties on U.S. sales of sorghum there, and may soon also target our sales of soy, too. Meanwhile, India, emboldened by the U.S. turn toward protectionism, might use Trump’s moves as a reason to protect its own wheat and rice sectors from U.S. imports.
So the steel and aluminum industry’s gains will be the loss of others.
Trump’s justification for tariffs is “national security.” But, as some have pointed out, the U.S. military uses only about 3% of domestic steel output, and much of our imported steel comes from allies like Canada. So the “threat” really isn’t much of one.
Of greater concern is what the higher prices for steel and aluminum — remember, a tariff is actually a tax — will do to our domestic economy.
As the R Street Institute think tank reminds us, “According to 2015 U.S. Census data, steel mills employ about 140,000 Americans, while steel-consuming industries, including automakers and other manufacturers who rely on imported steel, employ more than 5 million. It is estimated that nearly 200,000 jobs and $4 billion in wages were lost during the 18 months during 2002 and 2003 that President George W. Bush imposed tariffs on imported steel …” . . .
In short, trade protection, especially tariffs, is a very bad deal for consumers and workers. But it’s very profitable for politically connected corporations. That’s why the financial markets melted down on Thursday. Will this event mark the end of the Trump bull market? It’s too soon to tell, but it bears watching. While most stocks fell on Thursday, steel and aluminum shares had a great day. Good for them, bad for the rest of us.
Maybe so, but what’s truly tragic is that Trump’s penchant for trade protection will in part offset the benefits to the economy from other free-market policies he has put in place, including tax cuts, deregulation, withdrawal from the Paris Accords on climate change and badly needed changes to ObamaCare.
We understand why he walked away from the Trans-Pacific Partnership trade deal and reopened NAFTA. He thought they were flawed, and they were.
But protectionism is a bad road to travel. Let’s hope this move by President Trump is merely a negotiating ploy, and not a long-term policy. If it’s the latter, buckle up — we’re in for a bumpy ride.
CNN has called Trump ignorant on trade, but the only one more protectionist than Donald Trump is the Democrats, who were all applauding Trump’s decision to impose tariffs. In truth Trump’s ignorance reflects the ignorance of many Americans, who simply believe that the US does not export much and all imports are unfairly traded because they are all dumped.
For years, however, the Commerce Department has created dumping rates by using a policy called zeroing, which allowed Commerce to create dumping rates when there simply were none. Also with regards to China, Commerce creates dumping rates because it refuses to use actual prices or costs in China, instead using surrogate values from import statistics in 5 to 10 different countries to construct a cost.
Commerce, in effect, is a hanging judge. That would not matter but when that faulty premise is used to justify a trade war than the US truly does have problems.
Americans also are ignorant because they simply do not understand that in 2017 the US exported $2.4 trillion in goods and services, $1.6 trillion in goods. See the Commerce Department report below in my post on US exports.
That reality means that foreign countries have many, many retaliation targets against US exports. This trade war will not be pretty and many Americans and American companies will be hurt. No one wins a trade war. Trade wars are a lose lose situation.
US CHINA TRADE WAR FEBRUARY 24, 2018
Dear Friends,
In my last blog post, I asked whether President Trump’s economic juggernaut could be stopped by a trade war. At the start of the Trump Administration, economic growth was a meager about 2% and there was a true unemployment crisis. But one way to cure the economy and the trade problem is by making US companies more competitive and that is just what Trump and the Republicans have done with their tax bill and cutting regulations. Economic growth is approaching 3% or higher. Unemployment, including Black and Hispanic unemployment, is the lowest in decades.
In January, however President Trump had not yet started a trade war yet. What a difference one month can make. In January President Trump imposed large tariffs on imports of solar cells and washing machines, wants to impose tariffs on imports of steel and aluminum pursuant to Commerce’s recommendations in section 232 National Security cases and wants to hammer China with more tariffs for intellectual property violations. It appears that President Trump wants to solve all his disputes with foreign countries by raising tariffs.
But as indicated below, Trump’s desire for more tariffs simply reflects the feeling of many Americans that tariffs should go up to protect various US industries because Trump and many Americans simply do not understand how much the US exports. The average American has been led to believe that imports are bad, exports are good and US exports very little. That is the reason for the trade deficits and, therefore, all imports must be unfairly traded. Trump’s and the average American’s belief is very dangerous thinking because it ignores the reality that the US in 2017 exported over $2 trillion in goods and services. People in glass houses should not throw tariff stones and the United States has a very big glass house. Belittling US exports is truly playing with trade war fire.
Trump and many average Americans do not understand what goes around comes around. Trump, in fact, is inviting trade retaliation and igniting a trade firestorm. In response to the self-initiation of the Aluminum Sheet case, the Chinese government has upped the game and responded with its own trade case against $1.25 billion of US agricultural exports of Sorghum Grain to China. There are strong indications that the Chinese government is looking at antidumping and countervailing duty cases against $13.9 billion in US exports of soybeans to China, which will equal to 10% of US agricultural exports in total.
Pursuant to WTO trade rules, the EC, Japan, Korea and China are all asking for trade compensation for the Solar and Washing Machine tariffs imposed on their imports, and these same countries are sure to retaliate if Trump issues high tariffs on imports of steel and aluminum from these same countries.
Meanwhile, the Wall Street Journal is reporting that the US agricultural industry is hurting and one of the reasons is trade disputes and now trade retaliation. President Trump and many Americans should be careful what they wish for, because they may get it.
But there are rays of sunlight in the US economy, President Trump and Vice President Pence have made noises about possibly rejoining the Trans Pacific Partnership (“TPP”). More importantly, the Trump tax cuts and cut in regulations has made US producers much more competitive and created a manufacturing renaissance. A trade war, however, could kill the economic golden goose.
Exclusions are a big issue in the Section 201 Solar case and in a stunner the ITC voted against Boeing in the Bombardier Civil Aircraft case. More trade cases are being filed against imports.
But there is a remedy to trade problems that is not protectionist and does not invite retaliation. That is making US companies more competitive. As stated below, Trade Adjustment Assistance for Companies, a program personally approved by President Reagan, works and is able to save companies injured by imports. Since 1984, the Northwest Trade Adjustment Assistance Center, which I am involved in, has been able to save 80% of the companies that got into the program. If you save the companies, you save the jobs that go with those companies.
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
PRESIDENT TRUMP’S ADMINISTRATION APPEARS TO BE PREPARING FOR A TRADE WAR AND THE CHINESE GOVERNMENT HAS ALREADY CREATED A RETALIATION LIST WITH AGRICULTURE BEING THE NUMBER ONE TARGET
As stated above, up to now, President Trump has not started a trade war, but that appears to be changing. As stated below, on January 21st, President Trump announced large tariffs on imports of solar cells and washing machines and the target countries are already asking for trade compensation, tariffs on US exports. Every day President Trump appears to use the tariff hammer to deal with different foreign policy disputes and it looks like tariffs on imported steel and aluminum products are coming.
On February 4th, in a meeting with State Department, Defense Department, and Homeland Security officials, Trump promised to use tariffs to deal with immigration problems and put tariffs on the goods of countries and sanction others that refuse to take their citizens/nationals back upon deportation. Trump stated:
“But if they don’t take them back, we’ll put sanctions on the countries. We’ll put tariffs on the countries. They’ll take them back so fast your head will spin. We’ll just tariff their goods coming in, and they’ll take them back in two seconds. You have a lot of people from those countries, and they’ll take them back.”
This is just one example where President Trump indicates his strong belief that Tariffs on imports are the weapon to use to pressure countries to fall into line with US policy interests.
Moreover, President Trump has promised his base during the election to be very tough on trade. But President Trump unfortunately does not realize there is a price to pay for a trade war—retaliation against US exports.
DESPITE THE REAGAN WARNING MANY AMERICANS APPARENTLY WANT INCREASED TARIFFS TO PROTECT US INDUSTRIES EVEN IF US EXPORTS GET SMASHED
But President Trump’s favorable view of tariffs on imports may simply reflect the beliefs of many Americans that trade is bad. Exports are good, but all imports are bad. Therefore, if there is a trade deficit, that must mean that trade and imports are hurting US industry because all imports are unfairly traded and the solution is simply put more trade barriers up.
Such a way of thinking is perpetuated by a Commerce Department that finds dumping in almost 100% of the cases, especially against China, because Commerce uses fake numbers, surrogate values from 5 to 10 different countries, to create dumping margins in Chinese cases. Literally, over the past few decasdes, the number of cases in which the Commerce Department reached a no dumping and no countervailing duty case, turning the case off can be counted on less than two hands. Commerce is a hanging judge, but when that hanging judge creates a myth that all imports into the US are dumped and subsidized, that is when real probelms begin. Although Paul Ryan, Speaker of the House, once stated that 70% of all customers are outside the United States, that point apparently has been forgotten and does not register with the average American, who thinks that putting up high tariffs will solve the trade problems and protect US manufacturing.
On January 26, 2018, Rasmussen Reports in an article entitled “Americans Still Favor Use of Protective Tariffs” stated that polls show that Americans favor tariffs:
“President Trump this week imposed heavy tariffs on foreign manufacturers of washing machines and solar panels to protect U.S. businesses. Americans by a two-to-one margin think tariffs are a good way to go.
The latest Rasmussen Reports national telephone and online survey finds that 50% of American Adults believe the federal government should place tariffs on goods from countries that pay very low wages to their workers. Twenty-six percent (26%) oppose tariffs on such goods even though the low wages mean these manufactured items often cost less than comparable American products. One-in-four (24%), however, are undecided.”
On February 6, 2018, Breitbart reported on the Rasmussen Poll in an article entitled “Americans Increasingly Support Tariffs to Protect US Against Globalization”, stating:
“Americans are increasingly supportive of tariffs on cheap, imported goods from foreign countries to protect American industries and workers against wild globalization.
In a poll by Rasmussen Reports, roughly 50 percent of Americans said the federal government should “place tariffs on goods from countries that pay very low wages to their workers,” as opposed to only 26 percent of Americans who said tariffs should not be imposed on foreign countries.
About 24 percent of Americans said they were “not sure” if the government should use tariffs to protect American industries.
Additionally, a plurality of Americans, about 44 percent, said the federal government is not doing “enough” to protect U.S. manufacturers and businesses from foreign competition” from globalization which has been exacerbated by endless multinational free trade agreements supported by the Democratic and Republican party establishments.
The support for protective tariffs has increased from two years ago, in 2015, when 47 percent of Americans polled by Rasmussen Reports said the federal government should place tariffs on foreign countries dumping cheap, imported products in the U.S.
In that 2015 poll, a plurality of Americans, about 40 percent, said free trade agreements like NAFTA and KORUS “take jobs away” from Americans.
The support for tariffs is positive news for President Trump’s administration, which is combatting globalization by imposing tariffs to protect American industries. In the Trump administration’s latest “America First” trade move, the White House placed a 30 percent tariff on imported solar products.
The tariff, as Breitbart News reported, has already resulted in a Chinese solar company announcing plans to build a solar plant in the U.S. rather than overseas.
The Trump administration’s pro-American trade initiatives are a break from over two decades of globalist trade agendas of past administrations under President George W. Bush and President Obama. For years, both political establishments have joined forces to push multinational free trade deals that outsource and offshore Americans’ jobs to foreign nations.
As Breitbart News reported in 2016, South Carolina is just one example of a state that was devastated by NAFTA, with the state losing about one-third of its manufacturing jobs since 1994 when the free trade agreement was signed.
In Trump’s most significant pushback against the Democratic and Republican apparatus on free trade and global initiatives, rather than individual nation-state efforts, he ended the Trans-Pacific Partnership (TPP) free trade agreement and the Paris Climate Agreement. . . .”
But President Ronald Reagan understood that the there is a price to pay for tariffs on imports—retaliation against US exports. As President Reagan stated in a speech on June 28, 1986:
“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 flimflammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. . . .
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. . . .
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.”
Like Breitbart, many Americans believe that the US simply does not export much. The cost of President Trump’s protective tariffs, however, will be very high when US exports in 2017 were over $2 trillion. On January 21st, President Trump imposed high tariffs on imports of solar cells and washing machines. On January 24th, the Wall Street Journal in an editorial entitled “Trump Starts His Trade War”, stated:
“Can Donald Trump stand prosperity? Fresh from a government shutdown victory and with the U.S. economy on a roll, the President decided on Tuesday to kick off his long-promised war on imports—and American consumers. This isn’t likely to go the way Mr. Trump imagines.
“Our action today helps to create jobs in America for Americans,” Mr. Trump declared as he imposed tariffs on solar cells and washing machines. “You’re going to have a lot of plants built in the United States that were thinking of coming, but they would never have come unless we did this.”
The scary part is he really seems to believe this. And toward that end he imposed a new 30% tariff on crystalline silicon photovoltaic cells and solar modules to benefit two bankrupt companies, and a new 20%-50% tariff on washing machines to benefit Whirlpool Corp. The tariffs will hurt many more companies and people, and that’s before other countries retaliate.
