US CHINA TRADE WAR –301 IP CASE NOT GOING AWAY, LONG COLD WINTER US CHINA TRADE RELATIONS, TRUMP XI MEETING DIM HOPE, JUSTICE DEPARTMENT CHINA IP INVESTIGATIONS, 301 PROCEDURES, NEW NAFTA

TRADE IS A TWO-WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 20, 1986

US CHINA TRADE WAR – NOVEMBER 19, 2018

Dear Friends,

This has been a difficult blog post to write because the US China Trade Relations are at a turning point.  Also every day there has been more news, most of it bad.

Although my hope is for a quick settlement, in all probability the US China trade relations are entering a long cold winter. The core of the Section 301 case is the IP Theft and Forced Technology transfers of US/foreign companies by Chinese entities under the direction of the Chinese government.  With no proposals/action plans from the US government and no real proposal from the China side until November 15th, which apparently was just a list of areas for possible negotiation, I do not see how this trade war ends soon.

Although there will be a Trump Xi meeting at the G-20 in Argentina on November 30 to December 1st, as of November 16th, there has been no real movement to a settlement.  Maybe an agenda can be created before the meeting, but usually those agendas are set up at lower level meetings and the issues are preliminarily negotiated before the meeting of the principles.  To date those real negotiations have not taken place.

Although there has been talks with the Treasury Secretary, Treasury will not make the decision in the Trade War embodied in the Section 301 case.  That decision will be made by the United States Trade Representative (“USTR”) Robert Lighthizer and Donald Trump.  To date, there have been no negotiations on the 301 case between China and USTR.

On October 29th, Bloomberg reported that sources in the White House indicated that the if there is no breakthrough at the Trump Xi meeting, President Trump will impose tariffs on the remaining $275 billion in imports from China, in effect, covering all imports from China, which in 2017 were close to $505 billion.

The US China Business Council and the American Chamber of Commerce in Beijing have both told the Chinese government to come up with an action plan to provide the US government to settle this dispute.  This action plan would specifically spell out the steps that the Chinese government is prepared to deal with the core of the Section 301 case  — intellectual property (“IP”) theft and forced technology transfer.  Although I hope that an agreement between the US and China is possible, as indicated below, my partner, Steve Dickinson, who represents many US companies in China, believes that the situation is not likely to change in the near future.

Making it more difficult, on November 13th Vice President Pence told the Washington Post:

In addition to trade, Pence said China must offer concessions on several issues, including but not limited to its rampant intellectual property theft, forced technology transfer, restricted access to Chinese markets, respect for international rules and norms, efforts to limit freedom of navigation in international waters and Chinese Communist Party interference in the politics of Western countries.

If Beijing doesn’t come up with significant and concrete concessions, the United States is prepared to escalate economic, diplomatic and political pressure on China, Pence said. He believes the U.S. economy is strong enough to weather such an escalation while the Chinese economy is less durable.

If the US demands that China, in effect, must concede on every issue and completely change its economy to settle the 301 case, which is not focused on the South China sea and other issues, China will stand up and refuse to back down.

On the other hand, if a proposal to settle IP Theft and Forced Technology Transfer, the core of the 301 case, can come from the Chinese side, there is a chance that the 301 case can be settled.

In addition, IP Theft has risen to another level with the Justice Department initiative below to criminalize the actions and threaten the Chinese companies and the individuals involved with criminal fines and prison time.

If there is no settlement of the IP issue, this trade war will go on and on.  My hope is that the Chinese government makes a pragmatic/practical decision to deal with the IP Theft and forced technology transfer issues and settles this 301 case before the damage becomes too great.

On November 4th, former Treasury Henry Paulson, a true friend of China, at an economic conference in Singapore at which Wang Qishan attended made clear his fear that the US and China are entering into a cold war and “that is why I now see the prospect of an Economic Iron Curtain—one that throws up new walls on each side and unmakes the global economy, as we have known it.”  That statement should make the Chinese government understand how serious this situation is.

Meanwhile, the Chinese government appears to be turning away from the private market and to more of a state-owned market causing many private Chinese companies to look at alternatives in third countries.

Because of this trade war, US importers, US and foreign companies with manufacturing operations in China and even Chinese private companies must make contingency plans to deal with this US China Trade War, which could block all Chinese exports from the US market.  My law firm has set up a new group of consultants in Vietnam, Thailand and Philippines to look for third country sources of supply.  Our lawyers have expertise in drafting contracts to help them import products from those countries and also to set up manufacturing operations in those countries. Products coming from countries, such as Thailand and Philippines, also get an advantage under the US General System of Preferences eliminating normal Customs duties on products, which can range from 4 to 6.5%. This gives those imported products from GSP countries a financial advantage over products from China and elsewhere.

This newsletter will describe the 301 and IP issues in detail.  At the end of the newsletter, the technical details of the Section 301 case will be set up with the three lists and the possibility of filing for a product exclusion request.

Finally, will make some brief comments on the new US Mexico Canada Trade Agreement.

If anyone has any questions, please feel free to contact me.

Best regards,

Bill Perry

THE US CHINA TRADE WAR IS NOT GOING AWAY SOON

To date the Chinese government appears to have dug in its heels, denied any IP theft or forced technology transfer and refused to provide any specific action plan to the US Government to deal with the IP issue.  The November 15th Chinese proposal apparently was just areas for possible future negotiation.

The attached full Section 301 report, USTR FULL 301 REPORT CHINA TECHNOLOGY TRANSFER, lists the IP Agreements between the US and China, which China has not followed through on.  The 301 report is based on studies done by the US China Business Council and the American Chamber of Commerce in China.

I have personally talked to US companies, who have had intensive pressure from Chinese companies to turn over IP.  That pressure from Chinese companies apparently is coming directly from the Chinese government.

Some of those US companies are leaving China.  In fact, because of the Trump tariffs and the IP problems, there are reports that 60% of US companies are planning to move all or some of their production out of China.  The Trump tariffs have been the spark, but the gunpowder is the Chinese government/companies’ aggressive attempts to take US companies’ intellectual property.

The Chinese government may believe that it can weather this trade storm and wait it out.  But my discussions with Chinese companies indicate that it is becoming a long, hard winter.  Despite the tariffs, the US stock market has hit record highs since the Trump election in 2016.  Unemployment is at record low levels.

In contrast, China has seen an enormous drop in the Shanghai stock exchange of 25%.  Although exports are up because the tariffs on the $200 billion are only 10%, many experts are expecting a sharp drop when the tariffs go up to 25% on January 1st.

The US may be hurt by a US China trade war, but all the economic indicators are that China will be devastated. See the November 1st article from the South China Morning Post about the dramatic slowing in the Chinese economy at https://www.scmp.com/news/article/2170966/chinese-manufacturing-activity-slows-more-expected-trade-war-intensifies.

The question for the Chinese government is does China want to be a friendly competitor or a strategic rival bent on becoming the hegemon, which will dominant all of Asia.  My hope is that China wants to join the international community as a friendly competitor.  If China wants to be a friendly competitor, it has to demonstrate a committed policy of rejecting IP theft and forced technology transfer.  Otherwise it will be regarded as an international outlaw and strategic rival, and the US and many countries in the World will push back, devastating the Chinese economy and setting back the Chinese economy by decades.

The question for the Trump Administration is do you want to settle the 301 case and deal with the IP issues or simply use the 301 case as an excuse to shut down all trade with China.

Chinese officials argue that they do not know what US government officials to negotiate with and what the core issues are in the Section 301 case.  The core issues are IP Theft and Forced Technology Transfer.  The US government officials to negotiate with are: President Donald Trump, USTR Robert Lighthizer and possibly President Trump’s son in law, Jared Kushner, who played a pivotal role in negotiating the US Mexico Canada Trade Agreement.  But USTR is the agency in charge of the negotiations and the entity the Chinese government has to negotiate with.  Negotiating with Treasury Secretary Mnuchin is not going to settle the 301 case because that case comes out of USTR.

Moreover, it is not just the US that China has to worry about on intellectual property.  Europe has already agreed to work with the US against China on IP theft and forced technology transfer.  Mexico and Canada will join the Coalition.  Japan will also join because it strongly believes that the Chinese government stole their intellectual property for the bullet train.  This is not a pretty situation for China.

THE IP CORE OF THE 301 CASE AND SIGNED CHINESE IP AGREEMENTS VIOLATED

The core of the Section 301 case is intellectual property, rights which are Constitutionally protected rights.  Stealing intellectual property (“IP”) is piracy, pure and simple.

As the United States Trade Representative states on page 4 of its attached full 301 report, USTR FULL 301 REPORT CHINA TECHNOLOGY TRANSFER:

The Federal Register Notice described the focus of the investigation as follows:

First, the Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies operations in China in order to require or pressure the transfer of technologies and intellectual property to Chinese companies.  Moreover, many U.S. companies report facing vague and unwritten rules, as well as local rules that diverge from national ones, which are applied in a selective and non-transparent manner by Chinese government officials to pressure technology transfer.

Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology- related negotiations with Chinese companies and undermine U.S. companies control over their technology in China. For example, the Regulations on Technology Import and Export Administration mandate particular terms for indemnities and ownership of technology improvements for imported technology, and other measures also impose non- market terms in licensing and technology contracts.

Third, the Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, the investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber- enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.

The Section 301 Report then goes on to list ten IP Agreements the Chinese government signed with the United States from 2010 to 2016, including the recent 2016 agreement between President Xi and President Obama to not require the transfer of technology as a precondition of doing business in China.  See page 8 of the USTR 301 report, which is attached above.

The international IP agreements China signed between 2010 to 2016 are NOT unequal treaties.  These are agreements that the Chinese government negotiated with the US and other foreign countries and then simply refused to follow through on.

See the article from the South China Morning Post on how China’s rampant intellectual property theft overlooked by the US sparked the trade war https://www.scmp.com/magazines/post-magazine/long-reads/article/2170132/how-chinas-rampant-intellectual-property-theft.

Moreover, the argument from some Chinese government officials and academics that China is a “developing” country and does not have to follow the international agreements that it signed is simply ridiculous.  China is now the second strongest economy in the World.

WHY IP PROTECTION SO IMPORTANT FROM THE US POINT OF VIEW

Many do not realize that IP rights, specifically copyrights and patents, are Constitutionally protected rights in the United States.  Article I Clause 8 of the US Constitution states:

“The Congress shall have power: “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

When I was in the Commerce Department in the mid 1980s during the Reagan Administration, Commerce Secretary Malcolm Baldrige believed that his job was to protect the crown jewels of American Manufacturing, the High-Tech industry.

In July 2018, USTR Lighthizer at the Senate Appropriations Committee responded to a question from Senator Schatz of Hawaii questioning the 301 case, by strongly stating the importance of protecting US intellectual property for future generations.  See https://www.appropriations.senate.gov/hearings/review-of-the-funding-priorities-for-the-office-of-the-us-trade-representative.

The United States views its high technology as the crown jewels, and crown jewels have to be protected. On June 15th, in the Section 301 case against China’s misappropriation to US intellectual property rights, through the United States Trade Representative (“USTR”), President Trump announced tariffs on $34 billion of Chinese imports.  The USTR announcement announcing the tariffs stated:

“We must take strong defensive actions to protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks,” said Ambassador Robert Lighthizer. “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like ‘Made in China 2025.’ Technology and innovation are America’s greatest economic assets and President Trump rightfully recognizes that if we want our country to have a prosperous future, we must take a stand now to uphold fair trade and protect American competitiveness.”

DENY, DENY DENY—CHINESE GOVERNMENT RESPONSE

Recently, here in Seattle, the head of the San Francisco Chinese Consulate responded to the Section 301 case by simply denying all the allegations.  The Chinese government is not engaged in IP Theft and does not force companies to transfer their intellectual property when in China.

In an August 8, 2018 editorial, “China will not surrender to US threatening tactic”, the Chinese Daily, which is an arm of the Chinese government, stated:

But it created a new tactic of accelerating the trade war while advertising its willingness for talks. The mainstream opinion is that the US wants to use carrot-and- stick diplomacy to bully China into unilateral trade concessions, while some others hold that the hardliners in the White House overwhelm those calling for talks.

However, both groups share the same goal: to defeat China, no matter they prefer trade war or negotiation. But there is no way for them to be satisfied. . . .

But China will eventually defeat the trade blackmail of the US and it is impossible to force China into surrender to the US coercion. . . .

On October 16, 2018, in an editorial entitled “Commentary: Washington’s accusing China of “forced technology transfer” not grounded in facts” the China Daily stated:

BEIJING, Oct. 16 (Xinhua) — In its recent round of mud-slinging against China, the United States has once again resorted to such hackneyed charges as “forced technology transfer” and “intellectual property theft.”

Those allegations are detached from the facts, insulting to China’s technological achievements, and nothing but a pretext for the global hegemon to stymie the ascent of the world’s largest developing country.

China’s remarkable scientific and technological development allows no belittlement. It stems from the hard work of generation after generation of Chinese researchers, and benefits from international cooperation under the country’s long-standing opening-up policy. . . .

Meanwhile, as witnessed by the international community, China has made great strides in formulating and improving its laws and regulations on intellectual property rights (IPR) protection in recent years.

World Intellectual Property Organization Director General Francis Gurry said just two months ago that in the past 40 years, China has established a high-level IPR protection system that regards intellectual property as the driving force for innovation and economic development and treats Chinese and foreign companies equally.  Without any doubt, technology transfer abounds between Chinese and foreign entities, but that is rooted in the transferring parties’ pursuit of maximum profits.

As a matter of fact, U.S. companies have made huge gains in China over recent years from technology transfer and licensing. According to the U.S. Bureau of Economic Analysis, China paid 7.95 billion U.S. dollars in 2016 and 8.76 billion dollars in 2017 to the United States for the use of intellectual property.

Thus, such condemnation of normal commercial practices is a mockery of the spirit of contract. More ironically, one of Washington’s frequently used weapons to curb other countries’ development is to impose high-tech export bans.

Authoritative research reports have repeatedly suggested that should the United States relax its strict restrictions on high-tech exports to China, its trade deficits would decrease significantly. But Washington has continued to be obstinate.

As many have pointed out, the ongoing trade frictions between China and the United States betray Washington’s anxiety over China’s increasing scientific and technological strength.

That angst is self-inflicted. Beijing is committed to peaceful development and win-win cooperation. What’s more, if China and the United States, the top two economies and investors in scientific and technological research on the planet, can join forces, the whole world will benefit, including both countries.

Given that, it is high time that Washington abandon its zero-sum mentality and embark upon the path of win-win cooperation instead.

CHINA’S REASONS FOR NOT GIVING IN ON INTELLECTUAL PROPERTY

But we need to go deeper to understand China’s determination not to give in on the IP issues.  In past newsletters and this newsletter, I have advocated strongly that China needs to negotiate and deal with IP Theft and Forced Technology Transfer Issues.  I know for a fact that this happens in China.

Recently, I gave a speech in Houston, Texas about the Section 301 case.  At the end of the speech, an engineer from an oil refining company talked to me about the IP issue.  She has done projects all over the World.  The engineer told me that she has told her bosses that she refuses to do any more projects in China because of the constant aggressive attempts of the Chinese partners to steal the company’s IP.  Another senior manager at a major high tech company confirmed this point.

We know how the Chinese government helps Chinese companies get the IP.  IP for high technology cannot be sold to China by a service.  The policy of Chinese state-owned companies and Chinese banks, which are owned by the Government, is that the IP must be brought to China.  Then the US company cannot set up a wholly owned subsidiary in China to hold the IP.  No, the US company must have a joint venture, often with a direct Chinese competitor.  Once the Joint Venture is established, the Chinese company simply breaches the IP licensing agreements and takes the IP for the high technology.

Simply denying the IP problems will not solve the Section 301 case and make the tariffs go away.  But my partner, Steve Dickinson, who represents many US companies in China, has told me that the Chinese government cannot give in.  Steve speaks and reads Chinese fluently and follows the Chinese press closely:

“The trade and investment relationship between the U.S. and China is going through permanent change. The current round of tariffs is just the start. As the tariffs fail to bring a resolution, other restrictive measures will be implemented: prohibition on a) sale or license of technology to China, b) on Chinese purchase of U.S. technology companies, c) on education of Chinese students in U.S. schools, d) of hiring of Chinese nationals in U.S. business, and e) on cooperative research programs with Chinese scholars and researchers.

This is the “new normal” in China/U.S. business relations. U.S. companies that do business must adjust to this new normal as quickly as possible. Many companies are waiting to react because they believe that this conflict is just a temporary political problem that will soon blow over. This view is a mistake.

The tariff measures are the first step in a much more general conflict over the entire Chinese system. The U.S. objects to virtually every aspect of the current Chinese economic/trade/investment system. Rather than take on the entire Chinese system as a first step, the current tariff dispute with China has been narrowly defined.

The USTR 301 Report bases the tariffs on two concrete issues: forced technology transfer and IP theft. Rather than respond constructively on how these issues can be resolved, the Chinese government response has been to simply deny every claim in the 301 Report. In its White Paper in response to the 301 Report, the Chinese government flatly denied every claim in the report. On forced technology transfer: it does not happen. Companies that transfer their technology to China do it voluntarily based on their own business calculation. On IP theft: it does not happen and all the accusations of trade secret theft and cyber-hacking are simply lies.

This complete denial of every statement in the 301 Report has been consistently maintained by every layer of the Chinese government. There has been no movement at all. For example, in the forced transfer area, the Chinese government has refused to even consider opening the network, e-commerce and cloud computing markets in China to foreign based businesses. In the IP theft area, the Chinese government has refused to cooperate in investigation and extradition on the recent U.S. indictments in several high profile cases.

In the face of these consistent denials, there is no room now for the Chinese government to back down. There is a reason for this position. The forced transfer and IP “assimilation” regimes are at the core of the Chinese economic system. Any government leader who proposed to change those regimes in a serious and effective way would simply be removed from power. The current leaders of China understand this and that is why they cannot even suggest a compromise on this critical issues that go to the heart of the current Chinese system.

So the only short term resolution of the trade war is for the U.S. trade team to capitulate. The U.S. has capitulated in the past. What reason is there to believe that the U.S. will not capitulate now? The reason the U.S. is not likely to capitulate is that U.S. businesses have waited now for 20 years to see real improvement in the Chinese system. The result has not been improvement. Over the past decade the situation has grown steadily worse. As a result, China has lost its former supporters in the U.S. business community. Since China has lost its main body of support in the U.S., there is no pressure on the U.S. trade team to back down. It is therefore unlikely that they will.

The situation is critical and U.S. businesses that operate in China must begin an analysis on how to deal with the trade situation and then make concrete plans to deal with the impact of the situation on their business operations. Many companies believe that they are faced with a black or white decision: either abandon China or pretend that nothing is happening. This approach is a mistake.

The response is far more complex. Some companies will continue to work with China based on the situation that has been in place for the past decade. For those companies, the major adjustment is that they can quit dreaming that anything will change. For other companies, developing supply relations outside of China will become critical. For other companies, China will no longer be attractive and a move will be required.

What is consistent is that every company that operates in China will be required to evaluate its operations in China under the new normal of current and increasing restrictive trade and investment measures. Some of the analysis that must be performed is:or companies that purchase products from China: how will current and future tariffs impact the business. For some of our clients, the tariffs are largely irrelevant. For others, the impact is severe.

When tariffs have an impact: what can be done? Is an exclusion from the tariffs possible? Will the Chinese factory agree to a price adjustment? Should sales be directed to countries outside the U.S. where tariffs are not imposed.

If the supply chain must be moved to another country, a careful analysis is required. Will you need to build a factory or can you purchase from an existing supplier or contract manufacturer? Is the infrastructure and legal system in the target country adequate for your needs? How long will it take to move and what will be the cost? In the end, after the analysis is complete, the result may be that a move from China is not cost effective.

China currently requires many technology companies to license their technology into China. For example, such licensing is required in the network, cloud, SaaS sector, e-commerce and fin-tech sectors. The Chinese government has made it clear that this policy will not change. Companies in this sector that have held off on China in the hopes of a change in policy must now make a decision: accept the licensing requirement or abandon China as a market.

Many U.S. companies engage in co-development of technology and products in China, working with many types of Chinese entities. Over the past 15 years, the Chinese court system has been receptive to protecting the contractual rights of foreign entities, provided that the contracts are properly drafted. Will this support continue? Or will U.S. companies need to look to different ways to protect their innovations that do not rely on the Chinese legal system?

For U.S. companies that want to sell or license technology to Chinese person, will new rules make that difficult or impossible? For U.S. companies that want to bring in Chinese investment, what will be the impact of restrictions that are currently being proposed. For U.S. companies that rely on hiring large numbers of Chinese professionals, what will be the restrictions. For U.S. education and research institutions that want to work with Chinese researchers, will that be possible? What about Chinese scholars who have become naturalized citizens of other countries: will they also be banned?

The questions above must be faced by every party from the U.S. that works with China in any way. The new normal with China is just that: China will not be permanently cut off from business relations with the U.S. But the nature of the relationship has changed. The situation is fluid and the final configuration of the U.S/China business relationship has not been settled. Businesses that wait until after a final resolution is reached will be left behind.

Now is the time to evaluate and take action.

As explained below, because of the great change in US China trade relations, we are working to help US companies, importers and even Chinese private companies set up operations in third countries, such as Vietnam, Thailand and Philippines.  We now have arrangements with consultants on the ground in these countries to help establish manufacturing operations or develop second sources of supply.On the legal side, we have substantial experience drafting foreign manufacturing agreements and supply agreements in these other countries to help companies wanting to move to a third country or source products from those countries.

See more information below.

To understand why we are so pessimistic of a short term settlement, on November 7th, the China Academy of Social Sciences, which is part of the Chinese government, posted an article on what they continue to pose as the ideal Chinese domestic innovation/assimilation of foreign IP project: the high speed rail/bullet train project: http://ex.cssn.cn/djch/djch_djchhg/zggdxlbdly_91788/The PRC high speed rail project was one of the most notorious examples of IP theft in the modern era. Chinese companies stole from 4 different companies breaching IP license agreements with the European and Japanese companies.  Not only did the Chinese companies break their agreements to purchase foreign technology, they are now attempting to sell their illegal clones right back into foreign markets in competition with the companies from whom they stole the technology.

When challenged by Hitachi and others, the Chinese companies responded:

1). The licenses were unfair, so breach was justified.

2). Foreign patents, other IP and formal license agreements are all just unfair means foreigners use to keep China down.

3). The foreign companies should be happy that China is making cheap imitations, since that expands the market for the high speed rail products.

Books have been written about this project in China, where the perpetrators of the theft are lauded as national heroes. They describe in detail exactly how the foreign companies were tricked into giving away their technology. No one hides what was done. Instead, the Chinese government brags about how smart the Chinese companies were compared to the fool foreign companies who thought that formal licenses, IP registration and the rule of law would protect them. In effect, the Chinese Academy of Social Sciences says what fools the foreign companies are.

Although the Chinese Academy of Social Sciences/the Chinese government may think that stealing foreign IP is the way to go, Japanese companies, such as Kawasaki Heavy, disagree.  In the April article entitled Did China Steal Japan’s High Speed Train, http://fortune.com/2013/04/15/did-china-steal-japans-high-speed-train/, Fortune states:

One China defender recently claimed his countryman’s “bandit innovators” could be good for the world. That was small consolation for the Japanese, who say that China pirated their world-famous bullet train technology.

“Don’t worry too much about Chinese companies imitating you, they are creating value for you down the road,” said Li Daokui, a leading Chinese economist at the Institute for New Economic Thinking’s conference. Such “bandit innovators,” he expanded, would eventually grow the market, leading to benefits for everybody.

Kawasaki Heavy Industries (KHI), maker of Japan’s legendary Shinkansen bullet trains, bitterly disagrees. After signing technology transfers with CSR Sifang, the builder of China’s impressive, new high-speed rail, KHI says it deeply regrets its now-dissolved partnership.

The key point is that the Chinese Academy of Social Sciences/the Chinese government posted its high-speed rail article on November 7th, right in the middle of the trade war and just prior to the Trump/Xi G-20 meeting.

It should be noted that the Chinese approach to IP is directly contrary to the Japanese approach to IP.  In the 1990s, Japanese companies were among the top 10 companies getting US patents with Hitachi getting more patents in some years than IBM.  The Japanese know how to develop IP right—invent and patent.

THE JUSTICE DEPARTMENT DISAGREES—CRIMINAL ECONOMIC ESPIONAGE CASES AGAINST CHINESE COMPANIES AND CHINESE INDIVIDUALS

Although the Chinese government denies, denies and insists that Chinese companies do not steal US IP and then brags about stealing IP, the Justice Department disagrees and has taken these issues to another level—criminal investigations resulting in prison time.  On November 1, 2018, Attorney General Jeff Sessions announced a new case and a new initiative to combat Chinese economic espionage.  In the attached statement, SESSIONS ANNOUNCEMENT NEW CHINA INITIATIVE IP THEFT, Attorney General Sessions stated:

But under President Donald Trump, the United States is standing up to the deliberate, systematic, and calculated threats posed, in particular, by the communist regime in China, which is notorious around the world for intellectual property theft.

Earlier this year, a report from U.S. Trade Representative Robert Lighthizer found that Chinese sponsorship of hacking into American businesses and commercial networks has been taking place for more than a decade and is a serious problem that burdens American commerce.

The problem has been growing rapidly, and along with China’s other unfair trade practices, it poses a real and illegal threat to our nation’s economic prosperity and competitiveness. . . .

From 2013 to 2016, the Department of Justice did not charge anyone with spying for China.

But since the beginning of 2017, we have charged three people with spying for China or attempting or conspiring to do so. And when it comes to trade secret theft, we are currently prosecuting five other cases where the theft or attempted theft was for the benefit of the Chinese government.

In 2015, China committed publicly that it would not target American companies for economic gain. Obviously, that commitment has not been kept.

Just ask GE Aviation, or Trimble, of Sunnyvale, California.

Today I am announcing another economic espionage case against Chinese interests. . . .

I am announcing that a grand jury in San Francisco has returned an indictment alleging economic espionage on the part of a Chinese state-owned, government owned, company, a Taiwan company, and three Taiwan individuals for an alleged scheme to steal trade secrets from Micron, an Idaho-based semi- conductor company.

Micron is worth an estimated $100 billion and controls about 20 to 25 percent of the dynamic random access memory industry—a technology not possessed by the Chinese until very recently.

One of the defendants served as president of a company acquired by Micron in 2013. He left the company   in 2015 and went to work for the Taiwan defendant company—from where he is alleged to have orchestrated the theft of trade secrets from Micron worth up to $8.75 billion.

The Taiwan defendant company then partnered with a Chinese state-owned company—so that ultimately China could steal this technology from the United States and then use it to compete against us in the market. This is a brazen scheme.

If convicted, the defendants face up to 15 years in prison and $5 million in fines. The companies could face forfeiture and fines worth more than $20 billion.

This week the Commerce Department added the Chinese company to the Entity List to prevent it from buying goods and services in the United States, to keep it from profiting from the technology it stole.

And today the Department of Justice is filing a civil action to seek an injunction that would prevent the Chinese and Taiwan companies from transferring the stolen technology, or exporting products based on it to the United States.

We are not just reacting to crimes—we are acting to block the defendants from doing any more harm to our U.S. based company, Micron. . . .

As the cases I’ve discussed have shown, Chinese economic espionage against the United States has been increasing—and it has been increasing rapidly.

We are here today to say: enough is enough. We’re not going to take it anymore.

It is unacceptable. It is time for China to join the community of lawful nations. International trade has been good for China, but the cheating must stop. And we must have more law enforcement cooperation; China cannot be a safe haven for criminals who run to China when they are in trouble, never to be extradited. . . .

I am announcing that I have ordered the creation of a China Initiative led by Assistant Attorney General John Demers, who heads our National Security Division . . . .

This Initiative will identify priority Chinese trade theft cases, ensure that we have enough resources dedicated to them, and make sure that we bring them to an appropriate conclusion quickly and effectively. . . .

This will help us meet the new and evolving threats to our economy. Today, we see Chinese espionage not just taking place against traditional targets like our defense and intelligence agencies, but against targets like research labs and universities, and we see Chinese propaganda disseminated on our campuses.

And so I have directed this initiative to focus on these problems as well and to recommend legislation to Congress if necessary.

China—like any advanced nation—must decide whether it wants to be a trusted partner on the world stage—or whether it wants to be known around the world as a dishonest regime running a corrupt economy founded on fraud, theft, and strong-arm tactics. Our wish is to have a trusted partner.

The President has made clear that this country remains open to friendship and productive relationships with China. Nothing is more important for the world. We want our relationships to improve, not get worse.

But these problems must be solved. These threats must be ended.

This Department of Justice—and the Trump administration—have already made our decision: we will not allow our sovereignty to be disrespected, our intellectual property to be stolen, or our people to be robbed of their hard-earned prosperity. We want fair trade and good relationships based on honest dealing.  We   will enforce our laws—and we will protect America’s national interests.

Emphasis added

For those Taiwan and Chinese individuals that believe that they cannot be touched by Justice Department warrants in the United States, another think coming.  As Assistant Attorney General Brian A. Benczkowski of the Criminal Division stated on November 1, 2018 in the attached statement, JUSTICE DEPARTMENT ANNOUNCEMENT IP THEFT:

The Criminal Division fully supports the Attorney General’s initiative to counter Chinese economic aggression.   Every day, the Chinese engage in efforts to steal American trade secrets and commit other illegal acts intended to enrich their economy at the expense of American businesses. . . .

We see it time and again: Chinese actors have stolen wind turbine technology in Wisconsin, agricultural research in Kansas, cancer drug research in Pennsylvania, and software source code in New York.

Wherever we see examples of this kind of criminal behavior, the Department will investigate it and prosecute it to the fullest extent possible. We also will continue to work hard to ensure that offenders face justice in U.S. courts.

Our Office of International Affairs is the focal point for all extraditions around the globe. In just the past few years, the Department has successfully extradited nine Chinese individuals, including two for theft of trade secrets. Long prison terms for these offenders help to create much-needed deterrence. . . .

Emphasis added.

Although Chinese individuals may not be touched in China, once they leave the country and go to Europe or any other country, Justice Department extradition warrants can easily take hold.  The individual may find himself arrested on entry to Europe or some other country based on a US extradition warrant.

Taiwan individuals are subject to Justice Department extradition warrants, as are Hong Kong individuals.  In an antitrust case for price fixing of LCDs against many Taiwan high tech companies, Taiwan extradited high ranking company officials to the United States to face prison time.  Two executives at AU Optronics were sentenced to three years in Federal Prison and served the time.

As Assistant Attorney General for National Security John C. Demers further stated on November 1, 2018 in the attached statement, ANOTHER JUSTICE DEP ANNOUNCE IP THEFT:

Just two days ago, in United States v. Zhang Zhang-Gui, et al., we charged ten defendants, including co- opted company insiders, working for or acting on behalf of the Jiangsu Ministry of State Security, also known as the “JSSD,” an arm of the Chinese intelligence services. According to the charging documents from the Southern District of California, the defendants conspired to hack U.S. and European defense and aerospace contractors in order to steal information to develop a Chinese version of a commercial airplane turbofan engine.

Just over three weeks ago, in the Southern District of Ohio, we obtained the extradition of a JSSD intelligence officer who was also alleged to have attempted to co-opt an employee of a defense contractor in order to steal trade secrets related to commercial airplane engines.

In September, in the Northern District of Illinois, we charged an individual here in the United States who acted as a source for a JSSD intelligence officer, helping him, among other things, to assess engineers and scientists for recruitment.

In August, in the Northern District of New York, we charged an individual with stealing turbine technology and sending it to China.

And so it goes.

Taken together, these cases, and many others like them, paint a grim picture of a country bent on stealing its way up the ladder of economic development—and doing so at American expense. This behavior is illegal. It’s wrong. It’s a threat to our national security. And it must stop. . . .

On November 16, 2018, the LA Times, a well-known Democratic newspaper, in an article entitled” China has taken the gloves off in its theft of U.S. Technology secrets”¸ http://www.latimes.com/politics/la-na-pol-china-economic-espionage-20181116-story.html, stated:

“They want technology by hook or by crook. They want it now. The spy game has always been a gentleman’s game, but China has taken the gloves off,” said John Bennett, the special agent in charge of the FBI’s San Francisco office, which battles economic spies targeting Silicon Valley.

“They don’t care if they get caught or if people go to jail. As long as it justifies their ends, they are not going to stop.” . . .

Alperovitch and U.S. officials also have noticed a shift in who is behind the attacks. China’s military is no longer directing the bulk of the hacks. It appears China’s chief civilian intelligence agency, the Ministry of State Security, has taken the lead instead.

The trend is troubling because the spy service employs more sophisticated and seasoned hackers than the military . . . .

“The problem here is the scale and scope of the threat,” said John Demers, the Justice Department’s assistant attorney general for national security. ”It is both impressive and frightening. The Chinese are methodical, persistent and well- resourced. It’s a concerted effort to steal and gather the know-how to produce . . . .”

MIDTERM ELECTIONS WILL NOT SAVE CHINA—IP THEFT AND FORCED TECHNOLOGY TRANSFER HAVE UNITED THE REPUBLICANS AND THE DEMOCRATS IN WASHINGTON DC

The Chinese government may think that the Democratic Victory in the House of Representatives in the Midterm Elections will save China.  But as these newsletters have been saying for years, the only one more tough on China than Donald Trump and the Republicans is the Democrats.

The new Speaker of the House is Nancy Pelosi.  Many Chinese may not remember that Nancy Pelosi demonstrated in Tiananmen Square against the Chinese government in 1991.  See https://www.chicagotribune.com/news/ct-xpm-1991-09-06-9103070091-story.html.  Nancy Pelosi is no real friend of China.

On November 17, 2018, Nicholas Kristof, a New York Times Columnist and no friend of Donald Trump, in an article entitled “The Dangerous Naïveté of Trump and X” stated:

“Trump is right (I can’t believe I just wrote those three words!) that China has not played fair. The best response would have been to work with allies to pressure China simultaneously from all sides; instead, Trump antagonized allies so that we are fighting this battle alone.

Why have I and so many others soured on China?

This is larger than Trump and Xi. China’s admission to the World Trade Organization in 2001 was meant to integrate the country into the global trading system as an increasingly responsible world power. But after moving mostly in the right direction under Deng Xiaoping and Jiang Zemin, China stalled under Hu Jintao and has moved backward under Xi.

China has stolen technology and intellectual property even as it has become more aggressive militarily in the South China Sea and curbed freedom at home. Xi offends global values by detaining more than one million Muslims in the Xinjiang region, arresting lawyers and Christians, and steadily squeezing out space for free thought. I used to report from China each year but now find the limits on a journalist visa so onerous that it’s not worthwhile. And I’m supposed to be the lao pengyou, or old friend, of China.”

On November 8, 2018, the Wall Street Journal reported on a November 7th speech in Singapore in an article by Greg Ip entitled “Henry Paulson Delivers a Sobering Message” that:

“Few people have championed U.S. engagement with China as forcefully or successfully as Henry Paulson, first at Goldman Sachs Group Inc ., later as Treasury Secretary, and now as elder statesman.

So when Mr . Paulson concludes engagement is failing and an “economic Iron Curtain” may soon descend between the two, it’s a sobering statement of the perilous state of relations between the two economic superpowers.

In a speech delivered Wednesday in Singapore, Mr. Paulson warns China its behavior has alienated American friends and unified the American public against it. He is less critical of the U.S. but nonetheless believes it has unrealistic expectations of China and of its own allies. If neither changes course, the result will be “a long winter in U.S.-China relations” and “systemic risk of monumental proportions.” . . .”

In 2006 Paulson became the Treasury Secretary for George W. Bush, where he pushed a US China initiative, the “strategic economic dialogue” because he believed that the US China economic relationship is the most important economic relationship in the World. He then founded the Paulson Institute to smooth bilateral relations with China.

In the attached speech, PAULSON SPEECH, at the November 7th Economic Forum in Singapore at which Wang Qishan and other high level Chinese officials attended, Paulson stated:

Today, this region must look warily at the prospect that what, until now, has been a healthy strategic competition will tip into a full-blown cold war. . . . .

Taken together, these and other drivers, such as China’s cyber practices and island building in the South China Sea, have fueled a new consensus in Washington that China is not just a strategic competitor but very possibly our major long-term adversary.

America’s longstanding “engagement” policy is now widely viewed as being of little use for its own sake. . . .

Unless these broader and deeper issues are addressed, we are in for a long winter in US-China relations.

Let’s just take the economics.

The United States played the decisive role in facilitating China’s entry into the World Trade Organization. Yet 17 years after China entered the WTO, China still has not opened its economy to foreign competition in so many areas. . . .

But it also helps explain why so many influential voices now argue for a “decoupling” of the two economies, especially with respect to technology- related trade and investment that will disrupt supply chains.

These arguments will not go away anytime soon.

They will drive a variety of new approaches from this administration and its successors.

Both Democrats and Republicans are saying so.

And this negative view of China unites politicians from both left and right who agree on nothing else. . . .

In large part because China has been slow to open its economy since it joined the WTO, the American business community has turned from advocate to skeptic and even opponent of past US policies toward China. American business doesn’t want a tariff war but it does want a more aggressive approach from our government.

How can it be that those who know China best, work there, do business there, make money there, and have advocated for productive relations in the past, are among those now arguing for more confrontation?

The answer lies in the story of stalled competition policy, and the slow pace of opening, over nearly two decades. . . .

It is not just that foreign technologies are being transferred and digested.

It is that they are being reworked so that foreign technologies become Chinese technologies through an indigenization process that many of the multinational CEOs I talk to believe is grossly unfair to the innovators and dreamers at the heart of their companies.

Pervasive technology theft, forced technology transfer, including within joint ventures, and different models of internet governance and cross-border data flows are also contributing factors. . . .

So, such a balkanization of technology could further harm global innovation, not to mention the competitiveness of firms around the world.

Meanwhile, the integration of people, especially the brightest young students, could also stall — as Washington potentially bans Chinese students from studying whole categories of science and engineering subjects.

If all this persists—across all four baskets of goods, capital, technology, and people—I fear that big parts of the global economy will ultimately be closed off to the free flow of investment and trade.

And that is why I now see the prospect of an Economic Iron Curtain—one that throws up new walls on each side and unmakes the global economy, as we have known it.

Emphasis added.

Although former Secretary Paulson talks about a general opening up of the Chinese economy, I believe that he has taken his eye off the ball.  At the same Economic Conference Henry Kissinger stated that the both the US and China must tell the other country what the red lines are.  The key red line in the 301 case and in US China economic policy in general is IP Theft and Forced Technology Transfer.

The fact that Republicans and Democrats are united in opposing China is illustrated by a November 4th Editorial in the Washington Post entitled “The US Must Take Action to Stop Chinese Industrial Espionage”, which stated:

“SPEAKING IN the White House Rose Garden in September 2015, Presidents Barack Obama and Xi Jinping announced a breakthrough. The United States and China pledged that neither nation “will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information for commercial advantage.” But Mr. Xi’s promises were flimsy and short-lived. The agreement has collapsed. China is again trying to steal its way to greatness, and that calls for a resolute response.

The latest sign of trouble, but hardly the only sign, came in the indictments unsealed last week by the Justice Department. The United States charged that a state-owned Chinese company attempted to steal trade secrets from Micron, a semiconductor company based in Idaho that is the only U.S. maker of “dynamic random-access memory,” or DRAM, vital memory chips for computers, mobile devices and other electronics. . . .

China lacked DRAM technology until recently, and the Micron case is another example of China’s quest to climb the ladder of economic development by stealing overseas technology and copying, re-engineering and manufacturing it, leapfrogging what would otherwise be decades of difficult and expensive work. This is not the sort of espionage seeking state secrets that all countries undertake, but a very targeted stealing to help China’s companies profit and conquer markets. The companies also receive robust capital infusions from the state. After the 2015 Rose Garden announcement, the Chinese stealing subsided for a while, so fewer U.S. companies were hit, but then the pace accelerated again in 2017.

Mr. Sessions insisted that “cheating must stop.” Mr. Obama had also insisted: “I indicated that it has to stop.” In fact, China’s industrial espionage is not a passing fancy but the pillar of a long-term drive to become a global economic, military and political power, with ambitions to rival the United States. Sadly, the hopes of the past two decades, that Beijing would become a fair competitor playing by international rules, have been dashed.

It is a good first response to indict the perpetrators in the Micron case, and for Mr. Sessions to bolster resources and attention to the threat. Beyond that, however, the United States must see the Chinese espionage for what it truly represents: the pursuit of superpower might by stealing the labor and investment of others. The economies of the United States and China are inexorably entwined, which will make confronting the espionage threat even harder. But it must be done. In the end, China will respond only to compulsion.

Emphasis added

The key point of the Washington Post editorial is that the Post is owned by Jeff Bezos, CEO of Amazon and a good Democrat. The Washington Post is a very pro- Democratic newspaper.  When the Washington Post is saying that the only way to end China’s IP theft is “compulsion”, that means both Republicans and Democrats are saying the same thing.  When two ends of a very divided nation unite against China, that is not good for China.

COALITION TO ISOLATE CHINA-OTHER COUNTRIES JUMP ON THE US IP TRAIN

Although many Chinese believe that the only country pushing back on China is the United States, that simply is incorrect.  In July 2018 Jean Claude Juncker, the European Commission President, met with President Trump to discuss a potential trade war.  Juncker made it clear that he came to Washington to make a trade deal, and that the EC would work with the US against China on IP theft, forced technology transfer and overcapacity.

At the end of the recently negotiated US Mexico Canada Trade Agreement, there is a specific Article 32.10 “Non-Market Country FTA”, which provides that “a Party shall inform the other Parties of its intention to commence free trade agreement negotiations with a non-market country.”  China is a non-market country.

Section 32.10 (3) goes on to provide:

“Entry by any Party into a free trade agreement with a non-market country, shall allow the other Parties to terminate this Agreement on six-month notice and replace this Agreement with an agreement as between them (bilateral agreement).”

In other words, if Canada or Mexico negotiate a FTA with China, the United States can terminate the new Mexico Canada Trade Agreement.

Also as indicated above, China stole Japanese technology for the high speed rail network.  In all likelihood, Japan will work with the US and other countries to oppose China’s policy of IP theft and Forced Technology Transfer.  On IP, China will face a united front by the US, EC, Canada, Mexico, Japan and probably Korea against it.

XI TRUMP MEETING END OF NOVEMBER at G-20

President Xi and President Trump are expected to meet on the side of the G-20 meeting in Buenos Ares, Argentina on Nov 30 to December 1st.  As indicated above, the recent proposal from the Chinese government appears to be only an outline of the areas the Chinese government is willing to negotiate on and the areas it is not willing to negotiate on.

If the Chinese proposal was a concrete proposal and action plan, the Chinese government would be meeting now with the United States Trade Representative.  Until USTR Lighthizer is involved in the US China negotiations, I do not expect any deal to get done.

The question is whether Xi Trump meeting can lead to a detailed outline of the areas of negotiation to the extent that Trump is willing to postpone the increase on tariffs to 25% on January 1st.  There is no indication that the United States and China are anywhere near that stage.

On November 19, 2018, the South China Morning Post published the attached article, https://www.scmp.com/news/china/diplomacy/article/2174026/after-apec-tensions-expect-extra-pressure-when-xi-jinping-and, about how the recent APEC meeting has put even more pressure on the Trump/Xi meeting at the end of November at the G-20:

After Apec tensions, expect ‘extra pressure’ when Xi Jinping and Donald Trump meet at G20 . . .

Atmosphere described as ‘extremely tense’ at Pacific nations summit, and observers say it reflects reality of rivalry between China and the US.  Washington will be seeking to maximise pressure on Beijing ahead of crunch meeting at G20 summit, according to analysts

Beijing should prepare for tough talks when Chinese President Xi Jinping and US President Donald Trump meet at the G20 summit after open hostility between the two nations at the Apec gathering, observers say.

That hostility resulted in the 21 Pacific Rim leaders for the first time failing to reach a consensus on a formal declaration at the Asia-Pacific Economic Cooperation meeting in Port Moresby over the weekend, and it is expected to overshadow future trade negotiations between Beijing and Washington.

The rift was on full display when Xi and US Vice-President Mike Pence traded barbs at the summit on Saturday, neither of them listening to each other’s speeches and both lashing out about the trade war, Xi attacking America’s protectionism and Pence taking aim at Beijing’s “Belt and Road Initiative”.

Three delegates from Papua New Guinea described the atmosphere between China and the United States at the summit as “extremely tense”.

Chinese delegates on Saturday left the hall after Xi made his speech, and before Pence gave  his.

“Some left the venue, but those who were still at the venue were just standing outside the hall – they chose not to listen to Pence’s speech,” one of the delegates from Papua New Guinea said. . . .

Liu Weidong, a China-US affairs specialist from the Chinese Academy of Social Sciences, said while the trade war was hurting both China and the US, Beijing may face more pressure.

“This meeting [between Xi and Trump] means more to China than to the US, but negotiators and decision-makers from both sides will come under extra pressure in the next fortnight.”

Xi has tried to position China as a champion of free trade in the face of Trump’s “America first” protectionism, but according to analysts he will have a difficult time convincing leaders of major powers like Germany, France and the European Union, who share many of Washington’s concerns about China – even if  they are worried about being caught in the middle.

“Beijing needs to be prepared,” Liu said. “[The Western powers] may not firmly stand with either China or the US, but they would tacitly approve of some of the US measures that could further press China.”

Liu added that Beijing would have to do something about intellectual property rights protection and lower tariffs to end the trade war.

It is interesting to note that Liu is from the same Academy of Social Sciences that says that stealing the high speed rail technology is the way China should proceed in the future.

Moreover, the fact that the Chinese side refused to even listen to Pence’s speech indicates how far the countries are to any resolution.  If one side refuses to even listen to the arguments, no resolution can be reached.

IN XIAO SHI DA

My hope and prayer is that China truly wants to be a friendly competitor with the United States, not a strategic rival or even an adversary.

Four-character Chinese sayings are an old form of conveying deep thoughts about China.  This situation reminds me of the old Chinese saying, “In Xiao Shi Da”, because of the little, lose the big.  Because of the Chinese desire to steal foreign technology, Chinese companies may lose the entire US market, the $500 billion plus US market.  The Chinese government’s actions may result in Chinese exports being shut out of the US market for years at the cost of trillions of US dollars.

GUO TUI MIN JIN BECOMES GUO JIN MIN TUI

Meanwhile, the Chinese economy appears to be changing from a private economy with a smaller state-owned economy to an economy dominated by State-Owned companies.  When China joined the WTO, China’s economic genius was Zhu Rongyi.  In the following November 14th article, https://www.scmp.com/news/china/politics/article/2173020/inside-story-propaganda-fightback-deng-xiaopings-market-reforms, the South China Morning Post states that the reason Zhu came to power was Deng Xiaoping.  As the article states:

“Liu, who had first-hand knowledge of the articles, said Deng was spending the Lunar New Year holiday in Shanghai in 1991 when he asked then Shanghai party boss Zhu Rongji to go to the Xijiao Hotel where he was staying.

“He summoned Zhu Rongji and talked about the market economy and reform. It was a personal conversation. It was in- depth and not the official line. It was the true thoughts [of Deng] – that is, if you want to reform you have to introduce a market economy,” he said.

Liu said Zhu was very excited that Deng confided his thoughts to him, and relayed the conversation to his secretary and Shi Zhihong in the car on their way back from the hotel.”

At the time that China joined the WTO and Premier Zhu was in charge, the four character saying was “Guo Tui Min Jin”, “State-Owned phase out, private sector phase in”.  The new four character saying under Xi Jinping is “Guo Jin Min Tui”, “State Owned phase in, private sector phase out”.

In the attached November 19th article,  https://www.scmp.com/business/companies/article/2173678/can-communist-partys-unprecedented-endorsement-calm-frayed-nerves, the South China Morning Post is asking whether the Chinese government is suffocating the private industry:

Private entrepreneurs have borne the brunt of Beijing’s diktats, everything from a policy to cut excess industrial capacity in steel and coal, to crackdowns on corruption and pollution, with non-state companies forming nearly all of the 11,000 firms that vanished since 2016, China Merchants Bank International’s chief economist Ding Anhua said in September.

Profit growth is plunging at private enterprises. Bond defaults have surged to a new high. Scores of listed companies have sold controlling stakes to the government for a financial lifeline this year. And a string of China’s richest businessmen have been swept up in corruption probes.

The last straw that sent public sentiment tumbling came in September, when an obscure blogger named Wu Xiaoping wrote that the private sector “had completed its historic mission” of reinvigorating state-owned enterprises, and should now “fade away.”

The essay, which brought back memories of Mao Zedong’s purge of capitalists half a century before, went immediately viral on China’s internet, riding on widespread fears that such radical thinking might be re-emerging.  . . .

But many are sceptical that Xi’s prescription is enough to calm jitters in the business community. Nor enough to answer the high-stakes question hovering: is the powerful state suffocating the most dynamic, vigorous part of China’s economy, at the very time when growth is slowing down amid a trade war with the world’s largest economy?

“Private enterprises are in a dire moment now,” said Sheng Hong, executive director of the independent Chinese think tank Unirule Institute of Economics. “The country could risk a great recession.” . . . .

The private sector accounts for 60 per cent of China’s gross domestic product and 80 per cent of jobs, according to official statistics.

But figures could be even higher by independent estimates. A study led by Sheng of Unirule concluded that more than 90 per cent of the newly added national output since 2016 came from the private sector, which is also the source of all new jobs created since 2000. . . .

Corporate taxes account for 67 per cent of all commercial profits, the 12th highest tax in 190 economies, much higher than the 44 per cent in the US or the 31 per cent in the UK,   according to the World Bank.

In contrast to private owned companies, state owned companies pay almost no taxes at all.

The United States and many countries fear that the new Chinese model is to focus on the State-Owned industry, funnel government monety to those state-owned companies to target foreign technology.

TSUNAMI, BIG WAVE, OF CHANGE US IMPORTERS, FOREIGN COMPANIES AND EVEN CHINESE COMPANIES MOVE TO THIRD COUNTRIES TO ESCAPE TRADE WAR

The US China trade war along with the internal war in China against private industry, however, have led to a tsunami, tidal wave, of change as US Importers look for second sources of supply, and US and foreign companies in China and even private Chinese companies look to move some or all of their production out of China to third countries.

WE CAN HELP

Because of this tidal wave of change, my firm has formed alliances with consultants on the ground in Vietnam, Thailand, Philippines and even Ukraine to help companies find second sources of supply in those countries.  We are now working with consultants on the ground in those countries to help find second sources of supply and set up manufacturing sites.

Steve Dickinson and other partners at Harris have substantial experience drafting supplier contracts for US importers to minimize risk, and drafting contracts to set up manufacturing operations in other countries.  The Trade and Customs group can also help importers meet the requirements under the trade and customs laws and General System of Preferences so as to reduce and in the case of GSP eliminate ordinary Customs duties on imported products.

SECTION 301 PROCEDURES

As to the procedures in the Section 301 case, please see my last blog post at https://uschinatradewar.com/us-china-trade-war-trump-trade-war-speech-301-tariff-200-billion-in-imports-301-product-exclusion-process-widening-ad-cvd-orders-exclusions-section-201-nafta-us-eu-agreement-new-ad-case/ for a detailed explanation of the 301 case, three outstanding lists and opportunity to request a product exclusion request.

There are presently three separate lists. Depending upon which list imports are on, different options are available.

List 1 is for the 25% tariff on the initial $34 billion in imports, FIRST SET OF $34 BILLION.  If your imported product is on this list, your only option was to file a product exclusion request by October 9th.  According to a November 12th Politico article, to date:

“U.S. companies have filed close to 10,000 requests for certain products to be excluded from a 25 percent tariff that Trump imposed on $34 billion worth of Chinese goods in July.  . . . About 816 of requests have been denied and around 370 have been tentatively approved, subject to a final sign-off by U.S. Customs and Border Protection. The others are still in either Stage 1 or Stage 2 of the review process.”

List 2 is for the 25% on the $16 billion in imports, USTR OFFICIAL $16 BILLION PRESS RELEASE.  If your products are on that list, the 25% tariffs took effect on August 23rd.  Your only option is to file a product exclusion request by December 18th.  According to the November 12th Politico article:

“Companies have also filed close to 500 requests for products to be excluded from a second batch of tariffs on $16 billion worth of Chinese goods that went into effect in August.

List 3 is for the 25% on the $200 billion in imports, $200 BILLION USTR NOTICE.  No exclusion process has been set up yet for products on the $200 billion list.

BRIEF COMMENTS ON NEW NAFTA NOW US MEXICO CANADA TRADE AGREEMENT

As many will know because of the press updates, the United States and Canada reached agreement with Mexico on a New NAFTA, now known as the USMCA, the US Mexico Canada Agreement. To see the text of the New USMCA go to this link at the United States Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico.

Note that the term “Free Trade” has been removed.  Trump has made one point clear in these trade negotiations.  Despite the fancy statements, these trade agreements are not “free trade agreements”.  They are government managed trade.

If the North American Free Trade Agreement (“NAFTA”) were truly a free trade agreement, Canada would not have had 275% tariffs on exports of dairy products to Canada.

But the US Mexico Canada Trade Agreement (“USMCA”) does have many changes and yes, the US is a beneficiary.

Besides the Nonmarket Economy Provision mentioned above, the new agreement reduces substantially the 275% on US dairy product exports to Canada.

With regards to automobiles, North American content goes up to 75%,

There is also a requirement that to qualify for North American content, the labor wages must be $16 an hour or higher, which means less jobs going to Mexico.

Another area, which is near and dear to my heart, is that Canada and British Columbia have reduced its very high tariffs and import restrictions on US wine, including Washington State Wine.

The Agreement also provides for a sunset review.  Ever six years, the three countries will meet to decide whether to keep the Agreement going and more importantly whether to re-negotiate certain provisions.

The Agreement will also expire in 16 years, which will lead again to more negotiations.

In other words, there are many changes in the US Mexico Canada Trade agreement and companies should follow the link above to see how the Agreement will affect each company.

If anyone has any questions about the Section 301 case, the trade war with China, IP Protection, movement to third countries, antidumping or countervailing duty law, customs laws and any other trade or customs questions, please feel free to contact me.

Best regards,

Bill Perry

 

US CHINA TRADE WAR–TRUMP TRADE WAR, SPEECH, 301 TARIFF $200 BILLION IN IMPORTS, 301 PRODUCT EXCLUSION PROCESS, WIDENING AD/CVD ORDERS, EXCLUSIONS SECTION 201 NAFTA, US EU AGREEMENT, NEW AD CASE

Arrow Watch Tower Forbidden City Beijing China

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 20, 1986

US CHINA TRADE WAR UPDATE-OCTOBER 1, 2018

 

Dear Friends,

As many will know because of the press updates, yesterday the United States and Canada reached agreement with Mexico on a New NAFTA, now known as the USMCA, the US Mexico Canada Agreement.  Note that the term “Free Trade” has been removed.  As President Trump has so clearly illustrated, Free Trade Agreements or FTAs are not truly free trade agreements, they are government managed trade.

To see the text of the New USMCA go to this link at the United States Trade Representative, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/united-states-mexico.

If anyone has any questions, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR – SEPTEMBER 19, 2018

Dear Friends,

This blog post will go into detail about the Section 301 China IP case and the September 17th decision to impose the 10 TO 25% tariffs against an additional $200 billion in imports from China, the Product Exclusion process for tariffs on the $16 billion, the growing orbit of US antidumping (“AD”) and countervailing duty (“CVD”) cases, and more exclusions n the Section 201 Solar case.  Will then comment briefly on the NAFTA, Europe negotiations and the new AD case against Mattresses from China.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

OCTOBER 9TH SPEECH HOUSTON TEXAS TRUMP & US CHINA TRADE WAR

On October 9, 2018, I will be speaking at a Trade and Intellectual Property symposium at the Petroleum Club in Houston Texas.  The specific topic of my speech will be Current Topics Regarding Trump/China, Trade War Or Trade Agreements, Fact & Fiction.

Attached is information about the speech and the Symposium.  9_8 HOUSTON IP Symposium Invite If anyone is interested, please feel free to contact me.

TRUMP’S TRADE WAR AND THE SECTION 301 CASE – 10% TARIFFS ON $200 BILLION EFFECTIVE SEPTEMBER 24TH

On September 17th, President Trump announced his decision to impose a 10% tariff on the third list of $200 billion in imports from China effective September 24, 2018.  On January 1, 2019, the 10% tariff will rise to 25%.  The list of items on the $200 billion list subject to the 25% tariff is attached. Tariff List_09.17.18 in $200 billion

With regard to the third $200 billion list in the Section 301 case, in August there were five days of hearings with over 300 US companies and over 9,000 companies and groups of companies filed written comments by September 6, 2018.  Those comments were to try and persuade USTR to exclude certain tariff categories from the list of subject tariff items.  Product exclusion requests are filed after the USTR issues its determination to try and get specific products out of the tariff line item subject to the 25% tariff.

By September 6th, we filed numerous comments for importers and groups of importers of products ranging from wood doors and cabinets to aluminum curtain wall and paper gift bags.  In many instances, there is no production of these specific items in the United States.

In the attached Presidential Proclamation, PRESIDENTIAL DECISION $200 BILLION, President Trump stated:

“Today, following seven weeks of public notice, hearings, and extensive opportunities for comment, I directed the United States Trade Representative (USTR) to proceed with placing additional tariffs on roughly $200 billion of imports from China. The tariffs will take effect on September 24, 2018 and be set at a level of 10 percent until the end of the year. On January 1, the tariffs will rise to 25 percent. Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.

We are taking this action today as a result of the Section 301 process that the USTR has been leading for more than 12 months. After a thorough study, the USTR concluded that China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property – such as forcing United States companies to transfer technology to Chinese counterparts. These practices plainly constitute a grave threat to the long-term health and prosperity of the United States economy.

For months, we have urged China to change these unfair practices, and give fair and reciprocal treatment to American companies. We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly. But, so far, China has been unwilling to change its practices. To counter China’s unfair practices, on June 15, I announced that the United States would impose tariffs of 25 percent on $50 billion worth of Chinese imports.

China, however, still refuses to change its practices – and indeed recently imposed new tariffs in an effort to hurt the United States economy.

As President, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself. My Administration will not remain idle when those interests are under attack.

China has had many opportunities to fully address our concerns. Once again, I urge China’s leaders to take swift action to end their country’s unfair trade practices. Hopefully, this trade situation will be resolved, in the end, by myself and President Xi of China, for whom I have great respect and affection.

The core issue in this Section 301 is Intellectual Property (“IP”) and forced technology transfer of IP to Chinese companies.  As USTR states in the attached press release, USTR PRESS RELEASE:

Washington, DC – As part of the United States’ continuing response to China’s theft of American intellectual property and forced transfer of American technology, the Office of the United States Trade Representative (USTR) today released a list of approximately $200 billion worth of Chinese imports that will be subject to additional tariffs. In accordance with the direction of President Trump, the additional tariffs will be effective starting September 24, 2018, and initially will be in the amount of 10 percent. Starting January 1, 2019, the level of the additional tariffs will increase to 25 percent.

The list contains 5,745 full or partial lines of the original 6,031 tariff lines that were on a proposed list of Chinese imports announced on July 10, 2018. Changes to the proposed list were made after USTR and the interagency Section 301 Committee sought and received comments over a six-week period and  . . . as a result, determined to fully or partially remove 297 tariff lines from the original proposed list. Included among the products removed from the proposed list are certain consumer electronics products such as smart watches and Bluetooth devices; certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.

The USTR cited to the attached original March 2018 Section 301 report, USTR FULL 301 REPORT CHINA TECHNOLOGY TRANSFER, and then went on to describe the core issues in the Section 301 case stating:

Specifically, the Section 301 investigation revealed:

China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from U.S. companies.

China deprives U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations.

China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer.

China conducts and supports cyber intrusions into U.S. commercial computer networks to gain unauthorized access to commercially valuable business information.

After separate notice and comment proceedings, in June and August USTR released two lists of Chinese imports, with a combined annual trade value of approximately $50 billion, with the goal of obtaining the elimination of China’s harmful acts, policies and practices. Unfortunately, China has been unwilling to change its policies involving the unfair acquisition of U.S. technology and intellectual property. Instead, China responded to the United States’ tariff action by taking further steps to harm U.S. workers and businesses. In these circumstances, the President has directed the U.S. Trade Representative to increase the level of trade covered by the additional duties in order to obtain elimination of China’s unfair policies. The Administration will continue to encourage China to allow for fair trade with the United States.

CHINESE GOVERNMENT RETALIATES

Although the Presidential Proclamation and the decision to raise the tariff to 25% on January 1st would appear to pressure China to the negotiating table, that is not what happened. As one senior Chinese official recently stated, “China is not going to negotiate with a gun pointed to its head.”

In response to the tariffs on the $200 billion, on September 18th the Chinese government predictably retaliated and imposed tariffs on $60 billion in imports from the US, risking an escalation of the trade war by Trump.  China announced 5 to 10% tariffs effective September 24th on $60 billion in imports from the US ranging from imports of farm products and machinery to chemicals.

On September 18th, anticipating the China response, President Trump warned in a tweet:

“China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!”

BACKGROUND OF THE 301 CASE AND PRODUCT EXCLUSION REQUEST FOR THE $16 BILLION

With regards to the Section 301 case, to date in the Section 301 IP case, USTR has issued 25% tariffs on imports of $50 billion from China.  The first $34 billion went into effect in June 20, 2018, FIRST SET OF $34 BILLION.  USTR issued its determination in the second $16 billion, target list, in the Section 301 case on August 7th and made the tariffs effective August 23rd , PRODUCTS ON $16 BILLION LIST

On September 18th USTR in the attached notice, EXCLUSION REQUEST 16 BLLION FED REG NOTIICE, set up a product exclusion process for the $16 billion.  The due date for products exclusion requests is December 18th.  Thus, for products on Lists 1, $34 billion, and 2, $16 billion, and eventually 3, $200 billion, companies will have a second chance to exclude individual products out of the target lists in the product exclusion process.

USTR’s first round of comments were focused more on excluding specific tariff subheadings from the target list, while this second round of requests gives parties a second chance to explain why their specific particular products should be excluded from the tariffs.  The List 1 product exclusion requests are due by October 9, 2018, 301 EXCLUSIONS FED REG NOTICE.  The List 2 product exclusion requests are due by December 18th.  The products and deadlines for the List 3 product exclusion requests have not been established yet.

List 1 Exclusion Process

Exclusion Request Conditions

USTR will accept requests from all interested US persons, including trade associations. Exclusion requests must identify a “particular” product with supporting data and rationale for an exclusion. Interested persons seeking an exclusion for multiple products must also submit a separate request for each particular product.

Factors for USTR Consideration in Granting Exclusion Requests

In granting an exclusion request on a product-by-product basis, USTR will consider whether the product is available from a source outside of China, whether the additional tariffs would cause severe economic harm to the requestor or other U.S. interests, and whether the particular product is strategically important or related to Chinese industrial programs including “Made in China 2025.”  USTR is unlikely to grant any exclusion requests that undermine the objective of the Section 301 investigation.

USTR will consider each request on a product-by-product basis.  Exclusions will be granted on a product basis, meaning any individual exclusion should apply to all imports of that particular product (not just to products imported by the requestor).

            Exclusion Request Schedule for List 2. 

The USTR notice for list 2 provides:

  • Product exclusion requests are to be filed by no later than December 18, 2018.
  • Following public posting of the filed request (in docket number USTR–2018–0032 on www.regulations.gov) the public will have 14 days to file responses to the product exclusion.
  • At the close of the 14-day response period, any replies responses are due within 7-days.
  • Any exclusions granted will be effective for one year upon the publication of the exclusion determination in the Federal Register, and will apply retroactively to August 23, 2018.

            The schedule for product exclusion requests for the $200 billion in List 3 will be similar to the schedule for Lists 1 and 2.

Making Exclusion Requests – Requirements

The USTR notice provides that each request must address the specific factors set out in the bullet-point summaries listed below.  See the Product Exclusion Process and Criteria, EXCLUSION REQUEST 16 BLLION FED REG NOTIICE.

  • Identification of the particular product in terms of the physical characteristics (e.g., dimensions, material composition, or other characteristics) that distinguish it from other products within the covered 8-digit subheading.  USTR will not consider requests that identify the product at issue in terms of the identity of the producer, importer, ultimate consumer, actual use or chief use, or trademarks or tradenames.  USTR will not consider requests that identify the product using criteria that cannot be made available to the public.
  • Interested persons seeking to exclude two or more products must submit a separate request for each.
  • The 10 digit subheading of the HTSUS applicable to the particular product requested for exclusion.
  • Requesters also may submit information on the ability of U.S. Customs and Border Protection to administer the exclusion.
  • Requesters must provide the annual quantity and value of the Chinese-origin product that the requester purchased in each of the last three years. If precise annual quantity and value information are not available, USTR will accept an estimate with justification.

Exclusion requests should address the following factors:

  • Whether the particular product is available only from China.  In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.
  • Whether the imposition of additional duties on the particular product would cause severe economic harm to the requester or other U.S. interests.
  • Whether the particular product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
  • Requesters may also provide any other information or data that they consider relevant to an evaluation of the request.

All exclusion requests must be accompanied by a certification that the information submitted is complete and correct.  USTR strongly encourages interested persons to submit exclusion requests on its attached prepared request form to simplify exclusion request filings.

Products that are not produced or cannot be adequately supplied by domestic producers would have a better chance at exclusion.  Domestic producers have a chance to oppose any exclusion requests and likely would challenge any exclusion request for Chinese products that are competing with their products.

HOW DOES CHINA KILL THIS TRADE WAR? 

The Chinese government complains that it does not know which government official will make the final decision on any US China trade deal.

When looking at the Section 301 negotiations between the US and China, despite the recent move by Treasury Secretary Mnuchin, the key officials in the decision making are President Donald Trump and USTR Robert Lighthizer.  Lighthizer is the United States Trade Representative, and the Section 301 case was started by USTR so final decisions will be made by Trump and Lighthizer.

Treasury Secretary Mnuchin may be able to advise, but another Trump official who will also have influence is Larry Kudlow, the National Economic Council Director and a President Reagan free trader.  Kudlow stated on September 17th on MSNBC that President Trump has “not been satisfied” with trade talks with China and confirmed the U.S. was preparing additional tariffs because Beijing’s economic reforms were moving in the wrong direction.

CHINA HAS NOT MADE A PROPOSAL TO DEAL WITH THE CORE 301 ISSUES—IP AND FORCED TECHNOLOGY TRANSFER

But even if the Trump Administration had given a clear policy direction as to its ultimate targets in trade negotiations, apparently to date China has not given the US any indication that it will address the U.S. core complaints on the theft of intellectual property and forced technology transfers.  Without concrete proposals from the Chinese government on these two core issues, there will be no Section 301 agreement.  Simple buying missions from the Chinese government are not going to solve this deep trade crisis.

The Chinese government complains that the United States is trying to “contain” China and prevent its rise. The real issue, however, is that the US is trying to “isolate” China by teaming up with a number of different countries, including the EC, Australia, Mexico, Canada and Japan, when it comes to stealing the intellectual property of foreign companies and forcing foreign companies to turn over technology to Chinese companies and the Chinese government.

In response, one Chinese friend has told me, “The issue is China government cannot do that! That is the core for getting China Strong!”

If the Chinese government cannot give up stealing the IP of foreign companies to make China strong, the Chinese government should expect to become very isolated and to risk ostracism by the international community.

On the other hand, Trump cannot expect the Chinese government to change its entire economic system for the US.  But the Chinese government has to keep in mind that its economic system could create other problems.

Reports are that the US, Japan and the EC have held meetings aimed at dealing with China with a potential target of pushing China out of the WTO.  When China entered the WTO, Premier Zhu Rongji was in charge of the economy and pushing China to become a market economy country.  That was over 15 years ago.

After Premier Zhu retired, however, China slipped backwards, and that backward movement has accelerated under President Xi Jinping into more of a State-Ownership, State Control of the economy.  The problem is that other countries in the WTO are market economy countries.  The purpose of the countervailing duty law is that private companies should not have to compete against governments.  But if the Chinese government has decided to take over the economy and funnel money directly into companies to compete against private foreign companies, that obviously is a problem for many market economy countries, including the EC and the US.

In a September 18th editorial in the Wall Street Journal entitled “Imperialism Will Be Dangerous for China”, Walter Russell Mead, a well -known academic and opinion writer, spoke in detail about the problems China faces by its own expansionist Imperialistic policy and the fact that the well-known Communist Lenin identified China’s problem long ago:

“China’s real problem isn’t the so-called Thucydides trap, which holds that a rising power like China must clash with an established power like the U.S., the way ancient Athens clashed with Sparta. It was Lenin, not Thucydides, who foresaw the challenge the People’s Republic is now facing: He called it imperialism and said it led to economic collapse and war.

Lenin defined imperialism as a capitalist country’s attempt to find markets and investment opportunities abroad when its domestic economy is awash with excess capital and production capacity. Unless capitalist powers can keep finding new markets abroad to soak up the surplus, Lenin theorized, they would face an economic implosion, throwing millions out of work, bankrupting thousands of companies and wrecking their financial systems. This would unleash revolutionary forces threatening their regimes.

Under these circumstances, there was only one choice: expansion. In the “Age of Imperialism” of the 19th and early-20th centuries, European powers sought to acquire colonies or dependencies where they could market surplus goods and invest surplus capital in massive infrastructure projects.

Ironically, this is exactly where “communist” China stands today. Its home market is glutted by excess manufacturing and construction capacity created through decades of subsidies and runaway lending. Increasingly, neither North America, Europe nor Japan is willing or able to purchase the steel, aluminum and concrete China creates. Nor can China’s massively oversized infrastructure industry find enough projects to keep it busy. Its rulers have responded by attempting to create a “soft” empire in Asia and Africa through the Belt and Road Initiative.

Many analysts hoped that when China’s economy matured, the country would come to look more like the U.S., Europe and Japan. A large, affluent middle class would buy enough goods and services to keep industry humming. A government welfare state would ease the transition to a middle-class society.

That future is now out of reach, key Chinese officials seem to believe. Too many powerful interest groups have too much of a stake in the status quo for Beijing’s policy makers to force wrenching changes on the Chinese economy. But absent major reforms, the danger of a serious economic shock is growing.

The Belt and Road Initiative was designed to sustain continued expansion in the absence of serious economic reform. Chinese merchants, bankers and diplomats combed the developing world for markets and infrastructure projects to keep China Inc. solvent. In a 2014 article in the South China Morning Post, a Chinese official said one objective of the BRI is the “transfer of overcapacity overseas.” Call it “imperialism with Chinese characteristics.”

But as Lenin observed a century ago, the attempt to export overcapacity to avoid chaos at home can lead to conflict abroad. He predicted rival empires would clash over markets, but other dynamics also make this strategy hazardous. Nationalist politicians resist “development” projects that saddle their countries with huge debts to the imperialist power. As a result, imperialism is a road to ruin. . . .

Meanwhile, China’s mercantilist trade policies-the subsidies, the intellectual-property theft, and the coordinated national efforts to identify new target industries and make China dominant in them-are keeping Europe and Japan in Washington’s embrace despite their dislike of President Trump.

China’s chief problem isn’t U.S. resistance to its rise. It is that the internal dynamics of its economic system force its rulers to choose between putting China through a wrenching and destabilizing economic adjustment, or else pursuing an expansionist development policy that will lead to conflict and isolation abroad. Lenin thought that capitalist countries in China’s position were doomed to a series of wars and revolutions.

Fortunately, Lenin was wrong. Seventy years of Western history since World War II show that with the right economic policies, a mix of rising purchasing power and international economic integration can transcend the imperialist dynamics of the 19th and early 20th centuries. But unless China can learn from those examples, it will remain caught in the “Lenin trap” in which its strategy for continued domestic stability produces an ever more powerful anti-China coalition around the world.

HUGE SEA CHANGE IN US CHINA TRADE RELATIONS

This is a very different time than any in 30 plus years of US China trade relations.  From this 301 experience, am watching a Tsunami, a huge wave, of change as many, many US importers in the Section 301 $200 billion case are moving to source products in other countries. Products ranging from wood cabinets, wood doors, aluminum curtain wall, paper gift bags, gift wrapping, household thermometers, and quartz surface products.  All of these importers are looking at second sources of supply so as to move out of China.  US importers pay these duties, not the Chinese companies.

Moreover, Chinese companies are also moving to third countries to produce products targeted by trade cases and the Section 301 target lists.  We represented several Chinese companies in a Citric Acid from Thailand AD and CVD case.  In that case, all the Chinese companies moved to Thailand to get out of the cross hairs of a US AD case against Citric Acid from China.

Thailand has many benefits for Chinese companies.  Under US AD and CVD law, Thailand is considered a market economy country, which mean Commerce must use actual prices and costs in Thailand to calculate AD rates.  In that case, therefore, the AD rates for the Chinese companies in Thailand ranged from only 6 to 15%.  In addition, and much to everyone’s surprise Commerce made a negative determination in the CVD case finding that all the subsidies were 0 or de minimis for the Chinese companies in Thailand.

Also in contrast to China, to date Thailand is a GSP country so US importers do not have to pay normal US Customs duties on imports of products from China, which can be in the 6.5% range.

With the raging US China trade war, all of these benefits are going to push more Chinese companies to leave China and move to a third country.  The AD order on Wooden Bedroom Furniture from China resulted in a large part of the Chinese furniture industry moving to Vietnam.  Now Vietnam exports more furniture than China.

Recently, JP Morgan issued a report predicting that if the US China trade war continues, the trade battle will cost at least 700,000 jobs.  If the trade war becomes protracted, the job loss could be as high as 5.5 million jobs.  See https://business.financialpost.com/news/economy/the-trade-war-will-likely-cost-china-700000-jobs-jpmorgan-says.

The point is that truthfully, the Chinese government needs to step up and settle this trade war quickly and put a concrete proposal on the table to deal with the IP and forced technology transfer issue.

Trump is not going to back down.  On September 17th, Trump stated in a tweet:

“Tariffs have put the US in a very strong bargaining position with Billions of Jobs and Dollars flowing into our Country and yet cost increases have thus far been almost unnoticeable.  If Countries will not make fair deals with us, they will be “Tariffed”

In this situation, China needs to take the first step because it has the most to lose.  One friend of mine who knows China well believes that the Chinese government will not settle, but that China is moving to a massive recession similar to Japan’s lost decade.  That lost decade cost the Japanese economy and its people, trillions of dollars.

Moreover, the Chinese government should be careful to not fall into the Japanese trap.  Just before the lost decade, many, many Japanese companies moved out of Japan to foreign countries to get around trade orders on products, such as automobiles, televisions, and auto parts.  This led to the “hollowing out” of the Japanese industry.

This would be very big problem for China becasue it has 1.3 billion people and needs to keep its citizens employed.  Rising unemployment because of the hollowing out of the Chinese industry would put the Chinese government in a very difficult situation.

THE EVER EXPANDING ORBIT OF ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

IMPORTERS BEWARE — EXPANDING THE SCOPE AND RETROACTIVE LIABILITY IN AD AND CVD CASES TO COVER DOWNSTREAM PRODUCTS AND IMPORTS FROM THIRD COUNTRIES, INCLUDING CANADA

If a US company imports products from China or other countries, which are or maybe covered by an antidumping or countervailing duty order, the importer must be very careful and cannot ignore the situation.  Two recent examples are the Commerce Department’s decision to expand antidumping (“AD”) and countervailing duty (“CVD”) orders on hardwood plywood to cover ready to assemble cabinets sold to the construction industry and the problem of third country/Canadian imports.

WOODEN CABINETS AND HARDWOOD PLYWOOD ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

On September 10, 2018, the Commerce Department issued its final scope ruling on Ready To Assemble (“RTA”) Cabinets in the Hardwood Plywood AD and CVD case.  In that attached decision, DOC FINAL SCOPE DETERMINATION, Commerce decided that the exclusion for RTA cabinets only applied to cabinets sold to the ultimate end user, the consumer, and not RTA cabinets sold to contractors, which install them in high rise buildings.  In effect, Commerce expanded the AD and CVD orders to cover RTA cabinets sold to the construction industry, which many importers thought had been excluded by language in the AD and CVD orders.

In its decision, Commerce made two important points:

“The RTA kitchen cabinet exclusion does not expressly address the manner in which RTA kitchen cabinets must be packaged to be suitable for purchase nor expressly define the term “end-user.” Nevertheless, the exclusion’s unambiguous requirements necessitate that, to qualify for the exclusion, RTA kitchen cabinets must be packaged in a single package suitable for purchase by a retail consumer. The plain language of the scope requires that the RTA kitchen cabinets be “packaged for sale for ultimate purchase by an end-user” and requires that the RTA kitchen cabinets be packaged with “instructions providing guidance on the assembly of a finished unit of cabinetry.” We find that, together, these requirements make clear that the end-user is a retail consumer, as retail consumers are the end users that would require instructions for assembling a finished unit of cabinetry. . . .

We disagree with the U.S. Importers’, Chinese Exporters’, and IKEA’s argument that the requestors’ scope ruling asks Commerce to redefine plywood to include wooden furniture and furniture parts. The petitioners made clear during the investigations that furniture was not covered by their proposed scope for these investigations. This scope ruling does not expand the scope but, rather, clarifies that, to qualify for the RTA kitchen cabinet exclusion, the RTA kitchen cabinet must meet the requirements of the exclusion, and the requirements necessitate that the RTA kitchen cabinet components be in a single package suitable for purchase by an end- use retail consumer.”

Many US importers fought hard against the motion by Hardwood Plywood Petitioners and Master Brands to narrow the exclusion to cover only cabinets sold to retail customers.  But this decision now exposes the US importers of RTA cabinets to millions of dollars in retroactive liability for AD and CVD duties.

Although there are strategies to deal with this problem, including an appeal to the Court of International Trade and other procedures for dealing with this problem, the US cabinet importer that sticks its head in the sand is going to wake up one morning with an enormous bill from the US government.  Old Boy Scout motto “Be Prepared”

IMPORTS FROM CANADA AND THIRD COUNTRIES COVERED BY AN AD AND CVD ORDER ON CHINESE PRODUCTS

We have been involved in several review investigations involving products from China, which are covered by an AD and CVD Order, where the target has been a third country exporter, including a Canadian exporter.  We have seen situations where a Chinese exporter/producer company of a product believes it did not export anything to the US during the review period.

Based on import data into the US, however, the Commerce Department determined that the small Chinese company was a mandatory respondent and had to spend 10s of thousands of dollars responding to the entire Commerce questionnaire and be subject to verification in the case.

The problem was although the Chinese company sold nothing to the US, it did sell to Canada.  Apparently, the Canadian customer then sold the products to the US without realizing that the products would be hit with antidumping and countervailing duties.

Under the US AD and CVD law, sales made by the Chinese company, which are imported into the US, are only considered the sales of the Chinese company if the Chinese company knew at the time it sold the product to a third country that it was destined for the US.  This can be a problem for customers in third countries, including Canada, Hong Kong, and other countries.

In those situations, where the Chinese company sold a product to a third country, such as Canada, where the Chinese company did not know the product was destined to the US, which company is the respondent in the AD and CVD case?  The answer is the third country exporter, which, in effect, has become a “reseller” in the case.  Third country resellers are respondents and can get their own rates in AD and CVD cases against China.

But the problem in a review investigation for a third country reseller, including a Canadian company and its US importer, is that since the Chinese company made no direct sales to the United States, it will probably give up and not participate in the AD and CVD review investigation.  But the US importer of the products from Canada, which can often be a company affiliated with the Canadian company, will find itself owing substantial AD and CVD duties to the US government.  In one situation, we talked to a Canadian company that had to shut down its entire US operations because they exported chemical products from Canada to the US that were covered by US AD and CVD orders.  All of a sudden, the US subsidiary was hit with millions of dollars in retroactive liability because of an AD and CVD case.

US importers that import and Canadian and third country resellers that export products originally from China, which are covered or could be covered by US AD and CVD orders, cannot afford to be complacent and ignore the situation.  The companies must be proactive, or they could wake up one morning and find themselves liable for millions in dollars in retroactive AD and CVD duties.  An ounce of prevention is worth a pound of cure.

MORE EXCLUSIONS SECTION 201 SOLAR CASE

On September 19, 2018, USTR excluded more Solar Products from the Section 201 Solar case.  In the attached Federal Register notice, USTR NOTICE EXCLUDING PRODUCTS FROM 201 CASE, the United States Trade Representative (“USTR”) excluded the following solar products from the Section 201 solar case.  The relevant parts of the notice are:

Exclusions  From  the  Safeguard  Measure

USTR has considered certain requests for exclusion of particular products  and  determined  that  exclusion  of  the  CSPV  products  described in  subdivisions  (c)(iii)(7)  through  (c)(iii)(14)  of  U.S.  note 18  to subchapter  III  of  chapter  99  of  the  HTS,  as  amended  in  the  Annex  to this  notice,  from  the  safeguard  measure  established  in  Proclamation 9693  would  not  undermine  the  objectives  of  the  safeguard  measure.

Therefore, USTR finds  that  these  CSPV  products  should  be  excluded  from the  safeguard  measure.  Accordingly,  under  the  authority  vested  in  the Trade  Representative  by  Proclamation  9693,  the  Trade  Representative modifies  the  HTS  provisions  created  by  the  Annex  to  Proclamation  9693 as set forth in the Annex to this notice. . . .

Annex

The  following  provisions  supersede  those  currently  in  the  HTS  and are  effective  with  respect  to  articles  entered,  or  withdrawn  from  a warehouse  for  consumption,  on  or  after  12:01  a.m.,  EST,  on  September 19,  2018.  The  HTS  is  modified  as  follows:

U.S.  note  18  to  subchapter  III  of  chapter  99  of  the  HTS  is modified:

By  inserting  the  following  new  subdivisions  in  numerical sequence at the end of subdivision (c)(iii):

“(7)  off-grid,  45  watt  or  less  solar  panels,  each  with  length  not exceeding  950  mm  and  width  of  100  mm  or  more  but  not  over  255  mm,  with a  surface  area  of  2,500  cm\2\  or  less,  with  a  pressure-laminated tempered  glass  cover  at  the  time  of  entry  but  not  a  frame,  electrical cables or connectors, or an internal battery;

  1. 4 watt  or  less  solar  panels,  each  with  a  length  or  diameter  of 70  mm  or  more  but  not  over  235  mm,  with  a  surface  area  not  exceeding 539  cm\2\,  and  not  exceeding  16  volts,  provided  that  no  such  panel  with these characteristics shall contain an internal battery or external computer  peripheral  ports  at  the  time  of  entry;
  1. solar panels  with  a  maximum  rated  power  of  equal  to  or  less than  60  watts,  having  the  following  characteristics,  provided  that  no such  panel  with  those  characteristics  shall  contain  an  internal  battery or  external  computer  peripheral  ports  at  the  time  of  entry:  (A)  Length of  not  more  than  482  mm  and  width  of  not  more  than  635  mm  or  (B)  a total  surface  area  not  exceeding  3,061  cm\2\;
  2. flexible and semi-flexible  off-grid  solar  panels  designed  for use  with  motor  vehicles  and  boats,  where  the  panels  range  in  rated wattage  from  10  to  120  watts,  inclusive;
  3.    frameless solar  panels  in  a  color  other  than  black  or  blue with  a  total  power  output  of  90  watts  or  less  where  the  panels  have  a uniform  surface  without  visible  solar  cells  or  busbars;
  1.     solar cells  with  a  maximum  rated  power  between  3.4  and  6.7 watts,  inclusive,  having  the  following  characteristics:  (A)  A  cell surface  area  between  154  cm\2\  and  260  cm\2\,  inclusive,  (B)  no  visible busbars  or  gridlines  on  the  front  of  the  cell,  and  (C)  more  than  100 interdigitated fingers of tin-coated solid copper adhered to the back of  the  cell,  with  the  copper  portion  of  the  metal  fingers  having  a thickness  of  greater  than  0.01  mm;
  2. solar panels  with  a  maximum  rated  power  between  320  and  500 watts,  inclusive,  having  the  following  characteristics:  (A)  Length between  1,556  mm  and  2,070  mm  inclusive,  and  width  between  1,014  mm  and 1,075  mm,  inclusive,  (B)  where  the  solar  cells  comprising  the  panel have  no  visible  busbars  or  gridlines  on  the  front  of  the  cells,  and  (C) the  solar  cells  comprising  the  panel  have  more  than  100  interdigitated fingers of tin-coated solid copper adhered to the back of the cells, with  the  copper  portion  of  the  metal  fingers  having  thickness  greater than  0.01  mm;

14.      modules  (as  defined  in  note  18(g)  to  this  subchapter) incorporating  only  CSPV  cells  that  are  products  of  the  United  States and not incorporating any CSPV cells that are the product of any other country.”

NEW NAFTA NEGOTIATONS—THE CANADIAN DAIRY PROBLEM

The NAFTA negotiations between Mexico and the US have primarily wrapped up, but the question now is whether Canada will be willing to join the party.  The key issue is dairy and the 275% tariff on US dairy products to Canada.

Mexican Economy Secretary Ildefonso Guajard has stated that negotiators need at least 10 days to put together “what’s going to be presented in any of the scenarios.” That means Thursday, Sept. 20 could be the last day for Canadian and American officials to announce a preliminary deal that offers enough time for the technical teams to prepare the text.

U.S. officials are demanding that Canada make major concessions on dairy and the tariffs on US dairy exports to Canada.  Canadian Prime Minister Trudeau’s Liberal Party wants to maintain its allies in Ontario and Quebec where the powerful dairy industry is concentrated. Trump, who is watching the midterms closely, wants to increase support from the farmers, particularly from the hard-hit dairy sector.  So the question is which country will blink first.

NEW EUROPEAN TRADE AGREEMENT

After discussions in Brussels and Washington, both sides know there are major differences over trade policy on cars and farming — meaning a large trans-Atlantic trade deal will have to wait. Instead, in the near-term negotiators will focus on regulatory cooperation on topics such as car blinkers, cosmetics, insurance and driverless vehicles.

USTR Lighthizer is pushing to “finalize outcomes” with the EU by November, as Trump wants a success story for the pending elections. The EU equally wants to create goodwill that will stop Trump from following through on his repeated threats to slap higher tariffs on European cars.

Susan Danger, the Chairman of the American Chamber of Commerce to the EU, said that “one school of thought” for how to move forward is “to do things piecemeal and address the low-hanging fruit.”

The China angle: Strategically, Lighthizer and Republican senators like Lindsey Graham want a swift deal with the Europeans so as to team up with the EU against the bigger mutual target in the trade area: China.

NEW ANTIDUMPING CASE

MATTRESSES FROM CHINA

On September 18th, 2018, Corsicana Mattress Company, Elite Comfort Solutions, Future Foam Inc., FXI, Inc., Innocor, Inc., Kolcraft Enterprises Inc., Leggett & Platt, Incorporated, Serta Simmons Bedding, LLC, and Tempur Sealy International, Inc. filed a new antidumping case against Mattresses from China.

If anyone has any questions about the 301 process, antidumping or countervailing duty law or other trade issues, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR – TRUMP TRADE CRISIS – PRINCIPLES TO REMEMBER WHEN ANALYZING TRUMP’S TRADE ATTACKS

White House Washington DC

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR — JUNE  30, 2018

Dear Friends,

Have had a difficult time writing this blog post because Trump’s trade policy has been so difficult to figure out.  Watching all these trade actions is like watching a pinball machine.

This first article will be an overview setting certain principles to keep in mind when analyzing Trump’s trade policy.  This article will then be followed by a series of articles on each specific trade action.

This overview article, however, will concentrate on answering some questions.  First, is there a method to Trump’s trade madness?  (Shakespeare Quote Hamlet)  What are the principles driving Trump’s trade policy?  What is President Trump’s problem with the WTO?  Will President Trump lose the midterms because of his trade policy and the collateral damage on downstream steel and aluminum users and the retaliation impact on US agriculture industry?