The solar tariff is a response to a petition filed at the International Trade Commission by two U.S.-based manufacturers—Chinese-owned Suniva, which filed for bankruptcy last year, and German-owned SolarWorld Americas, whose parent company filed for bankruptcy last year. Under Section 201 of U.S. trade law, the companies don’t need to show evidence of dumping or foreign subsidies. They merely have to show they were hurt by imports, which is to say by competition.
The two companies once employed some 3,200 Americans. But the wider solar industry, which depends on price-competitive cells as a basic component, supports some 260,000 U.S. jobs.
Costs will rise immediately for this value-added part of the industry, which the Solar Energy Industries Association (SEIA) says includes the manufacture of “metal racking, high tech inverters, machines that improve solar output by tracking the sun and other electrical products.”
The Journal reported Tuesday that the Trump tariff may spur an unnamed panel manufacturer to invest in a new plant in Florida that will create 800 new jobs. But SEIA says it expects that the tariff will cost 23,000 U.S. jobs this year alone. It will also mean that billions of dollars of solar investments are likely to be postponed or canceled. Utility companies facing green-energy mandates from state governments will also suffer as it gets more costly to deliver solar- produced electricity.
Mr. Trump will also make doing the laundry great again, or at least more expensive, with a new 20% tariff on the first 1.2 million imported washing machines every year. Above that the tariff will go to 50%. Don’t even think about assembling a washer with foreign parts, which get whacked with a 50% tariff above 50,000 imported units in the first year. . . .
Manufacturers will also lose flexibility in sourcing parts, which is critical to competitiveness. In South Carolina, where Samsung has a new $380 million appliance plant, the Trump tariffs aren’t welcome. Republican Gov. Henry McMaster is worried they’ll hurt the investment climate and invite retaliation.
Mr. Trump conducts trade policy as if U.S. trading partners have no recourse. With exports of $30.9 billion in 2016 and among the country’s highest level of exports per capita, South Carolina knows better. By justifying tariffs solely on the failure to compete, Mr. Trump is inviting other countries to do the same for their struggling companies. Their case at the World Trade Organization will also be a layup, allowing legal retaliation against U.S. exports.
By the way, if Mr. Trump thinks these new border taxes will hurt China, he’s mistaken again. China ran a distant fourth as a producer of solar cell and modules for the U.S. in 2017, after Malaysia, South Korea and Vietnam. Korea and Mexico are the two largest exporters of washing machines to the U.S. Mr. Trump’s tariffs are an economic blunderbuss that will hit America’s friends abroad and Mr. Trump’s forgotten men and women at home.”
TRUMP AND MANY AMERICANS SIMPLY DO NOT REALIZE HOW MUCH THE US EXPORTS AND PEOPLE IN GLASS HOUSES – –
President Trump and many Americans simply do not understand that despite the trade deficit, in 2017 total US exports of goods and services was $2.4 trillion. $1.622 trillion was US exports of goods, such as machinery, semiconductor chips and other items. China and other countries have many ripe targets for retaliation against the US.
On February 16, 2018, in the attached report, 2017 TRADE DATA, the U.S. Census Bureau U.S. Bureau of Economic Analysis of the Commerce Department reported that for full year 2017:
Exports were $2,329.3 billion in 2017, up $121.2 billion from 2016. Imports were $2,895.3 billion in 2017, up $182.5 billion from 2016.
In other words, US exports in 2017 of goods and services were $2.3 trillion and imports were $2.8 trillion creating a trade deficit of $566.0 billion. With regards to US exports, of the $2.3 trillion, export of services was $777.9 billion. Services include exports of financial services, express delivery, media and entertainment, distribution, telecommunications and computer service. Exports of goods was over $1.5 trillion, including industrial supplies and materials, crude oil, capital goods, including industrial machines and aircraft engines.
Although exports of agricultural products are important at about $132 billion, exports of industrial supplies and materials at $462 billion and exports of capital goods except automotive at $532 billion are much more important. Exports of Automotive vehicles and parts at $157 billion, consumer goods at $197 billion and export of other goods at $62 billion are also very important.
The focus of this piece is on exports because much to the surprise of many in the Trump Administration and possibly Trump himself and the average American, these US Commerce statistics establish that the US exports a lot of goods to various countries around the World and this creates tempting targets for retaliation and it is not just agriculture. People in glass houses should not throw stones and putting up tariff barriers to imports invites a trade retaliation firestorm.
When I mentioned US exports, one self-proclaimed conservative responded, “You mean apples.” Uh, no exports of industrial goods are much larger than exports of agricultural products.
If Trump creates a trade war, the United States has a lot to lose.
STATE OF THE UNION—TRADE RECIPROCITY OR MANAGED TRADE??
In his January 30, 2018 State of the Union address, President Trump did not mention trade much but stressed in his speech on his economic policies have helped bring back manufacturing to the US and increased US jobs, stating:
“3 million workers have already gotten tax cut bonuses — many of them thousands and thousands of dollars per worker. And it’s getting more every month, every week. Apple has just announced it plans to invest a total of $350 billion in America, and hire another 20,000 workers. And just a little while ago, ExxonMobil announced a $50 billion investment in the United States, just a little while ago. . . .
Very soon, auto plants and other plants will be opening up all over our country. This is all news Americans are totally unaccustomed to hearing. For many years, companies and jobs were only leaving us. But now they are roaring back. They’re coming back. They want to be where the action is. They want to be in the United States of America. That’s where they want to be. . . .”
But President Trump then went on to state about trade:
“America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our wealth. Our nation has lost its wealth, but we’re getting it back so fast. The era of economic surrender is totally over. From now on, we expect trading relationships to be fair and, very importantly, reciprocal.
We will work to fix bad trade deals and negotiate new ones. And they’ll be good ones, but they’ll be fair. And we will protect American workers and American intellectual property through strong enforcement of our trade rules.”
In response to the State of the Union address, on January 31st, John Brinkley in an article in Forbes entitled “With No Accomplishments To Report, Trump All But Skips Trade In SOTU” stated:
“Last week, at the World Economic Forum meeting in Davos, Switzerland, President Trump suggested he was open to rejoining the Trans-Pacific Partnership. That was surprising, given that one of the first things he did as president was withdraw the United States from it.
Last night, in his State of the Union address, he devoted all of 78 words to trade policy, including nothing he hadn’t said before, nothing about the TPP, nothing about NAFTA (which he recently called a “bad joke”) and nothing direct about the U.S. trade deficit.
“From now on,” he said, “we expect trading relationships to be fair and, very importantly, reciprocal.”
The Merriam-Webster Dictionary defines “reciprocal” as “mutually corresponding.” If Trump wants every dollar of imports to be matched by a dollar of exports, that is an impossible goal. Tinkering around with NAFTA and the Korea-U.S. Free Trade Agreement, as his administration is doing, will have no appreciable effect on the U.S. trade deficits with Mexico and South Korea.
By now, he’s heard enough from the U.S. Chamber of Commerce, his friends in the business world, even his own secretary of agriculture, about how important trade is to them. None of them asked him to renegotiate NAFTA or the Korea agreement.
None of them asked him to withdraw from the TPP. You’ll recall that it was delegates to the 2016 Democratic Convention who held up “No TPP” signs and that Hillary Clinton and Bernie Sanders ran away from the agreement as though it were a rattlesnake.
Trump and Sanders were dead wrong about the TPP and about trade in general, but at least they believed what they said. Clinton, on the other hand, was dead wrong, and she knew it.
“We will work to fix bad trade deals and negotiate new ones,” Trump said last night. Does he still believe this strategy is going to lead to reciprocal trade? Or is he just saying what his base wants to hear? . . . .
Bottom line: Trump’s State of the Union claims that “America has also finally turned the page on decades of unfair trade deals” notwithstanding, he has yet to make good on any of his trade-related threats and promises. We still have all the trade deals we had a year ago, and the U.S. trade deficit has increased.”
On February 12th in an article entitled “Trump Says US Will impose A Reciprocal Tax on Imports”, Breitbart reported:
“President Donald Trump said on Monday that the U.S. government will impose a “reciprocal tax” on imports from countries that levy tariffs against American made goods.
“We’re going to charge countries outside of our country–countries that take advantage of the United States, some of them are so-called allies but they’re not allies on trade,” Trump said during a White House meeting on infrastructure. “We’re going to be doing very much a reciprocal tax and you’ll be hearing about that during the week and coming months.”
Commerce Secretary Wilbur Ross applauded the idea, saying that the U.S. needs to “claw back” the revenue other countries raise by taxing U.S. products.
The U.S. has very low tariffs compared with some of our biggest trading partners. The trade-weighted average of U.S. tariffs is just 2.4 percent. China’s is 4.4 percent.”
While Congress has the authority to set taxes and tariffs, the law authorizes the president to unilaterally impose tariffs in certain circumstances. In January, for example, the administration announced that it would impose tariffs on washing machines and solar products. The administration could potentially expand its use of these types of sanctions instead of waiting on Congress to pass new tariffs.”
Under the Constitution, however, the Congress controls trade, not the President and any new reciprocal tariff would probably have to go through Congress, which would not agree to such a new law. On January 30th, Politico reported in an article entitled “Republicans seek to Tame Trump on Trade”:
“The GOP has long been a party of free traders. During the past two years of President Barack Obama’s presidency, Senate Republicans labored to pass a bill giving him the ability to quickly negotiate new trade deals. Now they have a president of their own party who prefers to scrap trade deals and slap tariffs on other nations.
Senate Finance Chairman Orrin Hatch (R-Utah), who led the fight to give Obama so-called Trade Promotion Authority, said he wants to hear Trump “extrapolate” concrete policies, because “right now they’re just suggestions.”
“I’m not uncomfortable. But I’m not comfortable either,” Hatch said of Trump’s trade stance. “I’m a free-trade guy. And I believe that this ought to be a free-trade country, especially when it comes to NAFTA and our hemisphere.”
Republican sources said GOP senators’ disagreements with Trump on trade surface far more often in party lunches than what the president said on Twitter or the chaotic story of the day from within the White House. Senators will often wait to complain about Trump’s policies until Tuesdays, when Vice President Mike Pence often visits the GOP lunch, hoping that bending Pence’s ear will help moderate Trump.
And in some cases, Trump has listened. His decision to impose tariffs on solar panels wasn’t as severe as some senators had feared. And Trump opened the door last week to re-engaging on the Trans-Pacific Partnership, a massive deal negotiated by Obama with Pacific Rim countries that Trump rejected shortly after taking office. The Trump administration has also sought to soothe some senators over NAFTA in recent weeks, according to GOP senators.”
But if by reciprocity, Trump means busting up barriers to US exports, that is fine with me and fine with President Reagan. President Reagan and many successive Presidents have taken aggressive enforcement actions to break down barriers to US exports and investment. If China has high tariffs on certain exports or bars US exports or investment in certain sectors, why should the US open up its border to Chinese imports and investment in those sectors?
But the major problem with such a new reciprocal tariff is the WTO Agreement and the bedrock agreement of Most Favored Nation. The MFN principle provides that once a country becomes part of the WTO, with its general tariffs, it must treat all imports equally and cannot discriminate against imports from different countries, except with a Section 201 Escape Clause case or if dumping, subsidization or other unfair trade practices are involved. Thus, a reciprocal tariff will invite retaliation by foreign countries pursuant to the WTO Agreement. That is why many knowledgeable persons in the trade field have pushed for free trade agreements that lower tariffs, where the US has much to gain.
But because of his focus on trade deficits, if Trump means managed trade, not free trade, to reduce trade deficits, which means putting up high tariff walls to imports to equalize competition, count me and many other countries out, which will have no inclination to negotiate a bilateral trade deal with the US.
THE US BUILT THE WTO FREE TRADE MODEL THAT TRUMP APPARENTLY WANTS TO TEAR DOWN
On February 6, 2018, in an article entitled “US Leadership in International Trade: Recalibration or Retreat?” in The Diplomat, Mercy Kuo interviewed Ambassador Rufus Yerxa, president of the National Foreign Trade Council (NFTC) and deputy director general of the WTO from 2002 to 2013. On a personal note, I used to work with Ambassador Yerxa many years ago at the International Trade Commission. During this interview, Ambassador Yerxa made two very important points about the Trump trade policy:
“Is the U.S. retreating from or recalibrating its leadership role in international trade?
There is clearly a significant danger for the United States and for world trade generally if the Trump administration applies its concept of economic nationalism in the wrong way – by building trade barriers in sectors where we are uncompetitive, withdrawing from our trade alliances, or starting trade wars with excessive use of unilateral tariffs or other forms of trade retaliation. The dangers are three-fold: first, we will be turning inward and losing our competitiveness; second, by shelving our existing preferential free-trade arrangements just when our competitors are expanding theirs, we will lose our competitive position in export markets; and third, by abandoning WTO principles and acting unilaterally, we will make it more likely that other countries will write global trade standards without us and further isolate us from the global economy.
So far, the Trump administration’s rhetoric on this idea of economic nationalism has far exceeded its actions. But the administration’s worrying belief in mercantilist trade polices as a panacea for all our economic ills runs the risk of moving our country decisively in the direction outlined above. In the end, such a philosophy may cause our economy and our workers far more harm than good. American industries are willing to support a tougher line on enforcement of trade rules, as well as a more resolute stand against the nationalistic, unfair trade, and investment policies of China. But these things need to be done in the context of our broader support for the open trading system we led the world in building. If we send the signal that we do not believe in that system – even though it is there because of our leadership – we will lose the support we have built over 70 years for free and fair trade, and with it we will lose our leverage to shape the future of globalization.
What might the World Trade Organization (WTO) look like without U.S. involvement?
It is not a very pretty thought. The WTO system was designed to reflect core U.S. values, such as non- discrimination, transparency, and respect for the rule of law. These values are embedded in the organization’s rules, and help to commit other countries to the basic ideals of free market economics that America was built upon. For example, the WTO has some fairly effective rules about subsidy practices, dumping, and non-tariff measures (such as technical barriers to trade). These are important safeguards for U.S. industries.
For the U.S. to disengage from the WTO system, particularly at this critical moment in the globalization process, would leave the door open for politically influential countries such as China and Russia to push a trade model based much more on state-run capitalism and authoritarian economics than on our free market principles. This could pose a long-term problem that could take decades to repair. In fact, it took decades for us to push the Europeans in the right direction on state intervention, and the WTO’s predecessor, the GATT, was an important tool in that effort. Now the Europeans have a respectable state aids code and have adopted far greater discipline on agriculture subsidies. But if China, Russia, and others with less attachment to free market economics become the dominant force in the WTO, the Europeans themselves could be drawn back towards their earlier model, just as a matter of survival! That would not be a good world for Americans.”
AGRICULTURE HAVING A HARD YEAR BECAUSE OF TRUMP’S TRADE POLICY
The argument that consumers will be hurt by rising import prices simply carries no weight either with the Trump Administration or the US Congress. If prices go up a few dollars at Wal Mart, no one in Washington DC other than the economic intellectuals care. What does carry weight, however, is the strong argument that trade protectionism seriously damages US companies, including agriculture, and the strong and justified fear that many US companies, including US agriculture and manufacturing companies, will be badly hurt by trade retaliation. President Trump’s decision to tear up the Trans Pacific Partnership, without trying to renegotiate it, may have appealed to those people in his base that are not knowledgeable about trade, but this decision to tear up the TPP and the failure to create more US free trade agreements puts many US agriculture companies at risk.
As stated before in past blog posts, no one in the Trump Administration or the Congress assessed the real costs to US industry of not doing the Trans Pacific Partnership. Every day those costs are becoming clearer and clearer.
On February 15, 2018, Capital Press in an article entitled “Wheat industry seeks to re-enter TPP” describes in detail what the withdrawal from the TPP means for the US wheat industry and what that means for US jobs:
“If the United States doesn’t re-enter the Trans-Pacific Partnership, Northwest wheat exports to Japan could drop by half within a few years, says the leader of the Washington Grain Commission.
The Pacific Northwest currently exports roughly 800,000 metric tons of Western white wheat, a popular blend of soft white wheat and subclass club wheat, to Japan each year, commission CEO Glen Squires said.
Hard red winter and hard red spring wheat exports would also be impacted, affecting Montana and North Dakota, and other states exporting off the West Coast, Squires said.
Japan wants the U.S. in TPP, and is not interested in bilateral agreements, Squires said.
Wheat industry representatives met in Washington D.C. last week. Many legislators are aware of the concerns about the Trans-Pacific Partnership proceeding without the United States, Squires said. It will essentially amount to a tariff on U.S. wheat, putting the country at a price disadvantage in key markets compared to competing wheat-producing countries that are remain in the trade pact.
Changes under TPP will occur over nine years, but Squires said the impact on shipments could be much faster.
“This is a massively big deal,” he said.
Reduced demand would result in lower wheat prices, Squires said.
A national coalition of agricultural commodities is forming to address the situation, Squires said. The industry will appeal to the Trump administration to rejoin the trade deal.
“President Trump is the guy who can negotiate, and get us back involved,” Squires said. “It’s clearly a big impact: It’s the equivalent of handing our competitors a $500 million check per year.” . . .
Squires warned of “ripple effects” throughout the industry, which could happen as soon as U.S. wheat becomes uncompetitive in overseas markets. . . .
Without exports to Japan, the grain commission estimates volume would drop by 62.5 million bushels. That equals 19,000 fewer rail cars and nearly 70 bulk vessels each year. Impact would be felt by port facilities, barges, elevator longshoremen, ship handlers, and other industry members, Squires said.
Every $1 billion in farm exports supports more than 8,000 jobs in 2016. Wheat export losses of $500 million per year would lead to reductions in the work force across the supply chain, Squires said. . . .”
Emphasis added.
Keep in mind that rural America and farmers are a key constituency of the Trump Presidency. Trump won the Presidency not only because of Michigan, Ohio, Pennsylvania and Wisconsin, but also the states of Iowa, Kansas, Nebraska, Wyoming, Montana, North Dakota, South Dakota, Idaho, Utah, Arizona, and many other states where farmers and agriculture are very important for the economy of those States.
Yet the Wall Street Journal reported on February 8, 2018 that in contrast to the rest of the economy, Farm Incomes are falling:
“Farm Belt Braces for Falling Incomes, Trade Disputes
Farm incomes are forecast to decline 7% to $60 billion in 2018.
U.S. farmers are gearing up for another tough year.
Farm incomes are expected to hit their lowest point since 2006 and borrowing costs are rising, federal data shows, as a deepening slump in the agricultural economy enters its fifth year.
A string of bumper corn and soybean harvests has added to a glut of grain world-wide, eroding prices for U.S. farmers. Foreign rivals like Russia and Brazil are also chipping away at U.S. dominance in the global grain trade, helping to fuel a multiyear downturn that is pushing some farmers out of business.
“The state of the rural economy is fragile,” Agriculture Secretary Sonny Perdue told lawmakers during a hearing of the House Agriculture Committee on Tuesday. “There’s a lot of stress and a lot of duress on the farms today.”
The U.S. Department of Agriculture on Wednesday forecast that farm incomes would fall 7% to $60 billion in 2018 on lower crop and livestock revenue, less than half of the record $124 billion farmers earned in 2013. Farmers are already borrowing more to keep farms running. . . .
As spring planting looms, farmers are looking to South America for clues on demand for their own crop. The USDA boosted its forecast for Brazil’s soybean harvest on Thursday, and cut its projection for U.S. exports of the oilseed this season thanks to stiffer competition from South America.”
As stated many times in past blog posts, President Trump’s decision to rip up the Trans Pacific Partnership and talk about more tariffs on various trade areas has led to many foreign countries, including China, to not look at the US as a reliable partner in the trade area. It has also resulted in many foreign countries, including Mexico, China, Japan and the EC, to switch sourcing products from the US and turn to alternative sources of supply. Since almost 50% of all agriculture products are exported, one third of Iowa corn is exported to Mexico, agriculture and the farm states are starting to feel real pain because of the Trump trade policy.
TRANS PACIFIC PARTNERSHIP (“TPP”) RISES AGAIN???
As mentioned in my last blog post, Trump’s trade team is starting to realize that countries do not want to negotiate bilateral trade deals with the US. 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 United States Trade Representative (“USTR”) under President George W. Bush, stated on January 7th in the Wall Street Journal in an article entitled “Trump Courts Economic Mayhem”:
“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.”
As stated above, that is a huge problem for US farmers because almost 50% of farm products produced in the US are exported.
Because of this failure, if Trump keeps going down this road, the US may conclude no free trade agreements. This would have a devastating impact on US exporters, including US agricultural companies. The entire World is moving to free trade agreements and because of Most Favored Nation principle, the US with lower tariffs than many other countries would benefit the most. Because of this reality, in my last blog post I suggested that Trump might want to renegotiate the TPP, but only under strict conditions.
Lo and behold, in January and February there were noises from the President and the Administration about coming back to the TPP.
On January 23rd, in an article entitled, “TPP Members Reach Agreement on Major Trade Pact”, the Wall Street Journal reported:
“TOKYO—Negotiators from 11 Pacific Rim nations agreed Tuesday on a Trans-Pacific Partnership trade deal, the Japanese minister in charge of TPP said, a year after President Donald Trump withdrew the U.S. from the talks.
Negotiators gathered again in Tokyo Tuesday and cleared away the remaining sticking points, said Toshimitsu Motegi, the Japanese minister handling the talks. He said the 11 nations aim to sign the agreement on March 8 in Chile. . . .
The TPP deal came just a half-day after the Trump administration slapped steep tariffs on imported solar panels and washing machines, a move to implement Mr. Trump’s harder line on trade that he has touted since his election campaign.
Japan has depicted itself as a free-trade champion that can assume the kind of leadership role previously taken by U.S. administrations.
“Now in some parts of the world, there is a move toward protectionism, and I think the TPP-11 is a major engine to overcome such a phenomenon,” Mr. Motegi said.
He said the deal was “epoch-making for Japan as well as for the future of the Asia-Pacific region.” He also reiterated a hope frequently expressed by Japanese officials that once the 11- nation TPP is up and running, the U.S. might consider rejoining the deal.
The TPP agreement could also provide a framework for a future Nafta deal should the current one be scrapped by the Trump administration, according to people familiar with the trade talks. Senior Mexican officials see the TPP agreement as an indication that the free-trade train is rolling forward with regional pacts, with or without the U.S. aboard, as Nafta is being renegotiated.”
On January 26, 2018, during a meeting at the World Economic Forum in Davos, Switzerland, Trump discussed trade and eventually turned to the TPP stating:
“The United States is prepared to negotiate mutually beneficial, bilateral trade agreements with all countries. This will include the countries in TPP, which are very important. We have agreements with several of them already. We would consider negotiating with the rest, either individually, or perhaps as a group, if it is in the interests of all.”
In response to a question in an interview with CNBC’s Joe Kerne, Trump further stated:
“I would do TPP if we were able to make a substantially better deal. The deal was terrible, the way it was structured was terrible. If we did a substantially better deal, I would be open to TPP.”
During his Davos address, however, Trump did not mention the TPP and instead put forth a very tough statement on trade:
“The United States will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning. These and other predatory behaviors are distorting the global markets and harming businesses and workers, not just in the U.S., but around the globe.”
In line with the tough stance against international trade, during Davos Economic Forum, on January 24th, in an article entitled, “U.S. Commerce Secretary Slams Beijing for Protectionist Actions Under Free-Trade Rhetoric” the Wall Street Journal reported:
“The Chinese have for quite a little while been superb at free-trade rhetoric and even more superb at highly protectionist activities,” U.S. Commerce Secretary Wilbur Ross told a trade panel Wednesday in Davos, Switzerland. Mr. Ross went on to blame both Beijing and the European Union for unfairly benefiting from higher tariffs and challenged the other two big economies to lower their import duties to U.S. levels.
“We really are the least protectionist, and unfortunately we have the trade deficits to show for it,” Mr. Ross said.
The Trump administration is seeking to push its own trade message at the annual Davos economic gathering, which is closely linked to globalization and multilateralism. Mr. Ross backed the administration’s bilateral approach to negotiating trade agreements and defended President Donald Trump’s exit from the unratified 12-nation Trans-Pacific Partnership agreement a year earlier, saying there was “no political appetite” for the pact in either party.”
But then the TPP story continued to grow. During his visit to Tokyo last year in 2017, Vice President Mike Pence stated as far as the Trump administration is concerned, the TPP is a “thing of the past.” But during his most recent trip to Tokyo in February 2018, his tune seemed to change. On February 7th, Kyodo News reported that in discussions with Japanese Deputy Prime Minister Taro Aso, Vice President Pence “referred to the possibility of the United States returning to the Trans-Pacific Partnership free trade deal.” Apparently, Pence’s statement was in response to a question from the Deputy Prime Minster about Trump’s statement at Davos. Apparently, Pence and Aso then exchanged views on the strategic importance of the TPP.
On January 31st, the famous economist Robert Samuelson in an article in Investors Business Daily entitled “Trump Dumped TPP A Year Ago – -What Did it Accomplish” stated:
“As President Trump appraises the state of the union, it’s worth remembering what still ranks as one of the worst decisions of his presidency: the withdrawal of the United States from the Trans-Pacific Partnership, or TPP. It happened just about a year ago.
You’ll recall that the TPP was an agreement between the U.S. and 11 other countries — Australia, Japan, New Zealand, Canada, Mexico, Singapore, Malaysia, Vietnam, Brunei, Chile and Peru — representing about 40% of the world economy.
Rejecting the TPP was, for Trump, a highly symbolic act buttressing his assertions that the United States has made bad trade deals that have diverted jobs, incomes and influence to foreign countries. He pledged to do better.