There are so many major trade actions going on, all creating real winners and true losers in the US economy that it is difficult to see a pattern.  This many trade actions also stretch the resources of the US government.  USTR Lighthizer is involved in intense NAFTA negotiations with Canada and Mexico, which are complicated by the demands of agriculture, but also negotiations with China and numerous other countries.  President Trump does not pick his battles, but apparently risks trade attacks against every country and the resulting retaliation.

Finally, although not a fan of Trump, on June 28, 2018, Julian Zelizer, a CNN political analyst, stated that Democrats have “badly underestimated Trump”:

While Congress and the courts have significant power when it comes to checking legislative initiatives from the Oval Office, a president who is intent on dismantling policies — such as stripping away regulations or withdrawing from international agreements — can get a lot done if he or she is determined.  . . .

The possibility for President Trump to seriously transform American policy keeps growing and the potential for a two-term presidency can no longer be dismissed.

See https://www.cnn.com/2018/06/28/opinions/democrats-badly-underestimated-trump-zelizer/index.html.

Trump’s impact on trade policy cannot be underestimated.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

MYRIAD US TRADE ATTACKS, RETALIATION BY TRADE PARTNERS AGAINST US EXPORTS, G-7 DEBACLE AND THE TRADE ATTACKS ON CHINA—IS THERE A METHOD TO PRESIDENT TRUMP’S TRADE MADNESSS?

SEVERAL POINTS TO CONSIDER

STRONG ECONOMY AND TRADE DEFICIT

To understand Trump’s trade policy, one should start with several simple facts.   First, the US economy is roaring with the lowest unemployment rate in decades and the lowest Black and Hispanic unemployment rates in history.

Second, in 2017 the US Trade Deficit in goods with the World was $810 billion, almost a trillion dollars.  The US trade deficit in goods with China in 2017 was $375 billion, EC $151 billion, Mexico $70 billion and Canada $17 billion.

Trump firmly believes that the US cannot follow the same trade path because the US simply cannot afford it.  Recently, President Trump stated that the United States will no longer do stupid trade, but smart trade and in trade the US will no longer be the world’s piggy bank.

One of Trump’s key promises in the election was that he would fix the trade problem. That is why President Trump tore up the Trans Pacific Partnership and announced the renegotiation of NAFTA.  President Trump keeps his campaign promises.

Trump also probably believes that the US economy is strong enough so that he can risk tough trade talks and even a trade war if necessary.  But can the US economy withstand a world trade war on so many different fronts?

SO MANY TRADE ACTIONS

In spring it looked like Trump would negotiate separate trade deals with Mexico, Canada and EU to stop retaliation in the Section 232 Steel and Aluminum cases.  In June, the risk of a global trade war increases with the breakdown in negotiations and actual tariffs and retaliation against US exports in the Section 232 cases, the threat of tariffs on $50 billion to $250 billion on Chinese imports in the Section 301 Intellectual Property case, NAFTA negotiations??, ZTE Mess, and the breakdown on trade in the G-7 talks in Canada.  EC, Canada, Mexico, China, India and numerous other countries have implemented retaliation lists against US exports because of the Section 232 tariffs.

Trump also is about to release another attack with a Section 232 case on automobiles, even though all the US automobile companies oppose the case.

Trump is demanding fair and reciprocal trade, not stupid trade.  See June 20, 2018 Trump speech in Minnesota at https://www.youtube.com/watch?v=Ao4SdNUG4X8.

THE SPEED OF TRUMP AND THE OBAMA LESSON

But there are several other issues at work here.  Sebastian Gorka, formerly with the Trump White House and a Fox News commentator, often talks about “the speed of Trump”.

Some back history here.  Rahm Emanuel, President Obama’s former Chief of Staff, made a point that a crisis should not be wasted stating, “You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”

But if one looks back on the Obama Presidency, many crises were let go to waste.  In the first two years of his Presidency, Obama had a majority in the House of Representatives and a filibuster proof 60 Democratic majority in the Senate.  But very few new legislative bills were enacted into law.

During that first two years, Democratic Senators and Congressmen warned President Obama that he had to do something to increase jobs.  But Obama decided to concentrate on healthcare for all.

Then before the first midterms, Obama lost the Ted Kennedy Senator seat to Republican Scott Brown, who promised to stop the push for Obamacare.  Because the Republicans now had 41 Senators, if the Republicans stayed strong, Obamacare could not be passed in Congress as regular legislation.  Then in the first midterms in November 2009 President Obama lost the House of Representatives, which went Republican.

So, President Obama and the Democrats in the Senate pushed through Obamacare on Christmas Eve, December 24, 2009, late at night using the reconciliation process, which required only 51 votes.  This was important because once the new Congressional term were to begin in 2010 the Democrats no longer had a majority in the House of Representatives.

Although President Obama won reelection in 2012, in the second midterms in 2014, Obama lost the Senate.  Now facing a Republican House and Senate, President Obama was forced to rely on a pen and phone to move his policy through.

But since Obama relied on a pen and a phone, the next President Trump could undo the vast majority of Obama’s policies with his own pen and phone.  That is just what President Trump has done.  Regulations have been cut enormously in the Trump Administration.  President Obama’s legacy is in tatters, in part, because President Obama did not use his time wisely.

In effect, the Obama record was a teachable moment for Donald Trump.  Trump knows that he may only have 2 years with a House and Senate majority so he has to move swiftly to do deals and make change. Trump has moved swiftly to undo Obama’s policies and legislate his own policy.

That may be the reason Trump is risking a trade war with the World.  Trump is hoping that in the first midterms he can do better than President Obama and hold the House and gain seats in the Senate, but that is a hope and not a sure thing.

In his book Art of the Deal, Trump stated that if you are going to do anything, do it big, which brings us to several more points.

TRUMP FEARS NOTHING AND LIKES CHAOS

The Washington Post recently published an op-ed entitled, “You can smell Trump’s fear”, but that commentator has completely misread Donald Trump. On June 19th, despite the constant drumbeat of attacks of separating children at the border, attacks on trade, and numerous other issues, Trump was cool and calm at a speech to the National Federation of Independent Businesses.  See https://youtu.be/ZiSnXNfbQ7k.

Am reminded about the famous statement of a Union soldier who watched General Ulysses Grant at the Battle of the Wilderness writing orders with shells exploding all around him: “Ulysses don’t scare worth a damn!”  Donald Trump does not scare worth a damn.

Trump also likes chaos and he creates the chaos by often taking a new look at established positions.  He reframes and resets issues, starts discussions from an entirely new point of view.

Substantial change to Federal policy, however, means that many oxen will be gored, the status quo will be changed, and entrenched interests do not like change.  Trump, however, apparently likes to ride the back of the chaos tiger.

On June 10, 2018, Jim Hanson, President of Security Studies Group, in an article on Fox News entitled “Trump’s willingness to walk away at the G7 and North Korea summits shows his foreign policy is working,” stated:

“This brings us to the biggest wild card President Trump brings to the world stage: he is a change agent. It would even be fair to say he creates chaos and misdirection – and then looks for an advantage. This drives many of his critics to distraction.

But when you are dealing with longstanding problems and well-entrenched interests, metaphorically knocking over a few apple carts or a conference table or two can break that deadlock. . . .

Peace through strength and fair trade are an excellent one-two punch and they work well together.  . . . The Trump administration has a plan and it is working successfully around the world.”

Although Trump is not afraid, he is concerned, and his one concern right now is the impact of his own trade policy on his base, including manufacturing and agriculture.

THE WTO PROBLEM—THE MFN PRINCIPLE BLOCKS RECIPROCITY

Recently it was reported that Trump has stated privately that he wants to withdraw from the World Trade Organization (“WTO”).  Trump cannot do this, however, without Congressional approval.

Trump has also made clear that he wants his trade policy to be reciprocal.  In other words, US tariff rates should mirror the tariff rates of other countries.  But there is a problem with that position—The WTO and its bedrock Most Favored Nation principle.

Once a country, such as China, becomes an “MFN” country, the United States cannot treat China “less advantageously than any other country with MFN status”.

This MFN principle puts low tariff countries, such as the US, at a major disadvantage in trade negotiations.  If China has a tariff of 30% on car imports, the US cannot raise its tariff on China car imports to 30%, because its car tariff for the rest of the World is 2%.  Since China is an MFN country, Trump must charge China the same tariff as it has with other countries.

One exception to the MFN principle is Free Trade Agreements (“FTA”), but if a country, such as the United States, already has low tariffs to encourage free trade, it is at a major disadvantage because it must reduce tariffs further or make some other concession in a FTA to get tariff reductions from other countries.

The MFN principle, however, is why President Trump has looked for other ways to raise tariffs on specific countries, such as the Section 232 National Security cases and the Section 301 intellectual property case against China.

AMERICANS ARE COMING AROUND TO TRUMP’S ECONOMIC TRADE NATIONALISM

Because of the enormous trade deficit in goods, Trump has succeeded in persuading many Americans that the US weakness on trade has put the US at an unfair trade disadvantage.

On June 11th, it was reported that a Quinnipiac University Poll found that a majority of swing voters, 55 percent, support tariffs on Chinese imports.  80 percent of Republican voters support Trump’s trade actions to date.

Because of Trump, the average American is learning about the many trade barriers to US exports.  Trump’s call is for reciprocity.

Why should Canadians put tariffs of over 275% on US dairy products?

Why should British Columbia put up what amounts to an 80% tariff, the highest tariff in the World, on US wine to protect large British Columbia wine producers? Both the dairy and wine problems make President Trump’s point that NAFTA is not a FTA, but a FFTA, a Fake Free Trade Agreement.

Why should Europe have higher tariffs on US cars of more than 10% when US tariffs are only 2%?

Why should China get away with charging much higher tariffs on US exports and have policies to force US companies to give up their technology?

All of these issues are causing public opinion in the US to turn away from free trade. Many American voters, American free trade periodicals, Republican and Democratic politicians are coming around to Trump’ tough trade position.

G-7 TALKS

At the G-7 talks in early June, President Trump stared down Chancellor Merkel and others on trade and slammed Prime Minister Trudeau for his criticism of the US after Trump left the talks.  See photo at https://www.theguardian.com/world/2018/jun/10/angela-merkel-photo-donald-trump-diplomacy.  The photograph of the Merkel Trump stare down speaks volumes.

After the breakdown of the G-7 talks on trade, Trump sent out a tweet stating:

“Fair trade is now to be called fool trade if it is not reciprocal.  Not fair to the people of America! $800 billion trade deficit.  Why should I, as president of the United State, allow countries to continue to make massive trade surpluses, as they have for decades, while our farmers, workers & taxpayers have such a big and unfair price to pay?”

During the G-7 talks, Trump stated to reporters that the US would no longer accept “ridiculous and unacceptable” tariffs imposed by other countries on US exports and threatened to “stop trading” with nations that would not lower their tariffs.

Trump further stated: “We’re like the piggy bank that everybody’s robbing – and that ends,”

In a speech on June 25th in South Carolina, Trump described the G-7 dust up with Canada in detail.  See speech on youtube at https://www.youtube.com/watch?v=eyf8Uie16tE.

On June 12, 2018, Investors Business Daily, a free trade periodical, which has opposed Trump on trade, stated in an editorial entitled “G-7 President Trump Didn’t Sign G7’s Leftist Agenda – Smart Move”:

“President Trump created a quite a stir among the other Western leaders by refusing to sign the “communique” that capped the G7 summit. But he was right to do so. . . .That’s particularly true of trade.

The summit communique, for instance, exhorts G7 members to “reduce tariff barriers, non-tariff barriers and subsidies.”

A reasonable goal, most economists would agree. The G7 leaders get angry at Trump because he believes that current trade deals, while good on some levels, actually are unfair to the U.S.  . . .

But what did Trump say at his press conference as he left the fruitless G7 confab . . . .?

“You want a tariff-free (trade system), you want no barriers, and you want no subsidies because you have some cases where countries are subsidizing industries, and that’s not fair,” Trump said, elaborating his own ideas about trade . . . . “So you go tariff-free, you go barrier-free, you go subsidy-free.”

Sounds pretty free trade to us. The fact that he questions current trade deals doesn’t signal a hatred of free trade. It does show a disdain for deals that pretend to be free trade but are really government managed trade. Often to the U.S.’ detriment. .  . .”

WILL TRUMP LOSE THE MIDTERMS BECAUSE OF HIS TRADE POLICY?

On November 6, 2018, voters in the midterms will vote based on many issues, including immigration, taxes or simply firmly held beliefs of never Trump or pro-Trump.  But in contrast to many past elections, trade policy will be an important because of the impact on Trump’s base.  Trade and the collateral damage caused by the Trump trade policy could be the fly in the ointment of Trump ‘s desire to hold the Republican Congress.

President Trump on June 28th spoke at the opening of the new FoxConn Plant in Wisconsin, in part, because of his concern about the impact of trade retaliation on Wisconsin farmers.  See https://www.youtube.com/watch?v=HhihQ52gyc8.

COLLATERAL DAMAGE—STEEL ALUMINUM USERS AND FARM BELT

In March 2018, President Trump and the Commerce Department in the Section 232 cases levied 25% tariff on Steel imports and 10% tariff on Aluminum imports.  Originally the EC, Canada and Mexico were to be exempted from the tariffs if trade deals were negotiated with the US.  No trade deals were negotiated.

On May 1st, President Trump imposed the tariffs against the three countries and predictably all three countries retaliated by levying billions in dollars in tariffs on US exports.  The tariffs and counter tariffs will be described in an upcoming article.  In the Section 232 cases alone, 10,000 exclusion requests have been filed by US steel and aluminum users, and the Commerce Department has only addressed a hundred from 18 different companies.

The retaliation by trade partners, including Canada, EC, Japan, India, Mexico and China, is already taking its toll on US farmers.  In contrast to the rest of the US economy, farm incomes are down.

STEEL AND ALUMINUM USERS

Downstream steel/aluminum users are now being deeply hurt by the Section 232 tariffs.  Many users have to compete in the downstream export markets, and they cannot compete if US prices for the steel and aluminum inputs are significantly higher than world market prices.

One indicator of the injury to the downstream industries is the many trade cases filed in the last year by injured US industries against downstream steel products including: Steel Propane Cylinders, Steel Racks, Stainless Steel Flanges, Forged Steel Fittings, Certain Steel Wheels, Certain Tool Chests and Cabinets, Carbon Steel Flanges, and Certain Carbon Closing Staples.

The Section 232 tariffs are forcing companies, such as Harley Davidson, the well-known motorcycle producer, to move some of its production offshore, and threatens the very existence of the largest US steel nail producer, Mid-Continent Nail, because it is a downstream steel user.

AUTOMOBILES 232 CASE

In contrast to Section 232 Steel case which the US Steel Industry supported, the US automobile industry opposes the Section 232 on automobiles.  On June 29th, General Motors filed comments, General_Motors 232 Autos Comments, and state in part:

“increased import tariffs could lead to a smaller GM, a reduced presence at home and abroad for this iconic American company, and risk less—not more—U.S. jobs. . . .

Combined with the other trade actions currently being pursued by the U.S. Government—namely the 232 Steel and Aluminum tariffs and the Section 301 tariffs against Chinese imports—the threat of additional tariffs on automobile imports could be detrimental to our company . . . .”

What used to be good for General Motors was good for the US economy.  But now President Trump and Secretary Ross think they know better.

AGRICULTURE

Trade is not a Republican or a Democratic issue.  It is a regional issue.  As part of his base, Trump has the manufacturing states of Michigan, Ohio, Pennsylvania and Wisconsin, the Rust Belt, which has been badly injured by imports from China and other countries.  The Rust Belt does not want more trade agreements.  The Blue Collar working class in the Rust Belt were a major reason Trump won the Presidency.

But Trump’s other constituency is the rural agriculture states, including Kansas, Iowa, Wyoming, Montana, North Dakota and South Dakota to name a few, all of which are dependent on exports. In contrast to other parts of the US economy, farm incomes are falling and have not increased in 15 years.  On June 26th CBS New Money Watch reported that according to the CDC, farmers are committing suicide in “staggering numbers”, a higher rate than other occupational groups.

IOWA IS HOLDING OUT FOR TRUMP

Iowa is ground zero for the farm vote.  On June 25, 2018, in an article entitled “’We’re riding a tiger’: The Iowa GOP bets it all on Trump– The president’s trade war could cripple the state, but Republicans trust in him as negotiator- in-chief” Politico reported:

“Donald Trump’s trade war with China could cost Iowa farmers hundreds of millions of dollars and do untold damage to the state economy.

But you’d never know it from talking to Republicans at the recent state GOP convention here. When Iowa Republican Party Chairman Jeff Kaufmann asked more than 1,100 delegates a defining question — who was still behind President Donald Trump? — there was no hesitation. In an exuberant display of unity, more than 1,100 delegates sprang to their feet, whistling, cheering and offering prolonged applause. . . .

The Republicans’ patience with their president amid an escalating trade war is as remarkable as it is politically perilous in an agricultural swing state that has historically held a deep disdain for trade meddling.
On June 15, Trump announced 25 percent tariffs on $50 billion in Chinese goods and China promised to exact retaliatory tariffs, including on a key Iowa export: soybeans. . . .

With nearly $2 billion in soybean exports to China, [Iowa] has the largest exposure to the tariffs of any state in the nation . . .

GOP leaders are convinced Trump will deliver a better deal for Iowa in the end . . . .
None of it guarantees Trump will be able to replicate his 2016 victory here. A White House policy that’s viewed as hostile to farmers could precipitate a backlash from the dozens of rural counties that swung for Trump in 2016 after previously backing Barack Obama. Those are the kinds of counties Trump needs to win states like Iowa and Wisconsin in 2020. . . . .

Even the most loyal of Republicans acknowledged that volatility surrounding trade issues could scramble the state’s political equation.

“As of right now, I’d say we’re supportive of him trying to make free trade freer. We’re willing to stick with him through the negotiation,” Kaufmann said. “If nothing has changed, and we’re in an all-out trade war, and it’s six to eight months from now and you ask me this question, I may have a different answer.”

CONCLUSION

Will trade voters stick with Trump because they know something has to be done because the trade deficits are too big?  $800 billion simply is not sustainable.

But Trump has a limited amount of time.  As we get closer to the midterms, if Trump has nothing to show on trade, including trade agreements, and only retaliation and injured manufacturers and farmers, there will be hell to pay.  So, Trump has a chance to make major changes in the trade area, but he cannot blow the chance and waste the crisis.  That Obama mistake is one that Trump cannot afford to make.

Now the burden is on USTR Robert Lighthizer and Secretary Wilbur Ross at Commerce to negotiate and finalize trade agreements.

If anyone has any questions about these cases or about the Trump Trade Crisis, the antidumping or countervailing duty law, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–US China Trade War Update–Trump’s Tweets and Xi’s Speech Calm the Trade War WatersTRADE WAR EXPANDS WITH US THREATENING TARIFFS $150 BILLION IN CHINESE IMPORTS, SECTION 301, SECTION 232 STEEL AND ALUMINUM CASES, DAMAGE TO US AG STATES and US CHINA TRADE WAR RISKY CHICKEN GAME

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE APRIL 10, 2018

Dear Friends,

This is an update to the first blog post, which gave an overview of the Trump Trade War.

President Trump’s tweets on April 8th and 10th and most importantly President Xi’s April 10th speech did a lot to calm the nerves of investors in the US and China that no trade war was imminent.  President Xi in his April 10, 2018 speech at the BOAN Conference in Hainan pledged to open China further to imports and to investment and to protect the intellectual property rights (“IPR”) of foreign companies.

Now in response to the Section 301 case, we can expect a round of intense negotiations between the US and China until November 18, 2018 to see if President Xi’s promises can be put into writing and the threats of a trade war averted.  Although President Xi pledged to move the reform process expeditiously, the Section 301 case has external deadlines.  After the May 15th hearing and final comments on May 22nd, there are still 180 days, 6 months, or until November 18, 2018 before the US takes action under Section 301.

Section 301 are usually settled with trade agreements so the question is what will China agree to and what will be in the Agreement.

Most importantly, the hope is that this Section 301 action can also help solve the Steel and Aluminum crisis in the Section 232 case as part of these negotiations so that China will lift its $3 billion in retaliation on US imports, which has already been put in place.  That is a hope of many US farmers.

My next update will describe the exclusion process in detail in the Section 232 Steel and Aluminum cases, the Section 201 Solar case and the procedures going forward in the Section 301 IP China case.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

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PRESIDENT XI’S SPEECH AND PRESIDENT TRUMP’S TWEETS HELP CALM THE TRADE WATERS AND HOPEFULLY AVERT A TRADE WAR

As the potential for a US China full blown trade war appeared to escalate last week with increasing rhetoric from both sides, cooler heads appeared to prevail as both sides stepped back from the brink.

On April 8, 2018, over the weekend and before the President Xi April 10th speech, President Trump appeared to step back and tone down his rhetoric with regards to China.  Trump specifically tweeted:

“4/8/18, 5:12 AM

President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”

Very smartly, President Trump decided not to attack China or the Chinese people and that did a lot to calm the waters and provoke a positive reaction from China.  As President Xi stated in his April 10th speech, “With the future in mind, we need to treat each other with respect and as equals.”

After President Xi’s speech, President Trump tweeted on April 10th:

“4/10/18, 10:51 AM

Very thankful for President Xi of China’s kind words on tariffs and automobile barriers…also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”

In effect, all the US anti-trade rhetoric had created a crisis atmosphere and the question is how China would react.  President Xi’s speech helped the US walk back the rhetoric in preparation for negotiations.  Although Trump maybe a good negotiator, the other side still has to come to the table.

Thus, Chinese President Xi Jinping’s speech on April 10th speech at the Boao forum in Hainan, China was extremely important to clear the rhetoric away in preparation for negotiations.  The Boao forum is an annual forum of Asian government and business leaders in Hainan.  In that speech, although not referring to Trump trade action by name, President Xi responded by pledging to open China more to foreign investment and imports and to substantially increase protection for intellectual property held by foreign companies.

One can see the entire April 10th President Xi speech at https://www.youtube.com/watch?v=KgUcL4rdpI0.

President Xi’ made clear in the speech his support for global development cooperation and peace.  He stated that only peaceful development and cooperation can bring a win-win situation.  He also stated that China has no choice but to pursue development and connectivity, and that reform and innovation are keys to human development.  President Xi emphasized that countries have to treat each other with respect and as equals.

President Xi described China as a socialist country with Chinese characteristics, not a Communist country. President Xi stated that China will not threaten anyone else or the international system.  It is determined to build World Peace and global prosperity.

President Xi also stated that China is committed to its strategy of opening up China, and China will stay open and will open up even further.  President Xi stated that greater openness will move economic globalization further so as to benefit people.

President Xi also pledged to take concrete action and measures to significantly broaden market access in the financial area, insurance, and other areas.  Xi specifically mentioned easing equity restrictions in the automobiles area.

President Xi pledged stronger IP protection and to protect IPR of foreign companies and to expand imports.  He also stated that China does not seek a trade surplus but a balance of payments and that China will significantly lower imports tariffs for autos and other products.  Xi specifically stated:

“With regard to all those major initiatives I have just announced, we have every intention to translate them into reality sooner rather than later.  We want the outcomes of our opening up efforts to deliver benefits as soon as possible to all enterprises and people in China and around the world.”

President Xi also stated:

“Openness versus isolation and progress versus retrogression, humanity has a major choice to make.  In a world aspiring for peace and development, the Cold War mentality and zero‐sum mentality look even more out of place.”

Xi called for “a new approach to state‐to‐state relations, featuring dialogue rather than confrontation and partnership instead of alliance.”

Xi further stated that China will create “a more attractive investment environment. Investment is like air and only fresh air attracts more investment from the outside.”

With regards to intellectual property, President Xi stated:

“Stronger IPR protection is the requirement of foreign enterprises, and even more so of Chinese enterprises.  We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises, and protect the lawful IPR owned by foreign enterprises in China.”

The real question now will be implementation, and China will no longer have the luxury of taking as much time as it wants to make these reforms because the Section 301 clock is ticking.  After the May 22nd final comments at USTR, pursuant to the Section 301 statute, the Trump Administration has another 180 days or six months or until November 18, 2018 before it takes action and imposes tariffs on the $50 billion in imports.

Most Section 301 cases end up with a negotiated settlement so we should expect the same end game in this case with intense negotiations by both sides.

If anyone has any questions about these cases or about the Trump Trade Crisis, Section 301 IP Case against China, 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

US CHINA TRADE WAR APRIL 7, 2018

Dear Friends,

This is the first of two blog posts.  The first blog post gives an overview of the Trump Trade War/Crisis with the World and specifically with China.  The second blog post will get into the details and the complexities of the Section 232 Steel and Aluminum cases, the Section 301 China Intellectual Property (“IP”) case and the Section 201 Solar Cells case.  But this trade war is getting bigger and bigger.

Having just returned from a month in Europe on March 26th, I wanted to put together another blog post, but every day there has been another significant trade development.  While in Europe, I was thinking that my next blog post would be entitled “Trump’s World Trade War”. Had the Trump Administration taken a World Trade War too lightly?

But after I returned from Europe, the narrative changed as country after country negotiated country exemptions out of the Section 232 Steel and Aluminum Tariffs.

But then on April 1st the Chinese government issued a $3 billion retaliation list aimed at US imports in response to the Section 232 tariffs, much of it agricultural products.  On April 3rd. the Trump Administration announced $50 billion in potential tariffs on Chinese imports in the Section 301 case.  See attached Presidential Proclamation and 301 Fed Reg Notice with US retaliation list, FED REG NOTICE 301 PLUS PROPOSED US RETALIATION LIST FED REG PRESIDENTIAL DETERMINATION 301 CHINA  The Chinese government immediately reacted with its own attached list of $50 billion in tariffs on US imports into China.  China-301-Retaliation-List-Chinese-and-English.  Both lists will be described in more detail in my second blog post. Both lists cover many, many different products from agricultural products to machinery, automobiles and airplanes.

On April 5th, in response to China’s $50 billion in retaliation, President Trump proposed and USTR Lighthizer agreed on another $100 billion in tariffs on Chinese imports.  $150 billion in tariffs on Chinese imports completely offsets the $130 billion in US exports to China.  The US and China are now involved in a game of trade war chicken.  Who will blink first?

So the new title of the newsletter below is “Trump’s World Trade War?? Maybe Not.  Now Definitely Yes”  But as Shakespeare stated in Hamlet, maybe there is a method to Trump’s madness.  Trump appeared to be ready to start a World Trade War at the beginning of March, but at the end of March, Trump appeared much more interested in using the threat of high tariffs to get a better trade deal to open up foreign markets.  Tariffs give Trump leverage in trade deals.

But then the trade war started to escalate with China as both sides created retaliation lists.  The only shining light in this trade conflict is that the $150 billion tariffs will not take place right away.  There will be a hearing in May to determine which imports to target and then the actual decision implementing the US tariffs will be months away.

The Chinese government will also not implement the $50 billion in threatened tariffs until it sees what the Trump Administration does. Meanwhile there will be intense negotiations between the US and Chinese governments.

Two readers have criticized me for not focusing enough in past blog posts on the trade deficits with China and high tariffs China puts on US exports.  US exports in 2017 were $2.4 trillion, $1.6 trillion in goods and the impact of a trade war on US companies and jobs is becoming very clear.  With regards to China, the United States exported $130.369 billion to China in 2017, imported $505.597 billion in 2017 leaving a trade deficit of $375.227 billion.  Concentrating only on trade deficits, however, ignores the very large amounts exported by the United States to the World and China.

But the real question is strategy.  Trump’s strategy apparently is to use the threat of high tariffs on imports from China and other countries to extract better trade deals which lower duties on and barriers to US exports.  As indicated below, USTR Lighthizer’s strategy, in part, is based on the belief that China has not kept its promises.  The Chinese government negotiates, but does not live up to its deal so only a true threat of big trade retaliation will force China to change its practices when it comes to intellectual property and mercantilism.  if the strategy works, more power to President Trump.

But, sovereign countries may not react the same way as private businesses.  Sovereign countries are very aware of face and whether the US Government respects the other country.  If President Trump pushes too hard, he risks so angering the other country, that no trade deal can be negotiated.  See the movie the Gathering Storm when Winston Churchill asked his British constituents on a subway train whether his government should negotiate a peace treaty with Hitler.  The answer was never!!

More importantly, because of the real negative economic impact Trump’s trade policy has already had on farm states, which is a core constituency and part of Donald Trump s base, Trump should know that he truly has bet the House/his Presidency on his trade deals.  If his trade strategy does not work, the economic damage his policy will do on his constituency will badly damage Republicans in the mid-terms and he probably will be a one term President.  Going into the midterms, Republican Senator Grassley from Iowa, which has been hit hard by Trump’s trade policy, has stated that Trump will own any harm caused by his trade strategy and any retaliation caused by it.  Senator Grassley should know because Iowa is changing from a state that was firmly in the Republican camp and pro-Trump to a now battleground state.

The objective of this blog has been to warn about the perils of protectionism.  I do not want to exaggerate the situation.  If Trump’s strategy works and he gets better trade deals, he will be in a very good situation.  But if the trade deals go south, especially with China, Trump’s core constituents will be badly hurt in a trade war by retaliation and there will be election hell to pay.  Trade is becoming Trump’s Obamacare lightening rod.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

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TRUMP’S WORLD TRADE WAR?? MAYBE NOT.  NOW DEFINITELY YES.

On February 27th, USTR Robert Lighthizer on the Laura Ingraham show on Fox News stated that it was ridiculous to think that the United States was going to get into a trade war with China.  On April 6th, in light of Trump’s decision to impose another $100 billion in tariffs on China’s imports in response to China’s threatened $50 billion on US exports, Lighthizer’s statement is simply ridiculous.  The United States has a full-blown trade war with China.  Lighthizer’s original statement, however, indicates that he may have underestimated the response of other countries to his trade demands.

At the start of March, it certainly appeared that the Trump Administration had started a trade war not only with China, but with the entire world.  In effect, the United States apparently had created a World Trade War. With tough trade NAFTA negotiations with Mexico and Canada, Europe issuing its own retaliation list in response to the Section 232 Aluminum and Steel Tariffs along with very tough tariffs for China and long retaliation lists aimed at US exports, it certainly looked like a World Trade War.

As I visited many cities in Germany, including Berlin, my fear was that the Trump Administration, like Germany, was taking a trade “war” too lightly. On March 2, 2017, President Trump tweeted:

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”

President Trump apparently was referring to a $100 billion bilateral trade deficit with a certain country, but it was not clear which one. In 2017, the U.S. ran a global goods deficit of $810 billion. The largest bilateral trade deficit was $375 billion with China.  But in 2017 total US exports were $2.4 trillion with $1.6 trillion being goods.  Agricultural products amounted to only $137 billion, the rest were manufactured goods.

This tweet followed the announcement to impose broad tariffs  of 25% on steel imports, and 10% on aluminum imports pursuant to the Section 232 cases.  On March 16th, the EC issued its own attached retaliation list, TWO EU RETALIATION LISTS.

In response, on March 2, 2018, the Wall Street Journal (“WSJ”) in an article entitled, “Trade Wars Are Good, Trump Tweets,” immediately criticized Trump’s trade action along with many economists and others, stating:

That is what most economists would call a classic “trade war,” which Investopedia defines as “a negative side effect of protectionism that occurs when Country A raises tariffs on Country B’s imports in retaliation for Country B raising tariffs on Country A’s imports.”

Most economists and policy makers consider trade wars unpredictable, destabilizing and damaging, the most notorious example being the cycle of tit-for-tat retaliation intensified by the 1930 American Smoot-Hawley law that aggravated the Great Depression.

At a March 21st hearing in the House of Representatives Ways and Means Committee, USTR Lighthizer gave a measured step by step argument on the Section 232 Tariffs and the Section 301 China IP Case against China to explain Trump’s trade strategy.  To see the two hour plus hearing before Ways and Means, see https://www.youtube.com/watch?v=MxqNWw5PObk.

On March 22nd, Commerce Secretary Wilbur Ross appeared before the House Ways and Means Committee to defend the Section 232 Steel and Aluminum tariffs.  Many Representatives expressed substantial concern about the retaliation against different US exports products, such as agricultural products, and the impact on downstream steel users.  To see this long hearing with Wilbur Ross, click on the following link https://www.youtube.com/watch?v=vylt-NTsT8I.

Upon my return from Europe, on March 26th, the situation appeared to change with a number of countries, including Canada, Mexico, South Korea, the EC, Argentina and Brazil, negotiating final or temporary trade agreements with the US in the Section 232 cases to get country wide exemptions.  See attached Section 232 Fed Reg notice outling exemptions for countries and for products, which can be filed by US end user companies. EXCLUSION FED REG STEEL AND ALUMINUM.  The exemptions for Canada and Mexico are only good depending upon the results of the NAFTA negotiations.  The EC, Brazil and Argentina exemptions are only good until early May when hopefully final agreements will be negotiated.  This was apparently part of USTR Lighthizer’s strategy before tackling China.  See below.

With regards to South Korea, in the final agreement, in exchange for a country wide exemption from the Section 232 Steel and Aluminum tariffs, it agreed to limit its steel exports to 70% of the average steel exports over the last three years and also open up its own market slightly to more auto imports from the US.  Since South Korea is the third largest steel exporter to the US, that reduction does mean that there will be less steel in the US market.

But then the trade war started to escalate again, especially with China.  On April 1st, China announced it was levying tariffs on 128 different US imports into China totaling $3 billion in response to the Section 232 tariffs on Steel and Aluminum.  China also took its case to the WTO and stated that since there are no negotiations, it can levy those tariffs now.  See the attached $3 billion Chinese retaliation list, SECTION 232 CHINA LIST RETALIATION TARGETS, which has already been imposed on US imports into China.

On April 3rd, pursuant to the Section 301 case on Intellectual Property, the Trump Administration announced its threatened $50 billion-dollar tariff list to offset the intellectual property allegedly stolen by China every year.  See attached list and Presidential Proclamation, FED REG PRESIDENTIAL DETERMINATION 301 CHINA FED REG NOTICE 301 PLUS PROPOSED US RETALIATION LIST.  Immediately, China announced its own attached $50 billion retaliation list on tariffs to be imposed on US imports, China-301-Retaliation-List-Chinese-and-English, if Trump follows through on his threat.

On April 5th, in response to the Chinese $50 billlion retaliation list, President Trump asked the USTR to add another $100 billion on the $50 billion already proposed against China.  The April 5th exchange between the President and USTR Lighthizer are attached.  TRUMP STATEMENT 100 BILLION LIGHTHIZER RESPONSE.  On April 6th, China said it would respond, but $150 billion is more than total US exports to China of $130 billion.

US proposes, China retaliates, the US raises the anti.  China responds.  This is a true trade war and exactly what the Wall Street Journal and others have predicted.

The only good point is that neither list has been implemented yet and as described below in more detail, the actual implementation of the tariffs is probably months away.

TRUMP HAS BET THE HOUSE/HIS PRESIDENCY ON BETTER TRADE DEALS

In his book, the Art of the Deal, Donald Trump states at page 222:

“USE YOUR LEVERAGE

The worst thing you can possibly do in a deal is seem desperate to make it.  That makes the other guy smell blood, and then you’re dead.  The best thing you can do is deal from strength, and leverage is the biggest strength you can have.  Leverage is having something the other guy wants.  Or better yet, needs.  Or best of all, simply can’t do without.”

Trump has made it clear that he wants tariffs.  Through the Section 232 process and the Section 301 IP Case against China, Trump got his tariffs and his leverage.  Now the question is what is Trump’s trade strategy.

On March 10th, in a Pennsylvania speech after the announcement of the Section 232 tariffs on steel and aluminum, President Trump stated with regards to trade:

European Union. . . They kill us on trade… They have trade barriers.  We can’t even sell our farming goods.   . . . Then they say we want those tariffs [aluminum and steel] taken off.  We are going to tax Mercedes Benz, BMW.  . . .You want money to come into our country.   . . . We are like $100 billion down with the European Union.  We had stupid politicians doing stupid things.  Think of $100 billion.  I’ve already had $71 billion Mexico, $130 billion.  That is a real number.  The deal was bad the day they made it.  Mexico charges a 16% tax nobody talks about.  I talk about it.  We are either going to renegotiate NAFTA – and I say we won’t put the tariffs on Mexico and Canada.  Canada is brutal.  We have a deficit with Canada.  They send in timber, steel a lot of things.  Our farmers in Wisconsin are not treated well when we want to send things to them.

I don’t blame them.  Why should I blame them?  They outsmarted our politicians for decades.  I don’t mean Obama.  I mean all of them since Bush the first.  That includes a lot of territory.  Ronald Regan. . . Not great on trade.

We used to be a nation of tariffs.  Countries had to pay for the privilege of taking our product, our jobs.  They had to pay.  They want to sell their products.  They had to pay.  Today in China.  They sell a car to the US they pay 2.5%.  We sell a car in China, which is almost impossible to do, it is probably . … 25%.  That is why we have a trade deficit with China.  It is not good.  We are changing it.  It takes a while. . .

We have a trade deficit with countries of the world…of almost $800 billion.  Who makes these deals?  . . . It is more than Obama.  Plenty of Presidents allow that to happen.  We are going to get a lot of things straightened out.  NAFTA is under work right now.

Now they are going to be very good. . .If you make a decent deal for the American people, we will have no problem with tariffs.  I said ..  something to the European Union. Look you are killing us.  We are losing $100 billion a year…You are not accepting our product.  I want to help the farmers . . .

You hear the European Union.  It sounds innocent.  It is not innocent.  They are very tough and smart.  They sell stuff into us and we … charge them practically nothing.  We sell things into them, you can’t get through the barriers.  They have artificial barriers.  It is not monetary, environmental.  They come up with things you would not believe.  We can’t get our product in there.  I said open up your barriers.  Get rid of your tariffs and we will do this. . .  We have a lot of work to do.

That is the Trump strategy.  Raise tariffs and if necessary raise tariffs again and then use those tariffs as leverage to get a better trade deal.  But what if the other country does not cooperate and puts out its own retaliation list?  That is the risk of Trump’s trade policy; the economic situation in Trump country, especially in the agriculture states, turns down.

To see a more optimistic prediction of the Trump trade strategy, see this April 4th interchange between Neil Cavuto on Fox Business with Larry Kudlow, now Trump’s new economic advisor, stating that deals will be worked out.  See https://www.mediaite.com/tv/cavuto-battles-kudlow-in-tense-standoff-you-dont-sound-like-the-larry-kudlow-i-respected-and-admired/.

Meanwhile, on April 5th the Commerce Department reported that in February 2018, the US trade deficit rose to $57.6 billion, 9½%, to its highest level in almost 10 years, although the trade deficit with China narrowed sharply falling 18.6% to $29.3 billion.  In February US exports of goods increased 2.3% to $137.2 billion, but goods imports jumped 1.6% to $214.2 billion.

On April 4th, Mark Zandl, chief economist at Moody’s Analytics, predicted that Trump’s trade policy to date has cost 190,000 jobs.

THE DOWNSIDE OF TRUMP’S TRADE WAR STRATEGY–AGRICULTURE

But in the agriculture states, a hard rain is going to fall and is falling.  Just from the initial attached $3 billion-dollar list, which has gone into effect, agriculture has been the top target. SECTION 232 CHINA LIST RETALIATION TARGETS. Agriculture experts expect that the soybeans, sorghum, beef, pork, wheat, corn and cotton are all on the target lists for both cases.  For most of these farm products, US farmers export billions to China.

Attached is list from Washington State indicating the potential indirect impact to the state of the $50 billion in tariffs, which may go into effect. China 301 retaliation by Value US China-301-Retaliation-List-Chinese-and-English.  Attached is another spreadsheet of the actual impact on Washington State of the $3 billion in tariffs in effect now in response to the steel and aluminum tariffs, WASHINGTON STATE China 232 FINAL retaliatin list and Washington exports.  The total is over $150 million in Washington State exports, including cherries ($100 million), Aluminum Scrap ($49 million), Apples ($17.6 million) and wine ($1.4 million).

On April 5, 2018, in an article entitled “What a Trade Fight Would Mean For Trump Country”, the Washington Examiner looked at the downside of the Trump trade war and attacks on other countries.  Farmers are getting smashed and they are a core Trump constituency.  As the Washington Examiner states:

President Trump’s hardball tactics to extract trade concessions from China could crush communities that fuel his political support, with Republicans in Congress paying the price in November.

A Brookings Institution analysis revealed that a U.S.-China trade war would impact agriculture and manufacturing and could disproportionately cost working class jobs in counties Trump carried in the 2016 election. Of the 2,783 counties affected, the president won 2,279; compared to just 449 that went for Democrat Hillary Clinton.

Nearly 1.1 million jobs in Trump country are tied to trade with China, according to the Brookings study. Voters there, supportive of the president’s agenda and long eager for the U.S. to combat Beijing’s unfair trade practices, might give the administration latitude to negotiate better terms.

But if the confrontation escalates and the economy suffers, congressional Republicans could shoulder the blame. Already facing a challenging re-election environment, they count a growing economy among their few advantages. They have minimal time to weather any storm and, unlike Trump, can’t rely on the loyalty of the GOP base.

“This could have a huge, negative impact in the midterms — and beyond — if the trade tit for tat continues,” Dave Carney, a veteran Republican strategist based in New Hampshire, said. Although, he added: “If the president gets concessions and jobs continue to grow and most importantly voters give him credit for that victory, then things will improve for his party.”

The Brookings Institution, a centrist think tank in Washington, examined industries and jobs that would be affected by a trade war with China based on the threats being lobbed back and forth since Trump began moving in March to crack down on Beijing. . . .

Nothing concrete has actually happened, yet. Wall Street, and top executives at corporations who stand to lose business, are operating under the assumption that a deal will be reached before the saber-rattling evolves into an extended showdown. . . .

The agriculture industry, the economic backbone of many rural communities in the heartland, is less sanguine and isn’t waiting for negotiations between Washington and Beijing to falter to sound the alarm. In a press release, the American Soybean Association said “Chinese Retaliation is No Longer a ‘What If’ for Soybean Farmers.”

Soybean farmers export 60 percent of their crop, about $14 billion worth annually, to China. ASA Vice President Davie Stephens, a soybean farmer in Clinton, Ky., said he awoke Wednesday morning to a 30-40 cent per bushel drop in the price of soybeans, which appeared related to the increased specter of a trade war.

“Farmers are worried,” Stephens said in a telephone conversation. “My local community would feel the impact.”

Trump at times has been bellicose in his rhetoric, vowing that he would do whatever is necessary to force China to treat U.S. imports fairly. “When you’re already $500 Billion DOWN, you can’t lose,” he tweeted. But the administration in general sought to calm nerves, with top officials insisting that Trump is intent on avoiding a major spat with Beijing.

“You know, there are carrots and sticks in life, but he is ultimately a free trader. He’s said that to me, he’s said it publicly. So he wants to solve this with the least amount of pain,” Larry Kudlow, the president’s chief economic adviser and an ardent free trader, told reporters.

Republicans worried about the midterm elections don’t sound reassured. Hoping to run on a $1.3 trillion tax overhaul that accelerated economic growth in the first quarter of the year and delivered massive tax cuts, Republicans have seen their economic message usurped by Trump’s proposed tariffs.

Worse, Republicans fear that an unintended trade war might erase the economic gains they’re depending on to buttress the party against political headwinds that threaten to wipe out their majorities in the House and Senate. As Brookings discovered, more than 2.1 million jobs could be adversely affected by a confrontation with China, including almost 1 million in the 449 Clinton counties.

That’s because China’s potential retaliatory targets include white-collar industries such as pharmaceuticals and aerospace. House Republicans are defending 23 districts won by Clinton 17 months ago, and trade war aftershocks that rumble through Clinton counties could add to GOP woes in the affected red seats.

Working-class voters might not fret too much about stock market volatility attributed to Trump’s trade policies. But it could push the white collar set right into the arms of the Democrats, especially in educated, upscale suburbs that typically vote Republican but are drifting, because of dissatisfaction with the president’s polarizing leadership.