The reality is just the opposite, as a short analysis by economist Jeffrey Schott of the Peterson Institute makes clear. It turns out that the other 11 countries weren’t willing to sacrifice the TPP’s benefits. They decided to adopt the agreement anyway — without the United States — calling it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or (a mouthful) CPTPP. It’s scheduled to be signed on March 8 in Chile.
The new agreement makes the United States “the biggest loser” from the whole TPP episode, writes Schott. For starters, there will be lower exports and incomes. Economic simulations done by researchers at the Peterson Institute estimated that the TPP would ultimately raise U.S. gross domestic product by $131 billion, or 0.5% of GDP. Those gains are now gone.
Schott notes that a number of TPP provisions advocated by the United States but opposed “by most other countries” have been dropped in the new agreement. These include “obligations regarding patents on certain pharmaceutical products, procedures involving investor-state disputes, prohibitions on the illegal taking and trade in wildlife” and restrictions on government-owned firms.
The biggest winner in the TPP episode is, almost certainly, China. Although China wasn’t a member of the TPP, Trump’s decision to withdraw leaves other Pacific-rim countries less dependent on the United States for their trade and more dependent on China — and, therefore, more subject to Chinese economic and political influence.
Rarely has the United States embraced a policy that, in contrast to the supporting rhetoric, is so contrary to its own interests. Even Trump may recognize this. In his speech at the World Economic Forum in Davos, he hinted obliquely that he might resume negotiations with the other TPP nations “if it is in the interests of all.”
The open question now is whether the president will repeat his mistake by repudiating the North American Free Trade Agreement (NAFTA), the trade pact among the United States, Mexico and Canada that Trump has sharply criticized. The damage would be even greater.”
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. But now there is no deal and the costs of not doing the TPP are becoming clearer.
On February 16th, 25 Republican Senators, many from agriculture states, such as Hatch, Grassley, Ernst, Enzi, Gardner, McCain and Daines, sent the attached letter to President Trump, 021618 Letter to POTUS on TPP1, strongly urging him to rejoin the Trans Pacific Partnership stating:
“Mr. President:
We write in support of your recent comments expressing interest in re-engaging with the Trans Pacific Partnership (TPP) to bring about a stronger agreement for the United States. Reducing barriers to trade and investment, protecting American intellectual property rights, and leveling the playing field for U.S. businesses, manufacturers, farmers, fishermen, and ranchers is of utmost importance, and we ask that you prioritize engagement with the TPP so that the American people can prosper from the tremendous opportunities that these trading partners bring.
As you know, increased economic engagement with the eleven nations currently in the TPP has the potential to substantially improve the competitiveness of U.S. businesses, support millions of U.S. jobs, increase U.S. exports, increase wages, fully unleash America’s energy potential, and benefit consumers. Increasing access to a region and market that has a population of nearly 500 million can create widespread benefits to the U.S. economy. An improved TPP would therefore bolster and sustain the economic growth America has experienced over the past year facilitated by the regulatory reductions and reforms enacted by your Administration and the substantial tax cuts that you signed into law.
Further, TPP can serve as a way to strengthen ties with our allies in the region, counter the influence of the People’s Republic of China (PRC), and increase pressure on the PRC to adopt substantive and positive economic reforms. Re-engaging on TPP would also provide another platform to modernize trade with Canada and Mexico. . . .
In summary, we encourage you to work aggressively to secure reforms that would allow the United States to join the agreement. We share your commitment for free trade agreements that benefit the American people, and we stand ready to work closely with you toward achieving a TPP agreement that meets this objective.”
As predicted many times in prior blog posts, the costs of not joining the TPP are becoming clearer and clearer and the real economic pain of not joining the TPP is also becoming starkly clear.
RETALIATION BEGINS– FIRST SORGHUM GRAIN NEXT SOYBEANS??
As stated above, when the US imposes trade restrictions, US trading partners will respond with their own trade restrictions retaliating against US exports. But Trump and the average American may simply believe that neither the EC nor China will retaliate against US exports, causing economic pain to the US. Think again as the retaliation has already started and it will hurt.
MOFCOM SELF-INITIATED ANTIDUMPING (“AD”) AND COUNTERVAILING DUTY (“CVD”) CASES 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, the 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.
Although the Trump Administration and many Americans may believe that the US government does not provide subsidies to its producers, as mentioned in the MOFCOM announcement, it will be investigating 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.
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.
SOYBEANS?
On February 7th, Bloomberg reported that the Chinese government is looking at possibly self-initiating trade cases against Chinese imports of US soybeans. In the article entitled, “China Studying Impact of Trade Measures Against U.S. Soy, Sources Say” Bloomberg stated:
“China is studying the potential impact of trade measures imposed on soybeans imported from the U.S., valued last year at $13.9 billion, according to people familiar with the matter.
Speculation is mounting over China’s response to U.S. tariffs on imported solar panels and washing machines announced last month. The Ministry of Commerce has been looking into the consequences of measures against U.S. soybeans since January . . . . That includes anti-dumping and anti-subsidy probes. . . .
China’s soybean imports have climbed to a record as expansion in large-scale livestock farming and a shortage of protein-rich feed grains boost soy-meal consumption. While the U.S. counts China as its biggest soybean market, the Asian country last year bought more of the oilseed from Brazil.”
If Section 232 Tariffs are imposed against US imports of EC Steel, the EC is planning to retaliate immediately against US exports of Harley Davidson Motorcycles from Wisconsin (Paul Ryan Republican Speaker of the House) and Jack Daniels Bourbon from Kentucky (Mitch McConnell, Republican Senate Majority).
SECTION 232 STEEL AND ALUMINUM CASES—THE REAL TRADE WAR BEGINS
President Trump must make a decision in the Section 232 National Security Cases against imports of steel and aluminum by April 11, 2018 in the Steel Case and April 19, 2018 in the Aluminum case. This article will concentrate on the Steel 232 case and mention Aluminum at the end because the Steel case is bigger, but both cases will have devastating consequences on downstream US producers and through retaliation on US exports. Truthfully, if President Trump does what Commerce Secretary Ross is recommending and imposes very high tariffs on imports of steel and aluminum, he will ignite a trade war with many other countries, which will become red hot. This will be a shooting trade war with retaliation aimed at US exports and this protectionism will become destructionism—killing US jobs.
Trump’s decisions in these two Section 232 cases will give us a much better idea of whether President Trump wants a trade war or not. Both the EC, China and other countries are drawing up retaliation lists aimed at US exports of various products.
As background, on April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, Section 232 Investigation on the Effect of Imports of Steel on U.S Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce, announced the self-initiation of a Section 232 National Security case against imports of steel from every country. See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.
Commerce held a hearing on May 24th in this case. The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.
Under the terms of the executive order, the interagency group was to present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.
Since the Secretary reported affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security” – – April 11, 2018 in the Steel Case and April 19, 2018 in the Aluminum case.
Although Commerce Secretary Wilbur Ross pledged to get the Section 232 Steel and Aluminum reports to President Trump’s desk by the end of June 2017, that did not happen as the Administration began to realize the impact a broad tariff on steel or aluminum raw material inputs would have on downstream users, which are dependent on high quality, competitively priced raw materials to produce competitive downstream products made from steel and aluminum.
On February 16, 2018, Commerce Secretary Wilbur Ross released to the public the attached Section 232 National Security reports on Steel and Aluminum, Section 232 Reports _ Department of Commerce the_effect_of_imports_of_aluminum_on_the_national_security_-_with_redactions_-_20180117 the_effect_of_imports_of_steel_on_the_national_security_-_with_redactions_-_20180111. These Reports recommend substantial Import restraints on imports of steel and aluminum. In the attached statement accompanying the reports, Section 232 Reports _ Department of Commerce, Secretary Ross stated:
“I am glad that we were able to provide this analysis and these recommendations to the President. I look forward to his decision on any potential course of action.”
In response to questions of whether the US would be vulnerable to challenges in the WTO, Ross said he would not be surprised if some countries filed World Trade Organization challenges, but he was confident that the United States was on firm legal ground. Ross went on to state:
“National security is a very broadly encompassing topic … it is not just the narrow definition of defense needs, it also covers infrastructure needs and other needs. So we believe and our counsel believes that this is a perfectly valid interpretation of national security the way that it’s used in Section 232, which is much broader than you might think in terms of usual parlance.”
STEEL REPORT AND RECOMMENDATIONS
The Commerce Department statement accompanying the Steel Report summarizes the findings and sets out the remedies recommended by the Department:
“The Department of Commerce found that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security,” as defined by Section 232.
The reports are currently under consideration by the President, and no final decisions have been made with regard to their contents. The President may take a range of actions, or no action, based on the analysis and recommendations provided in the reports. Action could include making modifications to the courses of action proposed, such as adjusting percentages.
STEEL SUMMARY
The Commerce Department statement accompanying the Steel Report summarized the Key Findings of the Steel Report as follows:
The United States is the world’s largest importer of steel. Our imports are nearly four times our exports.
Six basic oxygen furnaces and four electric furnaces have closed since 2000 and employment has dropped by 35% since 1998.
World steelmaking capacity is 2.4 billion metric tons, up 127% from 2000, while steel demand grew at a slower rate.
The recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption. China is by far the largest producer and exporter of steel, and the largest source of excess steel capacity. Their excess capacity alone exceeds the total U.S. steel-making capacity.
On an average month, China produces nearly as much steel as the U.S. does in a year. For certain types of steel, such as for electrical transformers, only one U.S. producer remains.
As of February 15, 2018, the U.S. had 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China, and there are 25 ongoing investigations.
Recommendations of the Steel Report:
Secretary Ross has recommended to the President that he consider the following alternative remedies to address the problem of steel imports:
A global tariff of at least 24% on all steel imports from all countries, or
A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or
A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.
Each of these remedies is intended to increase domestic steel production from its present 73% of capacity to approximately an 80% operating rate, the minimum rate needed for the long-term viability of the industry. Each remedy applies measures to all countries and all steel products to prevent circumvention.
The tariffs and quotas would be in addition to any duties already in place. The report recommends that a process be put in place to allow the Secretary to grant requests from U.S. companies to exclude specific products if the U.S. lacks sufficient domestic capacity or for national security considerations.
Any exclusions granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect.”
ACTUAL SECTION 232 STEEL REPORT
In the actual Section 232 Steel report itself, the Department stated:
“CONCLUSION
The Secretary has determined that the displacement of domestic steel by excessive imports and the consequent adverse impact of those quantities of steel imports on the economic welfare of the domestic steel industry, along with the circumstance of global excess capacity in steel, are “weakening our internal economy” and therefore “threaten to impair” the national security as defined in Section 232.
The continued rising levels of imports of foreign steel threaten to impair the national security by placing the U.S. steel industry at substantial risk of displacing the basic oxygen furnace and other steelmaking capacity, and the related supply chain needed to produce steel for critical infrastructure and national defense.
In considering “the impact of foreign competition on the economic welfare of individual domestic [steel] industries” and other factors Congress expressly outlined in Section 232, the Secretary has determined that the continued decline and concentration in steel production capacity is “weakening of our internal economy and may impair national security.” See 19 U.S.C. § 1862(d).
Global excess steel capacity is a circumstance that contributes to the “weakening of our internal economy” that “threaten[s] to impair” the national security as defined in Section 232. Free markets globally are adversely affected by substantial chronic global excess steel production led by China. While U.S. steel production capacity has remained flat since 2001, other steel producing nations have increased their production capacity, with China alone able to produce as much steel as the rest of the world combined. This overhang of excess capacity means that U.S. steel producers, for the foreseeable future, will face increasing competition from imported steel as other countries export more steel to the United States to bolster their own economic objectives.
Since defense and critical infrastructure requirements alone are not sufficient to support a robust steel industry, U.S. steel producers must be financially viable and competitive in the commercial market to be available to produce the needed steel output in a timely and cost efficient manner. In fact, it is the ability to quickly shift production capacity used for commercial products to defense and critical infrastructure production that provides the United States a surge capability that is vital to national security, especially in an unexpected or extended conflict or national emergency. It is that capability which is now at serious risk; as imports continue to take business away from domestic producers, these producers are in danger of falling below minimum viable scale and are at risk of having to exit the market and substantially close down production capacity, often permanently.
Steel producers in the United States are facing widespread harm from mounting imports. Growing global steel capacity, flat or declining world demand, the openness of the U.S. steel market, and the price differential between U.S. market prices and global market prices (often caused by foreign government steel intervention) ensures that the U.S. will remain an attractive market for foreign steel absent quotas or tariffs. Excessive imports of steel, now consistently above 30 percent of domestic demand, have displaced domestic steel production, the related skilled workforce, and threaten the ability of this critical industry to maintain economic viability.
A U.S. steel industry that is not financially viable to invest in the latest technologies, facilities, and long-term research and development, nor retain skilled workers while attracting a next-generation workforce, will be unable to meet the current and projected needs of the U.S. military and critical infrastructure sectors. Moreover, the market environment for U.S. steel producers has deteriorated dramatically since the 2001 Report, when the Department concluded that imports of iron ore and semi-finished steel do not “fundamentally threaten” the ability of U.S. industry to meet national security needs.