“If I were a Democrat, what I would be running up Trump’s ass is how these shenanigans are DESTROYING values in 401ks and college savings plans,” a GOP strategist said. “Most people don’t know a cashew farmer or whiskey distiller but do worry about their own retirement account and paying for college.”

The problem for President Trump is that according to an April 5th article by Newsmax, as reported by Morning Consult, Trump’s approval rating across the 50 states has fallen to 41%.  The Rasmussen Poll shows Trump rising to 51%, but when polling is done at a state level, it is not that pretty.  In contrast to West Virginia, which shows a huge bump for Trump, Iowa dropped by 9 points, Idaho dropped by 6 points, Montana by 5 points and Oklahoma by 5 points.  These states have several things in common.  First, they are strong Republican red states and second they are agriculture states.  Iowa has been a very reliable Republican state, but is now considered a battleground state.

In addition, on February 8, 2018, the Wall Street Journal reported that in contrast to the rest of the economy, farm Incomes are falling, “Farm incomes are forecast to decline 7% to $60 billion in 2018.”

To win the midterms, these states have to stay in the Republican column.  For Trump to win the Presidency in 2020, he has to carry the farm belt.  If he loses the farm states, he loses the Presidency.

On April 5, 2018, the Wall Street Journal in article entitled “Tariff Showdown Shifts to Intense Negotiation Period,” stated:

Congress has been reluctant to do anything beyond warn the Trump administration that it risks a full-blown trade war, although behind the scenes some lawmakers, especially Republicans, want the government to find a quick solution to the tension.

“Every town hall I go to, trade or tariffs is one of the big questions. That’s what’s on their mind,” said Sen. Joni Ernst (R., Iowa) . . . . “They are starting to question the president and where we’re going with this,” she said, adding that she was going to express her concerns directly to Mr. Trump on Wednesday. “I need for him to understand that we’re hurting in the Midwest and this is not helping.”

Iowa is among the largest soybean- producing states, and the state’s other senator, Republican Sen. Chuck Grassley, noted on Wednesday that he had cautioned Mr. Trump his administration would own any harm caused by Chinese retaliation.

Emphasis added.

THE REAL PROBLEM OF A TRADE WAR WITH CHINA—THE AVERAGE AMERICAN SUPPORTS TRUMP ON THIS ACTION—CHINA STARTED IT

On the day, China announced its $50 billion retaliation list, much of which was aimed at constituents of Donald Trump, including US farmers in rural states, Rasmussen reported that Donald Trump’s popularity for the first time in its daily polling had shot to 51%.

The People’s Daily recently asked me to comment on the Section 232 and 301 trade actions against China.  As I stated in my comments, the majority of Americans, 70% in recent polls, believe that it is time to stand up to China’s trade practices.  Many Americans see Chinese trade practices as being unfair.  So the perception of trade disputes with China is very different than the perception of trade disputes with other countries, such as the EC, Mexico and Canada.  In fact, after the Chinese Government proposed $50 billion in tariffs in response to the US tariffs and Trump countered with another $100 billion in proposed tariffs, many Americans indicated strong support for President Trump.

The Chinese press indicates that many Chinese are very angry at the US and Trump, but the US Press indicates that many Americans believe that China has taken too much advantage of the US China trade relationship and strongly support President Trump.  With both the Chinese and US populations riled up, this makes it much more difficult for the Governments to step back and negotiate a settlement.

In the March 22nd Editorial, “Trump’s China Tariffs”, the Wall Street Journal, in effect, stated that China started the trade war.  Although the Wall Street Journal states that Trump’s trade policy with China is the wrong economic strategy to get it to change, the WSJ also states:

“No one should be surprised by the $60 billion in border taxes on China, given that Mr. Trump campaigned on worse. He is also responding to the genuine problem of Chinese mercantilism. China’s government steals the intellectual property of U.S. companies or forces them to turn it over, and Beijing uses regulation to discriminate against foreign firms.

This might have been tolerable when China was a smaller economy trying to reform, and the U.S. made a reasonable bet in 2001 when it let China enter the World Trade Organization. The gamble was that China would continue to reform, adapt to global trade norms, and eventually become a genuine market economy.

That hope showed early promise but has become forlorn as President Xi Jinping has pushed “national champions” like Huawei and Tencent. Facebook still can’t operate in China, and Tesla is punished with a 25% tariff on imported electric cars. The U.S. tariff on cars from China is 2.5%. China’s predatory behavior has eroded political support in the West for the very free-trade rules that have lifted hundreds of millions of Chinese out of poverty.”

Emphasis added.

But the Wall Street Journal (“WSJ”) in the same editorial warned:

“The President’s trade hawks, led by White House aide Peter Navarro, want to punish China more than they want to change its behavior. Mr. Navarro really does believe that China today is the equivalent of Germany a century ago. Mr. Trump said Thursday that this tariff action would be “the first of many.”  This is the mentality that could lead to a trade war and economic damage for everyone.  . . .”

When it comes to free trade and economics, the Wall Street Journal is the voice of reason, which many free trade Republicans in Congress listen to.

On April 6, 2018, after Trump’s announcement of another $100 billion in tariffs, the WSJ in an article entitled “The Architect of Trump’s Tough-on-China Policy” described in detail USTR Lighthizer’s strategy with regards to China:

WASHINGTON—President Donald Trump’s tough policy on China trade took shape in a White House meeting last August—and at the center was an often-overlooked man.

Decades of quiet negotiations had gotten nowhere, U.S. Trade Representative Robert Lighthizer told senior White House advisers and cabinet officials gathered in the Roosevelt Room.

“China is tap, tap, tapping us along,” he said, meaning it regularly promised policy changes but didn’t deliver. He punctuated his talk with charts showing how the trade deficit with Beijing had widened. . . .

U.S. Ambassador to China Terry Branstad, linked by videophone, asked for a chance to conduct another round of talks based on a rapport he was developing with the Chinese. He found little support. It was time to act, starting with a formal investigation of China for unfair trade practices, Mr. Lighthizer argued.

A few days later, Mr. Trump announced an investigation of alleged Chinese violations of U.S. intellectual-property rights—headed by Mr. Lighthizer. It marked the start of the most dramatic and high-risk effort in decades to force the world’s second largest economy to change its behavior, which culminated this week in an order threatening to slap tariffs on $50 billion of Chinese imports, a move that also had Mr. Lighthizer’s imprint on it.

After China threatened tariffs on an equal amount of imports from the U.S., Mr. Trump on Thursday called that “unfair retaliation” and said he might put tariffs on a further $100 billion of Chinese imports, tripling the amount subject to them. A Chinese Commerce Ministry spokesman said on Friday Beijing ”is fully prepared to hit back forcefully and without hesitation.”

Mr. Lighthizer’s role became clear to the Chinese when the Trump economic team landed in Beijing in November for a round of discussions. Mr. Trump made sure the U.S. trade representative met with top Chinese leaders while some others waited outside.

In a session with President Xi Jinping, Mr. Lighthizer laid out how fruitless the U.S. considered past negotiations and how the president was concerned the U.S. trade deficit continued to expand. While US officials saw Mr. Lighthizer’s comments as a lawyerly argument, Chinese officials described their reaction as shocked.

Today, Mr. Lighthizer is exchanging letters with China’s senior economic envoy on measures Beijing could take to head off a trade war. Negotiations are likely to stretch over many months— an ambiguity that could rattle financial markets and lift prices on goods earmarked for tariffs. . . .

Many U.S. businesses say they are fed up with what they view as unfair Chinese subsidies to local companies, and strong-arm tactics that make them hand over technology to Chinese partners. Still, they worry U.S. threats of tariffs could backfire and leave them vulnerable to retaliation. . . .

Early in the Trump administration, Commerce Secretary Wilbur Ross, a longtime Trump ally who had done business in China, was expected to lead China economic policy. He privately referred to Mr. Lighthizer, a former trade attorney, as his lawyer, say business executives, who took it as a slight. A Commerce official said Mr. Ross meant only that the two had worked together previously on steel issues.

Mr. Ross’s star dimmed when the president dismissed an early package of deals the commerce secretary negotiated with Beijing as little more than a repackaging of past offers, say senior White House officials. “Shut it down,” Mr. Trump told Mr. Ross in July when he stripped Mr. Ross of his China role and closed down the talks, according to senior administration officials.

Mr. Ross continues to work on China issues, including advising Mr. Lighthizer on which Chinese imports to target for tariffs, a Commerce official said.

Mr. Lighthizer, by contrast, managed to bridge a sharp divide over trade among Mr. Trump’s warring factions.

To so-called nationalists like trade aide Peter Navarro, who was itching to take on China, Mr. Lighthizer was a China hawk. Mr. Navarro is mainly an idea man, who has seen his role as making sure the White House carries out the president’s campaign pledge to stop China from “ripping us left and right.” Mr. Lighthizer runs a trade agency, plots strategy and carries it out. The two have worked together to develop on China policy, though they sometimes disagree on tactics.

To the so-called globalists such as former National Economic Council Director Gary Cohn, who worried about the impact of trade fights on markets, Mr. Lighthizer was the skilled attorney and former congressional aide who understood how Washington worked.

To Mr. Trump, Mr. Lighthizer was a kindred spirit on trade—and one who shuns the limelight. The two men, who have a similar chip-on-the-shoulder sense of humor, bonded. Mr. Lighthizer caught rides to his Florida home on Air Force One. Mr. Trump summons Mr. Lighthizer regularly to the Oval Office to discuss trade matters, administration officials say.

“Lighthizer has everyone’s trust, regardless of their views on trade,” said Kevin Hassett, the White House chief economist. . . .

Mr. Lighthizer, on the other hand, is a skilled international trade litigator, more in the mold of former U.S. Trade Representative Charlene Barshefsky, who negotiated China’s entry into the WTO. The Trump team thinks China experts have been too quick to back off in negotiations with Beijing.

By the time he took office in May, the administration was fighting internally over whether to impose tariffs on steel and aluminum imports globally. China policy was on the back burner.

While Mr. Lighthizer believed the metal glut was due to Chinese excess production, say administration officials, he thought a fight at that point would be self-defeating because the focus would be on U.S. tariffs, not Chinese trade and investment practices. Assessing tariffs on all steel exporters, many of which are U.S. allies, would paint the U.S. as a villain instead of China.

Rather than risk the ire of Mr. Trump, who considered steel tariffs a campaign promise, Mr. Lighthizer worked quietly with Mr. Cohn and others to get the issue set aside in favor of other priorities.

U.S. trade representatives often regard themselves as lawyers for U.S. exporters, trying to open up new markets. Mr. Lighthizer saw things differently, viewing big U.S. companies as job outsourcers that sometimes had to be reined in.

At a September meeting with about 100 CEOs organized by the Business Roundtable, he said he understood they had to maximize profits, which sometimes meant exporting jobs. “My job is different,” he told the group, according to participants. “My job is to represent the American workers. We’re going to disagree.” It was a position some in the audience found arrogant. . . .

As with his boss, bluntness is his calling card. In the mid-1980s, as a U.S. Trade Representative official who negotiated with Japan, he once grew so frustrated he took a Japanese proposal, turned it into a paper airplane and floated it back at the Japanese negotiators as a joke. In Japan, he became known as “the missile man.”

In a Senate hearing last month, when Democratic Sen. Maria Cantwell of Washington said his China plans could hurt U.S. aircraft makers, he dismissed her concerns as “nonsense.”

As the U.S. moved toward confrontation with China last fall, after the August Roosevelt Room session, Mr. Lighthizer worked to make sure the administration was united. Previously, the U.S. had often balked at confronting China out of fear a fight would tank the global economy and make China less willing to help on national-security issues.

Defense chief Jim Mattis, though, backed a tough approach because he was concerned China was illicitly obtaining U.S. technology and could gain a military edge, say individuals familiar with his thinking. Others in the national-security agencies were tired of what they felt were unmet Chinese promises on Korea and other security issues.

Mr. Cohn, then the economy chief, was as fed up with Beijing as Mr. Lighthizer, say officials. As a longtime president of Goldman Sachs, Mr. Cohn had lobbied to do business unimpeded in China and didn’t get the approvals he sought.

At the end of February, China sent its chief economic envoy, Liu He, to Washington to try to restart negotiations. Mr. Liu was ready to pledge that Beijing would open its financial market.

He found a frosty welcome. The Chinese embassy had requested 40 visas so Mr. Liu could bring a full entourage. The State Department granted just a handful.

Mr. Liu couldn’t get any time with President Trump. Instead, he met with Mr. Lighthizer, Mr. Cohn and Treasury Secretary Steven Mnuchin. The three delivered a simple message, say officials familiar with the talks: The U.S. isn’t going to get “tapped around” like prior administrations.

The U.S. wanted substantial changes in trade practices and barriers, which Mr. Lighthizer detailed. They included cutting the tariff China imposes on auto imports from 25% to something closer to the U.S. tariff of 2.5%. The U.S. also wanted a $100 billion reduction of its $375 billion annual merchandise trade deficit with China. To punctuate those demands, the administration planned to threaten tariffs.

One more obstacle needed to be cleared away. President Trump, frustrated that the steel- tariff matter had been indefinitely delayed, was sympathetic to pitches by Messrs. Navarro and Ross that he should finally move on the issue. In early March, Mr. Trump said he would impose 25% tariffs on steel and 10% tariffs on aluminum from any exporting nation.

The international response threatened to drown out the China initiative as U.S. allies complained they were unfairly targeted.

On Tuesday evening, March 20, senior officials gathered again in the Roosevelt Room to decide how to proceed with the tariffs scheduled to go into effect in three days. Mr. Navarro, the trade adviser, argued tariffs should be imposed across the board as the president threatened, say officials. That would increase U.S. leverage with steel-exporting nations, which could be expected to offer concessions to avoid tariffs, he argued.

Mr. Lighthizer, aligned this time with Mr. Ross, pressed for an alternative course. Grant nearly all nations except China temporary exclusions from the tariffs, they proposed, according to participants, but then limit their exports through quotas. That would make the U.S. seem more reasonable in steel negotiations and help form a coalition against China.

The group produced a memo in which the different views were articulated. Mr. Trump backed Mr. Lighthizer’s side.

With the steel issue defused, at least temporarily, Mr. Trump announced on March 22 the U.S. would threaten tariffs on Chinese imports. He thanked Mr. Lighthizer for his help and invited him to say a few words.

“This is an extremely important action,” Mr. Lighthizer said, “very significant and very important for the future of the country, really, across industries.”

Over coming months, the ability of the U.S. to maintain pressure on China will depend on factors including the reaction of markets, opposition by U.S. industries and farmers, and retaliation by China against U.S. companies. Chinese leaders say they are confident they would prevail in a trade war, say U.S. individuals who have met with them recently, and chalk up U.S. threats to Mr. Trump’s midterm congressional electioneering.

Jorge Guajardo, a former Mexican ambassador to China and now a Washington consultant, has seen up close how Beijing can pressure companies and wear down governments. “The big question is, ‘Will the U.S. blink?’” he said. “Or will they stay the course so China is forced to understand there is a new way of doing business.”

As I predicted in past newsletters when Robert Lighthizer originally obtained the USTR job, he would be a very tough negotiator especially with China.

To also see the raw emotion about China’s trade policies, see the videos mentioned above at the following two links.  The first link is for Robert Lighthizer’s testimony at House Ways and Means on March 21st with the focus on the Section 301 against China at https://www.youtube.com/watch?v=MxqNWw5PObk.  The second link is to the testimony of Wilbur Ross at the House Ways and Means on March 22nd at https://www.youtube.com/watch?v=vylt-NTsT8I.  Throughout the hearings, all the Congressmen and Ross himself put tremendous emphasis on China’s overcapacity in the Steel and Aluminum industries.  Many Congressmen agreed that substantial pressure had to be put on China because of its trade policy and the perception that for too long China has taken advantage of the US in trade negotiations.  The videos are long, but the US emotions and political feeling about trade with China are very real.

On March 25th in another editorial entitled “Donald Trump’s China tariffs make sense”, USA Today came out in favor of the Trump trade policy with regards to China:

“The Chinese should know that business as usual isn’t fair trade: Our view

President Trump has done many counterproductive things on trade. His recently announced (and later scaled back) steel tariffs, for example, will punish car makers and other industrial users of steel. And his decision to pick fights with nations in Europe and North America needlessly angers important allies.

But with his announcement to impose penalties on up to $60 billion in Chinese imports, Trump has finally hit on a trade action that makes a certain amount of sense.

China’s numerous state-owned companies limit access to Chinese markets, while exports to the United States continue at a robust level. Its practice of requiring foreign companies to share trade secrets in return for market access is nothing short of a shakedown. And its tolerance for (perhaps even encouragement of) theft of intellectual property makes it a lawless frontier for international companies trying to do business

Trump’s threatened tariffs are meant to effect change in China, not — as is often the case with tariffs — to protect U.S. industries that know how to throw their weight around politically.

Many free-traders will see these tariffs as yet another in a long line of counterproductive moves by the president. There could be some truth to that reasoning. But the tariffs also reflect a growing belief among U.S. business leaders that a laissez-faire approach simply isn’t working.

Such an approach relies on the power of markets, free enterprise and the survival of the fittest companies. In China, however, a gargantuan, single-party state holds the leverage to dictate terms to private companies.

Whether these tariffs work is an open question. China will naturally respond with its own tariffs, focused on U.S. agricultural products, and perhaps with a more truculent foreign policy. . . .

To truly be effective, these threatened tariffs should be combined with the U.S. re-entry into the Trans-Pacific Partnership…, a proposed trading zone linking 11 nations (not including China) in Asia and the Americas. In fact, if the United States were to take only one action to put pressure on China, joining the TPP would be the better approach.

TPP would turn the dispute with China into a multilateral affair. In virtually all efforts to pressure a nation to change its ways, a concerted effort by multiple nations is more successful than one nation going it alone.

The road ahead won’t be easy. Trump has not done himself any favors by alienating many U.S. allies in Canada, Mexico and Europe. Or with his rash decision, at the beginning of his presidency, to take the United States out of TPP.

Even so, there’s nothing wrong with sending a message to China that business as usual isn’t sustainable.”

On March 25th, on New York Radio, the “The Cats Roundtable,” John Bolton, President Donald Trump’s newly appointed national security adviser, stated:

“[T]he president was trying to communicate to signal to China is for far too long China has taken advantage of its place in the world; trade organizations and trade arrangements. The Chinese have stolen intellectual property, patent information copyrights and trademarks, business secrets. They take the information and they don’t honor the patent rights as it might be or the copyright rights — they just copy it and build their own. It’s theft. There’s no other description for it, so when you steal somebody else’s property and make money off of it yourself, it really magnifies the consequences for American industry in a very negative way.”

I think this could be a little shock therapy.”

On April 6, 2018 in an opinion piece in the Washington Post entitled, “Trump is right: China’s a trade cheat”, Fareed Zakaria, a known Trump critic and commentator on CNN, a very anti-Trump TV network, stated his agreement on Trump’s trade China trade policy:

Ever since the resignation of top advisers Gary Cohn and H.R. McMaster, it does seem as if the Trump White House has gotten more chaotic, if that is possible. But amid the noise and tumult, including the alarming tweets about Amazon and Mexico, let’s be honest — on one big, fundamental point, President Trump is right: China is a trade cheat.

Many of the Trump administration’s economic documents have been laughably sketchy and amateurish. But the Office of the U.S. Trade Representative’s report to Congress on China’s compliance with global trading rules [see attached report China 2017 WTO Report] is an exception worth reading. In measured prose and great detail, it lays out the many ways that China has failed to enact promised economic reforms and backtracked on others, and uses formal and informal means to block foreign firms from competing in China’s market. It points out correctly that in recent years, the Chinese government has increased its intervention in the economy, particularly taking aim at foreign companies. All of this directly contradicts Beijing’s commitments when it joined the World Trade Organization in 2001.

Whether one accepts the trade representative’s conclusion that “the United States erred in supporting China’s entry into the WTO,” it is clear that the expectation that China would continue to liberalize its markets after its entry has proved to be mistaken. . ..

Look at the Chinese economy today. It has managed to block or curb the world’s most advanced and successful technology companies, from Google to Facebook to Amazon. Foreign banks often have to operate with local partners who add zero value — essentially a tax on foreign companies. Foreign manufacturers are forced to share their technology with local partners who then systematically reverse engineer some of the same products and compete against their partners. And then there is cybertheft. The most extensive cyberwarfare waged by a foreign power against the United States is done not by Russia but by China. The targets are American companies, whose secrets and intellectual property are then shared with Chinese competitors.

China is not alone. Countries such as India and Brazil are also trade cheats. In fact, the last series of world trade talks, the Doha Round, was killed by obstructionism from Brazil and India, in tandem with China. Today the greatest threat to the open world economy comes from these large countries that have chosen to maintain mixed economies, refuse to liberalize much more and have enough power to hold firm.

The Trump administration may not have chosen the wisest course forward — focusing on steel, slapping on tariffs, alienating key allies, working outside the WTO — but its frustration is understandable. Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.

TRADE WAR CHICKEN GAME—WHO WILL BLINK FIRST?

The United States and China have now entered a game of chicken, two governments going directly at each other over trade.  The question is which government will blink first: China or the United States.  I firmly believe that both countries—China and the United States need to stand down and negotiate a deal, but a deal which is enforceable.  We do not want this trade war to expand further.

To Chinese friends, I would say do not escalate the rhetoric.  Of course, China will retaliate if the $150 billion in tariffs are imposed, but as Trump has stated many times, he is a counterpuncher.  Threatening Trump is waving a red flag in front of a bull.  With the very real damage to Trump’s agricultural base, he knows how very serious these US China trade negotiations will be.

As mentioned in my blog posts just after the Presidential election in 2016, Trump’s victory was a seismic tipping point.  Trump won the election because he promised to be tough on trade. Trade was never a major issue in a US election.  Trade and specifically trade with China has now become one of the most important political issues in the US.  China is a major reason for this sea change in US politics.

As indicated above, the WSJ articulates the position of the many Americans and the US Congress perfectly.  When China entered the WTO, Premier Zhu Ronji was China’s economic genius.  He wanted to get China into the WTO not to appease the US, but to help China internally and push it to become a more market oriented country and to lessen the impact of the State-Owned Companies.  I heard Premier Zhu make this statement in New York City in the early 2000s.

But now China appears to be moving away from a market oriented country and putting much more emphasis on State-Oriented capitalism.  The Chines State uses its economic might to target technologies and increase its economic might so as to achieve a dominant economic position in the World.

The rise in China is to be expected as China achieves the very high historical position it held in the World.  But if China wants to use its economic might to achieve political dominance, the World will react to that strategy and counter it.

The perception is that the WTO has done nothing to deal with Chinese mercantilism and the rise of China’s state-oriented capitalism.  The WTO is to quote Mao a “paper tiger”.

The American perception of China’s mercantilism and its state-oriented capitalism means that there is little sympathy for China and that does not bode well for the future of US China trade relations.

As Trump has made clear in many political statements, his new trade policy will be reciprocity.  The United States will not open its border to Chinese imports if China shuts down its own border to US exports in the same sector.  The United States will not let Chinese companies invest in certain sectors of the US economy if China prohibits investment by US companies.

That is where the Trump trade policy is headed. With trade being the main political issue at the present time, I suspect that the Trump trade policy will become the US trade policy not only during the Trump Presidency but the US trade policy for many years in the future.

To my US friends, I would make the point that the Chinese have a different World view.  We have the American dream, but China has its own dream.  Thus, it would be a big mistake to make a personal attack on the Chinese government and the Chinese people.

On April 5th, in an article entitled “Mexican president to Trump: ‘Nothing and no one stands above the dignity of Mexico”, Politico reported:

President Enrique Peña Nieto of Mexico blasted Donald Trump in a video message on Thursday, vowing that “nothing and no one stands above the dignity of Mexico” and adding that the U.S. president’s main gripes were Congress’ problem, not Mexico’s. . . .

“As Mexicans, we may disagree among ourselves, especially during election periods, but we will always be united when it comes to defending our country’s dignity and sovereignty,” Peña Nieto said.

The same point stands with regards to China.  On April 5th I heard a Fox News reporter state we want the US to be the hegemon, the major power in the World.  China wants the same thing.  They want to be the hegemon, just like the United States, the major power in the World.  Does that mean that inevitably there will be a military conflict between the United States and China?  Hopefully not.

One reader blasted me because I did not describe China as Communist China.  Sorry, I do not want to go back to the period before Richard Nixon and Henry Kissinger opened China to the outside world.  I do not want to go to war with China, but “hegemon” talk fuels nationalist/jingoist talk that we the United States are so powerful everyone must bow down to us.

That is what Adolf Hitler believed with regard to Germany and his memorial in Berlin is a parking lot over his old World War 2 bunker as Germany has done everything in its power to educate the average person about the real danger of the Nazi creed and, in effect, to expunge Hitler and Nazism from its history.  World War 2 left Germany destroyed and caused the deaths of 20 million people.  That is where puffed up nationalism leads.

Recently, in a video called the Value of Travel, Rick Steves, a well-known travel writer and producer on PBS, stated that he spends on average 4 months every year out of the United States. Steves stated that one of the major benefits of his travel experience is that he has learned that although we in the US have the American dream, people in other countries have their own national dreams.  See https://www.youtube.com/watch?v=kYXiegTXsEs.

The point is that I view China as a friendly economic competitor and would rather trade with China than go to war with it.  President Xi Jinping has pledged to the peaceful rise of China, and I hope that is what China truly believes or millions of lives will be lost in another World War, something to be avoided at all costs.

The bottom line is that Trump’s trade war with China is very risky and it will be a very bumpy ride in the next few months with developments on a day by day basis.  But my firm hope is trade agreements that will be win win, not only for the United States, but for our trading partners, including China.  We all need good trade deals, which are enforceable.

In my second blog post, I will outline from a technical point of view, the developments in the Section 232 Steel and Aluminum cases, the Section 301 IP Case against China, NAFTA negotiations and new trade cases against China.

If anyone has any questions about the Trump Trade Crisis, including the Section 232 case on Steel, Aluminum or Uranium or US trade policy, Section 301 intellectual property case against China, 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

US CHINA TRADE WAR–TRUMP’S TRADE WAR, INCREASED US EXPORTS, SECTION 232 STEEL/ALUMINUM CASES, RETALIATION BY EC/CHINA, TPP??, SECTION 201 SOLAR CELLS CASE, TAXES AND TRADE, NEW AD, CVD, 337 CASES

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 bill@harrisbricken.com.

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 bill@harrisbricken.com.

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 bill@harrisbricken.com.

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.

  1. 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 entitledBoeing’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

US CHINA TRADE WAR–CHINA RETALIATION, 201 REMEDIES, VITAMIN C, TRUMP AND TRADE, TAX BILL, SECTION 301 CHINA, SECTION 201 SOLAR CELLS, SECTION 232 STEEL AND NEW CASES

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR FEBURARY 5, 2017 CHINA TRADE RETALIATION UPDATE

Dear Friends,

What goes around comes around.  President Trump has threatened retaliation against China and countries for various misdeeds by raising tariffs.  But the Chinese government has now upped the game and responded with its own trade case against US agricultural exports of Sorghum Grain to China.

MOFCOM SELF-INITIATES ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST SORGHUM GRAIN FROM THE US

On December 1, 2017, in the first time in over a decade, the Commerce Department self-initiated an antidumping and countervailing duty case against imports of aluminum sheet from China.

On February 4, 2018, Ministry of Commerce (“MOFCOM”) in China retaliated by self-initiating its own antidumping and countervailing duty case against imports of US sorghum grain.  Total China imports of US Sorghum Grain in 2016 were 5,869,000 tons worth more than $1.26 billion USD.

Notices of appearance are due at MOFCOM by February 24th.

In addition to dumping, the case targets large US agricultural subsidies for sorghum grain, such as Crop Insurance Program, Price Loss Protection Program, Agricultural Risk Protection Program, Marketing Loan Program, Export Credit Guarantee Program, Market Access Program and Foreign Market Development Partner Program.

Some of the US companies that may be the targets of this MOFCOM action are: Agniel Commodities, LLC, Attebury Grain, LLC, Big River Resources, Bluegrass Farms of Ohio, Inc., Bunge North America, Inc., Cardinal Ethanol, LLC, Cargill, Inc., Consolidated Grain and Barge Co., DeLong Company  Inc., Enerfo USA, Inc., Fornazor International Inc., Freepoint Commodities LLC, Gavilon, Illinois Corn Processing, LLC, International Feed, Louis Dreyfus Commodities, Marquis Grain Inc., Mirasco Inc., Pacific Ethanol, Inc., Perdue AgriBusiness, LLC, The Scoular Company, Southwest Iowa Renewable Energy, LLC, Tharaldson Ethanol Plant I, LLC, United Wisconsin Grain Producers, and Zeeland Farm Services.  Attached is a list of more potential US target companies, US exporters of grain sorghum to China

This case is important because it signals the possible start of a trade war with China.  The US self-initiates antidumping and countervailing duty cases against China; China self-initiates antidumping and countervailing duty cases against the US.

President Trump has been threatening to levy numerous tariffs against China and other countries, but this Sorghum Grain trade case indicates that there is a price to pay for US tariffs and trade actions. Many in Washington DC are used to dealing with Japan, Taiwan and South Korea with regards to trade, but those countries are dependent on the United States for their national security.  Throw a trade rock at those countries, and they rarely throw one back.

China, however, is not dependent on the United States for its national security.  Throw a trade rock at China, and they will throw one back.  Moreover, this Sorghum Grain case is aimed directly at President Trump’s constituency—agriculture and the rural states.

Both the Wall Street Journal and Investors Business Daily in numerous editorials have warned the Trump Administration that the only major economic issue that could stop the rise in the economy is a trade war.  Trump and the Republicans have tied their political star to the rising US economy.  But if Trump levies more tariffs against Chinese imports, expect the Chinese government to retaliate and aim its trade guns at products and constituencies that will hurt Trump and the Republicans the most—agriculture.

If anyone has any questions about this case, please feel free to contact me.

US CHINA TRADE WAR JANUARY 25, 2018 SOLAR CELLS 201 UPDATE

Dear Friends,

Attached is the Solar Cells Presidential Proclamation with Annexes, which was published today January 25th in the Federal Register, FEDERAL REGISTER NOTICE PRESIDENTIAL PROCLAMATION SOLAR CELLS.  According to the Annex I (f), the 30% tariff will be applied to imports starting February 7, 2018.

In addition, a number of countries are excluded in Annex 1(b) from the tariff, including India and Ukraine, so long as their share of imports does not exceed 3%.

Within 30 days, the United States Trade Representative’s office (“USTR”) will publish a Federal Register notice, which will allow companies to petition for exclusion.  The Proclamation specifically also states that the President has “determined to exclude certain products from this action and goes on to state in paragraph 15, 4:

Within 30 days after the date of this proclamation, the USTR shall publish in the Federal Register procedures for requests for exclusion of a particular product from the safeguard measure established in this proclamation. If the USTR determines, after consultation with the Secretaries of Commerce and Energy, that a particular product should be excluded, the USTR is authorized, upon publishing a notice of such determination in the Federal Register, to modify the HTS provisions created by Annex I to this proclamation to exclude such particular product from the safeguard measure described in paragraph 8 of this proclamation.

Consumer products with solar cells, such as solar-powered backpacks and lanterns, will likely be excluded from the tariffs, but it will be tough to get other products out.

If anyone has any questions about these cases or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

JANUARY 23, 2018 UPDATE

Dear Friends,

A number of clients and news outlets have called me because yesterday, the United States Trade Representative’s office issued its Section 201 determinations in the Solar Cells and Washing Machines 201 cases.  The USTR announcements are attached. 201 USTR ANNOUNCEMENT SOLAR WASHING MACHINES President Trump Approves Relief for U.S

This update will address these two remedy announcements and also the decision by the US Supreme Court to look at the Vitamin C Antitrust case.

Best regards,

Bill Perry

IT BEGINS? SECTION 201 SOLAR CELLS/WASHING MACHINE DECISIONS

Yesterday, the United States Trade Representative’s office (“USTR”) announced affirmative Section 201 decisions in the Solar Cells and Washing Machines cases and issued tariffs.  The question is whether these decisions represent the first layer of bricks that President Trump puts up in a protectionist wall around the US.  We will have to wait and see.  The real test will be what President Trump does in the Section 232 cases on Steel and Aluminum.

But one interesting point is that Suniva, the US company that filed the Section 201 Solar Cells case, is majority owned by a Chinese Solar Manufacturer, Shunfeng International Clean Energy Ltd.

In the 1980s, as a result in part of a Section 201 case against imports of Automobiles and a Voluntary Restraint Agreement issued by the Japanese Government, Japanese car companies set up manufacturing operations in the United States.  Many Chinese solar companies may follow Shunfeng’s lead and set up manufacturing operation in the US.  That is especially true as the new Trump Tax Bill kicks in dropping corporate tax rates to 21%.

The remedies for the two Section 201 cases are specifically set forth below.

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

It is still unclear how this will work in the sense that imports of the first 2.5 gigawatt are excluded from the additional tariff.  But in talking to one small solar cell importer, at the most during the year they import a total of 1 megawatt.  This tells me that the new tariffs first will not be retroactive and second probably will kick in after several months each year, when total imports reach the 2.5 Gigawatt level.

As stated before, these 201 tariffs are applicable to imports from all countries, including China, Malaysia, Germany, Canada and Mexico.  When total imports of solar cells and modules reach the 2.5 gigawatt level, the new tariff kicks in.  So, for example, if total imports of solar cells and modules into the US reach the 2.5 gigawatt level on May 15th, imports after that will be hit with a tariff.

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.

VITAMIN C ANTITRUST CASE RISES FROM THE ASHES

With the Second Circuit Appeal Court ruling in September 16, 2016 against the US importers, many assumed that the Vitamin C antitrust case against the Chinese companies was dead.  But on January 12, 2018, in the attached notice, 011218zr_3d9g (1), the Supreme Court announced that it was accepting the importers’ petition for certiorari in the Animal Science Products, et al v. Hebei Welcome, et al., Vitamin C Antitrust case.  But the appeal is specifically limited to question 2 raised in the Animal Science Products’ Petition for Certiorari:

  1. Whether a court may exercise independent review of an appearing foreign sovereign’s interpretation of its domestic law (as held by the Fifth, Sixth, Seventh, Eleventh, and D.C. Circuits), or whether a court is “bound to defer” to a foreign government’s legal statement, as a matter of international comity, whenever the foreign government appears before the court (as held by the opinion below in accord with the Ninth Circuit).

So the question for the Supreme Court is whether the Chinese government’s characterization of its own law is conclusive in the proceeding.

If anyone has any questions about these cases or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

US CHINA TRADE WAR JANUARY 20, 2017 BLOG POST

Dear Friends,

Have been in China and then intensely involved in a steel antidumping and countervailing duty case on cold drawn mechanical tubing (“CDMT”) and only now can come up for air and turn my attention to the blog.

Moreover, there are so many mixed signals coming out of the White House on trade it is difficult to know which way Trump is going to go.  As indicated below, the problem is probably retaliation by other countries and agriculture.  Trump wants to be tough on trade but half of all US agriculture products are exported.  One third of all Iowa corn is exported to Mexico.

Trump cannot kill NAFTA or be so tough on trade that US agriculture exports become the target of retaliation.  Trump is winning and the Republicans stand a chance of holding their own in the mid-term elections if the US economy is doing very well.  But taking a very protectionist stance by killing imports could very well backfire and hurt the US economy deeply.  If the US economy goes down, Trump and the Republicans go down.

But this could be the month where the direction of Trump’s trade policy starts to truly come into focus.  President Trump has to decide whether to impose additional tariffs on Solar Cells by January 26th and on Washing Machines by February 4th. But more importantly in the next 90 days, President Trump has to decide whether to impose additional tariffs on steel imports pursuant to Section 232 national security case.  After Steel comes aluminum and possibly a new case on uranium.  In addition, in the Section 301 case against intellectual property and China, Trump is talking about “fines” against China, whatever that means.  Does that mean a trade war with China?

More importantly, the most important development in trade may be the passage of the Trump/Republican tax bill, which has slashed corporate taxes to 21%.  This dramatic tax reduction is creating a manufacturing renaissance in the United States.  Apple has announced that it is repatriating almost $250 billion from overseas, much of which will be used to create new manufacturing facilities in the United States.

Unemployment, including Black and Hispanic unemployment, is the lowest in decades.  One way to cure the trade problem is by making US companies more competitive and that is just what Trump and the Republicans have done.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

WILL TRADE UPSET THE TRUMP ECONOMIC JUGGERNAUT IN JANUARY 2018?

TO DATE TRUMP HAS NOT IGNITED A TRADE WAR

Despite many warnings of doom and gloom regarding trade, some from this newsletter, President Trump apparently has taken a cautious approach to trade.  Although Trump has torn up the Trans Pacific Partnership (“TPP”) and threatened to pull out of the North American Free Trade Agreement (“NAFTA”), Trump so far has gone slow on trade.  NAFTA has not been torn up, and to date President Trump has not imposed draconian tariffs on imports of steel and aluminum pursuant to the Section 232 National Security cases, probably in response to the many US producers that use imported steel and aluminum to produce downstream products made of steel.  Trump is learning that trade is “complicated”.

The Cold Drawn Mechanical Tubing (“CDMT”) case illustrates the problem with being tough on trade.  During the preliminary injury investigation at the ITC, one of my clients Voest Alipine Rotec (“Rotec”) told the US International Trade Commission (“ITC”) that if the ITC reached an affirmative preliminary injury determination, it would move offshore.  The ITC went affirmative and as Rotec testified in December at the ITC final hearing, Rotec opened up a new production facility in Mexico to take care of all of its export business, cutting US jobs.  When companies cannot get competitive raw materials, including steel products, they move offshore

TRUMP’S POLICIES HAVE CREATED AN ECONOMIC BOOM—CUTTING TAXES AND REGULATIONS WORKS

As indicated below in the article on the Tax Bill, another very important reason for Trump’s go slow approach is that the US economy is climbing upward like a rocket, and President Trump does not want to do anything to damage the trajectory of the economy.  On election day, the Dow Jones average was 18,259.  It has now climbed to over 26,000 creating over $5 trillion in new wealth.  Trump’s policy of cutting regulations and the passage of the Trump tax bill are major reasons for the huge surge in the economy.

Democratic officials under President Obama told the American public to get ready for the new normal—US economic growth domestic product (“GDP”) could not get higher than 2.2% and would never go over 3%.  In the first year of the Trump Presidency, the US GDP is 3.2%.  With the elimination of regulations and the new Trump tax bill, which cut the corporate tax from 35 to 21%, many economists are now forecasting in 2018 a US GDP above 4%.

When the GDP goes up, all boats rise, and everyone, including the lower and middle class, are better off.  Rising GDP means jobs and more jobs, exactly what Candidate Trump promised.  Unemployment is the lowest it has been in decade.  Hispanic and Black unemployment is the lowest it has been in decades.  Manufacturing is having one of its best years since 2004.

When all boats rise that means the lower middle class and middle-class incomes go up also, and that is Trump’s core constituency. The Republican’s road to victory in the upcoming midterms in 2018 and Trump’s reelection in 2020 is dependent upon the economy.  As President Clinton himself stated, “It’s the economy stupid.” If the economy is rising, everyone’s income goes up as there are more jobs, which means more voters pulling the Republican lever in the voting booth, and there is a chance the Republicans can hold their own in the mid-terms.  The economy goes down and the Republicans will be crushed.

During the first term of President Obama, Democratic Senators and Congressmen were warning President Obama to focus on jobs for the lower and middle-class workers.  President Obama ignored the advice and focused on health care and an infrastructure program that did not work.  The average American wants a job, not a handout, because jobs lead to the American dream– a house to own and a good middle-class life.

Trump understands this desire and has focused on this core principle, which is exactly what he promised to do as a candidate.

Newt Gingrich, former speaker of the House and Presidential candidate and one of the true thinkers in the Conservative Wing of the Republic party, is predicting a great political surprise—the size of the Republican victory in the midterms.  Directly contrary to the many statements of Democrats and pundits in the mainstream media, Gingrich makes the strong political argument that because of the sharp rise in the US economy, Republicans will do very well in the midterms.  See http://www.foxnews.com/opinion/2017/12/28/newt-gingrich-get-ready-for-great-political-surprise-2018.html.  People may not like the Trump package, but his economic policy so far is working.

SLAMMING TRADE AND STOPPING IMPORTS COULD STOP THE ECONOMIC BOOM

But the one problem with Trump’s economic initiative, which could be the flaw in his and the Republican strategy, is trade.  If Trump embarks on a sharp protectionist push, withdrawing from NAFTA and raising tariffs for many products coming into the US, that could drop economic growth like a rock.  All the business investor publications, such as the Wall Street Journal and the Investors Business Daily, are warning Trump to go slow on trade and not rip up the global trading system.  If Trump decides to create a trade war with other countries, the economy will slow and the Republicans will have no hope of winning the midterms and Trump will be a one term President.

One major reason for that is agriculture.  On January 9, 2018 in an editorial entitled “Will Trump Punish the Farm Belt?” the Wall Street Journal raised this very point:

“The U.S. economy is starting to grow at a faster pace, and deregulation and tax reform are pointing to an investment boost in 2018. But the big economic policy question now is whether President Trump is going to dampen this new growth enthusiasm by imposing tariffs and kicking off a global trade war.

That issue was in high relief Monday in Nashville, where Mr. Trump delivered a speech [to the American Farm Bureau] touting his policies for the rural U.S. economy that benefits from free trade. Mr. Trump can rightly point to White House progress on reducing government barriers to growth in American agriculture. . . .

But farmers are scared stiff that Mr. Trump might take a protectionist turn that would impose more government barriers. Highly efficient and productive, U.S. farmers thrive in a competitive global market. But tariffs are border taxes that raise costs for U.S. producers and consumers. . . .

Mr. Trump already walloped U.S. farm exporters when he dropped out of the Trans-Pacific Partnership, which has given Europe, Australia and Canada an edge to meet growing Asian demand for high-value farm products. After Japan imposed 50% “safeguard” tariffs on frozen beef last July, U.S. imports dropped by a quarter. Imports from Australia, which has a trade deal with Japan and supplies about half of its frozen beef, increased by 30%.

Foreign leaders are working fast to lock in trade deals that are leaving the U.S. behind. In December the European Union finalized a “cars-for-cheese” pact with Japan that will slash tariffs on most dairy, meat and wine to zero from up to 30%. Canada last year reached an agreement with the EU that will make 99% of their exports duty-free.

Mr. Trump is also contemplating tariffs against China for stealing U.S. intellectual property. This should be addressed, but the danger is that U.S. agriculture is sure to be a top target for reprisal if the President gets into a trade war with Beijing. China is one of America’s top farm markets, with agricultural exports tripling over the past decade to $21.4 billion, including $14.2 billion in soybeans. Australia and Brazil can replace many U.S. exports in a trade spat.

The greatest danger to the Farm Belt is that Mr. Trump might withdraw from the North American Free Trade Agreement. The U.S. sends about $18 billion a year in farm products to Mexico and $23 billion to Canada, which together account for a third of American farm exports. Since Nafta came into force in 1994, farm exports to Mexico and Canada have more than quadrupled. Soybean exports to Mexico have quintupled.  . . .

Responding to Mr. Trump’s trade threats, Mexico is already seeking alternative commodity suppliers. Last year Mexico reached deals to increase imports of wheat from Argentina and corn from Brazil as a hedge against U.S. withdrawal.

Mr. Trump devoted only a couple of lines to trade in his Nashville speech, and we hope it reflects what Mr. Trump has learned about trade on the job. More likely, it means Mr. Trump still hasn’t resolved the debate among his economic advisers.

One argument Mr. Trump should hear is that a U.S. withdrawal from Nafta would most hurt states like Iowa and Wisconsin that gave him his election victory. That’s especially true if the U.S. imposes additional protectionist measures—such as steel tariffs—that invite retaliation. After the U.S. blocked Mexican trucks from delivering goods across the border in 2009, Mexico slapped tariffs on U.S. table grapes, potatoes, juices, almonds and wines.

Trashing Nafta would be among the great self-inflicted wounds in history. It would also tell other countries that the U.S. can’t be trusted to keep its word on trade, which would make it impossible to cut the bilateral trade deals the President says he wants. This is a strategy for making America weaker.

Many Senators and Congressmen from Agricultural states, such as Iowa, Wisconsin, Wyoming and Montana, which all voted for Trump, have warned the President to go slow on trade and not tear up the North American Free Trade Agreement (NAFTA).  These Agricultural states are part of Trump’s base and one of the major reasons he won the Presidency.  In a January 7, 2018 article entitled “Farmers Seek a Tempered Nafta Stance”, the Wall Street Journal further stated:

“When President Donald Trump addresses the U.S. agricultural community Monday, farmers will be looking for signs that a recent push to lobby him in support of the North American Free Trade Agreement has been successful.

That effort, which has included Republican senators from farm states offering charts and graphs illustrating the benefits of the trade deal, has left some hopeful that the administration has softened an earlier tough stance on Nafta. Fueling those hopes has been the president’s refraining from harsh anti-Nafta rhetoric since his last tweet regarding the pact in August.

“We’re doing everything we can to have our voices heard,” said Sen. Deb Fischer (R., Neb.), a rancher and one of several lawmakers who attended a steak lunch with Mr. Trump in December. Sen. Joni Ernst (R., Iowa) brought a chart showing a negative impact of Mr. Trump’s anti-Nafta messages on hog futures. Last week, Senate Agriculture Committee Chairman Pat Roberts (R., Kan.) led another group to the White House to reinforce the message.

White House officials say Mr. Trump has continued to meet with “stakeholders on all sides” on the issue. One official familiar with the strategy said that in staying relatively quiet on Nafta, the president is giving U.S. negotiators maximum leverage in the talks.

Farm-state lawmakers say that in their sessions with him, Mr. Trump has been reassuring about Nafta, which has opened Mexican and Canadian markets to duty-free exports of billions of dollars in U.S. products. . . .

But trade, and Nafta in particular, is foremost on the farm community’s mind. The U.S. in 2016 sent $16.4 billion in agricultural and food products to Mexico and $23.4 billion to Canada, according to government figures. Farmers worry that without Nafta, the two U.S. neighbors would have the right to put tariffs on products from the U.S. and could turn to other countries for supplies of soybeans, corn and other farm products.  . . .

“While the president is increasingly listening to the dire concerns of farmers and ag state lawmakers, nobody has a sense of whether he’ll heed their warnings,” said former Democratic Sen. Max Baucus, co-chairman of Farmers for Free Trade, which seeks to preserve existing agreements that lower tariffs on agricultural exports.  . . .

Labor unions and left-leaning consumer groups have supported the tough stance. But business and farm lobbies have continued to lobby the administration by pointing to the benefits Nafta has brought over the last quarter century.

The farm-state lawmakers say they think they have made a difference.

“He said quite bluntly he had thought everyone wanted to get rid of Nafta, and that’s not right,” Ms. Ernst said in an interview. “I can’t speak to what the president intends to do going forward, but I think his perspective has changed a little bit.”

After the December meeting, Mr. Roberts said Mr. Trump reassured him about Nafta’s fate. “Before I could even say, ‘Merry Christmas, Mr. President,’ he looked at me and put his thumb up and said we’re going to be all right on Nafta,” Mr. Roberts said on C-Span last month.  . . .

In his last public comments on Nafta, at a political rally in Florida, Mr. Trump left open the possibility of any outcome. “We’re gonna hopefully keep Nafta,” he said, then added: “But there’s a chance we won’t. And that’s OK.”

On January 7th the Wall Street Journal published an article by Robert Zoellick, a United States Trade Representative (“USTR”) under President George W. Bush, entitled “ Trump Courts Economic Mayhem”.  One point that Zoellick made, which I agree with, is that there are not going to be any new trade agreements under this President because he wants managed trade, not free trade.  Trump promised many new trade agreements with other countries, but it takes two to tango and the other countries have a choice on whether to enter in a new trade agreement with the US.  As Zoellick stated:

“President Trump’s new National Security Strategy argues that the U.S. must compete in a hostile world. Yet the White House also wants to retreat behind trade barriers. The Trump administration has stacked up a pile of trade cases that will come tumbling down early in 2018. More important than any specific case is the signal of a strategy of economic defeatism.

The U.S. is ready to block steel and aluminum imports through a rarely used “national security” rationalization. As an alternative, Commerce Secretary Wilbur Ross had tried negotiating capacity cuts in Chinese production, but Mr. Trump waved him off with a demand for tariffs.

Because most of China’s metal exports already face U.S. tariffs of more than 80%, Mr. Trump’s tactic will likely trigger retaliation from other countries.

Next up are “safeguards” to block imports of solar panels and washing machines. Imposing “safeguards” doesn’t even require a claim of unfairness. On top of this, last year (through Sept. 20) the Commerce Department conducted 65 investigations of alleged low-cost or subsidized imports. That figure is a 16-year high, up 50% from the year before. . . .

No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade. That’s why Mr. Trump will use his indictment of China’s intellectual-property practices to justify more protectionism, not solve the problems. During the president’s recent trip to China, when Beijing proposed opening some of its financial markets to U.S. companies, the Trump team dismissed this as the old way of doing business. The new way is to block Chinese exports. . . .

The U.S. is abandoning the challenge of setting new trade standards, whether for data, e- commerce or transnational services. America once attracted the world’s talent, but Mr. Trump’s hostility is driving people away. If he pulls the U.S. out of Nafta, even financial markets might recognize that his economic isolationism poses a risk to growth.

True competitors honestly assess their weaknesses, adapt and then grow stronger. Those are the qualities that made America great. This will be the year that trade policy could define Trump’s fearful America.”

Emphasis added.

COULD JANUARY BE THE MONTH WHEN TRUMP’S TRADE POLICY CHANGES DIRECTION

But there is some indication that Trump is listening to his critics.  Trump has told Lighthizer to do no harm in the NAFTA negotiations and to date has not created a trade war with China.  But as indicated below in the articles on Solar Cells, Section 301 and the Section 232 Steel and Aluminum cases, President Trump will soon be at a trade crossroads and no one is sure which way he will jump.

TRUMP TAX BILL ALONG WITH CUTTING REGULATIONS HAS LED TO A US ECONOMIC BOOM

Probably the most important development from the trade point of view in the last few months, however, is the passage of the tax bill.  Many Democratic politicians, economic pundits and millennials predict that the trickle-down economics of lower taxes and less regulations simply will have no beneficial effect on the US economy and the lower and middle classes.  Instead, many economists and millennials advocate the Obama style redistribution, taking from the rich and giving to the poor.

Despite the fact that the Dow Jones average has gone up from 18,259 on the day Trump was elected to over 26,000, these same people strongly believe that Trump simply cannot be responsible for any uptick in the US economy.  The economy is rising because of Obama’s policies, but the facts and many economists are refuting the false statements.  On January 4th, Apple announced that it would pay $38 billion in taxes to the US government to repatriate $246 billion of overseas profits back to the US.  As the Wall Street Journal reported:

“The tech giant said Wednesday it plans $30 billion in capital spending in the U.S. over five years that will create more than 20,000 new jobs. It didn’t specify how much of that spending was already planned, but said the total will include building a new facility that initially will house customer-service operations, and $10 billion toward data centers across the country. Apple also is expanding from $1 billion to $5 billion a fund it established last year for investing in advanced manufacturing in the U.S.

Apple said its one-time tax payment was the result of recent changes to U.S. tax law, under which companies can pay a one-time tax of 15.5% on overseas cash holdings repatriated to the U.S. The company said in November that it had earmarked $36 billion to cover deferred taxes on its $246 billion.”

Meanwhile, as reported in the Wall Street Journal on January 11, 2018, as a result of the tax bill:

“Wal-Mart Stores Inc. would raise starting pay to $11 per hour for all its U.S. employees and hand out one-time bonuses as competition for low-wage workers intensifies and new tax legislation will add billions to the retailer’s profits.

The giant retailer is the largest private employer in the world with 2.3 million employees, including around 1.5 million in the U.S. Its current starting salary in the U.S. is $10 an hour after workers take a training course. The new wage increase will take effect in February.

This is the third U.S.-wide minimum wage increase at the company since 2015 as it works to improve its 4,700 U.S. stores while investing heavily to compete with Amazon.com Inc. online.

The company said the salary change would add $300 million to its annual expenses and it expects to take a $400 million charge in the current quarter for the one-time bonus. The amount of the bonus will vary based on length of service, reaching up to $1,000 for an individual with 20 years of service.”

As Scott S. Powell, a well-known economist of the Discovery Institute, stated on January 12th in Investors Business Daily, “The Tax Cuts and Jobs Act of 2017 Is Already Delivering”:

“If there is one thing about which most economists understand and agree it’s the law of supply and demand. A derivative of that law is that demand and velocity of transactions tend to diminish as costs increase. While few individuals disagree about this, many in the collective body of economists have become so politicized that when it comes to the  cost  of  variables,  such  as  taxes  and  regulations, that  consensus  all  but vanishes.

Indeed, to listen to many of the pundits and  experts  there  seems  to  be  confusion, denial  and  disagreement  about  how the cost of regulations and taxes actually affect economic  activity. . . .

Recently, Princeton economics professor and former vice chairman of the Federal Reserve Alan Blinder stated in the Wall Street Journal that there was little economic evidence  “that  tax  benefits  showered  on  corporations  will  translate mostly  into  higher wages  and vastly  faster economic  growth.”

It’s not at all difficult to grasp the reasons for the markedly different economic performance of the Obama years as compared to what we have experienced in just one year of  the  Trump  administration. Obama’s best year of his two terms delivered a 2.6% growth rate, and he was the only president in some 88 years (since Herbert Hoover) to have failed to deliver economic growth of 3% in any one year he was in office.

In contrast, in the first two full quarters  of  the Trump  administration, the  economy experienced 3.2%  growth.

During his eight years, Obama oversaw an output of some 3,069 regulatory rules and nine new taxes that were part of the Obama Care health law, adding nearly $900 billion in costs to the U.S. economy, and a record 572,000 pages to the Federal Register. In contrast, in his first 11 months, Trump has eliminated some 66 significant rules while adding only three, which equates to a ratio of 22 to 1 — far exceeding the standards of his Executive Order 13771 requiring 2 old rules to be eliminated for every new one added.

The stock market closed out 2017 with a record increase for the eighth year of economic expansion, largely due to deregulation and anticipation of tax cuts.

No sooner had the ink dried on President Trump’s signature on the Tax Cuts and Jobs Act of 2017 on December 22, then more than a dozen companies, such as AT&T, Comcast NBC, Boeing, American Airlines, Southwest Airlines and Kansas City Southern, announced special $1,000 bonuses to more than 300,000 employees, and tens of billions of dollars of spending increase on plant, capacity, facilities and workforce development.

2018 has come in like a lion with the Tax Cuts and Jobs Act delivering more headline news. Now it’s reported that more than one million American workers at some 60 companies will be receiving pay raises and/or bonuses — undeniably attributable to the reduction of corporate tax rates from 35% to 21%. Wells Fargo, PNC, Bank of America, Fifth Third Bank, and BB&T, to name just a few — all cranked up minimum wages paid to $15/hour and spread the new-found wealth anticipated from tax savings in generous bonuses to more than a hundred thousand employees.

President Trump said from the beginning that lowering tax rates, simplifying the tax code, and making American companies more competitive would be the fuel that propels our economy to new heights.

It’s baffling that political bias can obviate empirical evidence and common sense. One surely doesn’t need   a Ph.D.  in economics to grasp how tax and regulatory costs affect behavior.

By helping companies become more competitive  through  lower  tax  rates, a  simplified tax code, incentivized capital investment, and removal of regulatory barriers, President  Trump  and  the  Republican  Congress  have  actually  delivered, in  the  first  year of  working  together, the  essential  foundation  to  make  America  great  again.”

On January 17, Stephen Moore, another well-known economist, stated in Investors Business Daily in an article entitled “Trump Tax Cut Is Already Working”:

“With the recent announcement of Walmart’s increasing starting wages and Fiat Chrysler’s opening a new plant (with 2,500 jobs) in Michigan, there are now more than a hundred companies that have offered bonuses and benefit hikes to their workers due to the tax cut. An estimated 1 million workers have benefited. This after less than one month.

Liberals disparage all of this as a “publicity stunt.” To hundreds of thousands of families, this is a wonderful stunt, and let’s hope to see a lot more examples of it in the weeks and months ahead.

The stock market has reached multiple new highs since the tax bill took effect on Jan. 1. Workers are more optimistic about the job market than any time in at least a decade.

I helped work with candidate Donald Trump to refine this tax reform plan, and I was ridiculed as too optimistic on how it might help the economy. But already Trump’s economic accomplishments have managed to exceed my lofty expectations. The tax cut isn’t the only factor here, but you’d have to be wearing ideological blinders to not see a link.

We are also learning that taxes influence how politicians behave.  . .

California and New York officials are investigating whether their states can convert income tax payments into tax-deductible charitable contributions to the state government. Good luck with that.

Why would they go to all this trouble if taxes didn’t matter to constituents? . .  . .

that charities are subject to the old adage: If you tax something, you will get less of it.

Well, yes, every politician in America should hold that thought — especially when they contemplate higher taxes on work, profits, savings and so on. But in this case, higher growth from lower tax rates is likely to lead to more income, and thus more, not less, charitable giving — just as we saw in the 1980s when tax rates fell from 70% to 28%.

The timeless economic lesson here is that taxes profoundly influence how and where we live our lives. We tax cigarettes and booze because we want people to consume less of them. There are proposals all over the country to tax soda pop, sugar and carbon emissions so we consume or produce less of them.

So why is it so hard to accept the reality that if we lower taxes on virtuous activities — work, investment, starting a business or saving for retirement — we will get more of these? And why is anyone surprised that this is already starting to happen?

By the way, government officials in China, Mexico, India and much of Europe are angry about America slashing its corporate tax rate from 35% to 21%: That giant sucking sound is capital and jobs from all over the world coming to low-tax America.

Meanwhile, Democrats in Congress — every one of whom voted against the tax bill — keep running around the country saying that their top agenda item, if they win the midterm elections, is to repeal this policy that is already creating jobs. Wouldn’t it be wonderful if they started rooting for America rather than against it?”

But even before the tax bill, Maria Bartiromo, the well-known Fox Business consultant, was telling her friends buy US stocks.  As Ms. Bartiromo stated in a December 14, 207 article entitled “Dow 24000 and the Trump Boom”:

“I’m not in the habit of giving stock tips or making market calls. I’ve never claimed to be an investment strategist. But after spending years reporting on business and finance, I was convinced on the night of Nov. 8, 2016, that the conventional market wisdom was way off target. . . .

When I sat down around 10:30 on election night for a Fox News panel discussion, Dow futures were down about 700 points. Markets like certainty; it was understandable that some investors were selling. Mr. Trump seemed to present more uncertainty than Hillary Clinton, who was essentially promising a continuation of the Obama administration. Mr. Trump’s talk about ripping up the North American Free Trade Agreement, for example, created big unknowns and potentially significant risks.

The election night selloff turned out to be a huge buying opportunity. Companies had been sitting on cash—not investing or hiring. Obama Care compliance was a nightmare for many business owners. It made them wonder what other big idea from Washington would haunt them in the future. Mrs. Clinton was likely to increase business costs further, while Mr. Trump had vowed to reduce them. Even in the middle of the election-night market panic, the implications for corporate revenue and earnings growth seemed obvious.

The next morning, with the Trump victory confirmed, I told my colleague Martha MacCallum that I would be “buying the stock market with both hands.” Investors began doing the same.

U.S. markets have added $6 trillion in value since the election, with investors around the world wanting in on America’s new growth story. The Federal Reserve Bank of Atlanta is now forecasting the third straight quarter of U.S. gross domestic product growth around 3%.

It’s not just an American growth story. For the first time in a long time the world is experiencing synchronized growth, which is why Goldman Sachs and Barclays among others have recently predicted 4% global growth in 2018. The entire world benefits when its largest economy is healthy, and the vibrancy overseas is reinforcing the U.S. resurgence.

As the end of the Trump administration’s first year approaches, it’s a good time to review the progress of the businessman elected on a promise to restore American prosperity.

Year One has been nothing short of excellent from an economic standpoint. Corporate earnings have risen and corporate behavior has changed, measured in greater capital investment.

Business people tell me that a new approach to regulation is a big factor. During President Obama’s final year in office the Federal Register, which contains new and proposed rules and regulations, ran to 95,894 pages, according to a Competitive Enterprise Institute report. This was the highest level in its history and 19% higher than the previous year’s 80,260 pages. The American Action Forum estimates the last administration burdened the economy with 549 million hours of compliance, averaging nearly five hours of paperwork for every full-time employee.

Behind these numbers are countless business owners who have told me they set aside cash for compliance, legal fees and other costs of regulation. That money could have been used to fund projects that strengthened their businesses. President Trump has charted a new course, prioritizing the removal of red tape and rolling back regulations through executive orders. The Federal Register page count is down 32% this year. Mr. Trump says red tape becomes “beautiful” when it is eliminated, and people who manage businesses certainly agree.     . . .

Much has changed this year. Companies from Broadcom to Boeing have announced they’ll move overseas jobs back to the U.S. American companies hold nearly $3 trillion overseas and may soon be able to bring that money home without punitive taxation. Businesses have begun to open up the purse strings, which is why things like commercial airline activity are rising substantially as executives seek new opportunities. Companies are looking to invest in growth. . . .

After reaching Dow 24000, where can markets and the economy go from here? I’m not going to make predictions, but it stands to reason that the economy is better off when federal policy doesn’t discourage people who have a demonstrated ability to work, earn, spend and invest.”

On January 7, 2018, Charles Gasparino, another business reporter for Fox News, stated in the New York Post, “On the economy, Trump Has Been Crazy Like a Fox”:

“With the Dow crossing 25,000, it’s worth pointing out the pitfalls that could reverse some of those gains — and how to avoid them.

One thing we don’t have to worry about is the economic sanity of President Trump.

In fact, it’s safe to say that the current president, for all his temperamental flaws and petty insecurities, makes his tightly wound predecessor, Barack Obama, look like a raving madman when it comes to showing sense on economic growth. Armchair psychiatrists are having a field day diagnosing the president’s mental state from afar, especially after his increasingly bizarre tweeting, but the market says otherwise.

Consider: The United States had one of the highest corporate tax rates in the world — so high that companies (and jobs) were fleeing to places like Ireland. That’s why it was perfectly sane to lower the corporate tax rate from 35 percent to 21 percent as Trump just did, and presto: Corporations are announcing plans to hire more workers, and the economy, which was expected to slow after seven years of weak growth, is heating up. The markets are predicting that growth with their surge.

Likewise, regulations have been strangling businesses for years while making it difficult for banks to lend to consumers and small business. Trump went out and hired perfectly sane regulators who basically pulled the federal government’s boot off the neck of the business community.

It was described to me as a de facto tax cut by one business owner that gives him leeway to hire more people. A major win for the working class.

And since so many of my fellow journalists are at it, let me do a little psychoanalysis of what an economically insane person might do as president.

An insane president would threaten a significant tax increase immediately upon taking office following a financial crisis, and then eventually impose one on individuals and small businesses still in recovery.

He’d impose job-crushing regulations on these same businesses as unemployment rose. He’d put a cumbersome mandate on businesses that upends the entire health care system just as the economy was finally turning a corner.

A really insane president would blow nearly $1 trillion on a stimulus plan with little planning and direction, wasting much of the money on boondoggles (see: Solyndra) and then laugh at the lack of “shovel ready” jobs created. He’d then try to spread his delusion to the masses, telling them to ignore historically low wage growth, anemic economic growth and the massive amount of people who dropped out of the work force because the stock market rallied, thanks in large part to the Fed printing money instead of his own fiscal policies.

Is Barack Obama crazy? No, but his post-2008 economic policies were. Are all Trump’s tweets sane? No, but smart investors with lots of skin in the game think his policies are perfectly rational, and that’s why the markets are soaring along with the prospect of economic growth.

Can Trump just sit back and act like a clown for the rest of his presidency as the economy and markets lift all boats? No again. Relying on the markets or the economy to disguise abhorrent presidential behavior is a fool’s game. Corrections always occur, and will occur if corporate earnings don’t match the investor enthusiasm built into Dow’s recent rise.

An unexpected burst of inflation that would force the Fed to raise interest rates could hurt both stocks and GDP. Trump might indulge his inner populist and engage in a trade war with China, or repeal NAFTA, both of which would undoubtedly hurt economic growth and stocks.

For all the good things about the business side of the tax reform bill, other parts are more complicated: Small businesses got a sliver of the tax breaks given to corporations; same goes for working-class people who don’t pay much in federal income taxes in the first place. But people who do pay a lot may get crushed when tax season rolls around. Individuals in high-tax states (like New York) could get hammered because the plan barely lowers the top rate and plugs so many deductions.

To pay for their higher taxes, these people could curb their personal spending, meaning less economic growth and possibly lower stock prices.

But none of these hiccups suggest a madman is at the helm of the US economy, which is something to consider the next time you hear Donald Trump is crazy.”

After sending out my newsletter, Harry C. Moser, President of the Reshoring Initiative contacted me and stated:

“Nice piece. I attach our data showing that reshoring and FDI job announcements in 2017 were up over 200% from 2016 to about 240,000, confirming your thesis. “

See his attached powerpoint.  Reshoring & FDI trends 4 slides

WILL 2018 BE THE YEAR OF THE US CHINA TRADE WAR?

As indicated above, the real concern is whether this January and 2018 will be the year a trade war start with China followed by a NAFTA crackup.

In November 2017 I was in Beijing during the Trump visit.  Xi Jinping and Chinese government officials know how important Trump is to their own economy and they gave Trump a “state visit plus”.  Chinese television stated that no US President was given such a welcome since President Nixon.  To see pictures and a video of Trump’s visit to China from Chinese television, which was broadcast all over China, see https://www.dropbox.com/sh/sx2x6qpy7cf77a1/AAAFty0_SwObgVvT-tXbVknVa?dl=0.

During and after the China visit, the US press stated that President Xi played Trump, but the Chinese media at the same time was saying that Trump played President Xi.

But pundits are predicting that 2018 is the year of the US China trade war.  I suspect that although President Trump will issue tariffs in the Section 201 Solar Products and Washing Machines cases, there will be no real trade war so long as the Chinese government opens up its own economy to foreign investment and imports.  Lighthizer is favoring changing Investment guidelines under CFIUS to ban all Chinese investment in areas where China bans US investment.  Essentially reciprocity.

Opening up Chinese barriers to US trade and investment is a strategy every Administration has followed with China be it Bill Clinton, George W. Bush or Barak Obama.  Trump, Wilbur Ross and USTR Lighthizer will keep up extreme pressure on China to open its markets to US exports and investment.  If China refuses, there could well be a trade war.  But such a trade war would be for the right reason.

But if Trump puts up protectionist high tariffs on Solar Cells, Washing Machines, steel, aluminum products, and China imports, that will be when the damage to the economy will happen.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS

In the attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, Presidential Memorandum for the United States Trade Representative whitehouseg, President Trump pulled the trigger on the Section 301 Intellection property case against China.  The Section 301 investigation could take a year and probably will lead to negotiations with the Chinese government on technology transfer.  If the negotiations fail, the US could take unilateral action, such as increasing tariffs, or pursue a case through the World Trade Organization.  Unilateral actions under Section 301, however, also risk a WTO case against the United States in Geneva.

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.

Acting Assistant USTR for China Terry McCartin, commenting on the dearth of business witnesses, said some companies had expressed concern “about retaliation or other harm to their businesses in China if they were to speak out in this proceeding.”

On January 18th, it was reported that President Trump was considering a big “fine” as punishment for China’s alleged theft of intellectual property.  In an interview, Trump stated,

“We have a very big intellectual property potential fine going, which is going to come out soon.”

Although Trump did not define what he means by “fine,” Section 301 allows the US to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies.

Trump further stated:

“We’re talking about big damages. We’re talking about numbers that you haven’t even thought about.”

Trump said he will be discussing this action in his State of the Union address on January 30th.  Trump also recently stated that he hopes there will not be a trade war with China. “I don’t think so, I hope not. But if there is, there is.”

NAFTA PROBABLY WILL NOT BE TERMINATED. IF IT IS, REPUBLICANS, INCLUDING TRUMP, CAN KISS THE ELECTIONS GOODBYE

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.  On January 28th, there will be a major NAFTA negotiation round in Montreal.

But because of the warnings of the impact of a termination on the US economy and his own constituents, President Trump probably will not terminate NAFTA.  Negotiations will be slow, but the three countries eventually will come to a deal.  On January 17, 2018, Politico reported that Senator Chuck Grassley of Iowa, who if very concerned about the impact of a withdrawal from NAFTA on agriculture, is now feeling more optimistic:

“Sen. Chuck Grassley said he took “some comfort” in Trump’s recent remarks at the American Farm Bureau Federation’s convention in which the president refrained from directly threatening to withdraw from NAFTA. . . .

Grassley also warned that if negotiations aren’t completed by a self-imposed March deadline and that deadline is not extended, “then there is no hope of agreement” because of the upcoming Mexican presidential election and the 2018 midterm elections in the U.S. Upon hearing that Trump said he would be “a little bit flexible” with regards to a NAFTA decision based on Mexico’s July election, Grassley said that “ought to give some comfort to the people that he is fairly reasonable on a timetable.”

On January 17th in an article in the Wall Street Journal entitled “Killing Nafta Would Ruin American Farmers”, Karl Rove, a well-known Republican strategist, predicted that if President Trump withdraws from NAFTA, that would hurt farmers and they would not vote Republican in the midterms or for Trump at reelection time:

“In a Wall Street Journal interview last week, President Trump said if he were to “terminate” the North American Free Trade Agreement, it “would be frankly a positive for our country.”

This bluster could be a negotiating ploy before the next trilateral Nafta talks, set for Jan. 28 in Montreal. If not, Mr. Trump should stop threatening. Withdrawing from Nafta would immediately kill American jobs, while handing Democrats the midterm elections on a silver platter. . . .

Nafta is especially important to American farmers and ranchers. U.S. agricultural exports to Mexico and Canada were $8.9 billion in 1993, before the agreement kicked in. Today, they are $39 billion, accounting for 30% of America’s farm exports.

These exports are critical in many states with key elections this year. In North Dakota, which Mr. Trump won by 36 points, Republicans want to flip the Senate seat held by Democrat Heidi Heitkamp. But the state’s commerce commissioner, Jay Schuler, says North Dakota exports 84% of its crops—worth $3.5 billion—to Mexico and Canada. Withdrawing from Nafta would subject those products to high foreign tariffs in force before the deal took effect, leaving farm families very unhappy.

Republicans also hope to flip Senate seats in Missouri and Indiana, both of which Mr. Trump carried by 19 points. The GOP is fighting to keep governorships in Iowa and Kansas, which the president won by 9 points and 21 points, respectively.

These campaigns will be much more difficult if farm economies are ruined by Nafta termination. Missouri is a major producer of corn, soybeans, beef and turkey; Indiana of corn and soybeans; Iowa of corn, soybeans and pork; and Kansas of wheat, corn and beef. Much of this is exported to Mexico. If the U.S. pulled out of Nafta, Mexican tariffs would snap back to 75% on American chickens, high-fructose corn syrup and potatoes, 45% on turkey, and 25% on beef. . . .

Then there are the car-making states. In the almost quarter-century since Nafta went into effect, the U.S. auto industry has built a hemispheric supply chain to help it compete with European and Asian auto makers.

Indiana, Michigan, Ohio and Tennessee each have important Senate races, and all but Indiana have governor’s contests, too. In each of those states, at least 9% of the workforce is tied to autos, and in Michigan the figure is 20%. Their exports of cars and auto parts range from $5.9 billion in Tennessee to $26 billion in Michigan.

If Mr. Trump made good on his Nafta threat, he would disrupt the auto industry’s supply chain, making American-made cars more expensive at home and less competitive abroad. Does he really want to blow up these states’ economies—along with those of roughly a dozen other states with auto production (including Missouri, Pennsylvania and West Virginia)?

I haven’t even gotten to the crucial elections in border states like Texas and Arizona, which are important way stations for trade with Mexico and whose economies would face major difficulties if Nafta disappears.

In discussing Nafta, Mr. Trump keeps getting his numbers wrong. Last week he declared that the U.S. has a $71 billion trade deficit with Mexico and “we lose $17 billion with Canada.” Actually, after counting sales of goods and services, the trade deficit with Mexico in 2016 was just $55.6 billion. With Canada, the U.S. ran a $12.5 billion surplus.

Does Mr. Trump ignore the U.S. advantage in services—everything from insurance to banking to logistics—because it undermines his anti-Nafta case? Or, despite coming from the service industry himself, does he think service jobs are less worthy than manufacturing ones? Try defending that proposition to employees at Travelers (a big insurance player in Canada) or FedEx and UPS (which provide logistics and shipping there) or Wal-Mart (Mexico’s largest retailer) or MetLife (which insures 78% of Mexican government employees) or Citibank (which owns Mexico’s second-biggest bank).

Any trade agreement that is two decades old needs updating. Nafta is no exception, especially given the growth of e-commerce and the digital economy. But bad policy is bad politics. Killing Nafta would damage Republicans in agricultural, auto and border states and help elect more Democrats in 2018, strengthening the party’s impeachment efforts. Mr. President, it isn’t worth it.”

THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—NO TRADE DEALS TO DATE OR ON THE HORIZON—MAYBE TIME TO RENEGOTIATE THE TPP??

As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and may kill the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.  Even though NAFTA may ultimately be renegotiated, the real problem is that with Trump’s policy of weaponizing trade agreements, no other country will enter into a trade agreement with the US.  As Robert Zoellick, the former USTR under Bush, states above:

“No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade. That’s why Mr. Trump will use his indictment of China’s intellectual-property practices to justify more protectionism, not solve the problems.”

As stated above, that is a huge problem for US farmers because almost 50% of farm products produced in the US are exported.

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believed the US did not get enough and many Senators and Congressmen wanted a a better deal.

On January 21, Tokyo will be hosting TPP talks for the other 11 countries that have decided to go forward with the TPP.  Maybe President Trump should consider a renegotiation of the TPP.  If the other 11 countries refuse to renegotiate the deal with the US, nothing lost, but the other 11 countries might be very interested if the US indicated possibly joining the TPP but under very strict conditions.  The appeal of the US market is huge to the other countries and that would give President Trump and USTR Lighthizer the chance to show off their negotiating skills.  Moreover, that would be one way for the US and Trump’s constituents, especially in the Agriculture area, to get a trade agreement they can benefit from with a number of other countries.  Nothing ventured, nothing gained

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.

The ITC had to determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”

The ITC reached an affirmative injury determination in the case on September 22, 2017, and then proposed a remedy to the President.

The Commission issued its report to the President on November 13, 2017.  The United States Trade Representative (“USTR”) has held remedy hearings. and President Trump must issue his remedy determination on January 26th.  Many Solar Cells users along with newspaper editorials have urged the President to do nothing because of the bad impact on downstream solar companies, but many commentators expect the President to  issue tariffs against solar cell imports.

President Trump also faces a February 4th deadline to impose trade relief in response to the ITC 201 Affirmative decision on Washing Machines.

SECTION 232 STEEL AND ALUMINUM CASES PICK UP—SECTION 232 STEEL REPORT GOES TO THE PRESIDENT

As mentioned in the last newsletter, the Section 232 Steel and Aluminum cases appeared to stall, but the cases picked up steam again.  On January 11, 2018, the Commerce Department sent the final Section 232 Steel Report to the President.  On that day Commerce announced:

“Today Secretary of Commerce Wilbur Ross formally submitted to President Donald J. Trump the results of the Department’s investigation into the effect of steel mill product imports on U.S. national security. After this submission, by law, the President has 90 days to decide on any potential action based on the findings of the investigation.”

Commerce will release a public report after the President makes his decision in 90 days.

Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products.  Such a remedy would probably result in the loss of 100s of thousands of US job.

That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

NEW SECTION 232 CASE AGAINST URANIUM IMPORTS

On January 16th, Ur-Energy USA Inc. and Energy Fuels Resources Inc. filed a section 232 petition at Commerce claiming that imports of uranium from state-owned and state-subsidized companies in Russia, Kazakhstan and Uzbekistan now fulfill 40 percent of U.S. demand, compared to the less than 5 percent satisfied by U.S. production. The Denver-based companies claim that imports from China will grow in the coming years. The companies also argue the volume of imports from Russia will only grow after a decades-old agreement that restricted imports from that country in exchange for suspending anti-dumping duties expires in 2020.  The Petition states:

“The U.S. uranium industry needs immediate relief from imports that have grown dramatically and captured almost 80% of annual U.S. uranium demand. Our country cannot afford to depend on foreign sources — particularly Russia, and those in its sphere of influence, and China — for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America’s nuclear Navy, and supplies 20% of the nation’s electricity.”

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

Recently, a number of reporters have contacted me about the Civil Aircraft from Canada, Bombardier-Boeing, case because the US International Trade Commission (“ITC”) will vote on the injury case on January 26th.  I have told the reporters that there is a 95% chance that the ITC goes affirmative and that Antidumping and Countervailing Duty orders are issued.

As stated in prior newsletters, I have no sympathy for Bombardier because the Quebec Government directly invested $1 billion into Bombardier’s production process, which resulted in a very high CVD rate. The entire purpose of the US CVD law and CVD laws along with WTO Subsidy Agreement and the WTO Civil Aircraft Agreement is that private companies should not have to compete in commercial markets against the Government and that is just what has happened at Bombardier.

Also Bombardier refused to participate and cooperate in the Commerce Department’s antidumping case, which was a fatal error, resulting in a very high Antidumping Rate based on All Facts Available.  Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation.  The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response.  The EC would take the same position.

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia.

On January 16th, the Australian Government jumped into the case, challenging the Canadian government’s handling of wine sales, accusing Ottawa of practices that appear to discriminate against imported wine.  Australia says that the Canadian government and four provinces – British Columbia, Ontario, Quebec and Nova Scotia – use taxes, duties and a range of distribution, licensing and sales measures that unfairly affect imported wine. It argues that such practices are in violation of the 1994 General Agreement on Tariffs and Trade.  Australian Trade Minister Steven Ciobo stated:

“While it would have been preferable to resolve this issue bilaterally, it is appropriate to commence dispute proceedings given the lack of progress.”

In fact, BC Wine regulations are probably the most protectionist in the World, worse than China requiring the equivalent of an 80% tariff to sell imported wine.  BC protectionist measures on wine simply feed into the Trump argument that NAFTA is not a true free trade agreement.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As stated in numerous past newsletters, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition.  This program has a true track record of saving US companies injured by imports.

This was a problem personally approved by President Ronald Reagan.  The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports on an individual basis to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

In addition, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $50,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But TAA for Companies has been cut to the bone.  On August 22, 2017, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers for the TAA for Firms/Companies program.

Are such paltry sums really going to help solve the manufacturing crisis in the Steel and other industries?  Of course not!!

But when the program was originally set up, the budget was much larger at $50 to $100 million.  If the program was funded to its full potential, yes steel companies and other companies could be saved.

To those libertarian conservatives that reject such a program as interference in the market, my response is that this program was personally approved by your icon, President Ronald Reagan.  He understood that there was a price for free trade and avoiding protectionism and that is helping those companies injured by import competition.  But teaching companies how to be competitive is a much bigger bang for the buck than simply retraining workers.  And yes companies can learn and be competitive again in the US and other markets.

NEW RECENT TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

ALUMINUM SHEET-FIRST SELF-INITIATED COMMERCE CASE IN MANY YEARS

On November 28, 2017, the Department of Commerce (Commerce) announced the self-initiation of antidumping duty (AD) and countervailing duty (CVD) investigations of imports of common alloy aluminum sheet from the People’s Republic of China (China).  This is the first time Commerce has self-initiated an antidumping and countervailing duty case in probably over 10 years.

SODIUM GLUCONATE, GLUCONIC ACID, AND DERIVIATIVE PRODUCTS

On November 30, 2017, PMP Fermentation Products, Inc. filed AD and CVD cases against imports of Sodium Gluconate, Gluconic Acid, and Derivative Products from China and France.

PLASTIC DECORATIVE RIBBON

On December 27, 2017, Berwick Offray, LLC filed AD and CVD cases against imports of Plastic Decorative Ribbon from China.

LARGE DIAMETER WELDED PIPE

On January 17, 2018, American Line Pipe Producers Association filed AD and CVD cases against imports of Large Diameter Welded Pipe from China, Canada, Greece, India, Korea and Turkey.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US

BUTAN-1 FROM US, TAIWAN AND MALAYSIA

On December 29, 2017, China’s Ministry of Commerce initiated an antidumping investigation against Imports of Butan-1-ol from US, Taiwan and Malaysia.  The four US companies targeted by the case are:

1)  Eastman Chemical Company

2)  The Dow Chemical Company

3)  BASF Corporation

4)  OXEA Corporation

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2018.01 Team’s newsletter-EN Vol.2018.02 Team’s newsletter-EN Vol.2018.03.

SECTION 337 AND IP CASES

NO NEW RECENT 337 CASES AGAINST CHINA

If anyone has any questions about these cases or about the Trump Trade Crisis, Taxes and Trade, NAFTA, FTAs, , including the impact on agriculture, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP TRADE CRISIS, NAFTA NEAR COLLAPSE, NO FTAS, THIRD COUNTRIES BEAT US OUT ON TRADE DEALS, AD CASES MORE POLITICAL, NO SYMPATHY FOR BOMBARDIER, 201 SOLAR, 301 CHINA, TAA FOR COMPANIES

Winder Building United States Trade Representative Washington DC. United States Trade Representative is chief US trade negotiator. Winder Building created 1848

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 20, 2017

Dear Friends,

Having just returned from a month-long trip to Europe, the trade situation under the Trump Administration has heated up to the boiling point, but the target is not just China.  The Trump Administration appears to be attacking all trade with the firm belief that all prior trade deals that the US entered into were a raw deal.  NAFTA negotiations are at a standstill, and many believe Trump’s real intention is to kill NAFTA.

The United States is at a trade crossroads and apparently Trump and his supporters have decided to become much more protectionist, while the rest of the World is moving to free trade agreements.

As also stated below, directly contrary to statements by Trump supporters, the Trump trade policy is not a continuation of President Reagan’s trade policy.  Although President Reagan took pragmatic trade actions when he had to, he was a strong free trader and we know that was his position because he said so.

President Trump is very protectionist and truly does not want free trade deals.  He ripped up the TPP with no attempt at renegotiation.  He has made such strong demands of Canada and Mexico that he knows they will reject with the purpose of eventually killing the deal.

The decisions on TPP and NAFTA have been taken without any real idea of the negative ramifications, the costs, of terminating these deals on US farmers and corporations, many of which have interconnected supply chains that have been finely calibrated to produce lower cost consumer products so as to be competitive with lower priced imports of that final product from China.  Many believe that the real effect of killing NAFTA will be to move production to China or other lower cost countries.

Moreover, Trump won the election because of rural states and the farmers in those rural states but US agriculture is dependent on exports.  When Trump slams trade, he slams his own constituents, farmers in the rural states, which elected him as President.

One of the other losers in the Trump trade policy besides agriculture will be the high tech companies because these two sectors will bear the brunt of the trade retaliation that is coming.

Trump wants to protect the low tech industry, the Steel industry with its 141,000 jobs and the heck with everyone else.

The Trump trade policy is based on one arrogant presumption—the US market is the largest in the World and the rest of the World must kowtow, come on bended knee, to get into the US and that fact gives the US leverage.  But that fact is no longer true.  The 11 countries in the TPP have a larger market than the US.  China has a larger market than the US.

In fact, Canada and Mexico already can fall back on trade agreements they have with other countries, such as Europe.  The United States does not have that luxury.  The US decision by both Trump and the Democrats to go protectionist is further isolating the US in the trade area and is having and will have major negative economic ramifications on the US economy.  The chickens will come home to roost.

Maybe instead of ripping up trade agreements and making US producers less competitive it is time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  Maybe the US should turn to an existing program, which has saved companies injured by imports, the Trade Adjustment Assistance for Firms/Companies program.

Commerce has made antidumping and countervailing duty investigations more political, but the EC wants to change China’s nonmarket economy status to allow a case by case determination.

But there is no sympathy for Bombardier in the Boeing fight at the Commerce Department in Civil Aircraft Preliminary determinations as Bombardier refused to cooperate with the Commerce Department’s antidumping investigation leading to a decision of all facts available.  So there will be no negotiated agreement in that case.  Bombardier has decided to jointly produce the plans with Airbus at its Mobile, Alabama plant, but it is questionable whether that will really work.

The US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Section 201 case and now it moves to remedy phase.

USTR has also initiated a section 301 case against forced technology transfers in deals with China, but not many companies showed up for the USTR hearing. This may reflect the point made by my partner, Dan Harris, in his August 30, 2017 article “China US Trade Wars and the IP Elephant in the Room” that many US companies make the mistake of simply handing over their IP rights to Chinese joint venture companies with no protection. The US government cannot protect US companies from stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.

In a decision near and dear to my heart, USTR is charging ahead with a Wine case against BC and Canada at the WTO and now EC, Australia, Argentina and other countries are interested.    Canada and BC’s protectionist position on Wine play right into Trump’s argument that NAFTA is not a free trade agreement.

China has filed an antidumping and countervailing duty case against the United States.  More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade issue could well become the most important issue in upcoming elections.

If Trump makes unwise protectionist decisions, the US economy will be hurt, jobs will be lost and he will lose in the next election.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA

Prior to his election, with Trump complaining during the election about China so many times, many voters would have believed that Trump’s primary target in the trade area would be China.

But nine months after his inauguration, it is becoming clearer that Trump’s real target is trade in general.  We are at a trade crossroads, and the Trump Administration with substantial support from the Democrats apparently has decided to move down a very protectionist road.

Trump and his Administration firmly believe that the United States has gotten a raw deal in all the trade deals it has entered into.  In effect, Trump sees trade as economic warfare and the United States is losing the war.  When economic competition from imports causes problems for US companies, it must be unfair trade caused by unfair trade deals.

Although Trump will mouth free trade, when Trump pulled out of the Trans Pacific Partnership, it was the first Free Trade Agreement that the United States had ever refused to join.  As described below under the Costs article, this action has put US exporters, including farmers, at a distinct cost disadvantage in World markets and caused enormous economic damage to Trump’s own constituents, workers and farmers.  Many experts believe that there is a better than 50% chance that Trump will pull out of NAFTA.  See articles below from Wall Street Journal and John Brinkley at Forbes about the costs of pulling out of NAFTA.

But killing the TPP and potentially killing NAFTA gores the agriculture ox.  This is the one fly in the ointment, flaw in Trump’s entire economic strategy.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.  In contrast to arguments made by Trump supporters, rural states are not just manufacturing, they are farmers, agriculture, and one half of all US produced agricultural prorducts is exported.

In addition to agriculture, high tech companies will also be hit as they are perfect retaliation targets and all the side agreements on digital and IP protection in the TPP Agreement have died and will die.

Trump supporters attack not only the trade deals, but the WTO itself because ceding power in a trade deal or to the WTO is giving away the sovereignty of the US people.  The WTO’s job, however, is to provide a forum for negotiations and adjudication of trade disputes between different sovereign countries.  The United States simply cannot dictate its trade policy to other sovereign countries.  It must negotiate trade agreements.  If that be globalism, then so be it.

The real issue is what is the US interest in trade negotiations.  The trade deals that the Trump supporters attack were negotiated by the US government and then approved by Congress.  Are all treaties that create multi-government organizations as a forum for negotiations and adjudication of international disputes to be attacked because they result in giving away US sovereignty?  If so, the World returns to 1914, World War 1, and the Guns of August.  The United States has to negotiate with other sovereign countries.  And in negotiation with other sovereign countries, the United States does not always get everything it wants to get.  That is the essence of negotiations.