The Department’s investigation indicates that the domestic steel industry has declined to a point where further closures and consolidation of basic oxygen furnace facilities represents a “weakening of our internal economy” as defined in Section 232. The more than 50 percent reduction in the number of basic oxygen furnace facilities – either through closures or idling of facilities due to import competition – increases the chance of further closures that place the United States at serious risk of being unable to increase production to the levels needed in past national emergencies. The displacement of domestic product by excessive imports is having the serious effect of causing the domestic industry to operate at unsustainable levels, reducing employment, diminishing research and development, inhibiting capital expenditures, and causing a loss of vital skills and know-how. The present capacity operating rates for those remaining plants continue to be below those needed for financial sustainability. These conditions have been further exacerbated by the 22 percent surge in imports thus far in 2017 compared with 2016. Imports are now consistently above 30 percent of U.S. domestic demand.
It is evident that the U.S. steel industry is being substantially impacted by the current levels of imported steel. The displacement of domestic steel by imports has the serious effect of placing the United States at risk of being unable meet national security requirements. The Secretary has determined that the “displacement of domestic [steel] products by excessive imports” of steel is having the “serious effect” of causing the “weakening of our internal economy.” See 19 U.S.C. § 1862(d). Therefore, the Secretary recommends that the President take corrective action pursuant to the authority granted by Section 232. See 19 U.S.C. § 1862(c).
RECOMMENDATION
Prior significant actions to address steel imports (quotas and/or tariffs) were taken under various statutory authorities . . . all at lower levels of import penetration than the present level, which is above 30 percent.
Due to the threat of steel imports to the national security, as defined in Section 232, the Secretary recommends that the President take immediate action by adjusting the level of imports through quotas or tariffs on steel imported into the United States, as well as direct additional actions to keep the U.S. steel industry financially viable and able to meet U.S. national security needs. The quota or tariff imposed should be sufficient, after accounting for any exclusions, to enable the U.S. steel producers to be able to operate at about an 80 percent or better of the industry’s capacity utilization rate based on available capacity in 2017. . . .
By reducing import penetration rates to approximately 21 percent, U.S. industry would be able to operate at 80 percent of their capacity utilization. Achieving this level of capacity utilization based on the projected 2017 import levels will require reducing imports from 36 million metric tons to about 23 million metric tons. If a reduction in imports can be combined with an increase in domestic steel demand, as can be reasonably expected rising economic growth rates combined with the increased military spending and infrastructure proposals that the Trump Administration has planned, then U.S. steel mills can be expected to reach a capacity utilization level of 80 percent or greater. This increase in U.S. capacity utilization will enable U.S. steel mills to increase operations significantly in the short-term and improve the financial viability of the industry over the long-term.
Recommendation to Ensure Sustainable Capacity Utilization and Financial Health
Impose a Quota or Tariff on all steel products covered in this investigation imported into the United States to remove the threatened impairment to national security. The Secretary recommends adjusting the level of imports through a quota or tariff on steel imported into the United States.
Alternative 1 – Global Quota or Tariff
1A. Global Quota
Impose quotas on all imported steel products at a specified percent of the 2017 import level, applied on a country and steel product basis.
According to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 63 percent quota would be expected to reduce steel imports by 37 percent (13.3 million metric tons) from 2017 levels. Based on imports from January to October, import levels for 2017 are projected to reach 36.0 million metric tons. The quotas, adjusted as necessary, would result in imports equaling about 22.7 million metric tons, which will enable an 80 percent capacity utilization rate at 2017 demand levels (including exports). Application of an annual quota will reduce the impact of the surge in steel imports that has occurred since the beginning of 2017.
1B. Global Tariff
Apply a tariff rate on all imported steel products, in addition to any antidumping or countervailing duty collections applicable to any imported steel product.
Similar to what is anticipated under a quota, according to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 24 percent tariff on all steel imports would be expected to reduce imports by 37 percent (i.e., a reduction of 13.3 million metric tons from 2017 levels of 36.0 million metric tons). This tariff rate would thus result in imports equaling about 22.7 million metric tons, which will enable an 80 percent capacity utilization rate at 2017 demand levels (including exports).
Alternative 2 –Tariffs on a Subset of Countries
Apply a tariff rate on all imported steel products from Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia and Costa Rica, in addition to any antidumping or countervailing duty collections applicable to any steel products from those countries. All other countries would be limited to 100 percent of their 2017 import level.
According to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 53 percent tariff on all steel imports from this subset of countries would be expected to reduce imports by 13.3 million metric tons from 2017 import levels from the targeted countries. This action would enable an increase in domestic production to achieve an 80 percent capacity utilization rate at 2017 demand levels (including exports). The countries identified are projected to account for less than 4 percent of U.S. steel exports in 2017.
Exemptions
In selecting an alternative, the President could determine that specific countries should be exempted from the proposed 63 percent quota or 24 percent tariff by granting those specific countries 100 percent of their prior imports in 2017, based on an overriding economic or security interest of the United States. The Secretary recommends that any such determination should be made at the outset and a corresponding adjustment be made to the final quota or tariff imposed on the remaining countries. This would ensure that overall imports of steel to the United States remain at or below the level needed to enable the domestic steel industry to operate as a whole at an 80 percent or greater capacity utilization rate. The limitation to 100 percent of each exempted country’s 2017 imports is necessary to prevent exempted countries from producing additional steel for export to the United States or encouraging other countries to seek to trans-ship steel to the United States through the exempted countries.
It is possible to provide exemptions from either the quota or tariff and still meet the necessary objective of increasing U.S. steel capacity utilization to a financially viable target of 80 percent. However, to do so would require a reduction in the quota or increase in the tariff applied to the remaining countries to offset the effect of the exempted import tonnage.
Exclusions
The Secretary recommends an appeal process by which affected U.S. parties could seek an exclusion from the tariff or quota imposed. The Secretary would grant exclusions based on a demonstrated: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security based considerations. This appeal process would include a public comment period on each exclusion request, and in general, would be completed within 90 days of a completed application being filed with the Secretary.
An exclusion may be granted for a period to be determined by the Secretary and may be terminated if the conditions that gave rise to the exclusion change. The U.S. Department of Commerce will lead the appeal process in coordination with the Department of Defense and other agencies as appropriate. Should exclusions be granted the Secretary would consider at the time whether the quota or tariff for the remaining products needs to be adjusted to increase U.S. steel capacity utilization to a financially viable target of 80 percent.”
RETALIATION??
On February 17, 2018, the Chinese government threatened retaliation if President Trump imposes import restrictions on steel imports. On February 20, 2018, EC officials stated that they would react “swiftly and appropriately” to Section 232 tariffs placed on EC steel imports into the US. See https://www.express.co.uk/news/world/921415/harley-davidson-jack-daniels-trade-sanctions-european-union-trade-war-us.
Two of the EC retaliation targets would be Harley Davidson motorcycles and Jack Daniels Bourbon.
WILL PRESIDENT TRUMP IMPOSE IMPORT RESTRICTIONS IN THE SECTION 232 STEEL CASE BY APRIL 11?
My firm belief is that Trump will impose import restraints and the only question is how tough they will be. Although other commentators have suggested that President Trump might punt and bring a WTO case or more antidumping and countervailing duty cases, my belief is that President Trump wants to levy tariffs because that is what he promised his base. “Damn the torpedoes full speed ahead”. Trump also believes that all steel imported into the US is dumped and subsidized as the Commerce Department finds dumping and subsidization in almost 100% of the cases.
On February 13th, Breitbart in an article entitled “Chinese Steel Dumping Takes Center Stage as President Trump Mulls Tariffs, Quotas” quoted President Trump in a meeting at the White House with both parties in the House and the Senate:
“Last year, I directed the Secretary of Commerce to investigate whether steel and aluminum imports are threatening to impair U.S. national security,” Trump said. “You see what’s happened with our steel and aluminum industries. They are being decimated by dumping from many countries—in particular one, but many countries.”
That “particular one” Trump was referring to is China. Trump said:
“They are dumping and destroying our industry and destroying the families of workers and we can’t let that happen. Secretary Ross submitted the result of the investigation to me last month. My administration is now reviewing the reports and considering all options. Part of the options would be tariffs coming in as they dump steel, they pay tariffs—substantial tariffs—and the United States would actually make a lot of money, and probably our steel industry and our aluminum industry would come back into our country. Right now, it’s decimated. It will make a decision and I will make a decision that reflects the best interests of the United States including the need to address over-production in China and other countries. You have countries that are so over-producing and what they’re doing is they’re dumping it on us and you look at what empty steel factories and plants and it’s a very sad thing to look at. I’ve been looking at it for two years as I went around campaigning.”
But on February 13th, International Trade 360 in an article entitled, “Lawmakers Caution Trump On Steel Trade Restrictions,” reported:
“A bipartisan group of 19 lawmakers from both chambers of Congress met with Trump at the White House, in a session that was slated to take place behind closed doors before it was abruptly opened up to media members. During the meeting, Trump made clear he is still actively considering import curbs on steel and aluminum in a pair of closely watched cases.
“I want to keep prices down, but I also want to make sure that we have a steel industry and an aluminum industry, and we do need that for national defense. If we ever have a conflict, we don’t want to be buying steel for a country we are fighting … What we are talking about is tariffs and/or quotas,” he said at the meeting. . . .
Though the statute is meant to exclusively address a security threat, the administration has repeatedly signaled that it may use the law as a cudgel against unfairly traded goods. Trump did this again during Tuesday’s meeting, saying that foreign steel and aluminum producers are “dumping and decimating our industries.”
While domestic steel and aluminum producers have repeatedly urged the administration to move forward with steep import restrictions, downstream manufacturers and other stakeholders have preached caution.
Leading that charge at Tuesday’s meeting was Sen. Roy Blunt, R-Mo., who said that the president must thread a delicate needle.
“We need to be careful here that we don’t start a reciprocal battle on tariffs,” Blunt said. “We make aluminum, and we make steel in Missouri, but we buy a lot of aluminum, and we buy a lot of steel as well.”
In one exchange, Sen. Pat Toomey (R‐Pa.) pressed Trump to move “very, very cautiously” and to only go after countries that engage in unfair trading practices. “That’s all countries,” Trump replied.
Sen. Pat Toomey, R-Pa., echoed Blunt’s concerns, urging the president to “go very, very cautiously here.”
In another, Sen. Mike Lee (R‐Utah) warned that restrictions could cost jobs in other industries, but the president dismissed his concerns. “It will create a lot of jobs,” Trump said.
House Ways and Means Committee Chairman Kevin Brady, R-Texas, gave an even blunter assessment of the situation. He likened the Section 232 process to the use of “old- fashioned chemotherapy,” remarking that “it can often do as much damage as good.”
As other lawmakers warned that any tariff hikes or other restrictions could ultimately raise prices on consumers, Trump seemed mostly undeterred, opting instead to focus on the steel and aluminum production jobs such a move might salvage.
“You may have a higher price, but you have jobs,” he said.
“If we ever have a conflict, we don’t want to be buying steel from a country that we’re fighting because somehow that doesn’t work very well,” Trump said at the meeting. “We hopefully will not have any conflicts but … we cannot be without a steel industry. We cannot be without an aluminum industry. So what we’re talking about is tariffs and/or quotas.”
On February 19, 2018, in an editorial the Wall Street Journal warned President Trump on the Section 232 Cases:
“How to Punish American Workers
Steel and aluminum tariffs would cost more jobs than they save.
The economy is picking up steam, but President Trump could reduce the benefits of his tax cuts and regulatory rollback with protectionism. This risk became more serious after the Commerce Department on Friday recommended broad restrictions on aluminum and steel imports that would punish American businesses and consumers. . . .
But the evidence in Commerce’s reports belies this conclusion. And the wide-ranging economic damage from restricting imports would overwhelm the narrow benefits to U.S. steel and aluminum makers.
Start with national security, which Commerce construes broadly to include “economic welfare.” There’s little risk that the U.S. couldn’t procure sufficient steel and aluminum for defense even during a war. Defense consumes 3% of U.S.-made steel and about one-fifth of high-purity aluminum. U.S. steel mills last year operated at 72% of capacity while aluminum smelters ran at 39%. Both have ample slack to raise production for defense and commercial demands. . . .
Commerce nonetheless complains that China has driven down steel and aluminum prices by flooding the global market. Yet Commerce has already imposed 164 anti-dumping and countervailing duties on steel imports including more than two dozen on China. The department has also slapped tariffs on Chinese aluminum. Despite these tariffs, Commerce says rising imports “continue to weaken the U.S. steel industry’s financial health.”
Perhaps Mr. Ross missed the domestic manufacturers’ rosy earnings reports last month. Nucor ’s earnings soared by two-thirds in 2017 to $1.3 billion amid a 35% spike in the price of scrap metal. Steel Dynamics reported record sales, income and shipments last year. Even U.S. Steel posted a $387 million profit after a $440 million loss in 2016. Tariffs have padded profits amid growing U.S. demand.
As for aluminum, 18 smelters have shut down over the last decade amid rising electricity and declining aluminum prices. But production of secondary aluminum from scrap metal has been increasing, resulting in a 3% increase in employment across the industry between 2013 and 2016.
As a remedy for this non-problem, Commerce is proposing a global tariff of 24% on all steel imports; a 53% tariff on a dozen countries including China, Turkey and South Korea; or a global quota equaling 63% of existing imports. For aluminum, Commerce wants a global tariff of 7.7%; a 23.6% tariff on imports from China, Hong Kong, Russia, Venezuela, and Vietnam; or a global quota equal to 86.7% of imports.
Each option would raise prices for U.S. industries such as construction, transportation and mining. About 16 times more workers are employed today in U.S. steel-consuming industries than the 140,000 American steelworkers. Economists Joseph Francois and Laura Baughman found that more U.S. workers lost jobs (200,000) due to George W. Bush’s 2002 steel tariffs than were employed by the entire steel industry (187,500) at the time. Job losses hit Ohio (10,553 jobs lost), Michigan (9,829) and Pennsylvania (8,400).
About a quarter of a car’s cost is tied to steel, which is also a key component of domestically-produced wood chipper knives used in lumber, sawmills and landscaping. The oil-and-gas industry uses steel in drilling equipment, pipelines, production facilities, terminals and refineries. Aluminum inputs make up nearly half of the cost of a beer can.
Raising the cost of steel and aluminum inputs would impel many manufacturers to move production abroad to stay competitive globally. Does Mr. Trump want more cars made in Mexico? Mr. Ross has suggested letting businesses petition the government to exclude certain steel and aluminum products from the quotas or tariffs. But this review would be politicized and cause production delays.
Oh, and don’t forget that other countries could retaliate with trade barriers that hurt American exporters.
Commerce’s recommendations aren’t needed since the steel and aluminum industries are benefiting tremendously from Mr. Trump’s economic agenda. Tax reform is making it less expensive to retool mills, increased defense spending will also lift demand, and the Environmental Protection Agency’s withdrawal of the Obama Clean Power Plan contains electric prices. Why would Mr. Trump undercut his achievements with trade barriers that harm American workers and consumers?”
RETALIATION TARGETS ARE BEING PLANNED
EUROPEAN UNION
Axel Eggert, director general of the EUROFER steel lobby, warned the U.S. not to “pull the trigger on a new trade war,” adding: “The EU has an arsenal of trade remedies and safeguards available to defend its interests. These can be ready to launch in very short order in response to an economic threat, and EU industry will demand their immediate application.”
Gerd Götz, director general of the European Aluminum association, said that none of Ross’ proposed measures would address the root of the problem, which is Chinese overproduction, but instead do “great harm to Europe” ‐ to which the EU would then have to react by imposing trade restrictions, too. Gotz stated: “We call on the EU to be ready to protect our strategic sectors.”
US GROUPS RAISE RETALIATION CONCERNS
“Business Roundtable also stated that it is concerned that acting on the Commerce Department’s recommendations to use Section 232 to restrict steel and aluminum imports will result in foreign retaliation against U.S. exporters and harm the U.S. economy.
The American Automotive Policy Council, which represents Ford, General Motors and Chrysler‐Fiat, asked Trump to fashion a solution that won’t “diminish the global competitiveness of America’s automotive industry” by leading American carmakers to pay higher prices for steel and aluminum. This would place the U.S. automotive industry, which supports more than 7 million American jobs, at a competitive disadvantage.”
The American Institute for International Steel, which represents foreign steel producers, made the same point and urged Trump to reject Ross’ recommendations, rather than “risk the nation’s well‐being in order to benefit a few politically favored companies.”
AIIS Chairman John Foster stated:
“The national security foundation for the recommended tariffs and quotas is simply an unfortunate attempt to circumvent normally applicable WTO rules. If the United States chooses to abandon long‐standing principles of free trade that we have helped establish, and that have contributed so much to our national prosperity, Pandora’s box will be opened, and other countries will be sure to assert ‘national security’ reasons for protecting many other politically sensitive products from export competition.
The retaliatory measures that will follow will drive up manufacturing costs, inflate prices, shrink high‐value U.S. exports, and push the United States and the world toward recession.”
On February 21st, in Investors Business Daily in a op-ed piece entitled “Seriously, Steel Industry Protection Is The Wrong Way To Go“, Vernonique de Rugy and Christine A. McDaniel stated:
Their justification is that Chinese and other foreign steel producers benefit from unfair subsidies in their own countries. As a result of foreign competition, domestic steel’s market share is down to 70%. Numbers like this would make any other business owner’s head spin, but these executives think they deserve more. . . .
But for years this industry has avoided competition. As a result, they have not taken the tough steps needed to lean up and succeed on their own. With decades of special protections, billions in subsidies, and bloated executive compensation packages, it is no wonder U.S. producers are not competitive in this market with a low-wage country like China.
Thanks to his statements like last summer’s “Tariffs. I want tariffs,” these well- organized domestic steel executives see an opportunity with a president overly sympathetic to their pleas.
In an ideal world, no government would bankroll domestic companies. The urge to protect our own people against aggressive foreign subsidies is understandable, but not all protections actually help our country.
In particular, import taxes are known to be a net negative for the overall U.S. economy, and with intermediate inputs like steel the costs are more severe. Data from the Bureau of Labor Statistics show that 5.4 million workers are directly employed by steel-using sectors. The American Iron and Steel Institute reports that the steel industry directly employs 140,000 people in the United States. . . .
The steel industry’s historic unwillingness to compete and the government’s continued handouts are why they are in such poor shape today. It is why they are at the doorstep of the White House yet again asking the president, along with every American consumer, for help.
It doesn’t have to be this way.
ALUMINUM
The full Section 232 Commerce report on aluminum is attached, the_effect_of_imports_of_aluminum_on_the_national_security_-_with_redactions_-_20180117. The attached Commerce Department Summary statement on the Aluminum report, Section 232 Reports _ Department of Commerce, states as follows:
Key Findings of the Aluminum Report:
Aluminum imports have risen to 90% of total demand for primary aluminum, up from 66% in 2012. From 2013 to 2016 aluminum industry employment fell by 58%, 6 smelters shut down, and only two of the remaining 5 smelters are operating at capacity, even though demand has grown considerably.
At today’s reduced military spending, military consumption of aluminum is a small percentage of total consumption and therefore is insufficient by itself to preserve the viability of the smelters. For example, there is only one remaining U.S. producer of the high-quality aluminum alloy needed for military aerospace. Infrastructure, which is necessary for our economic security, is a major use of aluminum.
The Commerce Department has recently brought trade cases to try to address the dumping of aluminum. As of February 15, 2018, the U.S. had two antidumping and countervailing duty orders in place on aluminum, both against China, and there are four ongoing investigations against China.
Recommendations of the Aluminum Report:
Secretary Ross has recommended to President Trump three alternative remedies for dealing with the excessive imports of aluminum. These would cover both aluminum ingots and a wide variety of aluminum products.
A tariff of at least 7.7% on all aluminum exports from all countries, or
A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or
A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.
Each of the three proposals is intended to raise production of aluminum from the present 48% average capacity to 80%, a level that would provide the industry with long-term viability. Each remedy applies measures to all countries and all steel products to prevent circumvention.
The tariffs and quotas would be in addition to any duties already in place. The report recommends that a process be put in place to allow the Secretary to grant requests from U.S. companies to exclude specific products if the U.S. lacks sufficient domestic capacity or for national security considerations.
Any exclusions granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect.
SECTION 201 ESCAPE CLAUSE SOLAR CELLS/WASHING MACHINE DECISIONS
On January 22, 2018 the United States Trade Representative’s office (“USTR”) announced affirmative Section 201 decisions in the Solar Cells and Washing Machines cases and issued tariffs.
But one interesting point is that the 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.
The remedies for the two Section 201 are specifically set forth below.
SOLAR CELLS
In the Solar Cells case, the remedy is:
| Safeguard Tariffs on Imported Solar Cells and Modules | ||||
| Year 1 | Year 2 | Year 3 | Year 4 | |
| Tariff increase | 30% | 25% | 20% | 15% |
- First 2.5 gigawatt of imported cells 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. According to the Presidential Proclamation, however, the 30% tariff wasapplied to imports starting February 7, 2018.
The 201 tariffs are applicable to imports from almost all countries, including China, Malaysia, Germany, Canada and Mexico, except for the countries excluded in the Annex attached to the Presidential Proclamation. In future years, 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 15, 2019, imports after that will be hit with a tariff.
WASHING MACHINES
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
finished washers |
20% | 18% | 16% |
| All subsequent imports of finished
washers |
50% | 45% | 40% |
| 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.
JANUARY 25 PRESIDENTIAL PROCLAMATION AND EXCLUSION NOTICE IN FEDERAL REGISTER
On January 25th, the Solar Cells Presidential Proclamation with Annexes and exclusions was published in the attached Federal Register notice, FEDERAL REGISTER NOTICE PRESIDENTIAL PROCLAMATION SOLAR CELLS. According to the Annex I (f), the 30% tariff was applied to imports starting February 7, 2018.
In addition, a number of countries are excluded in Annex 1(b) from the tariff, including India, Ukraine, Indonesia, Turkey and many other countries, so long as their share of imports does not exceed 3%.
On February 14, 2018, the United States Trade Representative’s office (“USTR”) published the attached Federal Register notice, USTR EXCLUSION FED REG NOTICE, and allows companies to petition for exclusion by March 16. The Federal Register also sets forth a number of exclusions, which were already set forth in the Proclamation.
EXCLUSIONS IN ANNEXES
Some of those exclusions are:
“Presidential Proclamation 9693 of January 23, 2018 (83 FR 3541) excluded certain particular products:
10 to 60 watt, inclusive, rectangular solar panels, where the panels have the following characteristics: (A) Length of 250 mm or more but not over 482 mm or width of 400 mm or more but not over 635 mm, and (B) surface area of 1000 cm2 or more but not over 3,061 cm2), provided that no such panel with those characteristics shall contain an internal battery or external computer peripheral ports at the time of entry;
1 watt solar panels incorporated into nightlights that use rechargeable batteries and have the following dimensions: 58 mm or more but not over 64 mm by 126 mm or more but not over 140 mm;
2 watt solar panels incorporated into daylight dimmers, that may use rechargeable batteries, such panels with the following dimensions: 75 mm or more but not over 82 mm by 139 mm or more but not over 143 mm;
Off-grid and portable CSPV panels, whether in a foldable case or in rigid form containing a glass cover, where the panels have the following characteristics: (a) A total power output of 100 watts or less per panel; (b) a maximum surface area of 8,000 cm2 per panel; (c) does not include a built-in inverter; and where the panels have glass covers, such panels must be in individual retail packaging (in this context, retail packaging typically includes graphics, the product name, its description and/or features, and foam for transport);
3.19 watt or less solar panels, each with length of 75 mm or more but not over 266 mm and width of 46 mm or more but not over 127 mm, with surface area of 338 cm2 or less, with one black wire and one red wire (each of type 22 AWG or 24 AWG) not more than 206 mm in length when measured from panel edge, provided that no such panel shall contain an internal battery or external computer peripheral ports;
27.1 watt or less solar panels, each with surface area less than 3,000 cm2 and coated across the entire surface with a polyurethane doming resin, the foregoing joined to a battery charging and maintaining unit, such unit which is an acrylonitrile butadiene styrene (‘‘ABS’’) box that incorporates a light emitting diode (‘‘LED’’) by coated wires that include a connector to permit the incorporation of an extension cable.”
Emphasis added.
One exclusion that many companies are looking at is “off-grid and portable CSPV panels”, but there are a number of conditions quoted above that must be met to exclude the products in question.
Also the February 14th notice set up a number of criteria that must be met to get any additional exclusion from the Order.
COUNTRIES REQUEST TRADE COMPENSATION AT THE WORLD TRADE ORGANIZATION (“WTO”) FOR SECTION 201 TARIFFS
Article 8.1 of the WTO Agreement on Safeguards, which includes Section 201 tariffs, requires countries proposing to impose a safeguard measure, like Trump’s restrictions on solar and washing machine imports, to compensate other WTO member countries for trade losses. That could be in the form of reduced duties on products of interest to those countries.
The EU, China, Taiwan and Korea have formally asked the U.S. to discuss compensation for trade losses due to President Donald Trump’s safeguard measures on solar cells.
If no agreement is reached on compensation within 30 days of their requests, the EU, China, Taiwan and South Korea can begin proceedings to impose retaliatory tariffs on the U.S. However, the parties would first need to prove to a WTO dispute settlement panel that the U.S. applied the restrictions in a way that violated the safeguards agreement.
In the past, the US has lost a number of Section 201 cases at the WTO for imposing tariffs in a manner that violated the safeguards agreement.