As stated before, the simplistic Trump approach to trade is that the United States is the largest market in the World and countries must kowtow to get into the US market.  But that is no longer true.  The remaining countries in the TPP represent a larger market than the US.  That is why during the push for Trade Promotion Authority in the House of Representatives, House Speaker Paul Ryan stated that 75% of all consumers are outside the United States.

The Trump supporters also look at economic competition as economic warfare and, therefore, the United States must win each trade deal.  But as stated below, President Reagan himself believed that economic competition is good for the United States because it is the essence of free markets.

WOULD PRESIDENT REAGAN HAVE SUPPORTED TRUMP’S ECONOMIC PROTECTIONIST NATIONALISM?—I THINK NOT

One of the basic arguments of the Trump supporters in the Trade area is that Trump’s trade policy is simply an extension of Reagan’s trade policy and, therefore, President Ronald Reagan would have supported the protectionist economic nationalism of Donald Trump.  In effect, these supporters argue all trade deals in the past, including NAFTA and China’s entry into the WTO, were raw deals that hurt the US working man.  These supporters argue that the trade deals are the reason for the loss of millions of US manufacturing jobs and even a major reason for the US budget deficit.  Therefore, President Reagan would have opposed all of these trade deals.

But I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I do not remember the Reagan trade policy in the same way as being overly protectionist.  I remember a President, who was the most Free Trade President of my generation, who firmly believed in the power of the free market and economic competition.  Although President Reagan took tough trade actions as needed, he also knew that in the long run protectionism would not work because the US companies themselves would only become weaker.  Reagan’s real trade policy is indicated by his actual words and actions, not summary statements by conservative pundits.

Reagan also understood that when dealing with trade, we are dealing with the interests not only of the United States, but the interests of other countries.  Although the US should always represent its own interests first, it cannot dictate the outcome to other countries, because it does not have the power to do so.  The EC, China, Mexico, Canada, Japan, and Australia are sovereign countries too, and they have a say in international trade negotiations.

On October 14, 2017, at the Values Summit in Washington DC, Fox Contributor Laura Ingraham stated that Reagan was an economic populist and pointed to the 45% tariff issued by President Reagan in the Harley Davidson Motorcycles case and the large duties of 100% against Japanese electronics, such as semiconductors.  She then argued that President Trump’s stance on trade was simply a continuation of the Reagan trade policy.  See https://www.youtube.com/watch?v=qofqnUHPGnc.

During the speech, Ingraham stated that every Free Trade Agreement must be either rewritten or repealed and that Trump like Reagan understands the working class and the need to protect US industry and jobs.  She pointed to present USTR Robert Lighthizer, the former Deputy USTR under Reagan, as an example of Trump’s sterling trade policy.

But I too worked in the Reagan Administration and later under Robert Lighthizer.  I simply do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  In the Harley Davidson Motorcycles case, for example, which happened when I was in the General Counsel’s office at the US International Trade Commission, Harley brought a case under Section 201, the Escape Clause, allowing Harley to get short term temporary protection from imports.  After winning the case and after Reagan issued a temporary tariff on imports of motorcycle subassemblies from Japan (Japanese companies had manufacturing facilities in the US too), Harley after only two years asked the Reagan Administration to lift the temporary tariff because it had adjusted to import competition.

Contrast that tariff relief with the tariff relief provided to Mr. Lighthizer’s client in the Steel Industry—30 plus years of protection from imports from many, many antidumping (“AD”) and countervailing duty (“CVD”) orders issued under US AD and CVD laws.  That is not temporary tariff relief; that is permanent tariff relief.  Despite that protection for decades, the US steel industry has declined with Bethlehem Steel going out of business, just as President Ronald Reagan himself predicted.  Trade protection only slows the decline of industries; it does not cure the disease.

Ms. Ingraham’s speech parallels the statements she recently made in her book “Billionaire at the Barricades”, which articulates very well the thinking and many of the arguments from the Trump Administration and his supporters against trade and trade agreements in general.  In the book, Ms. Ingraham states, “Except for Reagan, all modern presidents of both parties campaigned as populists but governed as globalists.”  And that Conservative Populists “are against huge trade deals and international organizations like the World Trade Organization because they take power out of the hands of voters and give it to a far-away and often hostile global elite.”  Page 43.

Ingraham also attacks all trade deals, especially NAFTA, the North American Free Trade Agreement between Mexico and Canada, and China’s entry into the WTO, along with the WTO itself.  With regards to NAFTA, Ingraham states:

“but Perot and millions of Americans—the kind who don’t worship at the Wall Street Journal’s altar of globalism and internationalism for profit’s sake—knew it was a raw deal for workers and bad for America. The biggest “tell” that NAFTA was going to be a boon for elites and a bust for everyone else was the fact that George H. W. Bush and Bill Clinton (as well as their Donor Class” pals) all supported the monstrosity.”

Billionaires at the Barricades at 313 (footnotes omitted).

According to Ingraham, Clinton promised that NAFTA would:

“create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone . .  .Clinton not only lied, he made a “pledge” to the American working class who opposed NAFTA that they would receive “gains.”

They received pink slips instead.

The populists’ NAFTA predictions proved painfully prescient. Between 1993 and 2013, the U.S. trade deficit with Mexico and Canada went from $17 billion to $177.2 billion.  . .

The effects on American workers have been even more catastrophic. EPI data concluded that in just 10 years, NAFTA was responsible for displacing 851,700 American jobs. To put that in context, that’s more people than live in Columbus, Ohio. “All of the net jobs displaced were due to growing trade deficits with Mexico”.  .. .The destruction of nearly one million jobs and the implosion of American manufacturing—that’s Bill Clinton’s NAFTA legacy.”

Billionaires at the Barricades at 385 to 389.

But Ingram forgets to mention that since NAFTA was enacted, total trade among these three countries has increased from $290 billion in 1993 to $1.1 Trillion in 2016 and that trade was not solely imports, but also US exports to those countries.  According to the US Chamber of Commerce, six million US jobs are dependent on US trade with Mexico.

Ingraham then goes on to attack the decision to let China into the WTO:

“If NAFTA had unleashed a flood of dangerous economic currents crashing into the American working class, his [Clinton’s] decision to pave the path for China’s entry into the World Trade Organization (WTO) by giving it Permanent Normal Trade Relations (PNTR, now known as Most Favored Nation) status swelled into an outsourcing tidal wave. Millions of American manufacturing jobs were washed out to sea – the South China Sea, that is. . .  .

It is “one of the most important foreign policy developments” if you want to understand the destruction of American manufacturing. It is also “one of the most important foreign policy developments” for understanding how millions of U.S. manufacturing jobs were vaporized in record speed, even as China grew at a steroidal rate of muscular economic growth.

Let’s start with the basics. The World Trade Organization was officially created during Bill Clinton’s presidency in January 1995, but it had existed in other forms since 1948. . . .

“Seventeen years hence, it is difficult to overstate the economic destruction wrought by China’s entry into the WTO and Congress and President Clinton’s decision to grant the Chinese permanent” “Most Favored Nation status. A 2016 analysis published in the Annual Review of Economics concluded that between 1999 and 2011, America lost between 2 and 2.4 million jobs.  Others, like the left-leaning Economic Policy Institute, put the American jobs loss figures even higher at 3.2 million jobs, when calculated between the years 2001 and 2013.50

The brutal economic reality was a cruel reversal of Clinton’s promises: all the gains were on the Chinese side, all “the losses and devastation were America’s. American manufacturing jobs were eviscerated. From 2001 to 2011, U.S. manufacturing jobs plunged from 17.1 million to 11.8 million.51 That’s a loss of 5.3 million manufacturing jobs, a figure that’s nearly the population of the entire state of Minnesota.

The narrowing of the trade deficit between the United States and China never materialized either. To the contrary, it exploded. In 2000, the annual trade in goods deficit with China stood at a towering $84 billion. After Clinton ushered China to the front of the line, the trade deficit more than quadrupled to a jaw-dropping $367 billion by 2015.  The year before America let China join the WTO (1999), the United States accounted for 25.78 percent of world GDP. By 2014, that figure had dropped to 22.43—the lowest it has been in government records going back to 1969, according to the Economic Research Service of the U.S. Department of the U.S. Department of Agriculture. In 1999, China’s annual GDP was $1.094 trillion. In 2015, it was more than $11 trillion. In 1999, the U.S. national debt was $5.7 trillion (the good ol’ days!). Today, after the big government globalist policies of the last several presidents, U.S. national debt stands at a mind-bending $20 trillion.”

Id. at 415, 417, 427-431 (footnotes omitted).

Let me make one point very clear.  The China WTO Agreement is not a Free Trade Agreement.  Before China entered the WTO, it was already exporting substantial exports to the US.  I know because I represented Chinese companies and US importers in many antidumping cases long before China entered the WTO.  What China’s entrance into the WTO allowed the US to do was to gain leverage with China by putting Chinese trade practices into a forum, the WTO, which gave the US the ability to call some of China’s trade practices into account and discipline them.  The United States has brought many cases against China at the WTO and won many and caused China to change its trade practices, but it should be noted that China has brought cases against the US at the WTO, especially in the antidumping and countervailing duty area, and won many too.

As Charlene Barshefsky, the USTR, who negotiated the US China WTO Agreement, recently stated to the Wall Street Journal in answer to the question whether China’s entry into the WTO accounted for its enormous economic growth:

”No, I don’t think he’s right. If you go back to the mid-1990s, you saw a China that was already growing at about 8%, 8.5% a year, with the world’s largest standing army, a nuclear power, a permanent member of the U.N. Security Council, a fifth of the world’s population, a reformist premier, Zhu Rongji, and willing to orient toward the West.

In the course of doing the WTO negotiation, China opened its market. The U.S. didn’t alter its trade regime, nor did any other country alter  its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.

The key point is that, in the context of a country as large as China entering, were there protections built into the agreement to prevent, for example, unexpected surges of imports? And indeed, there were—a mechanism almost never used by the very industries Steve Bannon is pointing to, although it would’ve been entirely protective of their interests.”

To see what Ms. Barshefsky believes is the real China trade problem see the video at https://www.wsj.com/articles/the-impact-of-china-joining-the-wto-1495504981.

During that interview, Barshefsky pointed to the real China problem.  After 2006 China has shifted to a more protectionist trade policy pushing US and other foreign companies and foreign imports out of China.  The Trump trade policy rightly so could demand more reciprocity from China and demand that China drop its barriers to US imports and investment.

On the other hand, killing all trade with China is not the answer.  Although Ms. Ingraham points to the deficits, China has become the largest importer of US products.  On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily states:

“But didn’t the flood of Chinese factory-made goods to the U.S. decimate American manufacturing during this period? That’s a myth. As the U.S. Federal Reserve’s monthly manufacturing index shows, from 2000 to 2006 American factory output rose a healthy 11.5%. It wasn’t decimated by the surge in Chinese exports to the U.S. It only crashed when the financial crisis hit.  . . .

We hope a negotiated solution can be found. At the same time, we might want to think seriously about it before we back a giant U.S.-China trade war that could make all of us, Americans and Chinese, much worse off.”

In addition, when Ms. Ingraham quotes economic data from left leaning groups, she should keep in mind that these groups are very big supporters of labor unions, which provide the backbone of the Democratic Party.  Labor unions traditionally have been very, very protectionist, anti-free market and economic competition, very anti-Republican and very pro- Democratic party.  That is why Senator Chuck Schumer, who Ingraham does not like, supports the Trump protectionist trade policy, but Schumer believes that Trump is not being protectionist enough.   Chuck Schumer’s views are not the views of President Ronald Reagan.

But Ms. Ingraham also states that:

“Trump’s critics would do well to examine the election data on working-class rural Americans—a group who overwhelmingly went for Trump’s message of economic nationalism. Rural voters accounted for nearly one out of five votes in 2016 and were a pivotal part of Trump’s successful Rust Belt strategy. NBC News exit polls revealed that Trump beat Clinton 57 to 38 percent among Michigan’s rural voters (Romney carried the same group but by only seven percentage points). Among Pennsylvania rural voters, Trump destroyed Clinton 71 percent to 26 percent . . ..”

Id. at 1163-1164.

But Ms. Ingraham herself should also watch out because many of those rural voters are farmers and agriculture is dependent on exports.  Those rural voters could turn against Trump and the Republican party and that is why Republican Senators and Congressmen from rural states are so concerned about Trump’s trade policy.  Farmers want trade agreements, even if Trump and his manufacturing supporters do not.  That is why after listening to the complaints of Republican Senators and Congressmen from agricultural states along with complaints of US Ambassador to China and former Iowa Governor Terry Branstad, Trump told Lighthizer in the NAFTA negotiations to do no harm.

In her book, Laura Ingraham points to Reagan’s history, but misses an important point Reagan lived through the Great Depression and he firmly believed that the protectionist policies in the 1930 Smoot Hawley tariff act, which “protected” the US by increasing tariffs on almost every import, made a depression into the Great Depression.  How do I know?  Because President Ronald Reagan said so.

On June 28, 1986, President Reagan from his ranch in Santa Barbara gave the attache speech, BETTER COPY REAGAN IT SPEECH, on International Trade.  This speech is in effect a point by point rebuttal that Reagan was an economic nationalist.  So I would say to Ms. Ingraham to paraphrase Robert Dole, do not distort Ronald Reagan’s record.  I have quoted the entire speech to show that it came directly from President Reagan and is not a characterization.  As Reagan himself stated in the speech:

My fellow Americans:

This coming week we’ll celebrate the Fourth of July and the birthday of the Statue of Liberty, dedicated one century ago this year. Nancy and I will be in New York Harbor for the event, watching fireworks light the sky over the grand old lady who welcomes so many millions of immigrants to our shores. But I’ve often thought that Lady Liberty also represents another symbol of our openness to the rest of the world. With the ships plying the waters of New York Harbor beneath her, she reminds us of the enormous extent of our trade with other nations of the world.

Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flim flammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.

 You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.

And that’s why I wanted to talk with you today about some legislation that the Congress now has before it that is a throwback to the old protectionist days. It greatly cuts down my flexibility as President to bargain with and pressure foreign governments into reducing trade barriers. While this legislation is still pending before the Senate, it has already passed the House of Representatives. So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity. Yes, the politicians are back at it in Washington. And should this unacceptable legislation continue to move through the Congress, I’ll need your help in sending them a message. So, please consider our talk today an early warning signal on free and fair trade, a jobs and growth alert. And stand by, I may need your help in resisting protectionist barriers that would hinder economic growth and cost America jobs.

Until next week, thanks for listening, and God bless you.

Emphasis added.

I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I too saw the Reagan trade policy and I do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  I saw President Ronald Reagan appoint the most free trade Commissioners in its history to the US International Trade Commission—Susan Liebeler and Anne Brunsdale — and they certainly were not economic nationalists.  These free trade ITC Commissioners used to frustrate Robert Lighthizer in cases brought by the US Steel industry because they refused to go affirmative in certain cases and put antidumping and countervailing duty orders in place.

Let me say at the outset, I am not a Libertarian.  I have no problem with trade policy that hammers countries to open markets.  I have no problem with a domestic policy of low taxes and less regulation.  We need to make our companies, farmers and workers more competitive by giving them back the money they have earned.

I also believe that making America great again and putting America’s interests first is a correct policy position.  I am not a globalist, but firmly believe that we first must know what America’s interest is.

But as indicated below, in the post on Trade Adjustment Assistance for Companies, I firmly believe, like Ronald Reagan, who personally approved of the program, that an answer to the trade crisis is not more protectionism, but finding ways to make US companies more competitive.

Like Ronald Reagan, who was a free trader, I do not believe in putting up protectionist trade barriers, which are not temporary and can stay in place for 30 plus years, such as antidumping and countervailing duty orders against steel that wipe out imports and make downstream companies less competitive, is in the interest of the United States.

As President Reagan himself stated, “the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition,” and competition is what makes and will make America great again.

Like Ronald Reagan I do not believe that protection in the long run saves the industries it is trying to protect.  Robert Lighthizer for decades at Skadden, Arps represented US Steel in the Steel Trade Wars.  My former boss, Mike Stein, represented Bethlehem Steel for decades in the Steel Wars along with Lighthizer, but where is Bethlehem Steel today after 40 years of protection from steel imports—green fields.  Green fields when the steel industry has been protected to some degree for decades from steel imports.

Why?  Despite the protection from steel imports, Bethlehem Steel management and union did not take the protection and adjust to import competition so as to make their production facilities more competitive.  In the 90s, when given protection in a Section 201 case from imports, US Steel bought Marathon Oil.  All the trade protection the US can provide will not save the companies if they want to give their workers exorbitant pensions and their management large bonuses and reduce their own competitiveness in the World market.

Antidumping orders against steel imports have led to a higher US steel price than the World market price.  Steel, however, is a raw material input and the antidumping orders against Steel have led to US antidumping orders brought by injured US industries against imports of ironing tables, folding metal tables and chairs, wind towers, stainless steel sinks, boltless steel shelving, steel nails and a myriad of other products that use US steel as a raw material input.  The disease of the steel industry has spread to the downstream steel using industries.

During the speech Laura Ingraham asked what is the problem with trade protectionism?  One major problem is that trade is a two-way street and what the United States does to one country that country can do back to the United States.  The United States cannot dictate trade policy to the other countries in the World because they are sovereign too.  Also the entire world is moving to an open market, when the US appears to be moving backward to a protectionist US market.  This puts US companies and farmers at a distinct cost disadvantage because it means US exports cannot compete on a level playing field, by Trump’s choice

Lighthizer’s and Trump’s answer to trade problems is simply to put up one more brick and build the protectionist wall higher against imports.  If Ms. Ingraham wants a history lesson, I suggest she look at two countries—recently Japan and less recently China, who followed that same strategy.  In the 1980’s when I was at the ITC and Commerce, the big trade target was Japan.  Having worked in Japan I knew that it had numerous non-tariff trade barriers, which blocked many US exports.  Then in the early 1990s Japan’s economy imploded and it entered into the lost decades in large part because of its own trade policy, which explains why Prime Minister Abe wants the TPP.

China also did exactly what Laura Ingraham is proposing.  China closed down and its economy took a nose dive and went back to the Dark Ages.   It took Deng Xiaoping and later Zhu Rongyi to open up China.  China grew not because of the United States, but because it opened its economy up as it was in China’s economic interest to do so.  Many US companies have joint ventures in China.  When GM was having economic problems in the Obama Administration, the one part of the company it was trying to save was its China operations because the GM Buick was the number one selling car in China.  If the US shuts down, it too like China will go back to the dark ages.

Essentially, Trump appears to be adopting the mercantilist trade policies that he has condemned.  With its focus on trade deficits in manufacturing, Trump’s trade policy appears to be that the only trade deals we want are those where the US has a trade surplus.  That is not the way the World works.

THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—THE COSTS OF NOT DOING THE TRADE DEALS

As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and is on the verge of killing the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believe the US did not get enough.  Senator Orin Hatch wanted more on biologics and other Senators and Congressmen wanted a a better deal.

But the big problem at the Trump Presidential and Congressional level with regards to these trade agreements was and is the failure to calculate the cost of not doing these trade agreements or of terminating them.  Keep in mind the only party that is more protectionist than Donald Trump is the Democrats.  Also with Steve Bannon’s attacks on “establishment” Republicans, free traders in the Republican party are becoming few and far between.

The Bannon and Trump approach reveal fatal misunderstandings.  Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing and has created an open road for the economic competitors of US, including EC, China, Mexico, Canada, Australia and other countries, who are all moving in to replace US exports in those markets.  Trump’s and Bannon’s policy combined with the Democrat’s protectionist policies mean the US will lose the economic war because of the US failure to compete in the international economic marketplace.

The arrogance of the Steve Bannon and the Trump trade policy is based on the principle that the United States is the largest market in the World, and this gives the US leverage and, therefore, countries must kowtow and bend their head to get into the US market.  Although that principle may have been true twenty years ago, it is simply no longer true.

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.

Also in many ways, with 1.37 billion people China has a larger market than the US.  In 2006, at a speech in Beijing, the US Commercial Attaché stated that 75% of all Chinese, including rural Chinese, have a color television set.  Now that is close to 95% of 1.37 billion.  That is a larger market than the US with its 323 million.

But it is the costs of terminating the TPP deal, which are becoming much more clear.

As stated in my last newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

In that blog post, I quoted extensively from the attache August 7, 2017 article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine.  To summarize some of the points in that Politico article:

for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.

A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.. . .

In other words, the entire World is moving in the direction of President Ronald Reagan to a more open free trading market, which would have benefitted US companies greatly.  The US is following Trump’s trade policy and moving backward to a more closed protectionist market.

The article went on to state the numerous free trade agreements being negotiated by the other countries in the TPP and now those Agreements are putting US farmers at a distinct disadvantage.  EC pork farmers, which already exports as much pork to Japan as the United States does, have an advantage of up to $2 per pound over U.S. exporters. European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, have a 15 percent tariff advantage over U.S. exporters.

When Donald Trump pulled out of the TPP, Japan turned around and offered the same deal to the EC, which the United States had spent two excruciating years extracting from Japanese trade officials.  The United States is now left out.

Four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance are opening negotiations with New Zealand, Australia and Singapore.

Australia is selling beef at a lower price than the US to Japan.  Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors.

With the TPP, economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

Over the first five months of 2017, U.S. exports to Japan of chilled pork, which is preferable to frozen meat, are up 2 percent over the previous year. But exports of chilled pork from Canada, a prime competitor, are up 19 percent. Likewise, in frozen pork, U.S. exports are up 28 percent. But exports from the EU, the leading competitor, are up 44 percent.

Now there are more indicators that Canada, Mexico and Japan are turning away from US imports because of the Trump protectionist positions.

COSTS OF PULLNG OUT OF NAFTA AND TPP

CANADA

In an October 16, 2017 article in the Globe and Mail, “Canada must prepare for life after NAFTA” former Canadian trade negotiator Gordon Ritchie stated:

“The Canadian government (as well as the provinces, business and labour) is now forced to contemplate life without a free-trade agreement.  While this is far from a preferred choice, it would not be the end of the world. In the absence of a bilateral agreement, the most-favored-nation rules of the World Trade Organization would apply and offer many of the same protections. Tariffs would be restored, but at a much lower level than before the free-trade agreement, averaging roughly 3.5 per cent on shipments to the United States. Unquestionably, existing economic linkages would be put under stress but most would survive. This is clearly not the option the Canadian government would prefer but it could be better than what is currently on offer from the Trump administration.

Meanwhile, the impact on U.S. businesses would be just as severe if not more so. In an unprecedented statement, the U.S. chamber of commerce, the broadest and perhaps most influential business lobby, came out strongly against dismantling NAFTA, which it earlier estimated underpinned about 12 million American jobs.”

MEXICO

On October 16, 2017 in an article entitled “Mexico Braces for the Possible Collapse of Nafta”, the New York Time reported:

“Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy would adapt without the deal that has guided relations between the neighbors for a quarter-century. .  .

President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.

Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State. . . .

Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open.

Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.

The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.

“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments. . . .

If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.

The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.

Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead. . . .”

JAPAN

Despite Japanese noises of a bilateral trade agreement with the US after meetings with Vice President Pence, on October 15, 2017 in the attached article entitled “Japan exasperated by Trump’s trade policies”, Japan exasperated by Trump’s trade policies – POLITICO, Politico reported:

“As U.S. farmers suffer under high tariffs, Japanese officials are in no rush to cut a new trade deal with the United States.

TOKYO — Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.

The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region.

Meanwhile, there is growing evidence that the failure of the TPP is taking a sharp toll on rural America. In August, the volume of U.S. sales of pork to Japan dropped by 9 percent year over year, a serious blow to farmers who had been preparing for a big increase in sales because of lower tariffs in the TPP.

Instead, other countries that export meats, grains and fruits have seized on their advantage over American growers and producers in the wake of the U.S. pullout from the TPP. And a new Reuters poll shows Trump’s favorability in rural America — once a great stronghold — dropped from 55 percent last winter to 47 percent in September. The poll also showed a plunge in support for Trump’s trade agenda among rural voters. . . .

in interviews with POLITICO, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral — two-nation — deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.

“Our prime minister has made it quite clear that we respect the U.S. decision. … That is our official position, but I think withdrawal from TPP is very wrong,” said one senior official. “Honestly, it has diminished many of things that the U.S. has achieved in the region.”

In response, Japan has continued negotiating with American trade competitors, striking a political deal on a landmark free-trade agreement with the European Union in July while continuing to work toward closing a deal with the 11 remaining members of the TPP. In interviews, the senior Japanese officials made clear their ultimate goal is to persuade the United States to rejoin the TPP.

“In the conduct of our affairs with the United States, we need to have leverage,” said one former senior Japanese Cabinet official. “In order for us to convince the U.S., we need to have our own leverage, and our own leverage needs to be free-trade agreements [with U.S. competitors].”

There are some signs the Japanese strategy is working. Republicans in Congress, many of whom were TPP supporters, are expressing impatience with the administration and a conviction that U.S. agricultural industries are suffering because of tensions unleashed by the TPP pullout.

“We cannot allow much more time to lapse in creating opportunities to have other agreements, and especially when you look at Japan,” said Rep. Dave Reichert of Washington state, chairman of the House Ways and Means Trade Subcommittee, as his panel wrapped up a hearing last week on trade opportunities in the Asia Pacific region.

Trump himself has shown no sign of second- guessing his pullout from the TPP, which he described in an interview with Forbes magazine this month as “a great honor.”

“I consider that a great accomplishment, stopping that. And there are many people that agree with me,” he said. “I like bilateral deals.” .  . . .

Perdue’s comments came amid growing frustration in the farm belt. U.S. producers expect to continue losing market share in meat exports to other countries, even as domestic production reaches an all-time high, until something is done to address high import tariffs on the other side of the Pacific. Japan remains the top market for U.S. beef, and exports are up 22 percent from a year ago, but the impact of a recent hike in tariffs on frozen beef from 38.5 percent to 50 percent — a move that would have been avoidable if the TPP had been in force — will soon be felt, the U.S. Meat Export Federation predicts. The volume of pork exports of pork to Japan, the leading market for the U.S. in terms of value, dropped by 9 percent in August year over year. . . .

But Japan is in no rush to do so, according to the interviews with senior Japanese officials, who suggested that their country’s frustrations with the Trump administration are vast. . . .

For the ever-powerful career officials who sit in the unadorned buildings lining the leafy streets of Tokyo’s government district, there is one concern about the U.S. president that overrides all others: Trump’s determination to measure the effectiveness of trade deals in terms of which side sells more to the other.

Indeed, there are many people in the United States who share the view that free trade grows the global pie, with competition serving to promote efficiency and let countries take advantage of their own assets — such as the vast farming sector in the center of the United States, which has no parallel in Japan. . . .

Trump’s view, backed up by “American first” rhetoric, presumes that countries are inherently competitors, and that there are clear winners and losers.

“We want to avoid the relationship turning into a zero-sum game,” said a senior Japanese official.

“Each country has its own policy objectives, but Japan does not see trade deficits or surplus as the only driving force for trade negotiations,” said another senior government official. “A rules-based system is very important.”

Thus, Japanese officials are watching closely as the Trump administration renegotiates the North American Free Trade Agreement through ongoing talks with Canada and Mexico. To support its America- first agenda, the administration is threatening to blow up the 23-year-old trade deal and unravel complex supply chains that have grown over the life of the pact.

“They’re watching NAFTA and, frankly, in East Asia, they’re saying if the United States is so stupid as to screw up its agreements with its continental powers in Canada and Mexico, what can we in East Asia expect from these guys?” said Robert Zoellick, who served as President George W. Bush’s chief trade negotiator and later as World Bank president. “That’s a realistic question.” . . .

The failure of the TPP is a subject of contention between the two men — because Japan not only risked its economic future in hopes of a multinational trade deal but also pinned much of its national security hopes on the deal.

The need to counter the growing clout of China is an all-consuming priority in Tokyo, and Japanese officials felt that with the TPP they were on the verge of a genuine breakthrough, tying the United States, Canada, Vietnam, Mexico, Chile and other large nations on both sides of the Pacific into an economic alliance greater than anything China could muster. . . .

Seeking to fill the void left by the TPP, China has accelerated the pursuit of its own mega-deal with other Asian nations, called the Regional Comprehensive Economic Partnership, or RCEP.

The United States leaving TPP “created a vacuum in the region, that’s for sure,” the official said. “It’s why RCEP is gaining momentum. That is why the government is asking the U.S. to come back to the TPP. We keep continuing to say so.” . . .

“The Japanese government has no mind of going back to the table for a bilateral negotiation,” said another senior official. “TPP was risky for Abe; a bilateral will require an even bigger leap.”

AGRICULTURE

On September 11, 2017 in article in Bloomberg entitled, “Four Ways to Rebuild Consensus on Agricultural Trade, The U.S. is losing ground fast to global rivals in Asia”, two former US Senators Max Baucus and Richard Lugar stated that they had formed a new group, Farmers for Free Trade stating:

“The financial health of American farmers depends on trade. In what remains the “breadbasket of the world,” U.S. farmers export half of all major commodities they grow, contributing to a projected trade surplus of $20 billion this year alone and supporting millions of direct and indirect jobs. At a time when American farm incomes have been rapidly declining, trade is what’s helping to keep farmers, ranchers and many rural communities afloat.

Not so long ago, we served in Washington D.C. when these realities were well understood. It was a time when bipartisan support for opening new markets to our farmers was assumed and expected. As globalization took hold, we understood that trade agreements were our only tool to ensure that American wheat, soy or beef could out-compete other countries’ products vying for the same markets. It was a consensus that delivered for millions of American farmers. Today, that consensus has faded.

American agricultural trade is facing risks not seen in a generation. Public attitudes toward trade agreements have shifted as protectionist sentiment has grown. Threats of tariffs on U.S. trading partners invite the specter of retaliation. Meanwhile, our competitors plot to assume the mantle of global supplier the U.S. has long occupied.

We need to rebuild consensus on agriculture trade. It must be one that incorporates the position of American farmers; that reflects the needs of rural communities; that is echoed by state and local leaders, and that seeks to heal the deep fissures on trade in Washington D.C.

We believe that consensus can be built around four important steps.

First, we need to get off the sidelines and get back in the business of negotiating trade agreements. The U.S. currently does not have a single ongoing trade negotiation that gives our farmers access to the rapidly growing Asian market. Our absence in Asia means that China is quickly moving into the void with its own trade deals that outflank U.S. agricultural producers. One of those China-led deals, the Regional Comprehensive Economic Partnership, involves 15 other Asia-Pacific countries with growing middle classes, many of whom are clamoring for the agricultural bounty the U.S. once supplied.

Meanwhile, agriculture powerhouses like Canada, New Zealand and Australia are cutting bilateral deals that provide preferential treatment for their commodities.

Take the example of beef. According to the National Cattlemen’s Beef Association, as of this week, the U.S. has now lost out to Australia on more than $165 million in beef sales to Japan. That happened because Australia cut a trade deal with Japan in 2015, and we recently walked away from one.

These sharp competitive disadvantages are becoming the norm, and while it’s difficult to calculate all the untapped gains the U.S. has lost, the numbers are clear on how we reverse the trend. Since 2003, U.S. agricultural exports to countries we do have trade agreements with increased more than 136 percent.

Second, we need to remove the threat of retaliation against U.S. agriculture. Our trading partners are not novices when it comes to whom and what they retaliate against when the U.S. runs afoul of our international commitments. U.S. farmers are always target number one.

That is because our trading partners know it is the economic engine for so many states, and because the pain inflicted is immediate and acute.

For example, the last time Mexico retaliated against the U.S., their targets included everything from corn, to apples, to almonds and grapes. The Department of Agriculture estimated that those measures cost U.S. growers close to $1 billion in lost sales.

We know there are onerous trade practices that must be addressed through diplomacy and other mechanisms for setting disputes. But threatening our closest trading partners with blanket tariffs, border taxes or aggressive enforcement actions risks a trade war that would have no winners.

Third, we need to modernize NAFTA in a way doesn’t erode the enormous gains it has delivered for American farmers and ranchers. That means working to eliminate any remaining tariff and non-tariff barriers, simplifying packaging and labeling requirements, and improving agriculture opportunities through e-commerce platforms.

But it also means doing no harm to a pact that — according to the Farm Bureau — has resulted in an annual jump of agriculture exports from $8.9 billion in 1993 to $38 billion last year.

The Trump administration has a real opportunity to expand on those gains. They should do it quickly and thoughtfully so we can turn to the task of keeping pace with our competitors.

Finally, to rebuild consensus on trade, we need to organize and educate. We know there are officials in the administration and in Congress who understand the value of agricultural trade. Yet, recent trade debates have too often become a microcosm of our broader partisan politics.

To support this effort, we’re launching a bipartisan, not-for-profit organization called Farmers for Free Trade, to build a coalition of farmers, mayors and community leaders in congressional districts across the country. This isn’t only about the over 1 million U.S. jobs supported by agriculture trade, but also the secondary and tertiary jobs it creates in rural communities: from growers, harvesters, processors, and packagers to grain elevator operators, railroad workers, truck drivers and port operators.

Rebuilding consensus on trade begins in the heartland and capitalizes on the great strength of American farmers and ranchers. If we can do that, America wins.”

U.S. ANTI-TRADE STANCE AIDS EU

Meanwhile who benefits from the US decision to turn toward protectionism, other countries and the EU.  Jyrki Katainen, the European Commission’s vice president for jobs, growth, investment and competitiveness recently stated:

“We are willing to negotiate with third countries all the time – it’s part of our economic strategy. And now we have seen that many countries have been concerned about rising protectionism and entities which undermine the multilateral system, so they have been contacting us.”

The Wall Street Journal article below outlines the negative impact of terminating NAFTA on the US automobile industry.

US CHAMBER OF COMMERCE

Instead of listening to the protectionist steel industry and the unions, maybe it is time for the Trump Administration to listen to the winners in the Trade World.  On October 10, 2017, in Mexico City, U.S. Chamber of Commerce President Tom Donohue spoke out against the Trump administration’s approach to negotiating the North American Free Trade Agreement, which he said has been riddled with “unnecessary and unacceptable” poison pill proposals from the U.S. side.  As Donohue stated:

“All of these proposals are unnecessary and unacceptable.  They have been met with strong opposition from the business and agricultural communities, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. Ladies and gentlemen, we’ve reached a critical moment, and the Chamber has had no choice but ring the alarm bells.

“[NAFTA withdrawal] would abruptly slam the door on future negotiations because those governments have made it very clear they won’t negotiate with a gun to their head.  The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts.”

Donohue specifically criticized the foolish reliance on the need for the agreement to reduce the U.S. trade deficit:

“The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is not only the wrong way to measure who’s ‘winning’ on trade, it’s the wrong focus, and is impossible to achieve without crippling the economy.”

NAFTA NEGOTIATIONS HAVE STALLED

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES:

On October 18th, Politico reported that the NAFTA negotiations are at a standstill as Canada and Mexico have rejected the strident US proposals and potentially insurmountable disagreements on areas ranging from auto rules of origin to dairy market access and a sunset provision. The next round is to start on November 17th in Mexico.

At the closing press conference, the Canadian and Mexican trade ministers attacked the United States for making impractical demands and an overall unwillingness to compromise.

US Robert Lighthizer responded:

“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners. As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.

We have seen no indication that our partners are willing to accept any change that will result in a rebalacing and a reduction in these huge trade deficits.  Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantages.”

In a press briefing in his private conference room, Lighthizer later stated that his primary goal is to reduce the trade deficit and:

“take away what I consider to be in many cases artificial incentives to encourage investment overseas that are not market based. If we get that right, we’ll have an agreement that the president will be enthused about and at that point if the president is enthused, I think the Congress will be enthused.”

Lighthizer has also argued that NAFTA is just frosting on the cake for major corporations:

“I think it’s possible to take a little of the sugar away and have them say, ‘Yeah we’re still doing pretty well.  I understand that everybody that’s making money likes the rules the way that they are. That’s how it works and they can make a little less money or make more money in a different way and we can get the trade deficit down and we can also have what I consider at least in the investment realm to be a market-based investment decision. I think if we do that business will be fine, and if we do that labor will come along and say this is a step in the right direction and it’s worth changing the paradigm in doing that.”

On October 16, 2017, in an article entitled Trump’s NAFTA Threat”, the Wall Street Journal made the opposing argument.

“Donald Trump is threatening again to terminate the North American Free Trade Agreement if Canada and Mexico don’t agree to his ultimatums.

If this is a negotiating tactic of making extreme demands only to settle for much less and claim victory, maybe it will work. Otherwise Mr. Trump is playing a game of chicken he is playing a game of chicken that he can’t win

Mr. Trump’s obsession with undoing Nafta threatens the economy he has so far managed rather well. The roaring stock market, rising GDP and tight job market are signs that deregulation and the promise of tax reform are restoring business and consumer confidence. Blowing up Nafta would blowup all that too. It could be the worst economic mistake by a U.S. President since Richard Nixon trashed Bretton-Woods and imposed wage and price controls.

U.S. demands in the Nafta renegotiations­ which returned to Washington last week-are growing more bizarre. U.S. Trade Representative Robert Lighthizer now wants to add a sunset clause, which would automatically kill it in five years unless all three governments agree to keep it. In other words, the U.S. proposes to increase economic uncertainty and raise the incentive for businesses to deploy capital to more reliable investment climates.

The U.S. also wants to change Nafta’s “rules of origin” for autos. Cars now made in North America can cross all three borders duty-free if 62.5% of their content is Nafta-made. Mr. Lighthizer wants to raise that to 85% and add a sub­ clause requiring 50% be made in the U.S.

Mr. Lighthizer needs to get out more. Nafta’s current rules-of-origin for autos are already the highest of any trade agreement in the world, says John Murphy of the U.S. Chamber of Commerce. Raising them would give car makers an incentive to source components from Asia and pay America’s low 2.5% most -favored-nation tariff. A higher-content rule would hurt Mexico, but it won’t bring jobs to the U.S

It’s hard to overstate the damage that ending Nafta would inflict on the U.S. auto industry. Under Nafta, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. As Charles Uthus at the American Automotive Policy Council said last week, Nafta “brings scale, it brings competitiveness, it brings efficiencies [and] synergies between all three countries, and it brings duty-free trade.” Its demise would be “basically a $10 billion tax on the auto industry in America.”

Last week the Boston Consulting Group also released a study sponsored by the Motor & Equipment Manufacturers Association that found ending Nafta could mean the loss of 50,000 American jobs in the auto-parts industry as Mexico and Canada revert to pre­ Nafta tariffs.

Mexico has elections next year and no party that bows to unreasonable demands by Mr. Trump can win. The Mexican political class appears willing to call his bluff, which is making American business very nervous. More than 300 state and local chambers of commerce signed an Oct. 10 letter to Mr. Trump imploring him to “first ‘do no harm’ in the Nafta negotiations.”

It noted that 14 million American jobs rely on North American daily trade of more than $3.3 billion. “The U.S. last year recorded a trade surplus _o f $11.9 billion with its NAFTA partners when manufactured goods and services are combined,” the letter said. “Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada.”

Ending Nafta would be even more painful for U.S. agriculture, whose exports to Canada and Mexico have quadrupled under Nafta to $38 billion in 2016. Reverting to Mexico’s pre-Nafta tariff schedule, duties would rise to 75% on American chicken and high-fructose corn syrup; 45% on turkey, potatoes and various dairy products; and 15% on wheat. Mexico doesn’t have to buy American, and last week it made its first wheat purchase from Argentina-30,000 tons for December delivery.

Canada and Mexico know that ending Nafta will hurt them, but reverting to pre-Nafta tariff levels could hurt the U.S. more. Mr. Trump can hurt our neighbors if he wants, but the biggest victims will be Mr. Trump’s voters.”

On October 16, 2017, in an article entitled “Trump Trying To Destroy NAFTA with Pin Pricks Instead Of A Sledgehammer” John Brinkley at Forbes outlined the US demands in the NAFTA negotiations and why they are being rejected:

“It appears increasingly likely that NAFTA is headed for the trash heap. People involved in the re-negotiation of the 23-year-old trade pact are pessimistic about its chances for survival, because the Trump administration seems bent on causing its death by 1,000 cuts.

An inexplicable aspect of this is that there is no constituency in the United States for NAFTA’s termination.

Not even the most fervent NAFTA-haters — e.g., the AFL-CIO, the Sierra Club, Public Citizen’s Global Trade Watch, and Democratic House members from Rust Belt states — have demanded the death of NAFTA. Businesses large and small, farmers and ranchers, mayors of most American cities and most members of Congress want NAFTA to stay in force. No one of note has said NAFTA has to go. So, whose interests is President Trump trying to protect?

It’s clear that what he would like to do is simply withdraw from the agreement, which he can easily do by providing Canada and Mexico six months’ notice in writing. But instead, his negotiators have tabled several proposals – poison pills would be a more apt description – that they know the Canadians and Mexicans won’t accept. This will allow Trump to blame them for NAFTA’s demise.

“Issues are being put on the table that are practically absurd,” former Mexican   Jaime Serra told Reuters during the fourth round of talks, which ended Sunday. “I don’t know if these are poison pills, or whether it’s a negotiating position or whether they really believe they’re putting forward sensible things.”

Here are four of them:

A sunset provision that would automatically terminate NAFTA after five years unless all three countries vote to keep it in force.

Deletion of NAFTA Chapter 19, which allows parties to defend themselves against dumping and illegal subsidies by one another.

A so-called opt-in provision to NAFTA’s investor-state dispute settlement (ISDS) chapter.

A change to automotive rules of origin that would make it more difficult for Canada and Mexico to export cars to the United States.

Let’s look briefly at each of these.

A five-year sunset clause would add so much uncertainty to NAFTA’s future that businesses in all three countries would be reluctant to plan and invest with regard to cross-border trade. It would also trigger a renegotiation of NAFTA every five years.

Scrapping Chapter 19 would end 23 years of fairness and equality in the way the three NAFTA parties pursue anti-dumping and illegal subsidy cases. Conservative opponents of Chapter 19 say it impinges on U.S. sovereignty by requiring the government to adhere to a supranational system. That is an argument based on principle. It has no practical merit.

ISDS allows a private company operating in a foreign country to challenge an action by that country’s government that hurts the company. Allowing one country to opt in or out of ISDS would be like allowing a driver who is pulled over for speeding to opt out of having to obey the law against speeding – sorry, officer, I have my own speed limit and it’s higher than yours.

NAFTA requires that 62.5% of the content of NAFTA-built cars and light trucks originate in the U.S. if those vehicles are to be exported duty-free to the U.S. The Trump administration wants to raise that to 80%. This is a purely protectionist measure that would raise the price of cars sold in the United States, including those made here.

The governments of Mexico and Canada vehemently oppose these proposals and others the administration has presented. But Trump has said, no problem, if the NAFTA renegotiations don’t work out, he’s willing to negotiate separate bilateral free trade agreements with the two countries.

It’s apparent that what he really wants is to get rid of Mexico. He has said most illegal Mexican immigrants were rapists and murderers, vowed to build a wall along the Mexican border, threatened to invade the country to rid it of some unspecified “bad hombres,” and threatened to impose a 20% border tax.

And we’re to believe that he wants to sit down with the Mexican government and negotiate a free trade agreement in good faith?

Yeah, right.”

TRUMP THREATS ARE NOT WORKING WITH THE US SOUTH KOREA TRADE AGREEMENT

Meanwhile, South Korean Trade Minister Kim Hyun-chong recently indicated that Seoul is willing to let President Donald Trump kill the pact, rather than bow to unreasonable U.S. demands for concessions to bring bilateral trade more into balance.

Kim also stated that cutting trade ties with South Korea will only push the country, as a matter of necessity, economically closer to China, the source said.

US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL

Recently there has been a distinct difference in the antidumping and countervailing duty area.  Friends have told me that internally at Commerce all countervailing duty and antidumping duty determinations go to the Secretary’s office of his personal review.  That was not true when I was at the Commerce Department during the Reagan Administration.

Countervailing duty and antidumping determinations are legal proceedings that are subject to Court review.  The Court of International Trade and the Court of Appeals for the Federal Circuit can overturn as not based on substantial evidence on the record if there is not a factual underpinning for the Commerce Department decisions.

If politics become a large part of the case, that is a reason for the Court to overturn Commerce decisions as arbitrary and capricious and not based on substantial evidence on the record.

Every time Commerce issues a determination in an antidumping and countervailing duty case, Commerce Secretary Wilbur Ross makes a personal statement.  When the Countervailing Duty preliminary determination of 212% in the Bombardier Civil Aircraft case was issued, Secretary Ross stated:

“The U.S. values its relationships with Canada, but even our closest allies must play by the rules.  The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

In past newsletters, I have argued that Commerce is a hanging judge in AD and CVD determinations finding dumping and subsidization in close to 100 percent of the cases.  But in contrast to a China case, where Commerce uses fake numbers, in a market economy case against Canada, for example, Commerce is to use actual domestic prices and costs to determine dumping and actual government payments to determine subsidization in the case and actual commercial values in that country to value them.  Thus, in counseling foreign companies in antidumping and countervailing duty cases, if they are in market economy countries, I tell them that they can use computer programs to run their numbers and make sure that they are not dumping.  Also companies can usually figure out whether they have taken subsidies from the Government.

As indicated in the Article about the Bombardier/Civil Aircraft case below, however, although the AD and CVD rates were very high at 219% and 79%, Commerce did give reasoned decisions as to how it calculated those high rates.

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

Just before the countervailing duty preliminary determination in the Civil Aircraft from Canada case, I was interviewed by BBC radio and by various investment companies asking me for my views on the case.  During those interviews, I emphasized that the US countervailing duty and antidumping cases against Canada were legal proceedings and that the Commerce Department’s preliminary determinations were normal operating procedure pursuant to the US antidumping (“AD”) and countervailing duty (“CVD”) law.  The Commerce Department must follow the statutory requirements of the AD and CVD law, and these preliminary determinations were not political decisions.  They were legal decisions made pursuant to the law and the statutory deadlines in those laws.

With all the political arguments from both the Canadian and UK Governments in the wind, during those interviews, however, I also suggested the case could result in a negotiated suspension government to government agreement, much like happened in the Canadian Lumber case.  After the CVD preliminary determination, USTR Lighthizer also mentioned the possibility of a government to government negotiated deal in the Bombardier case.

But then Commerce issued a preliminary CVD rate of 219.63%.  Immediately the Canadian government complained about the unfairness of the decision, and the UK government threatened a trade war with the US because Bombardier has a production plant in Northern Ireland.

Commerce issued the very high CVD rate as indicated in the attached Commerce Department’s Issue and Decision Memo, 2017.09.26 Aircraft Prelim I&D Memo, because of the massive equity infusion of $1 billion by the Quebec Government directly into Bombardier, making it in effect a state-owned company, much like the Chinese state-owned companies.

The entire purpose of the US CVD law and CVD laws in general is that private companies should not have to compete in commercial markets against the Government and that is just what has happened.

Although the argument is made that Boeing is financed by its military sale of airplanes to the US government, Boeing itself is a publicly traded company on the New York stock exchange and certainly has not received $1 billion in a direct equity infusion into the company by a Government to finance its production operations.

But then Bombardier seriously damaged its own chances for a negotiated government to government suspension agreement because Commerce issued an antidumping preliminary determination of 79.82% antidumping rate based on All Facts Available (“AFA”) because Bombardier refused to provide sales information regarding its contracts with Delta and Air Canada and cost information.

Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation.  The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response.  The EC takes the same position. If a respondent refuses to cooperate in EC antidumping and countervailing duty cases, the EC will use all facts available.

I firmly believe that because of the decision not to cooperate with Commerce, the Trump Administration will refuse to do a suspension agreement in this case.  Commerce will not reward bad behavior in AD cases.  A company cannot refuse to cooperate with Commerce and give them the information they need to make a decision and then expect Commerce to give it a political deal.

Also the UK threat of a trade war indicates an ignorance of how AD and CVD law works, which is understandable because all AD and CVD cases in the EC are handled in Brussels.  As stated above, these preliminary determinations were legal determinations under the US AD and CVD law, which are based on the WTO Antidumping and Countervailing Duty Agreements and agreed to by all countries in the WTO, including Canada, the EC and through the EC, the UK.

Bombardier argued that it could not provide the sales information because the airplanes had not been exported to the US.  As indicated in the attached AFA memo, ANTIDUMPING AFA BOMBARDIER, the US Antidumping Law, which is based on the WTO Antidumping Agreement, covers “sales” and in the absence of sales offers for sale.  As the AFA Memo states:

Additionally, section 772 of the Act defines export price and constructed export price as the price at which merchandise under consideration is first sold or agreed to be sold. Moreover, 773(a)(1)(B) of the Act states that normal value is the price at which:

the foreign like product is first sold (or, in the absence of a sale, offered for sale) for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade and, to the extent practicable, at the same level of trade as the export price or constructed export price.

In addition, as previously mentioned, under 19 CFR 351.102(b)(43), the term “sale” includes a contract to sell. Furthermore, a Ways and Means Committee report describes the reason for amending the countervailing duty law, along the lines of what already existed in the antidumping duty law, to make clear that the Department could initiate countervailing duty cases and render determinations in situations where actual importation had not yet occurred but a sale for importation had been completed or was imminent. The House Report explained that “{a}ntidumping law has, since its inception, applied not only to imports, but to sales or likely sales. This report additionally explained that the amendment (including the phrase “or sold (or likely to be sold) for importation” in section 701(a) of the Act) was “particularly important in cases involving large capital equipment, where loss of a single sale can cause immediate economic harm and where it may be impossible to offer meaningful relief if the investigation is not initiated until after importation takes place.” This logic described in the House Report is relevant in this antidumping duty investigation as well. For these reasons, the Department appropriately requested information related to Bombardier’s purchase contracts for merchandise under investigation in the United States and the home market.

According to Commerce, Bombardier only submitted arguments in response to sections B through D of the questionnaire.  It did not provide the facts to support those arguments.  Under US AD law, however, Commerce Department decisions and respondent’s arguments have to be based on the facts on the Administrative Record.  When there are no facts, Commerce will use All Facts Available.

Through intermediaries, I have been told that Bombardier refused to release that information to Commerce because of fear it would be released to Boeing.  If that is true, it reveals the failure of Bombardier’s outside lawyers to discuss how Commerce Department Administrative Protective Orders work in AD and CVD cases.  Under US AD and CVD law, only outside counsel, not Boeing’s inside counsel, are granted access to Bombardier information and if those outside lawyers reveal that information to Boeing, they can be disbarred.  Trade counsel in the US take very seriously the APO requirements under the US AD and CVD Law.  In addition, Bombardier’s outside counsel has had access to Boeing’s confidential information under Administrative Protective at the US International Trade Commission so there is simply no sympathy for Bombardier’s arguments.

Finally, the latest news is that Bombardier is asking Airbus to take a majority share in its production of C Series Aircraft and Airbus will shift the production to Mobile, Alabama to get out of the case.  Boeing has argued that Boeing’s move will not have an effect on the case because any orders issued will cover parts.

But that is not quite correct.  The jurisdiction in AD and CVD cases is in rem over the things, products, being imported into the US.  So the critical issue is how did Boeing describe the products to be covered by the case and that are in the Scope of the Merchandise Section in the Federal Register notice issued by the Commerce Department.

The Scope of the Merchandise Section in the Federal Register notice states that the AD and CVD orders will cover imports of:

“aircraft, regardless of seating configuration, that have a standard 100- to 150-seat two-class seating capacity and a minimum 2,900 nautical mile range, as these terms are defined below. . . .

The scope includes all aircraft covered by the description above, regardless of whether they enter the United States fully or partially assembled, and regardless of whether, at the time of entry into the United States, they are approved for use by the FAA.”

The scope does not include “parts thereof” language so the real question is whether Customs will consider any parts imported into the United States to be “partially assembled” civil aircraft.

The key point is that the desperate measure to joint venture with Airbus, however, means Bombardier has given up on a government to government Suspension Agreement to settle the case.  I suspect Bombardier will have major problems going forward.

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.

The ITC had to determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”

The ITC reached an affirmative injury determination in the case on September 22, 2017, and now it has entered a remedy phase on which remedy to recommend to the President.

The Commission will issue its report to the President on November 13, 2017 and the President within 60 days must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

Although the ITC remedy phase is important, the real remedy will be determined by President Donald Trump with the assistance of the USTR after November 13th.

On October 3, 2017, the ITC held a hearing in the remedy phase.  The proposed remedies from the parties are:

The petitioners, Suniva and SolarWorld Americas, in their public briefs, proposed two remedies: a tariff plus a price floor for solar cells, or a tariff plus a quota. The two companies agree that the commission should choose one.

The Solar Energy Industries Association, the users coalition, along with solar producer SunPower, argued that a tariff will result in the loss of 62,800 jobs in 2018 and 80,000 jobs in later years. Tariffs will simply increase the price of panels, which will kill solar projects. SEIA in its brief also argued that if tariffs are imposed, the big winner will be Arizona-based thin-film manufacturer First Solar, which does much of its manufacturing in Malaysia.

At the hearing, Suniva and SolarWorld requested a 32-cent-per-watt tariff on crystalline silicon photovoltaic cells.  Suniva continued to push for a price floor on solar panels of 74 cents per watt, while SolarWorld wants a quota on imported cells and panels to cap import supply; both support each other’s idea in the alternative.  In its brief, Suniva stated:

“The crisis caused by foreign market overcapacity now facing the U.S. CSPV cell and module industry is so extreme, the financial losses so great, that, to be effective, any remedy … must be bold, extensive and multifaceted.  [A] strong and effective remedy is required to stop the industry’s bleeding, and then provide breathing space for this American-invented manufacturing technology to grow and thrive.”

But SEIA, which maintains that such trade barriers will devastate the entire U.S. solar industry by raising prices and crippling demand, says the two manufacturers are failing for internal and not external reasons and have asked for more help than the government can grant. Since the ITC must recommend a remedy by mid-November with Trump then to decide within 60 days, SEIA offers these alternatives: technical assistance and job training assistance from government agencies, and an import licensing fee to fund manufacturing growth.

The interesting point is that Suniva and Solar World failed to submit an adjustment plan to the ITC to show, in direct contrast to Harley Davidson, how they will adjust to import competition if they are given relief.

SEIA argued in its brief:

“The commission should rely on its trade policy expertise to create and recommend constructive advice instead of resorting to trade restraints.  Denying the existence of the tens of thousands of jobs that are at stake, denying the reality and importance of grid parity, and denying the domestic industry’s internal problems in favor of scapegoating imports will not help the industry or serve the national interest.”

TRUMP AND CHINA

But what about developments regarding trade with China, as indicated below new trade cases are being filed against China in the antidumping and countervailing duty area and for IP violations under Section 337.

During her speech mentioned above, Laura Ingraham argues that there is no remedy if imports come into the US that infringe US intellectual property rights.  That simply is not true.

Under Section 337, 19 USC 1337, Petitioners holding valid IP rights can filed a Section 337 case at the US ITC and after a year long proceeding, the ITC will issue an order excluding the infringing imports at the border.

In addition, if the imports infringe US trademarks or copyrights, Petitioner can go directly to Customs, which will exclude the infringing exports at the border.

In addition, if Chinese exports infringe US intellectual property rights, such as trademarks and copyrights, a US company can go directly to Chinese Customs and stop the export of infringing exports.

But with China’s decision to help on North Korea, I suspect that during Trump’s visit to China in November deals will be reached.  But as Charlene Barshefsky has indicated in her speech to the Wall Street Journal above, the real problem is China’s decision to close down areas to US investment and put up barriers to US imports.

In light of the US position in the NAFTA talks, we can expect the US to demand reciprocity.  Trump and Congress may well take the position that we will close off the US market to the Chinese investment in the same areas where China blocks US investment in.  The US should also consider closing off Chinese imports into sectors where the US cannot export into.  That is reciprocity.

There are many fights to come.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

In the attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, 301 INITIATION NOTICE, President Trump pulled the trigger on the Section 301 Intellection property case against China.  The Section 301 investigation could take a year and probably will lead to negotiations with the Chinese government on technology transfer.  If the negotiations fail, the US could take unilateral action, such as increasing tariffs, or pursue a case through the World Trade Organization.  Unilateral actions under Section 301, however, also risk a WTO case against the United States in Geneva.

The notice states that the USTR will specifically investigate the following specific types of conduct:

First, the Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies. Moreover, many U.S. companies report facing vague and unwritten rules, as well as local rules that diverge from national ones, which are applied in a selective and non-transparent manner by Chinese government officials to pressure technology transfer.

Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China. For example, the Regulations on Technology Import and Export Administration mandate particular terms for indemnities and ownership of technology improvements for imported technology, and other measures also impose non-market terms in licensing and technology contracts.

Third, the Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, the investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.  Juergen Stein, CEO of SolarWorld Americas stated that his company was a victim of Chinese “state-sponsored hacking and theft” while it was pursuing his AD and CVD cases against China.  Stein further stated that this “greatly weakened SolarWorld’s first-mover status, and again left SolarWorld vulnerable to China’s relentless effort to take over the U.S. solar industry through the sale of solar cells and panels below the cost of production,”

Just one other company, American Superconductor Corp., testified that it had been badly hurt by Chinese theft of its intellectual property.  The company accused a Chinese state-owned enterprise, Sinovel Wind Group, of stealing its intellectual property. AMSC has lost over $1.6 billion in company value and 70 percent of its workforce over the past six years as a result, AMSC President Daniel Patrick McGahn said.

“We believe that over 8,000 wind turbines – most owned by large Chinese utility state-owned enterprises – currently are operating on stolen AMSC IP I personally believe such actions should have consequences. The negative impact of Sinovel’s IP theft on the financial health of AMSC has been dramatic.”

A third company, ABRO Industries, said it had learned to work within the Chinese intellectual property protection system to address problems when they arise. William Mansfield, director of intellectual property at ABRO, also urged the Trump administration to refrain from rash action, stating, “The time for gunboat diplomacy is long since past.”

Acting Assistant USTR for China Terry McCartin, commenting on the dearth of business witnesses, said some companies had expressed concern “about retaliation or other harm to their businesses in China if they were to speak out in this proceeding.”

But as indicated in an article by Dan Harris, the problem may be that US companies on their own gave away their IP because of bad business decisions.  The US government cannot protect US companies from the consequences of bad business decisions.  See August 30, 2017 article by Dan Harris entitled “China-US Trade Wars and the IP Elephant in the Room”, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html.

CHINA NME STATUS

On the question of China’s nonmarket economy status in AD and CVD cases, in light to the expiration of the 15-year deadline in the China-WTO Agreement on December 16, 2016 and a Chinese case in the WTO, the EU on October 3rd reached agreement with the European Council and Parliament to overhaul its antidumping procedures.  Pursuant to the Agreement, the EU will decide the issue on a case-by-case basis, leaving it up to the EU Government to determine whether a Chinese industry has demonstrated enough independent from the Chinese government.

In the announcement, the EU stated:

“The new legislation introduces a new methodology for calculating dumping margins for imports from third countries in case of significant market distortions, or a pervasive state’s influence on the economy.  The rules are formulated in a country- neutral way and in full compliance with the EU’s WTO obligations.”

EU Trade Commissioner Cecilia Malmström further stated:

“Having a new methodology in place for calculating dumping on imports from countries which have significant distortions in their economies is essential to address the realities of today’s international trading environment. The commission has repeatedly stressed the importance of free but fair trade and the agreement today endorses that view.”

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, a case which is near and dear to my heart, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia, according to a WTO document circulated on Monday.

According to the US complaint:

“The BC wine measures provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves.  The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called store within a store.”

According to prior statements from the government and the industry backing the case, many retailers in Canada have not taken the necessary steps to set up their “store within a store” to sell foreign wine, likely because of the high costs associated with controlled access and separate cash registers.

According to the complaint:

“These measures appear to be inconsistent with Canada’s obligations … because they are laws, regulations or requirements affecting the internal sale, offering for sale, purchase or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin.”

In the following months, Argentina, Australia, the European Union and New Zealand all asked to join the case, according to the World Trade Organization website.

USTR asserts the provincial regulations discriminate against imported wine because they only allow wine from British Columbia to be sold on regular grocery store shelves. In contrast, imported wine may only be sold in the province’s grocery stores through a so-called store within a store.

“British Columbia’s discriminatory regulations continue to be a serious problem for U.S. winemakers,” USTR spokeswoman Amelia Breinig said. “USTR is requesting new consultations to ensure that we can reach a resolution that provides U.S. wine exporters fair and equal access in British Columbia.”

In fact, BC Wine regulations are probably the most protectionist in the World, worse than China requiring the equivalent of an 80% tariff to sell imported wine.  BC protectionist measures on wine simply feed right into the Trump argument on NAFTA that it is not a free trade agreement.

SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED

The Section 232 Steel and Aluminum cases appear to have stalled for the time being.  No news on the Section 232 front raises the question what can be done for US Steel and Aluminum companies injured by imports without distorting the US market and expanding the problems.  Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products.  Such a remedy would probably result in the loss of 100s of thousands of US job.

That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

But does that mean the US government should simply let the US Steel industry and other manufacturing industries die?  The election of Donald Trump indicates that politically that simply is not a viable option.

Although Joseph Schumpeter in his book Capitalism, Socialism and Demcracy coined the term “creative destructionism”, which conservatives and libertarians love to quote, they do not acknowledge the real premise of Schumpeter’s book that capitalism by itself could not long survive.  Schumpeter himself observed the collateral damage created by pure capitalism.

So what can be done for the steel and other manufacturing industries?  Answer work with the companies on an individual basis to help them adjust to import competition and compete in the markets as they exist today.  Moreover, there is already a government program, which can serve as a model to provide such a service—the Trade Adjustment Assistance for Companies Program.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs stop wallowing in international trade victimhood and to cure its own ills first before always blaming the foreigners.  That is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As stated above, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition.  This program has a true track record of saving US companies injured by imports.

This was a problem personally approved by President Ronald Reagan.  The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports on an individual basis to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $50,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $133 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.

Are such paltry sums really going to help solve the manufacturing crisis in the Steel and other industries?  Of course not!!

But when the program was originally set up, the budget was much larger at $50 to $100 million.  If the program was funded to its full potential, yes steel companies and other companies could be saved.

To those libertarian conservatives that reject such a program as interference in the market, my response is that this program was personally approved by your icon, President Ronald Reagan.  He understood that there was a price for free trade and avoiding protectionism and that is helping those companies injured by import competition.  But teaching companies how to be competitive is a much bigger bang for the buck than simply retraining workers.  And yes companies can learn and be competitive again in the US and other markets.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

PTFE RESIN

On September 28, 2017, the Chemours Company FC LLC filed AD and CVD cases against imports of Polytetrafluoroethylene (PTFE) Resin from China and India.

FORGED STEEL FITTINGS

On October 5, 2017, the Bonney Forge Corporation and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed AD and CVD cases against imports of Forged Steel Fittings from China Italy and Taiwan.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN

HYDRIOC ACID FROM THE US and JAPAN

On October 16, 2917, China Ministry of Commerce (“MOFCOM”) published the attached initiation notice of antidumping investigation against Hydriodic Acid from the USA and Japan, Initiation Notice_Hydriodic Acid_EN.  The alleged dumping margin on the US imports is 36.09% and Japanese imports is 41.18%

The Target companies in the US are: USA: Iofina Chemical, Inc.; IOCHEM Corporation and Ajay North America, LLC

The Target Companies in Japan are: SE Chemicals Corporation, NIPPOH CHEMICALS CO., LTD. and TOHO Earthtech, Inc.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2017.37 Team’s newsletter-EN Vol.2017.38 Team’s newsletter-EN Vol.2017.39 Team’s newsletter-EN Vol.2017.40

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

REUSABLE DIAPERS

On September 19, 2017, Cotton Babies, Inc filed a section 337 case against imports of Certain Reusable Diapers, Components Thereof, and Products Containing the Same.  The respondent companies named in the complaint are:

Alvababy.com, China; Shenzhen Adsel Trading Co., Ltd.d/b/a Alva, China; and Huizhou Huapin Garment Co., Ltd., China.

AMORPHOUS METALS

On September 19, 2017, Metglas, Inc. and Hitachi Metal, Ltd. filed a section 337 case against imports of amorphous metals and products containing same.  The named respondents in the case are:

Advance Technology & Materials, China; AT&M International Trading Co., Ltd., China; CISRI International Trading Co., Ltd., China; Beijing ZLJG Amorphous Technology Co., Ltd., China; Qingdao Yunlu Energy Technology Co., Ltd., China; Dr. Hideki Nakamura, Japan; and Mr. Nobrou Hanai. Japan.

LED LIGHTING

On September 21, 2017, Philips Lighting North America Corp. and Philips Lighting Holding B.V. filed a section 337 case against imports of LED Lighting Devices and LED Power Supplies.  The named respondents in the case are:

Feit Electric Company, Inc., Pico Rivera, California;  Feit  Electronic  Company,  Inc., (China),  China;  Lowe’s  Companies,  Inc.,  Mooresville,  North  Carolina; L G Sourcing,  Inc., North  Wilkesboro,  North Carolina; MSi Lighting, Inc., Boca Raton, Florida; RAB Lighting Inc., Northvale, New Jersey; Satco Products, Inc., Brentwood, New York;  Topaz  Lighting Corp.,   Holtsville, New York; Wangs Alliance Corporation d/b/a WAC Lighting Co., Port Washington, New York; and WAC Lighting (Shanghai) Co. Ltd. , China.

REUSABLE RAZORS
On September 27, 2017, The Gillette Company LLC filed a section 337 case against imports of Certain Shaving Cartridges, Components Thereof and Products Containing Same.  The named respondents in the case are:

Edgewell Personal Care Company, Chesterfield, Missouri; Edgewell Personal Care Brands, LLC, Shelton, Connecticut; Edgewell Personal Care, LLC, Shelton, Connecticut; Schick Manufacturing, Inc., Shelton, Connecticut; and Schick (Guangzhou) Co., Limited, China.

BEVERAGE CONTAINERS

On September 28, 2017, YETI Coolers, LLC filed a section 337 case against imports of Insulated Beverage Containers, Components, Labels, and Packaging Materials.  The named respondents are:

Alibaba (China) Technology Co., Ltd., Hong Kong; Alibaba Group Holding Limited, c/o Alibaba Group Services Limited, Hong Kong; Alibaba.com Hong Kong Limited, Hong Kong; Alibaba.com Singapore E-Commerce Private Limited, Hong Kong; Bonanza.com, Inc., Seattle, Washington; ContextLogic, Inc. d/b/a Wish, San Francisco, California; Dunhuang Group, China; Hangzhou Alibaba Advertising Co., Ltd., Hong Kong; Huizhou Dashu Trading Co., Ltd., China; Huagong Trading Co., Ltd., China; Tan Er Pa Technology Co., Ltd., Hong Kong; Shenzhen Great Electronic Technology Co., Ltd., China; and SZ Flowerfairy Technology Ltd., China.

If you have any questions about these cases or about the Trump Trade Crisis, NAFTA, FTAs, , including the impact on agriculture, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP’S TRADE WAR AGAINST DOWNSTREAM INDUSTRIES, SECTION 232 CASES STEEL AND ALUMINUM, SECTION 201 CASE SOLAR CELLS, BORDER ADJUSTMENT TAXES, NAFTA AND 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 26, 2017

Dear Friends,

This blog post is coming out very late because I have been very busy with so many trade cases being filed.  In fact, this is the most trade cases I have seen in my lifetime filed in such a short period.  Every day there seems to be another trade case.

For the last two weeks I have been intensely involved in an antidumping and countervailing duty case on mechanical tubing.  We are representing auto parts companies, which have warned the US International Trade Commission (“ITC”) if they go affirmative and find injury in the case, in all probability the companies will close their US operations and move offshore.  The US producers bringing the petition want to force auto parts companies to buy their commodity mechanical tubing, which is sold to the oil & gas industry and goes down a hole.  The auto industry needs made to order mechanical tubing as their raw material because of the advanced designs and safety requirements in the United States.

If the United States is going to block raw materials, US downstream industries will have no choice.  They will move offshore to obtain the high quality raw materials they need to not only be competitive but also produce high quality safe auto parts.  In this first article below, one can read directly the public statements of these auto parts producers to the ITC.

Meanwhile, Trump is increasing the trade war.  Throughout the Presidential campaign, Trump threatened to put tariffs on many different products.  With Commerce Department Secretary Wilbur Ross, President Trump has discovered Section 232 National Security cases against Steel and Aluminum.  There are no checks on the President’s power in Section 232 cases.  No check at the US International Trade Commission (“ITC”), the Courts or the WTO.  Once the Commerce Department issues a report, then Trump has the power to impose tariffs or other remedies.

If you look at the link to the Commerce Department hearing in the Section 232 Steel case, at the end of the hearing you will hear numerous downstream companies telling Commerce to exclude their products and if they cannot get the imported steel, their companies will close.

Meanwhile, numerous antidumping and countervailing duty cases have been filed against aluminum foil, tool chests, biodiesel, tooling and aircraft just to name a few.  As described below, Trump has found his Trade War, but the real victim in this trade war may be US downstream industries.

In addition to two Section 232 cases, Suniva has filed a Section 201 case against imports of solar cells from every country.  The main targets appear to be third world countries where Chinese companies have moved their production facilities and Canada and Mexico.  The ironic point of this filing is that Solar World, the company that brought the original Solar Cells and Solar products cases against China, has now become insolvent and just today announced that it is supporting the petition.  Companies that were buying solar cells from Solar World all of a sudden cannot get the solar cells they paid for because of the insolvency.

Maybe this is why Trade Adjustment Assistance to Companies is so important.  With TAA, Solar World might have been saved with no damage to the US Polysilicon industry.  But despite the fact that section 201 requires US companies to submit adjustment plans and the Trade Adjustment Assistance Centers are the real trade adjustment experts, President Trump has zeroed out the Trade Adjustment Centers in his budget.  Apparently all President Trump wants to do is to put up protectionist walls to protect US companies and industries, rather than make them more competitive.  Very short sighted.

On the Trade Policy side, with protectionist walls appear to be going up.  Lighthizer was just confirmed as USTR and immediately plunged into NAFTA negotiations.  USTR Lighthizer has pledged to protect agriculture in the negotiations.

The only good news is that when Trump released his Tax Plan, border adjustment taxes were not part of the proposal.  But in a recent hearing before the House Ways and Means, one could tell Congressmen are split, but Republicans want border adjustment taxes.  On May 23rd, however, Treasury Secretary Mnuchin told House Democrats on Ways and Means that he and President Trump are opposed to the Border Adjustment tax.

One interesting note is that Trump’s proposal to cut corporate taxes to 15% has China scared.  Chinese companies could move to the US to set up production

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRUMP’S TRADE WAR

With the number of trade cases being filed, including the Section 232 cases against Steel and Aluminum, which give President Trump carte blanche authority to issue tariffs and other import restrictions, the President truly is creating a trade war.  Trump’s threat to kill NAFTA scared Canada and Mexico to come to the table.  One of the reasons for Trump’s threat is the Canadian threat not to drop its barriers to US dairy exports.

One Canadian Parliament member threatened President Trump not to get so tough on trade.  The member should understand that such threats play right into the hands of Donald Trump and his argument that NAFTA is not truly a free trade agreement.

But all these threats and trade cases will make it very difficult to conclude trade agreements. In looking at Commerce Secretary Wilbur Ross’s plan to get to 3% GDP increase, one pillar of the plan is increased exports.  Exports, however, will not increase if there is a trade war, and it sure looks like that is going to happen.

From January 1, 2017 through March 31, 2017, the GDP was an anemic 0.7%.  Trump has to change that dramatically and deciding to have a trade war with every country is not the way to change the GDP number.

In fact, all these trade cases could be the Achilles heal of Trump’s Economic policy.  Trump’s carrots to encourage domestic industry, including lowering taxes and cutting regulations, are not the issue.  Protectionist walls to try and protect raw material industries, however, will have an opposite effect because of the collateral damage these orders will have on US downstream producers, which use these raw material inputs.  As Ronald Reagan stated, “Protectionism becomes destructionism; it costs jobs.”  But protectionism is not a partisan issue, as the only one more protectionist than President Trump may be the Democratic party.

TRUMP’S TRADE WAR ON DOWNSTREAM INDUSTRIES—COLD DRAWN MECHANICAL TUBING

To understand the real impact of the Trump Steel War on downstream industries, including the US auto parts and automobile industries, read the quotes below.  The Automobile Industry is going to be hit hard.

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. (collectively, “Petitioners”) filed an antidumping (“AD”) and countervailing duty (“CVD”) petition against imports of cold-drawn mechanical tubing from China, Germany, India, Italy, Korea and Switzerland.

Cold-drawn mechanical tubing can be sold as a commodity product to be used in the oil & gas, mining, agricultural and construction industries.  Certain types of mechanical tubing are also sold as commodity products to the auto industry to produce axles and drive shafts, but there is another segment of the auto parts industry, which produces specialized automotive products.  Because of US safety requirements, the specialized auto products companies need made to order mechanical tubing.  They cannot simply buy mechanical tubing off the shelf.  Petitioners, however, want the auto parts companies to buy their commodity products.

In order to win the antidumping and the countervailing duty case, Petitioners must establish dumping and subsidization at the Commerce Department and injury to the U.S. industry at the US International Trade Commission (“ITC”).  Once the petition was filed, the ITC immediately started up its 45 day preliminary injury investigation.   On May 10, 2017, the ITC held a hearing in Washington DC in the preliminary investigation and then we submitted a post-conference brief.

We represent in the case importers and two US auto parts companies. The importers, including these specialized auto parts companies, are very worried because the Commerce Department preliminary determinations, which will be issued very soon on September 16, 2017 (“CVD)” and November 15, 2017 (“AD”),  are when their liability begins.  With the Trump Administration and the Commerce Department’s war on steel imports, the duties are expected to be very high.  This is especially true with regard to China since Commerce does not use actual Chinese prices and costs to determine dumping.  Like many downstream customers in US AD and CVD cases, the customers are telling the ITC that they may have to close production and move offshore to get access to the higher quality competitive raw steel products.  Our hope is that the ITC will listen to these arguments, but to date the ITC has ignored them.  End users do not have standing in AD and CVD cases at the ITC.

As stated in our ITC postconference brief:

“The Petitioners/US mechanical tubing industry in this case will recover as their commodity markets in the energy, agricultural, mining and machinery markets recover.  But since antidumping and countervailing duty orders stay in place for 5 to 30 years, the impact of this case on the US downstream auto part and automobile industries will last for many years.

If the Commission goes affirmative in this case, we will see many auto parts producers close shop and move to another country where they can buy the high quality mechanical tubing that they need to compete with the loss of thousands of US jobs.  Many of these companies, including voestalpline Rotec Inc., already have operations in Canada, Mexico and through their parent company in numerous other countries and they will move their operations to obtain the high quality raw materials that they need to safely compete in the downstream auto parts market.”

As Andrew Ball, President, of voestalpine Rotec in Lafayette, Indiana stated at the Preliminary Conference:

“Our customers will not allow a change in the supply base, and this material is absolutely not available from these U.S. producers, thus making the decision to move equipment to other countries or procuring the completed components from our other global facilities in Austria, the United Kingdom, France, Spain and Poland a likely outcome.

With so much discussion surrounding trade imbalance, it is ironic that because of this case, we as a U.S. manufacturer will be forced to relocate millions of dollars of manufacturing equipment with significant loss of U.S. jobs for specialty high value, highly engineered components because several commodity U.S. producers are determined to ignore market realities.

I can say with a high degree of certainty that none of the petitioners will see one extra pound, not one single foot of material as a result of this action.  I am certain, however, that companies like ours and our customers will accelerate the relocation of domestic manufacturing to other countries, and all this business will flow in NAFTA region as semi-finished components, thus avoiding the dumping duty altogether. . . .

I simply cannot ignore the reality that the automotive industry waits for no one and for nothing.  To highlight this point, in 2013 our facility took a direct hit from an F-3 tornado, obliterating 30 percent of our manufacturing capacity.  Within 48 hours, we had the rest of the facility fully operational and with the help of our international partners and domestic competition, we had the balance of our business sourced and supplying parts to assembly facilities throughout the world within four days. Not one single production line was affected as a result. . . .

That was a natural disaster.  This one is man-made, and I can assure you that in 45 days if this case is not dismissed, these actions will accelerate the market forces already working against our U.S. manufacturing base and will either force our hand or the hand of our customers to move business overseas in many places closer to the customer locations in Mexico, to ensure the continuity of cost, quality and service, resulting in the loss of precious U.S. manufacturing jobs, future investment and all but killing the chances of fixing the trade imbalance.”

As Andrew Ball further stated in the ITC Postconference brief:

“This petition puts at risk our factory, our jobs and the factories and jobs of our US customers and subcontractors. Increases to prices that are already considered high in the global market will result in our customers resourcing our business to other suppliers or will force them to insist that we move equipment to other locations in the world to avoid this unjustified action. I was always raised that before I ask for help it was expected that I had done everything I could to help myself. Why then have none of the petitioners made sales calls to my organization looking to reform or start a partnership ahead of this action? Unfortunately, if you vote affirmative, resource decisions will be taken well ahead of the final DOC determination for risk mitigation purposes. I trust that you will analyze all details in this case and make your determination based on clear “facts and data.”

Another auto parts company stated in the brief:

We have fixed contracts with our vendors and customers, so any increase in piece price will be countered by evaluating the region that we manufacture products in or may require that we look at bringing in the  components from other countries. If your vote is affirmative then we will be making these decisions ahead of  the determination by the DOC in September as the risk is too high to wait.

If these auto parts component companies do not move, their customers, the auto parts producers, which are multi-nationals, will move because auto parts companies cannot buy commodity products when safety issues are a concern.  Product Liability cases can bankrupt an auto parts producer.

In her statement at the Preliminary Conference, Julie Ellis, President of Tube Fabrication of Logansport, Indiana echoed Andrew Ball’s statement:

The impact of this case on downstream manufacturing operations will result in the loss of thousands of jobs, maybe even more jobs than those saved by the case.  If we are unable to provide our customers with tube components at a competitive global price, they will be forced to move production from the United States to other countries.

Most of our customers already have global operations in place and have the ability to divert the production away from the U.S. locations to remain competitive.  The loss of business would not only impact businesses like TFI, but coating facilities, plating operations, heat treating, tool and die shops, machine shops, testing facilities, transportation companies, along with our customers’ U.S. facilities, and further downstream manufacturing.

In other words, in response to this petition, we fear that U.S. automotive companies will simply shift and procure the final parts with the tubes in them from multiple overseas operations.  From our point of view, this case will not result in any more tubes being switched to U.S. producers.  Instead, it will simply be a lose-lose situation.

TFI is representative of many U.S. producers at a comparable level of U.S. production.  The inability of Tube Fabrication and other companies in similar situations to remain competitive will result in a tremendous loss of jobs in the U.S. downstream manufacturing sector.  We will be forced to either move portions of our operations to Mexico, where we currently ship 20 percent of the components that we manufacture in the United States and/or cut USW jobs and benefits.

In her statement attached to the Brief, Julie Ellis states:

This is a rural community with limited manufacturing operations. We are an asset to the local economy, pay our taxes and provide community support. Thru the years we have watched as many of the local manufacturing companies have closed up operations and moved to Mexico and overseas. The inability of Tube Fabrication and other companies in similar situations, to remain competitive, could result in a tremendous loss of jobs in the downstream US manufacturing sector. It could potentially equate to thousands of people being displaced. We must have the ability to procure our raw materials at a competitive global price or we will lose business! As I said in my statement at the hearing, 20% of the components that we manufacture ship to Mexico. Please don’t force us to be the next ones to go!

Petitioners argue that respondents are simply exaggerating the problem and that the issue is simply dumped low import prices.  But in this case, the issue is not just price; it is quality.  As one importer, Salem Steel, stated at the Preliminary Conference, the same scenario played out as a result of the Section 201 Steel case, where many steel products were shut out of the US market:

“This scenario has happened before. One widely quoted study by Dr. Joseph Francois and Laura Baughman of Trade Partnership Worldwide, LLC showed that as a result of Section 201 investigation brought at the behest of the U.S. steel industry, 200,000 Americans lost their jobs to higher steel prices in 2002.

More Americans lost their jobs to higher steel prices in 2002 than the total number employed by the entire steel industry itself in the U.S.  Every U.S. state experienced employment losses from higher steel costs, with the highest losses occurring in California, Texas, Ohio, Michigan, Illinois, Pennsylvania, New York and Florida.”

In the attached Trade Partnership article, STEEL USERS ARTICLE1, Dr. Joseph Francois and Laura Baughman state at page 1 and 2 of their article that as a result of the Section 201 trade restrictions on steel:

“200,000 Americans lost their jobs to higher steel prices during 2002. These lost jobs represent approximately $4 billion in lost wages from February to November 2002.

One out of four (50,000) of these job losses occurred in the metal manufacturing, machinery and equipment and transportation equipment and parts sectors.

Job losses escalated steadily over 2002, peaking in November (at 202,000 jobs), and slightly declining to 197,000 jobs in December.

More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).

Every U.S. state experienced employment losses from higher steel costs, with the highest losses occurring in California (19,392 jobs lost), Texas (15,826 jobs lost), Ohio (10,553 jobs lost), Michigan (9,829 jobs lost), Illinois (9,621 jobs lost), Pennsylvania (8,400 jobs lost), New York (8,901 jobs lost) and Florida (8,370 jobs lost). Sixteen states lost at least 4,500 steel consuming jobs each over the course of 2002 from higher steel prices. . . .

Steel tariffs caused shortages of imported product and put U.S. manufacturers of steel-containing products at a disadvantage relative to their foreign competitors. In the absence of the tariffs, the damage to steel consuming employment would have been significantly less than it was in 2002.

The analysis shows that American steel consumers have borne heavy costs from higher steel prices caused by shortages, tariffs and trade remedy duties, among other factors. Some customers of steel consumers have moved sourcing offshore as U.S. producers of steel-containing products became less reliable and more expensive. Other customers refused to accept higher prices from their suppliers and forced them to absorb the higher steel costs, which put many in a precarious (or worse) financial condition. The impact on steel-consuming industries has been significant.”

But the remedy in the Section 201 case lasts from three to five years and in the Section 201 Steel case, President Bush lifted the restraints on Steel imports sooner because of the very damaging impact on downstream users.  Antidumping and Countervailing Duty orders stay in place for five to thirty years.

The experience of downstream users in the Mechanical Tubing case reflects the experience of many downstream users in steel cases, such as the recent AD and CVD cases against Carbon Steel Wire Rod.  There are real costs that will be borne by US downstream companies and their employees because of this Mechanical Tubing trade case and any AD and CVD orders that are issued.  The Commission should have learned the same lesson from its AD order on Magnesium from China, which has been in place for more than ten years.  This AD Order protects a one company US industry in Utah, but it has led to the demise of the entire US Magnesium dye casting industry and the movement of many light weight auto parts companies to Canada.  But since downstream industries have no standing in an AD and CVD cases and there is no part of the injury provision to take this collateral damage into account, although downstream industries can testify at the ITC, in fact, they have no voice.

As Andrew Ball of voestalpine Rotec stated at the Preliminary Conference, ”I simply cannot ignore the reality that the automotive industry waits for no one and for nothing.”  With Antidumping and Countervailing Duty Orders staying in place for 5 to 30 years, if the Commission does not look at market realities, many, many US auto parts companies will close down and move to a third countries.  The real result of this Mechanical Tubing case brought by the Petitioners could well be to hollow out the US auto parts industry and lead to the destruction of the Petitioners’ US customers.

This is the real cost of the Trump trade war—thousands of jobs lost in downstream industries.

SECTION 232 INVESTIGATIONS  — STEEL AND ALUMINUM

In response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress.  According to the Statute, on Petroleum and Petroleum products, the Congress can disapprove the decision, but there is no reference to Steel or Aluminum so it is questionable whether Congress can overrule the President in these cases.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases, the only check is the injury determination by the independent US International Trade Commission.  There is no such determination under Section 232.

Moreover, in these Section 232 Steel and Aluminum cases, it is questionable how much weight Commerce will give to comments or testimony by downstream raw material users.  This is dangerous because tariffs on steel products may cause real harm to the downstream automobile industry, which is important for National Security too.

STEEL

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, COMMERCE FED REG SECTION 232 NOTICE, 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.  Witnesses were given five minutes each to make their concerns known.  Written comments are due at the Commerce Department on May 31st.

At the hearing, Secretary Ross stated that a written report would go to the President by the end of June.

At the end of the hearing, several downstream users asked Commerce to exclude certain steel products from any remedy in the Section 232 case.  Counsel for the Steel Importers warned Commerce about retaliation against US exports of military products, including airplanes and agriculture products.

At the start of the hearing, Commerce Secretary Wilbur Ross said something has to be done to help the Steel producers.  In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry:

“It’s a fairly porous system and while it has accomplished some fair measure of reduction, it doesn’t solve the whole problem.  So we are groping here to see whether the facts warrant a more comprehensive solution that would deal with a very wide range of steel products and a very wide range of countries.”

At the Trump Press Conference, Ross stated:

I am proud to stand here today and say that, under your leadership, we are restoring the primacy of American national security, American workers, and American businesses.

For years, we have simply reacted to over 150 cases of improper imports of foreign steel into this country. With our investigation launched last night, the federal government will finally become proactive.

This investigation will help ensure steel import issues do not make us less safe in a world that is increasingly fraught with geopolitical tensions.

The sheer volume of steel trade cases makes it clear that global steel overcapacity has an impact on our economy, but for the first time we will examine its impact on our national security.

We will conduct this investigation thoroughly and expeditiously so that we can fully enforce our trade laws and defend this country against those who would do us harm.

I look forward to the completion of this investigation so that I can report not just the findings, but also any concrete solutions that we may deem appropriate.

Under section 232 the Commerce Department will determine whether steel imports “threaten to impair” national security.  Commerce must issue its findings to the White House within 270 days, along with recommendations on what steps to take.

But Ross said that the investigation may move along a quicker track, citing the abundance of steel data the U.S. already has on hand from its past investigations as well as a memorandum from President Donald Trump that calls for the agency to expedite the process.  In fact, at the hearing, Secretary Ross stated that a report to the President will be issued by the end of June.

Once Commerce’s review is completed, the president has 90 days to decide whether to accept or reject its recommendations. The statute gives the administration wide latitude to act, including raising tariffs

Secretary Ross further stated in the past:

“We will conduct this investigation thoroughly and expeditiously so that, if necessary, we can take actions to defend American national security, workers, and businesses against foreign threats.  This investigation will help determine whether steel import issues are making us less safe in a world that is increasingly fraught with geopolitical tensions.”

While the use of Section 232 is rare, the actual deployment of tariffs under the 1962 law is even rarer. Commerce last conducted a Section 232 probe of iron and steel in 2001, but ultimately decided that the goods posed no national security threat, and no further action was taken.

The last time an administration forged ahead with import relief under the law was 1975, when President Gerald Ford hiked license fees and other charges on shipments of imported petroleum during the throes of the mid-70s oil crisis. President Richard Nixon also used Section 232 to impose an across-the-board 10 percent surcharge program in 1971.

But with the new protectionist outlook of the Trump Administration, the huge steel overcapacity in China, and the fact that there are no checks under section 232, this action could definitely result in tariffs, quotas and other trade remedies.

ALUMINUM

On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries.  Attached are documents related to the Case, ALUMINUM FED REG PUBAluminum Presidential Memo Summary.  The hearing will be June 22, 2017 at the Commerce Department.  The Presidential Memorandum issued on April 27th provides:

This Presidential Memorandum (PM) directs the Secretary of Commerce to investigate, in accordance with the Trade Expansion Act of 1962, the effects on national security of aluminum imports.

During this investigation, the Secretary will consider the following:

The domestic production of aluminum needed for projected national defense requirements.

The capacity of domestic industries to meet such requirements.

The existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense.

Recognize the close relation of the Nation’s economic welfare to our national security, and consider the effect of foreign competition in the aluminum industry on the economic welfare of domestic industries.