In addition, several Canadian solar manufacturers on Wednesday filed a case at the Court of International Trade in New York City challenging the Trump administration’s imposition of tariffs. The companies say the tariff violates NAFTA and they say the majority of the International Trade Commission found that Canadian solar manufacturers did not constitute a sufficient quantity of U.S. solar imports as to cause injury. They call on the court to enjoin the tariffs and then ask for an expedited resolution of the case.
SOLAR CELLS AND SOLAR PRODUCTS ANTIDUMPING/COUNTERVAILING DUTY CASES
POSSIBLE EXCLUSIONS??
The Commerce Department in the attached preliminary determination in late December, REVOCATION OF SOLAR CELLS ORDER, proposed to exclude certain small solar cells from the Antidumping and Countervailing Duty orders. Specifically, the proposed exclusion is:
“Excluded from the scope of these orders are panels with surface area from 3,450 mm2 to 33,782 mm2 with one black wire and one red wire (each of type 22 AWG or 24 AWG not more than 206 mm in length when measured from panel extrusion), and not exceeding 2.9 volts, 1.1 amps, and 3.19 watts. No panel shall contain an internal battery or external computer peripheral ports.”
So exclusions are also happening from the AD and CVD orders.
2016-2017 SOLAR CELLS FROM CHINA ANTIDUMPING/COUNTERVAILING DUTY REVIEW INVESTIGATIONS
On February 23, 2018, Commerce published its attached Federal Register notice initiating the 2016-2017 Solar Cells Review Investigation, CHINA SOLAR CELLS REVIEW INITIATION NOTICE. In that review, Quantity and Value Questionnaire responses are due at Commerce by March 6, 2018.
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.”
ITC STUNNER—BOEING LOSES INJURY CASE IN BOMBADIER CIVIL AIRCRAFT CASE AT INTERNATIONAL TRADE COMMISSION (“ITC”)
In the attached decision, ITC-Public-Opinion-Aircraft, on February 13, 2018, in a stunning reversal, the ITC reached a negative, no injury, determination in the Civil Aircraft from Canada/Bombardier antidumping and countervailing duty cases. In those cases, the Commerce Department had determined that the Canadian government had given subsidies of over 200% to Bombardier and because Bombardier refused to participate at the Commerce Department in the antidumping case, very high dumping margins.
But for the Commerce Department to issue antidumping and countervailing duty orders and for Boeing to win the Antidumping (“AD”) and Countervailing Duty (“CVD”) cases, it had to win the injury case at the ITC. The ITC found no competition between the Canadian imports and Boeing’s planes and reached a negative, no injury, determination. When Boeing lost the case at the ITC, it truly lost the case. The case was terminated and over with.
Prior to the ITC determination, I had predicted that there was a 95% chance that ITC would reach an affirmative, injury determination. What was the basis for my prediction and why did I get it wrong? The ITC reaches injury/affirmative determinations in about 2/3 of the cases or about 66%. But in big ticket cases, like Steel, Lumber and other cases, the ITC goes affirmative in a vast majority of them. Also in this case, Bombardier had refused to participate in the AD case at Commerce. That is not looked on kindly by the ITC Commissioners.
But the February 13th decision by the ITC was a true shocker and a real Boeing loss. One Commissioner, Williamson, is very pro domestic industry. In many cases where the ITC reaches a negative, no injury, determination, Commissioner Williamson will vote with the domestic industry. But the ITC decision was a 4-0 unanimous no injury determination. Why and what does this decision stand for?
First, pursuant to the Statute, the ITC is made up of 6 Commissioners, no more than 3 Commissioners from the same political party. Right now, however, there are only 4 Commissioners on the ITC and none were appointed by President Trump. 3 Commissioners were appointed by President Obama and Commissioner Williamson originally was appointed by President George W. Bush.
The ITC is a very independent agency, possibly the most independent agency in the US Government because under the Constitution Congress controls trade, not the President. So Congress wanted its own trade agency and it set up the ITC. The ITC’s budget goes directly to Congress and does not go through the Administration’s Office of Management and Budget, and the ITC in contrast to every other government agency has the right to represent itself in Court.
The point being is that the ITC is very insulated from trade politics and President Trump has no direct control over the agency. But more importantly, the ITC’s decision in the Boeing case was a legal determination. When you read the ITC’s determination, it becomes very clear that the ITC found that imports of 100 to 150 seat aircraft from Canada did not compete with Boeing’s aircraft because Boeing produces bigger airplanes. Because there were so very few sales in the case, the Commission could zero in on those few sales to Delta. Based on those sales, the ITC simply could not find enough economic competition between the Canadian imports and Boeing’s planes to justify an affirmative injury determination.
As the Commission stated in certain relevant pages of its determination:
“Nevertheless, the record also shows that the higher standard seating capacity of the [Boeing] 737-700 and 737 MAX 7 limits competition between those models and the [BOMBARDIER] CS100 for some purchasers. Boeing has emphasized that airlines have a strong economic incentive to minimize empty seats by using LCA that are no larger than necessary on particular flights because using an LCA with more seats than required would result in unfilled seats, higher costs per seat, and lower profits. Respondents agree. In a standard two-class configuration, the seat count differential between the CS100 and the 737 MAX 7 is 30 seats, which is greater than the 24 seat differential between the 737 MAX 7 and the 737-800 that Boeing characterizes as significant “for airlines that try to fill every seat on every flight they operate.” Given this, there can be limited competition between the CS100 and the 737-700 and MAX 7 for sales to a purchaser seeking 100- to 150-seat LCA with a seat count toward the low end of the subject range.
The record shows that differences in seat count precluded competition between subject imports and the domestic like product for the only firm order for C Series LCA by a U.S. purchaser. . . .
In sum, we find that there is a likelihood of substantially increased subject import volume and market share based on Bombardier’s single sale for importation of subject planes during the period of investigation. Given that Boeing’s 100- to 150-seat LCA did not meet the purchaser’s requirements for this sale, however, and Boeing did not offer any new aircraft for this sale, we do not find that Bombardier secured this sale at Boeing’s expense. There is also insufficient evidence for us to conclude that Bombardier is likely to secure additional sales for importation of subject 100- to 150-seat LCA in the imminent future, or that any purchases of subject imports in the imminent future would likely be at the domestic industry’s expense. . . .
Based on the preceding considerations, we conclude that subject imports are not likely to have a significant adverse impact on the domestic industry in the imminent future. It is likely that any subject imports that enter in the imminent future would be the result of Bombardier’s single U.S. sale during the period of investigation for which Boeing was not directly competitive. Bombardier has not made any additional sales in the United States. There is insufficient evidence for us to conclude that additional orders for 100- to 150-seat LCA are imminent, that Bombardier would secure these orders, or that any orders secured by Bombardier would come at Boeing’s expense. We are mindful of the statutory requirement that a threat determination may not be made on the basis of mere conjecture or supposition, and thus do not find threat of material injury by reason of subject imports.
- Conclusion
For the reasons stated above, we determine that an industry in the United States is not threatened with material injury by reason of imports of 100- to 150-seat LCA from Canada that are sold in the United States at less than fair value and that are subsidized by the GOC.”
Emphasis added.
TWO IMPORTANT POINTS ABOUT THE ITC DETERMINATOIN AND BOEING’S LOSS
The importance of the Boeing negative determination is to make two very important points. First AD and CVD cases are not nearly as political as you would think. They are legal determinations, and the ITC can reach a negative no injury determination and turn the entire case off.
The second point is that many respondents in trade cases, especially in China, India and elsewhere, do not understand how important the ITC is in AD and CVD proceedings. Many respondents simply give up at the ITC. Bombardier, however, fought the Boeing case during the entire proceeding and mobilized companies and governments to speak out at the ITC about the case in favor of the respondents. This evened out the playing ground and made it easier for the ITC to reach a negative injury determination if it was inclined to do so. Bombardier also made sure that there was enough evidence on the ITC’s administrative record to make sure the ITC had the evidence to reach a negative determination.
Although fighting an ITC case takes time, resources and a lot of money to hire lawyers and consultants, Bombardier’s win at the ITC is a total victory. The case has ended and Boeing lost the case.
BOEING’S WTO FIGHT WITH AIRBUS COULD PROVIDE MORE TRADE RETALIATION
On February 11, 2018 the Seattle Times in an article entitled “Boeing’s biggest trade fight could spark a U.S. confrontation with Europe” went on to state about the next big trade fight by Boeing against Airbus and the EC:
“Boeing’s lawyers, still smarting from the shock of losing their U.S. trade- court case against Bombardier’s C Series jets, are now awaiting an imminent ruling in a bigger trade fight over government subsidies.
In a case against Airbus that’s slogged on for nearly 15 years and has seemed endless, Boeing now insists it’s within sight of a final victory.
And though the dispute long predates President Donald Trump, his administration’s hard-nosed “America First” posture on trade disputes – ready to impose tariffs rather than negotiating settlements – adds a new edge of rancor and risk.
The U.S. filed suit against Airbus at the World Trade Organization (WTO) in 2004, and since then the gears of that court have ground slowly without any perceivable impact.
Yet Boeing’s top lawyer, Michael Luttig, said in an interview that the law is about to catch up with Airbus and the European Union (EU).
“Boeing committed itself some 15 years ago … and it has never blinked since,” said Luttig. “Today, we are months away from the imposition of tariffs.”
Airbus is staring back, also refusing to blink
A senior Airbus executive and trade lawyer, who asked not to be named because of the continuing legal proceedings, compared Luttig’s threat of tariffs to “a nuclear strike” and pointed to the parallel EU case before the WTO that accuses Boeing of taking subsidies.
“The EU would be well-prepared to respond in kind and with much greater force,” said the Airbus legal executive. “The EU will survive that first nuclear strike and will retaliate with megatons to the U.S.’s kilotons.”
In a speech in London last month, Airbus CEO Tom Enders said that under Trump, the U.S. is “no longer fighting for opening markets but to close the U.S. market to foreign competitors.”
Citing the CSeries case, he accused Boeing of “ruthlessly surfing on this ‘America-First’ wave.”
The risk that a multinational trade war could erupt with some of the nation’s closest allies looks suddenly higher.
A WTO endgame
In September 2016, after multiple procedural steps and appeals, the last ruling in the United States’ WTO case against Airbus found that the European jet maker had fallen far short of remedying the harm to Boeing from illegal subsidies.
The EU immediately appealed. What’s ahead this year, by late spring, is the final decision on that appeal.
Boeing’s lawyers expect the court to largely uphold the 2016 decision
And Boeing says, that’s it. It’s the end of the appeals.
If Airbus loses, said Bob Novick, Boeing’s outside counsel on the WTO dispute since 2003 and former general counsel to the U.S. Trade Representative, the U.S. would then immediately request authorization to impose retaliatory sanctions. Boeing anticipates that the WTO will set the level of sanctions at $10 billion to $15 billion.
The U.S. government could then slap punitive tariffs up to that amount on whatever EU goods it selects for maximum political impact.
Boeing’s tough talk may be partly a negotiating ploy. Still, if the WTO hands this loaded weapon to the U.S. government, it’s unlikely the Trump administration’s trade hawks will be shy about using it.
Jeff Bialos, a partner in the international law firm Eversheds Sutherland and a former Commerce Department official handling major trade litigation, said that typically at such an endpoint in a trade dispute, the two governments would negotiate some agreed settlement.
“The issue is, will the Trump administration, with its views on trade . have the ability to negotiate solutions?” Bialos said. “The jury is out. We are going into uncharted waters.”
Bill Perry, a Seattle-based international trade lawyer with Harris Bricken and a former U.S. Commerce Department attorney, thinks Trump will take “a very hard line.”
He pointed to the administration’s imposition last month of tariffs on imported solar panels, to punish China for selling finished panels in the U.S. below their cost, and on washing machines, targeting Korean manufacturers.
“Could this be the first row of bricks in a protectionist wall Trump intends to put up?” Perry asked.
At the very least, the stage looks set for brinkmanship, if not an open trade war.
A duel with pistols drawn
Boeing lawyers expect the imminent threat of tariffs to focus minds in the EU and perhaps to precipitate settlement talks in which they would then have the upper hand.
The top Airbus executive warned that Boeing is on the hook for its own illegal subsidies in the parallel WTO case filed by the EU – and so whatever the U.S. does, the EU can and will match.
“Boeing can try for sanctions. And if they do, we will too,” he said.
In the EU case against Boeing, the last ruling in June found that Boeing had failed to remedy the harm to Airbus from just one set of subsidies: the tax reduction that was part of Washington state’s aerospace incentives.
Boeing has appealed that ruling.
An awkward detail for the EU is that its case against Boeing was filed as a countersuit some nine months after the U.S. filed against Airbus, and so it lags the U.S. case by roughly that amount of time.
The decision on Boeing’s appeal won’t come out until late this year or even next year. In the meantime, the U.S. may act. The Airbus executive dismissed the delay between the cases – “a few months” – as insignificant. He compared it to a pistol duel, where one person gets to fire first, but knows that the other will survive and will get a chance to fire back.
The EU will have plenty of ammunition, he contended. When the time comes to add up the compensation needed, he said the EU will count every airplane Boeing sells, including future sales. “Every sale of a 787 is a subsidized sale and every one will count against Boeing when judgment day comes,” the Airbus executive said.
Trade war consequences
If Boeing’s 15-year pursuit of Airbus at the WTO has been tenacious, the legal attack it launched on Bombardier last April was even more fiercely aggressive. And even though it failed, pushing the case had consequences for Boeing.
Geoffrey Geertz, a researcher on the politics of trade at the Washington, D.C.-based Brookings Institution, pointed out that in the Delta jet sale won by Bombardier’s CSeries that was central to the case, “there wasn’t much at stake” for Boeing because it wasn’t offering its own jets against the smaller aircraft.
Yet pursuing the case alienated both the Canadian and British governments, putting at risk large defense contracts, including a contract to supply Canada with F/A-18 jet fighters valued at more than $5 billion. It also antagonized major commercial-airplane customer Delta. In a subsequent sales campaign in December that mattered much more to Boeing, Delta chose to go with Airbus when it bought100 larger planes.
“Boeing might be rethinking whether that was a miscalculation,” Geertz said.
An open trade war with major economic partners could be even more damaging, not only for Boeing but for the U.S. That’s a belief central to traditional, pre-Trump Republican Party policy.
President Ronald Reagan in 1986 dismissed congressional demands for import tariffs as “flimflammery” and warned against the dangers of protectionism.
“The truth is these trade restrictions badly hurt economic growth,” Reagan said.
The unpredictable consequences of tariffs are evident in the case of REC Silicon, which produces polysilicon, a raw material used in making solar panels, at a $1.7 billion manufacturing plant in Moses Lake.
The Chinese solar-panel industry once imported polysilicon largely from the U.S.
But after an earlier round of the solar-panel trade fight, China in 2014 retaliated by imposing tariffs on U.S. polysilicon that forced REC to cut 500 jobs.
A letter sent to Trump by REC employees in early January said that “now the remaining jobs are at risk” and urged Trump to announce “a comprehensive settlement” with China. Instead, Trump applied new tariffs. The risk is a tit or-tat response.
Last month, in retaliation for the Commerce Department’s initiation in December of a trade case against imports of aluminum sheet from China, the Chinese government started its own case against U.S. exports of sorghum grain to China.
“It signals the possible start of a trade war with China,” said trade lawyer Perry in a newsletter to clients this month. “There is a price to pay for U.S. tariffs and trade actions.”
Fight or settle?
No company is more dependent on free trade than Boeing, which sells both its commercial jets and its defense products worldwide.
Yet Boeing sees itself at a huge disadvantage against Airbus because of the types of subsidies the European jet maker has available.
Yes, Boeing gets tax breaks and so pays less tax on the income from the planes it rolls out each year. But it has to take all the risk and shoulder the multibillion-dollar cost when it develops a new airplane.
Airbus gets upfront government loans amounting to billions of dollars to defray the cost in advance – with no repayment necessary if the new airplane project fails.
Luttig insists that “there is no such thing as free trade unless all of the global industry participants abide by the rules.”
“Free trade is, by definition, trade in accordance with the rules of fair trade,” he added.
Airbus says it wants a different endgame to the WTO case: a negotiated settlement that would reset the rules.
The Airbus legal executive said a multinational deal could lay out agreed limits to government support in the aircraft industry for the long-term future.
“We sit down with all participants in this game, including the Chinese, the Russians, the Japanese, the Canadians, the Brazilians and maybe more, and have a good discussion globally,” he said.
Such an agreement might then constrain China’s behavior as its aviation champion COMAC develops future airplanes to compete against Boeing.
Brookings researcher Geertz said pursuing such a settlement makes sense because “the long-term game for Airbus and Boeing is figuring out what they are going to do about COMAC.”
In an interview at Boeing’s Chicago headquarters before the loss in the Bombardier case, Chief Executive Dennis Muilenburg steadfastly eyed his shorter-term target.
“Airbus, as has been determined through the WTO proceedings, has an unresolved more than $23 billion illegal subsidy that still needs to be addressed,” Muilenburg said. “We have to stand on a principle of global fair competition.”
Boeing’s case against Airbus may be stronger than the one against Bombardier.
Still, with one trade-court decision gone awry, Boeing’s leadership must now weigh anew the risks of a trade war against the likelihood that a legal victory could enforce a fair competitive landscape for the future.
BUT TRUMP’S ECONOMIC POLICIES TO DATE HAVE CREATED OTHER RAYS OF LIGHT—A ROARING ECONOMY WITH MANUFACTURING COMING BACK TO THE US—CUTTING TAXES AND REGULATIONS WORKS
As stated in the last blog post, probably the most important development from the trade point of view in the last few months, however, is the passage of the tax bill. Trump’s economic policies along with the Tax Bill are leading to record economic growth and record unemployment.
On February 1, 2018, in an article entitled “300 firms giving tax cut bonus, Costco dismisses Pelosi’s ‘crumbs’ attack,” the Washington Examiner stated:
“The number of companies offering employees higher wages, expanded insurance and retirement benefits and cash bonuses up to $3,000 has surged to 300 as more see benefits from the new GOP tax cuts.
The payouts, praised by President Trump, are going to some 3 million employees.
Again on Thursday at a Massachusetts town hall, House Minority Leader Nancy Pelosi called the bonuses “crumbs.”
Not only are companies crediting Trump in their announcements, one major employer, Costco, disputed Democratic sneers that the bonuses are “crumbs” and hide bigger profits.
During a shareholders meeting this week, Costco chief Craig Jelinek said the attack by Pelosi was not “thoughtful.”
According to the National Center for Public Policy Research, the comments came in response to a question from their counsel Justin Danhof. What’s more, said Danhof, Jelinek said that critics were just “throwing stuff out there.”
The Costco executive noted that the wholesaler pays higher than average wages and added that the tax cuts may benefit customers.
The growing list of companies paying so-called “Trump bonuses” is at 300, according to list keeper Americans for Tax Reform and ATR Vice President John Kartch.
ATR President Grover Norquist said, “Every two weeks from February to November Americans will be reminded that one party cut their taxes and raised their pay. And the other tried to stop it.”
According to the Americans For Tax Reform, the actual number today February 23, 2018 is over 400 companies and includes the following companies:
“Plexus Corp., Solara Company, Kraft Heinz Company, CUNA Mutual Group, CarMax Inc., Valley Bank, Quake Manufacturing, Wirco Inc., Blue Cross and Blue Shield of North Carolina, Prospector Hotel and Gambling Hall, Fontainebleau, Mission Produce, Mastercard Inc., Civista Bank, Gulf Power Company, Fidelity Bank, Dyersville Die Cast, Unum, Sheely’s Furniture and Appliance, Henry Schein, Inc., R+L Carriers, The Gateway Tavern, OneMain Holdings, Inc., The Stowaway, Duck Inn Pub, Sail Loft, Speedwell Tavern, Pilgrim Bank, Xante Corporation, J.M. Smucker Company, Iowa-American Water Co., Somerset Savings Bank, Amboy Bank, Citizens Bank of West Virginia, Dot Foods, Sound Financial Bancorp Inc., Pitney Bowes, Shred-X, LiDestri Food and Drink, U.S. Special Delivery, Huntington Ingalls Industries, Middlefield Banc Corp., Cintas Corporation, PepsiCo., Protective Life Corporation, St. John’s Properties Inc., Insperity, U-Haul, Leak Sealers, Mill Steel Company, Payne Trucking.”
Some of the other additional companies on the list are:
“1A Auto, Inc. (Westford, Massachusetts), 1st Source Corporation (South Bend, Indiana), 1st Summit Bank (Johnstown, Pennsylvania), AaLadin Industries, Inc. (Elk Point, South Dakota), AAON (Tulsa, Oklahoma), AbbVie, Inc. (North Chicago, Illinois), Adams Community Bank (Adams, Massachusetts), Advance Financial (Nashville, Tennessee), Advanced Sciences and Technologies, LLC (Berlin, New Jersey), Aflac (Columbus, Georgia), Ally Financial Inc. (Charlotte, North Carolina), Altria Group Inc. (Richmond, Virginia), Amarillo National Bank (Amarillo, Texas), Amboy Bank (Old Bridge, New Jersey), American Airlines (Ft. Worth, Texas), American Express (New York, New York), American Family Insurance (Madison, Wisconsin), Apple (Cupertino, California), AT&T (Dallas, Texas), AutoNation, Bank of America (Charlotte, North Carolina), BB&T (Winston-Salem, North Carolina), Best Buy (Richfield, Minnesota), Boeing Company (Chicago, Illinois), Cabot Oil & Gas Corporation (Houston, Texas), Capital One (McLean, Virginia), CarMax Inc. (Richmond, Virginia), The Charles Schwab Corporation (San Francisco, California), Charter Communications, Inc. (Stamford, Connecticut), Chipotle Mexican Grill (Denver, Colorado), Cigna Corporation (Bloomfield, Connecticut), Comcast (Philadelphia, Pennsylvania), Exxon Mobil, FedEx (Memphis, Tennessee), Fiat Chrysler (Auburn Hills, Michigan), Home Depot (Atlanta, Georgia), Honeywell (Morris Plains, New Jersey), Hostess Brands, Inc. (Kansas City, Missouri), Humana (Louisville, Kentucky), Smucker Company (Orrville, Ohio), JPMorgan Chase & Co. (New York, New York), JetBlue (New York, New York), Kraft Heinz Company (Pittsburgh, Pennsylvania and Chicago, Illinois), Lowes (Mooresville, North Carolina), Mastercard Inc. (Purchase, New York), Merck (Kenilworth, New Jersey), MetLife Inc. (New York, New York), Nationwide Insurance (Columbus, Ohio), Pfizer Inc. (New York, New York).”
The point is that the entire list of companies providing bonuses, increases in 401Ks and other contributions to both employees and customers because of the tax bill is mind numbing. The entire list can be found at Americans for Tax Reform at https://www.atr.org/list.
One can disagree with President Trump, but the fact is he is putting money back into the average American’s pocket.
The good news keeps on coming. On February 13th Bloomberg reported:
“Optimism among small companies in the U.S. rose more than forecast in January, fueled by a record number of owners who said now was a good time to expand, according to a National Federation of Independent Business survey released Tuesday.
Six of the 10 components that make up the small-business optimism index increased in January, producing one of the strongest readings in the 45-year history of the survey. The figures show sustained, sturdy business sentiment since the November 2016 election. A measure of plans to boost capital spending in coming months increased by 2 points to 29 percent, consistent with other data indicating robust outlays for equipment. One in five small companies said they plan to boost hiring, unchanged from the prior month, as finding qualified workers remains problematic and underscores a tight job market.The new tax law “produced the most recent boost to small-business optimism,” NFIB’s William Dunkelberg and Holly Wade said in a report. “And federal government-related cost pressures continue to abate, offering a more supportive business climate for small firms. Consumer spending remains supportive, and business spending and housing remain strong.”
The bottom line is that many average Americans are being affected positively by the Trump tax bill. This may explain why on February 23rd the Rasmussen Reports stated that Trump’s popularity had shot to 50%. The tax bill is a gift that will keep on giving to Trump and the Republican party.
SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS
In an attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, 301 INITIATION NOTICE 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 NEGOTIATIONS CONTINUE AND PROBABLY WILL NOT BE TERMINATED
NAFTA negotiations continue and there is hope that the agreement will not be terminated. But no one can say for certain at this time.
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.
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
CAST IRON SOIL PIPE
On January 23, 2018, Cast Iron Soil Pipe Institute filed antidumping and countervailing duty case against Certain Cast Iron Soil Pipe from China.
RUBBER BANDS
On January 30, 2018, Alliance Rubber Co. filed antidumping and countervailing duty cases against Certain Rubber Bands from Thailand, China, and Sri Lanka.
UNIVERSAL TRADE WAR CONTINUES
FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES
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 and ongoing Chinese trade cases. Team’s newsletter-EN Vol.2018.04 Team’s newsletter-EN Vol.2018.05 Team’s newsletter-EN Vol.2018.06 Team’s newsletter-EN Vol.2018.07
SECTION 337 AND IP CASES
FUEL PUMP ASSEMBILES
On January 31, 2018, Carter Fuel Systems, LLC filed a section 337 case against imports of Fuel Pump Assemblies Having Vapor Separators. The named respondent in the case is:
Wenzhou Jushang (JS), Performance Parts Co. Ltd., China.
JUMP ROPE SYSTEMS PRODUCTS
On February 13, 2018, Jump Rope Systems LLC filed a section 337 case against imports of Jump Rope Systems Products. The named respondent in the case is:
Suzhou Everise Fitness Co., Ltd., China.
If anyone has any questions about these cases or about the Trump Trade Crisis, Taxes and Trade, Section 201 Solar Case, Section 232 case on Steel, Aluminum or Uranium or 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