Consider any substantial unemployment, decrease in government revenues, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive aluminum imports.

The Secretary shall conduct this investigation with speed and efficiency in order to find if aluminum is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.

If the above is deemed true, the Secretary shall recommend actions and steps that should be taken to adjust aluminum imports so that they will not threaten to impair the national security.

Although Secretary Ross wants to expedite the case, there are rumors that many investigators and other staff in Import Administration have now been moved to work on the Section 232 cases.  With an enormous number of antidumping and countervailing duty cases along with two large Section 232 cases, Commerce staff will be stretched very thin.

SOLAR AD AND CVD CASES DID NOT WORK SO LET’S TRY A SECTION 201 ESCAPE CLAUSE CASE

Just recently, Solar World, the company that brought the Solar Cells and Solar Products antidumping and countervailing duty cases against China, announced that it was going into insolvency.  The bottom line is that the antidumping and countervailing duty orders against solar cells and solar products from China did not save Solar World, but they did result in substantial damage to the upstream US Polysilicon industry.  Because of the US action, China brought its own antidumping and countervailing duty case against $2 billion in US Polysilicon exported to China.  REC Silicon in Moses Lake, Washington got hit with a 57% antidumping duty, deferred a $1 billion investment into Moses Lake, and in November 2016 laid off 70 workers in Moses Lake and cut their capacity in half.

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

By the way, in its determination to the President the ITC is to report any assistance given companies under the Trade Adjustment Assistance for Companies program, the only government program that truly saves US companies.  President Trump, however, in his recent budget proposal completely zeroed out the TAA for Companies program.  More about this below.  Directly contrary to President Reagan, President Trump does not want to make US companies more competitive so that they can compete; he wants to put up protectionist walls.

The main targets of the Petition are not imports from China, but imports from third countries.  In response to the antidumping and countervailing duty orders, many Chinese companies moved to third countries and set up production there.

SCOPE OF THE 201 INVESTIGATION

The articles covered by this investigation are CSPV cells, whether or not partially or fully assembled into other products, including, but not limited to, modules, laminates, panels, and building-integrated materials.

The investigation covers crystalline silicon photovoltaic cells of a thickness equal to or greater than 20 micrometers, having a p/n junction (or variant thereof) formed by any means, whether or not the cell has undergone other processing, including, but not limited to cleaning, etching, coating, and/or addition of materials (including, but not limited to, metallization and conductor patterns) to collect and forward the electricity that is generated by the cell.

Included in the scope of the investigation are photovoltaic cells that contain crystalline silicon in addition to other photovoltaic materials. This includes, but is not limited to, passivated emitter rear contact (“PERC”) cells, heterojunction with intrinsic thin-layer (“HIIT”) cells, and other so-called “hybrid” cells.

Excluded from the investigation are CSPV cells, whether or not partially or fully assembled into other products, if the CSPV cells were manufactured in the United States.

Also excluded from the scope of the investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.

SECTION 201 PROCEDURES IN SOLAR CELL CASE

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC are due in about three weeks from now or 21 days after publication of the notice in the Federal Register.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

REASONS FOR SECTION 201 PETITION

According to Suniva in its petition, the problem is not China.  Suniva argues that the antidumping and countervailing duty orders in the Solar Cells and Solar Products case were simply evaded:

“as the impacted producers have simply opened significant capacity in third countries not subject to those AD/CVD orders. One of the underlying principles of those prior Title VII cases was that implementing duties against the subject goods originating from the offending countries would­ create a cost basis that generates greater domestic price equity. Unfortunately, that outcome has not occurred. Rather than invest in U.S. manufacturing or charge fair market prices, Chinese and Taiwanese manufacturers, either directly through the establishment of their own facilities, or indirectly through the support of contract manufacturing operations in Southeast Asia, India, and Eastern Europe, created alternative capacity that was not subject to U.S. tariffs.  In fact, the data in this petition shows a direct correlation between:

  • The institution of tariffs against subject goods made in China or Taiwan;
  • The reduction of imports into the United States from those countries; and

The increase in imports from Vietnam, Thailand, Malaysia, and other third countries.”

The Petition also states:

“What is striking is that even with these relatively high duties against two of the world’ s largest CSPV cell and module countries, imports continue to flood into the United States. Also striking is the quantity of Chinese and Taiwanese product that continues to enter the United States -, despite these dumping and subsidy duties. What these AD/CVD cases have also done is push production into new countries – meaning that they have led to increased global production and capacity. Consider:

  • In a March 21, 2017, article in the Financial Post, it was reported about Canadian Solar that :”The company said it has also increased production from its manufacturing facilities in Southeast Asia and Taiwan to serve the U.S. market and avoid import “
  • In a January 10, 2017, article in Taiyang News, the following is stated about Chinese producer Solar Trina: “Trina Solar has begun production of solar panels at its newly opened Vietnam factory. The facility with capacity of 800 MW annually is located in Quang Chau Industrial Park in Viet Yen district, northern Ban Giang province, reported The Voice of Vietnam.” The article continues: “After Malaysia, Vietnam is now coming up as one of the most sought after locations for Chinese solar power companies to set up their manufacturing units. Some of the biggest names, including Trina Solar, Jinko Solar and the like have voluntarily withdrawn from the European Commission’s minimum import price (MIP) undertaking which slaps anti-dumping and anti-subsidy duties ori solar panels produced in China. Most of them are keen to operate from locations beyond China to be able to circumvent these duties and even more the customs in the much larger US solar market.”
  • In a March 29, 2016, article in PY Magazine, it is reported that “Trina Solar reports that it has begun production at its PY cell and module factory in Rayong Thailand, which has the capacity to produce 700 MW of cells and 500 MW of PY modules annually.” It continues “Southeast Asia has become a major destination for Chinese and Taiwanese PY cell and module makers seeking to avoid U.S. and EU import duties on their “
  • In an October 26, 2015, press release, it is announced that Chinese producer JA Solar Holdings, , Ltd. opened a 400MW cell manufacturing facility in Penang, Malaysia. As stated in the release: “These cells will primarily be used to manufacture JS Solar Modules outside of China to provide competitive product solutions to certain overseas markets.”
  • In an October 6, 2016, PV Magazine article, it was noted that JA Solar further expanded its Malaysian operations. The article further notes: “The expansion comes in the face of falling module prices around the world, as an oversupply seems to be taking hold of the “
  • In a July 24, 2016, CLEANTECHIES article, it is reported that JA Solar is planning a $1 billion dollar module factory in Vietnam. As noted in the article: “The company already operates 8 factories across the {sic} Europe, the US and Japan. JA Solar, like several other·module manufacturers, facing import restrictions and duties in developed markets like the US and Chinese {sic}. Several Chinese and Taiwanese companies have opened factories in overseas locations-to bypass these restrictions.”
  • A January 25, 2016, China Daily article discusses Chinese panel producers moving operations to Thailand because “solar panels made in the kingdom do not invite heavy duties in the US and Europe.”.

In short, an unforeseen development of the antidumping and countervailing duty cases . . . has been the proliferation of CSPV cell and module manufacturing across the globe. This further supports the use of this global safeguard action. Without global relief, the domestic industry will be playing “whack-a-mole” against CSPV cells and modules from particular countries.

In short, imports have clearly “increased” within the meaning of the statute. Indeed, the increase has been massive; and the recent surge has been highly debilitating to the market structure. The way that the world’s largest producers have reacted to antidumping and countervailing duty claims demonstrates that global relief is required.”

The petition also shows enormous increases of solar cells from Mexico and Canada and with regards to Canada states as follows:

“Transshipment of Chinese-origin CSPV cells through Canada would explain the rapid growth in imports of CSPV cells and modules from Canada in recent years.”

The Petition also states:

“Further, the U.S. industry could not have foreseen that foreign producers, in response to [the antidumping and countervailing duty cases against China would move so rapidly and drastically to open new production facilities in third-countries resulting in no relief for the U.S. industry from the application of the orders in the antidumping and countervailing duty cases. As shown by the import data presented in Exhibit 7, the surge in imports from third-countries after the imposition of the AD and CVD orders is completely unprecedented and unforeseeable.  For example, between 2014 and 2016, imports from Malaysia surged 67 percent/while overtaking China as the largest source of imports. In addition, imports from Korea surged by 827 percent while increasing to become the third largest source of imports.  Imports from Mexico, now the fourth largest source of imports, surged 77 percent. Imports from Thailand, now the fifth largest source of imports, surged over 76,000 percent. Such a rapid and significant increase in imports from third-countries is an unprecedented and completely unforeseen development.”

Between the time the Petition was filed and the ITC institution of the case, Wuxi Suntech announced it opposition to the petition because the law firm that had represented Wuxi Suntech in the antidumping and countervailing duty case against China brought the Section 201 case on behalf of Suniva.  In addition, Sunrun, an importer and user of solar cells, entered a notice of appearance to point out that Solarworld does not support the petition and that Suniva represents less than 20% of US production, but the ITC went forward anyways.  Just today, however, Solar World announced that it is supporting Suniva’s Section 201 Petition.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

TOOL CHESTS FROM CHINA AND VIETNAM

On April 11, 2017, Waterloo Industries Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of imports of certain tool chests and cabinets from China and Vietnam.

US importers’ liability for countervailing duties on imports from China will start on September 8, 2017, 150 days after the petition was filed, and for Antidumping Duties from China and Vietnam will start on November 7, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If anyone wants a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, please feel free to contact me.

COLD-DRAWN MECHANICAL TUBING FROM CHINA, GERMANY, INDIA, ITALY, KOREA AND SWITZERLAND

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

The cold-drawn mechanical tubing covered by the complaint is used to produce numerous different products in the United States, including auto parts and machinery.

As stated above, these trade cases move very quickly and many importers are blindsided because of the speed of the investigations.  In the Mechanical Tubing case, the ITC conducted its preliminary injury hearing on May 10, 2017 and briefs were filed soon after.  US importers’ liability for countervailing duties on imports from China and India will start on September 16, 2017, 150 days after the petition was filed, and for Antidumping Duties will start on November 15, 2017, 210 days after the petition was filed.

Commerce has already issued quantity and value questionnaires to the Chinese producers in the AD and CVD cases with responses for both cases due June 5th.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If anyone wants a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, please feel free to contact me.  Atttached are the relevant parts of the petition, INJURY EXCERPT SCOPE IMPORTERS EXERPT MECHANICAL TUBING FOREIGN PRODUCERS EXCERPT MECHANICAL TUBING.

100 TO 150 SEAT CIVIL AIRCRAFT

On April 27, 2017, in the attached notice, AIRCRAFT, the Boeing Company filed an antidumping and countervailing duty case against 100 to 150 Seat Civil Aircraft from Canada.  The Canadian respondent company is Bombardier.  With all extensions, the Commerce Department’s Preliminary determination in the CVD case, which is when liability begins, is due September 24, 2017 and the Commerce Department’s preliminary AD determination, when liability begins, is due November 23, 2017.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

LIGHTHIZER CONFIRMED—NAFTA FIGHT

On May 11, 2017, Robert Lighthizer was confirmed by the Senate as the next USTR.  On May 15th he was sworn into office by Vice President Pence.

With Senators and Congressmen, especially from agricultural states, calling for new trade agreements, USTR will have a lot of work to do.

NAFTA FIGHT

On May 18, 2017, in the attached letter, nafta NOTIFICATION, USTR Lighthizer informed Congress of the President’s intention to renegotiate NAFTA.  In the letter, Lighthizer specifically stated:

In particular, we note that NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, NAFTA has not.  Many chapters are outdated and do not reflect modern standards. For example, digital trade was in its infancy when NAFTA was enacted. In addition, and consistent with the negotiating objectives in the Trade Priorities and Accountability Act, our aim is that NAFTA be modernized to include new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises. Moreover, establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of those agreements and should be improved in the context of NAFTA. . . .

We are committed to concluding these negotiations with timely and substantive results for U.S. consumers, businesses, farmers, ranchers, and workers, consistent with U.S. priorities and the negotiating objectives established by the Congress in statute. We look forward to continuing to work with the Congress as negotiations with the NAFTA countries begin, and we commit to working with you closely and transparently throughout the process.

On May 18, 2017, John Brinkley published an article in response to the Lighthizer letter:

White House’s NAFTA Renegotiation Letter To Congress Is Surprisingly Rational

U.S. Trade Representative Robert Lighthizer seems to be trying to inject some rationality into President Trump’s trade policies. With the White House in turmoil over the Russia investigation and FBI Director James Comey’s firing, he might just get by with it.

Lighthizer on Thursday formally notified Congress of the administration’s intention to renegotiate the North American Free Trade Agreement with Canada and Mexico. The notification started the clock ticking on the 90-day period that has to elapse before the renegotiations can start.

In a letter to congressional leaders, Lighthizer made some surprisingly sensible remarks about what needed to be done – surprising because it included none of the bluster and hostility that President Trump has directed at America’s NAFTA partners, Canada and Mexico.

The letter said NAFTA needed to be improved in the areas of intellectual property rights, digital trade, state-owned enterprises, customs procedures, food safety, workers’ rights and environmental protection.

All that is true. NAFTA doesn’t address digital trade, because it didn’t exist in 1993 when the deal was signed, but it now dominates every aspect of international commerce in goods and services.

Workers’ rights and environmental protection are addressed in side agreements that aren’t enforceable. Making those standards tougher fully enforceable would lessen the incentive for US companies to move to Mexico.

The letter also said trade rule enforcement “should be improved in the context of NAFTA.” It’s hard to imagine how that might happen.  NAFTA allows a private company from one of the three countries that has operations in one of the others to file a complaint with the NAFTA secretariat against the host country if the company believes its rights have been violated. This Investor-State Dispute Settlement (ISDS) chapter allows for a hearing before a three-judge arbitration panel. Since 1994, the United States has prevailed in every NAFTA ISDS complaint that it has filed or has been filed against it and that has proceeded to a final ruling. It’s going to be hard to improve on that.

When two governments go head-to-head in a trade dispute, they usually take it to the World Trade Organization. The trend there is that the complaining government almost always wins.  The U.S. has won 91% of the cases it has filed in the WTO and lost 84% of those filed against it. Its overall batting average is just over .500. There is nothing that can be done in NAFTA to affect that.

Maybe the best thing the administration could do for American businesses when it convenes the renegotiation with Mexico and Canada is to focus on ways to make it easier for small companies to qualify for duty-free treatment under NAFTA. Lighthizer’s letter seemed to suggest the administration was interested in doing that. It’s easy for big corporations to comply with the myriad rules and regulations that cover imports, exports and free trade agreements; they can hire armies of lawyers and trade specialists to manage compliance with them. Most small firms can’t do that and many find that compliance isn’t worth the time and money. So, they don’t export. Or they export without applying for duty-free treatment under NAFTA. They just pay the tariff. A 2015 Thomson Reuters Global Trade Management survey of small business owners found that complying with rules of origin and other regulations was the principal difficulty that they faced in exporting their products.

To qualify for duty-free treatment under NAFTA, an exporter most certify that a certain percentage of a product’s value originated in the U.S., Mexico or Canada. There are two problems with this. One is that small manufacturers don’t always know where all their parts and components came from and it can be difficult to track them all down. They have to call their suppliers, who may have to call another supplier. The other problem is that the U.S. government allows exporters to use one of two processes for determining regional content and, for most people, neither of them is easy to navigate. . . .

Making this process easier would increase imports and reduce the trade deficit, although not by  much.

If the U.S. negotiators can focus their efforts on these constructive and necessary improvements to NAFTA, rather than on the threats and ultimatums that Trump and his nationalist faction in the White House have made, they might end up with an agreement that all three countries will be happy to sign.

On May 25th, the US Pork Producers issued the attached white paper, NAFTAReport05-24-17, arguing that if NAFTA negotiations lead to the disruption of agricultural exports generally – and pork exports specifically – to Canada and Mexico, that would “have devastating consequences for our farmers and the many American processing and transportation industries and workers supported by these exports.”

The White paper cites an Iowa State economist who states that if Mexico were to respond to a US withdrawal from NAFTA with a 20% duty on pork, the US port industry would lose the entire Mexican market.

Nick Giordano for the National Pork producers went on to state:

“A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry. Pork producers will support updating and improving NAFTA but only if duties on U.S. pork remain at zero and pork exports are not disrupted.”

On May 24th, USTR Lighthizer pledged that boosting agricultural exports remains a top priority for the Trump administration. He added that he and Agriculture Secretary Sonny Perdue are under specific marching orders to protect current market access for U.S. farm products in the revised NAFTA.  Lighthizer specifically stated:

“The president has specifically told each of us that this is a very, very top priority.  One, not to do any damage and two, to add to the bottom line. So we expect to do that.”

BORDER ADJUSTMENT TAXES

The only good news about Border Adjustment taxes is the President Trump did not include Border Adjustment Taxes in his tax proposal to Congress.  Despite the decision not to put border adjustment taxes (“BAT”) in the Administration’s tax proposal, the House Republicans and Ways and Means Committee continue to push it.  See May 23rd Ways and Means hearing on Border Adjustment Taxes, at https://waysandmeans.house.gov/live/.

Archer Daniel Midland argued for the BAT, citing problems with Agriculture exports, but the retailers, including Target and WalMart, came out strongly against it.  One witness stated that US products are taxed twice, but imports are only taxed once and get a rebate when the product is exported to the US.

But it was also clear from the hearing that Congressmen are split on the Border Adjustment tax.

On May 23, 2017 Treasury Secretary Steven Mnuchin, however, in a closed-door meeting with Democrats on the Ways and Means stated that both he and President Trump are opposed to the Border Adjustment Tax.   One California Democrat, Judy Chu, on the Ways and Means Committee, directly asked Mnuchin if he supported  the  BAT.  As she stated Mnuchin’s concern was the impact on consumers:

“He actually said straight out that he doesn’t support it and the president doesn’t support it.  Unless he was lying to us yesterday, I really felt it was dead on arrival.”

On May 24th, Paul Ryan stated that the BAT needs to be changed and immediately imposing it in its full form would be “too disruptive”.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies.  In fact, in the ongoing Section 201 case on Solar Cells, the statute requires the industry seeking protection to provide a trade adjustment plan to the Commission to explain how the industry intends to adjust if trade relief is provided.  The problem is that the Commission is not the entity with experience on determining whether the Trade Adjustment plans are viable.  The entities with that experience in trade adjustment plans are the various trade adjustment centers throughout the US.

Donald Trump’s proposed budget, however, would 0/zero out the trade adjustment assistance for companies program.  Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  In his budget, Trump increases TAA for Workers, but kills TAA for Companies.  Yet to retrain the worker for a new job, the average cost per job in TAA for workers is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about developments in Chinese trade law.  Team’s newsletter-EN Vol.2017.16 Team’s newsletter-EN Vol.2017.17 Team’s newsletter-EN Vol.2017.18 Team’s newsletter-EN Vol.2017.19 Team’s newsletter-EN Vol.2017.20

SECTION 337 AND IP CASES

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

On April 10, 2017, in the attached ITC notice, SOCKETS MARINE ,PopSockets LLC filed a section 337 patent case against imports of Collapsible Sockets for Mobile Electronic Devices from the following Chinese companies:

Agomax Group Ltd., Hong Kong; Guangzhou Xi Xun Electronics Co., Ltd., China; Shenzhen Chuanghui Industry Co., Ltd., China; Shenzhen VVI Electronic Limited, China; Shenzhen Yright Technology Co., Ltd., China; Hangzhou Hangkai Technology Co., Ltd., China; Shenzhen Kinsen Technology Co., Limited, China; Shenzhen Enruize Technology Co., Ltd., China; Shenzhen Showerstar Industrial Co., Ltd., China; Shenzhen Lamye Technology Co., Ltd., China; Jiangmen Besnovo Electronics Co., Ltd., China; Shenzhen Belking Electronic Co., Ltd., China; Yiwu Wentou Import & Export Co., Ltd., China; and Shenzhen CEX Electronic Co., Limited, China.

ROBOTIC VACUUM CLEANING DEVICES

On April 18, 2017, in the attached ITC notice, ROBOTIC VACUM CLEANERS, iRobot Corporation filed a section 337 patent case against imports of Robotic Vacuum Cleaning Devices from the following US and Chinese companies:

Bissell Homecare, Inc., Grand Rapids, Michigan; Hoover Inc., Glenwillow, Ohio; Royal Appliance Manufacturing Co., Inc. d/b/a TTI Floor Care North America, Inc., Glenwillow, Ohio; Bobsweep, Inc., Canada; Bobsweep USA, Henderson, Nevada; The Black & Decker Corporation, Towson, Maryland; Black & Decker (U.S) Inc., Towson, Maryland; Shenzhen ZhiYi Technology Co., Ltd., d/b/a iLife, China; Matsutek Enterprises Co., Ltd., Taiwan; Suzhou Real Power Electric Appliance Co., Ltd., China; and Shenzhen Silver Star Intelligent Technology Co., Ltd., China.If you have any questions about these cases or about Trump and Trade, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

If you have any questions about these cases or about Trump’s Trade War on downstream industries, the Mechanical Tubing case, the Section 232 cases, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP TRADE AGENDA, INTERNAL TRADE BATTLES, LIGHTHIZER, BORDER ADJUSTMENT TAXES, AGRICULTURE, NAFTA, TRADE ADJUSTMENT ASSISTANCE, CFIUS, ZTE AND SECTION 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE APRIL 21, 2017—MANY NEW TRADE CASES BEING FILED

The Trump trade war has escalated big time with new antidumping and countervailing duty cases against Mechanical Tubing, Tool Chests and a new Section 232 National Security case against all Steel imports.  Many importers simply do not realize how fast these trade cases move and how fast they can find themselves liable for antidumping and countervailing duties and other trade sanctions. With a sympathetic Trump Administration and a very sympathetic Wilbur Ross as the new Secretary of Commerce, more cases are going to be filed against China and numerous other countries.

In addition to the new trade cases, two section 337 patent cases has been filed against China on sockets for mobile electronic devices and robotic vacuum cleaning devices.

COLD-DRAWN MECHANICAL TUBING FROM CHINA, GERMANY, INDIA, ITALY, KOREA AND SWITZERLAND

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

The cold-drawn mechanical tubing covered by the complaint is used to produce numerous different products in the United States, including auto parts and machinery.

As stated above, these trade cases move very quickly and many importers are blindsided because of the speed of the investigations.  In the Mechanical Tubing case, as indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, the ITC will conduct its preliminary injury hearing on May 10, 2017.  US importers’ liability for countervailing duties on imports from China and India will start on September 16, 2017, 150 days after the petition was filed, and for Antidumping Duties will start on November 15, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 10, 2017, which is the part of the proceeding where importers can have a real impact.

Atttached is a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Indian, Chinese, Korean, German, Swiss and Italian exporters/producers and US importers, please feel free to contact me.  INJURY EXCERPT SCOPE IMPORTERS EXERPT MECHANICAL TUBING FOREIGN PRODUCERS EXCERPT MECHANICAL TUBING

TOOL CHESTS FROM CHINA AND VIETNAM

On April 11, 2017, Waterloo Industries Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of imports of certain tool chests and cabinets from China and Vietnam.

As indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, in the Tool Chests case, the ITC will conduct its preliminary injury hearing on May 2, 2017.  US importers’ liability for countervailing duties on imports from China will start on September 8, 2017, 150 days after the petition was filed, and for Antidumping Duties from China and Vietnam will start on November 7, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 2, 2017, which is the part of the proceeding where importers can have a real impact.

Attached is a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese and Vietnamese exporters/producers and US importers, Tool chests CHN VNM petition vol 1 narrative.  If anyone has any questions, please feel free to contact me.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

NEW NATIONAL SECURITY SECTION 232 CASE AGAINST STEEL IMPORTS FROM NUMEROUS COUNTRIES, INCLUDING CHINA

On April 20, 2017, as indicated in the attached documents, Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce Section 232 Investigation on the Effect of Imports of Steel on U.S, President Trump announced a new trade investigation of steel imports under section 232 to determine if the tariffs should be imposed because the increased steel imports pose a threat to national security.  The trade action will be conducted under Section 232 of the Trade Expansion Act since 2001.

If the Commerce Department determines that the steel imports are a threat to national security, President Trump will be empowered to levy high tariffs and quotas on imports of steel products from various countries.

Under Section 232, the Commerce Department will conduct an investigation into the potential national security threat posed by the entry of foreign steel into the U.S. market. Commerce must issue its findings to the White House within 270 days, along with recommendations on what steps to take.

Commerce Secretary Wilbur Ross has stated, however, that the investigation may move along a faster track.  Once Commerce’s review is completed, the President has 90 days to decide whether to accept or reject its recommendations and to impose trade restraints, including tariffs or quotas on steel imports.

This may be the first attack, not just against China, but all steel imports from every country.  The problems with Commerce self-initiating antidumping and countervailing duty cases is the International Trade Commission.  The Administration does not control the ITC, but it does control Commerce.  By bringing a section 232 case, the Administration skips the injury test by the ITC and assuming the Commerce Department reaches an affirmative determination, the President is empowered to impose import relief in the form of tariffs and quotas.  From the Administration’s point of view, there is more than one way to solve the import problem.

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

On April 10, 2017, in the attached ITC notice, SOCKETS MARINE, PopSockets LLC filed a section 337 patent case against imports of Collapsible Sockets for Mobile Electronic Devices from the following Chinese companies:

Agomax Group Ltd., Hong Kong; Guangzhou Xi Xun Electronics Co., Ltd., China; Shenzhen Chuanghui Industry Co., Ltd., China; Shenzhen VVI Electronic Limited, China; Shenzhen Yright Technology Co., Ltd., China; Hangzhou Hangkai Technology Co., Ltd., China; Shenzhen Kinsen Technology Co., Limited, China; Shenzhen Enruize Technology Co., Ltd., China; Shenzhen Showerstar Industrial Co., Ltd., China; Shenzhen Lamye Technology Co., Ltd., China; Jiangmen Besnovo Electronics Co., Ltd., China; Shenzhen Belking Electronic Co., Ltd., China; Yiwu Wentou Import & Export Co., Ltd., China; and Shenzhen CEX Electronic Co., Limited, China.

ROBOTIC VACUUM CLEANING DEVICES

On April 18, 2017, in the attached ITC notice, ROBOTIC VACUM CLEANERS, iRobot Corporation filed a section 337 patent case against imports of Robotic Vacuum Cleaning Devices from the following US and Chinese companies:

Bissell Homecare, Inc., Grand Rapids, Michigan; Hoover Inc., Glenwillow, Ohio; Royal Appliance Manufacturing Co., Inc. d/b/a TTI Floor Care North America, Inc., Glenwillow, Ohio; Bobsweep, Inc., Canada; Bobsweep USA, Henderson, Nevada; The Black & Decker Corporation, Towson, Maryland; Black & Decker (U.S) Inc., Towson, Maryland; Shenzhen ZhiYi Technology Co., Ltd., d/b/a iLife, China; Matsutek Enterprises Co., Ltd., Taiwan; Suzhou Real Power Electric Appliance Co., Ltd., China; and Shenzhen Silver Star Intelligent Technology Co., Ltd., China.

If you have any questions about these cases or about the antidumping and countervailing duty cases, Section 232 Steel case, Trump and Trade, US trade policy, or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR MARCH 26, 2017

Dear Friends,

Although politicians in Washington DC have been focused on Obamacare and Russian involvement in the election, trade issues lurk beneath the surface.  Trade was stirred up with the release of Trump’s Trade Agenda, Lighthizer Confirmation Hearings, rumors of internal fights in the Trump trade team and meetings with foreign leaders, including Angela Merkel of Germany.  In fact, the amount of material on trade is mountainous.

One of the pillars for Trump’s objective of hitting a 3 percent annual growth rate (Obama never got over 2%,), is increased US exports, but as indicated above, trade is a two-way street.  As Democratic Congressman Rick Larson of Washington stated recently at the Washington Council on International Trade Meeting on March 13, the Trump Administration has to choose between a trade policy of Trade Agreements or Border Adjustment Taxes.  If the Trump Administration intends to hit imports with increased Border Adjustment Taxes, it will be very difficult to negotiate trade agreements with the many countries on Trump’s list.

On March 21st, in pushing the Republicans in the House of Representatives to push for the Obamacare repeal bill, President Trump stated that without the Obamacare repeal, the Republicans cannot take up the Tax Bill.  But with the collapse of the Obamacare repeal on March 24th, Congress is pivoting to Tax Reform.  That means tax reform, including the Border Adjustment Taxes, will be front and center.  The target of Trump and the Republican Congress is to pass a tax reform bill by August.

Thus the Trump Administration will be soon at a crossroads—increased taxes/tariffs on imports or trade agreements.  It will be very difficult, if not impossible, to have both.

Meanwhile, the decision of Senate Democrats to stall on the Confirmation of Robert Lighthizer has hurt the trade debate in the Administration.  Lighthizer knows trade law.  Many of the officials, such as Steve Bannon and Peter Navarro, in the Administration, do not know trade law and the Democratic decision to stall the confirmation truly has hurt the United States.

In addition to Border Adjustment taxes, this newsletter contains several articles about Trump and Trade or the Trump Trade Report.  There are growing arguments between Administration officials and by Republican Senators and Representatives outside the Administration on the Trump Trade Policy as officials and Senators and Congressmen understand the ramifications of a protectionist trade policy on the constituents in their States and Districts.

Agriculture is waking up. During the recent March 14 Confirmation Hearing of Robert Lighthizer, one could see the concerns of Senators from Agricultural States as they realize that agricultural exports, their ox will be the one gored by the new Trump trade policy.

Meanwhile, NAFTA will be renegotiated; CFIUS may include reciprocity: China is taking a divide and conquer strategy on the Non-Market Economy Issue in Antidumping Cases; and new trade cases have been filed on Aluminum Foil and Silicon Metal.

ZTE has agreed to pay record fines because of its export control violations; and a recent section 337 patent case stated that the US production of the patent lessee can be used to meet the domestic industry requirement.

In addition, hopefully Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them without curtailing imports, will expand.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRUMP TRADE REPORT

TRUMP ADMINISTRATION ISSUES ITS 2017 TRADE POLICY AGENDA AND IT CREATES CONCERNS

On March 1, 2017, the Trump Administration issued its attached National Trade Policy Agenda for 2017 pursuant to 19 U.S.C. § 2213(a)(l)(B), 2017 TRUMP Trade Agenda.  In the short summary, which was released on March 1st, Trump stated in part:

“The overarching purpose of our trade policy – the guiding principle behind all of our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans. Every action we take with respect to trade will be designed to increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and other exports.

As a general matter, we believe that these goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations – and by renegotiating and revising trade deals when our goals are not being met. Finally, we reject the notion that the United States can strengthen its geopolitical position by adopting trade measures that make American workers, farmers, ranchers, and businesses less competitive in global markets.”

In other words, the Trump Administration will take a much stronger position on trade agreements and trade policy.

The most controversial part of the Trade Policy Agenda is the strict approach to the WTO.  Thus, one of the key objectives of the Agenda is”

“Resisting efforts by other countries – or international bodies like the World Trade Organization (“WTO”) – to weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party.”

The Agenda then states under the section “Defending Our National Sovereignty Over Trade Policy”:

“it has been a basic principle of our country that American citizens are subject only to laws and regulations made by the U.S. government – not rulings made by foreign governments or international bodies. This principle remains true today.  Accordingly, the Trump Administration will aggressively defend American sovereignty over matters of trade policy.”

One of the key objectives, just like other Administrations, will be to reduce and eliminate foreign barriers to US exports, but the Agenda then goes on to state:

“It is time for a more aggressive approach. The Trump Administration will use all possible leverage – including, if necessary, applying the principle of reciprocity to countries that refuse to open their markets – to encourage other countries to give U.S. producers fair access to their markets. The purpose of this effort is to ensure that more markets are truly open to American goods and services and to enhance, rather than restrict, global trade and competition.”

One key principle the administration said it plans to apply is a form of trade quid pro quo called “reciprocity” to countries that refuse to open up their markets.  Lawmakers and the Trump administration are considering toughening up national-security reviews of foreign investments into the U.S. to leverage better trade terms with China. If Beijing does not open up its markets to U.S. investors or exports, for example, the administration could use its powers to block Chinese deals to buy U.S. assets, or threaten higher tariffs on  Chinese imports.

The Agenda also expresses an interest in using Section 301 of the Trade Act of 1974 to open up restraints in foreign countries to US exports.  But 301 has not been used since the WTO’s 1995 inception.  The Agenda states

“Properly used, Section 301 can be a powerful lever to encourage foreign countries to adopt more market-friendly policies.  The Trump administration believes that it is essential to both the United States and the world trading system that all U.S. trade laws be strictly and effectively enforced.”

The Agenda also singles out trade deficits with China, Mexico, Canada and Korea and calls for a renegotiation of trade agreements and a more aggressive approach to trade enforcement.  Although these policies are very aggressive on paper, the question is how will the new Trump Administration apply these policies.

In conclusion, the Agenda states:

“For more than 20 years, the United States government has been committed to trade policies that emphasized multilateral agreements and international dispute settlement mechanisms. The hope was that by giving up some of our willingness to act independently, we could obtain better treatment for U.S. workers, farmers, ranchers, and businesses, Instead, we find that in too many instances, Americans have been put at an unfair disadvantage in global markets. Under these circumstances, it is time for a new trade policy that defends American sovereignty, enforces U.S. trade laws, uses American leverage to open markets abroad, and negotiates new trade agreements that are fairer and more effective both for the United States and for the world trading system, particularly those countries committed to a market-based economy.”

The Trump Administration also stated that it intends to update the document when Congress confirms Robert Lighthizer as the next US Trade Representative.

Parts of the policy document contain arguments similar to those in a widely attached circulated memorandum Mr. Lighthizer wrote in 2010 to the US China Commission, LIGHTHIZER 2010 STATEMENT US CHINA ECONOMIC SECURITY COMMISSION. At the time, Mr. Lighthizer told a congressionally mandated China commission that the U.S. could put its WTO commitments on hold, restricting imports from China until the country changes its behavior in key areas.

When the Trump Trade Agenda came out, the Press reported that the Trump Administration will ignore adverse decisions from the WTO.  During the Obama Administration, however, although WTO decisions were not ignored, they were slow walked, especially in the antidumping and countervailing duty area, with only small changes made in response to the WTO decision.

The Trump Administration will probably follow the same procedures.  The rubber will only meet the road when in response to adverse WTO decisions, foreign countries work up retaliation lists.  Then the Administration will have to decide whether to ignore the WTO decision or not.

In fact, after the Agenda was released, Presidential spokesman Sean Spicer stated that noncompliance with the WTO was not the formal policy of the administration.

In addition, many trade experts believe that the Trade Agenda was just rhetoric and we will need to see whether in the future there truly will be a fundamental shift in actual trade policy.  As one trade expert told me, it will take years for this policy to actually work out.

Moreover, as indicated below, Agriculture is waking up.  Now that Agricultural Senators and Congressmen realize that if there is a trade war, their ox is the one that will get gored, agriculture exports will be seriously hurt, the Trump Administration will probably slow up its aggressive trade policy as the hot protectionist rhetoric meets the realities of the international trade system where trade is a two way street.

If the United States truly signals it will not comply with WTO decisions, and other countries impose retaliatory penalties against U.S. imports, it could usher in an era of economic protectionism worldwide, which could trigger a global trade war that could disrupt international business and growth.  But that also would mean that the Trump Administration will not meet its 3% GDP growth target for the entire economy.

The real issue that the Trump Administration simply does not understand is that even though there may be trade deficits, free trade rises all boats.  The US now has over $1 trillion in exports, but the Trump Administration is focused on trade deficits with countries, such as China, Mexico and Germany.  The Trump Administration ignores the trade surpluses with other countries.  More importantly, free trade agreements have caused all boats to rise, increasing economic activity in the United States and creating jobs.  Because of NAFTA, US exports have quintupled creating millions of new jobs, but the Trump Administration appears to focus only on the trade deficit, which is relatively small in comparison to the surge in US exports.

At the same time that the White House issued its trade agenda on March 1, John Brinkley of Forbes, in an article entitled,Trump’s Trade Ideas As Bad As Ever,” responded to on President Trump’s first “State of the Union” address to the Congress where Trump stated:

“I believe strongly in free trade, but it also has to be fair trade.

Fine, but how do you achieve fair trade? Is it to punish other countries whose trade policies aren’t advantageous to the United States? Or is it to work with them collegially to get them to change those policies?
The latter course is the one that all presidents since World War II have chosen. They have negotiated 14 free trade agreements with 20 countries – agreements that require parties to eliminate tariffs and give fair and equitable treatment to one another.

Previous presidents helped set up the GATT and then the World Trade Organization as a forum for ensuring that countries play by the rules of global trade. Since the WTO was created in 1994, the United States has quietly resolved hundreds of trade disputes in its favor through WTO-sponsored consultations.

When consultations don’t solve the problem, the government can file a formal complaint in the WTO’s Dispute Resolution Body. If it rules in our favor, we can impose temporary, retaliatory tariffs or demand compensation.

That is fair trade. Accusing other countries of taking advantage of us, threatening them with exorbitant tariffs, and declaring that the United States is not beholden to WTO rules, as the Trump administration did today, is not fair trade. It’s more like anarchy.

On March 8, 2017 after the Trade Policy Agenda was issued, John Brinkley of Forbes published another article entitled, “Trump’s Disdain For WTO Portends Only Trouble” stating:

After the World Trade Organization was established in 1995, the Clinton, Bush and Obama administrations made good use of its dispute settlement system. The United States is batting about .500 in cases that proceeded to a final ruling; most of them don’t. Barack Obama had a perfect record in the WTO when he left office, but some of the complaints his administration filed are still pending.

None of the three presidents said the system was unfair or tried to make an end run around it.

Then came Donald Trump. He has nothing but disdain for the WTO and for the very idea of an international organization making and enforcing rules that the United States has to obey. So, in keeping with Trump’s “America First” ideology, the White House declared last week that America doesn’t have to follow those rules.

When one country accuses another of a trade rule violation, such as dumping a product in the host country at below-market value or unfairly subsidizing a domestic industry, the first step toward resolving it is a WTO-sponsored consultation between the two governments. If that fails, the accuser can request a hearing by a dispute settlement panel. The loser of that proceeding can take its case to the WTO’s Appellate Body.

Between 1995 and 2015, the United States filed 109 complaints to the WTO’s Dispute Settlement Body and had 124 filed against it. The U.S. government has settled about two-thirds of them through consultations, thus making recourse to a hearing unnecessary. Like most diplomatic initiatives, these results are achieved out of the public eye and without fanfare.

It’s hard to know what the Trump administration finds objectionable about this system, or why he considers the WTO “a disaster.” None of the WTO’s 163 other members seem to have a problem with it.

But Trump and his merry band of protectionists think they know a better way: to ignore the WTO if it issues a ruling they don’t like.

The President’s Trade Policy Agenda for 2017 says legislation enacted in 1994 lets the administration decide arbitrarily whether to comply with a WTO dispute settlement ruling that goes against the United States.

“If a WTO dispute settlement report is adverse to the United States, [the U.S. Trade Representative shall] consult with the appropriate Congressional committees concerning whether to implement the report’s recommendation, and, if so, the manner of such implementation and the period of time needed for such implementation,” the Trade Policy Agenda says.

In other words, the United States will comply with WTO decisions – decisions based on rules that the United States helped write – if it feels like it. Incredibly, Trump, et al, seem to think this approach would have no negative consequences.

If the U.S. government refuses to comply with a dispute settlement ruling against it, the WTO can authorize retaliation by the aggrieved party. That is likely to be a tariff increase targeted at the industry whose trade practices led to the adverse ruling. If a targeted tariff increase isn’t feasible, the aggrieved country can raise tariffs against some other industry.

Presumably, Trump would then retaliate against the retaliator and off we’d go into a destructive trade war.

It’s important to understand that the United States was intimately involved in the creation of the WTO and the drafting of its rules. During previous administrations, the U.S. ambassador to the WTO was in Geneva almost every day protecting the interests of the American industries and workers. Contrary to what Trump says, the WTO is not a foreign body accountable to no one. It’s a democratic institution, accountable to its members.

As former U.S. Trade Representative Michael Froman said in the President’s Trade Agenda for 2014:

“A robust international trading system offers the greatest economic benefits when all trading partners abide by their commitments and play by the same rules.”

LIGHTHIZER CONFIRMATION HEARING

On March 14, 2017, the Senate Finance Committee held its confirmation hearing on Robert Lighthizer as United States Trade Representative.  One can see the confirmation hearing in its entirety at https://www.c-span.org/video/?425333-1/us-trade-representative-nominee-testifies-confirmation-hearing

But as of March 23, 2017, Lighthizer’s confirmation vote is being held up in the Committee and on the Senate floor because his status as an advocate more than 30 years ago for the Brazilian government in a 1985 trade case, prior to the time when I was an associate at Skadden, Arps, appears to require a waiver in order for him to assume his role at USTR.  Unfortunately, this decision has left Lighthizer, the best trade lawyer on Trump’s team, out of the internal discussions on trade policy.

The White House has itself pushed to make the waiver vote unnecessary. White House counsel Donald F. McGahn wrote to Hatch and Senate Majority Leader Mitch McConnell, R-Ky., on March 3 citing a Clinton-era Office of Legal Counsel opinion as a challenge to the waiver rule.

A week after the March 21st confirmation hearing, Senator Pat Roberts of Kansas stated:

“I think we made it clear, I think [Finance Chairman] Orrin Hatch made it very clear that it’s not needed. But I don’t know what mood our friends across the aisle are in, and I have no idea what they’re going to do.”

Senator Ron Wyden ranking Democrat on the Senate Finance Committee, however, stated:

“We’ve made it clear we’re going to insist on the waiver. There’s this quaint idea that the law should actually matter, and the law says a person in his position has got to get a waiver.”

Thus Lighthizer’s nomination has been held up “for what feels like eons” according to Wyden, but at this point in time it is still not moving.

Meanwhile on March 22, 2017, the U.S. Chamber of Commerce in the attached letter, chamber_letter, pushed for a quick vote Lighthizer for USTR stating:

“Mr. Lighthizer has led a distinguished career as a trade policy practitioner and has a reputation as a staunch advocate for American industry. The Chamber believes he will represent the nation’s interests well as he works with international partners and addresses trade challenges at the negotiating table and before the World Trade Organization. The Chamber encourages a swift vote on his nomination and looks forward to working with him as the next U.S. Trade Representative.”

During the Confirmation hearing, Lighthizer had bipartisan support with many Democratic and Republican Senators vouching support for his candidacy.  One of the two issues of primary importance was the decision to break mega deals, such as the TPP, into bilateral deals with individual countries.

The problem, however, is that trade deals take a lot of time to negotiate.  The TPP took almost 10 years to negotiate with the 12 countries involved.  But by abandoning the TPP, with an objective of creating individual trade deals with the TPP member companies, the US Government has probably quintupled its work load, if not increased it twelve fold.

Although Lighthizer indicated that USTR would use the TPP draft agreement as a basis to negotiate a number of bilateral agreements, negotiating that many trade deals will take an enormous amount of work by a very small agency – USTR—with only just over 200 employees at offices in Brussels Belgium, Geneva Switzerland and Washington DC.  Trump’s budget is not clear whether USTR will get an increase in budget or whether its budget will be cut.

The second point is the importance of Trade Deals to US Agriculture exports.  In the Lighthizer confirmation hearing, all of a sudden Senators from agriculture states started to wake up.  If the TPP had passed, the biggest winner would have been US agriculture exports with tariffs dropping on more than 18,000 different products, many being agricultural products.  Now the TPP is gone and countries are racing into those overseas markets to replace US agricultural products.

Agriculture Senators and Congressmen want trade deals now because the United States is exporting billions of dollars in agricultural products to the rest of the World.  Mexican government officials recently declared that since Trump wants to be tough on trade with Mexico, they will cut $2.4 billion in imports of corn from the United States and replace the US corn with corn from Brazil and Argentina.  Congressman Newhouse at a recent Washington Council on International Trade stated that after the Korea FTA, exports of Washington State cherries doubled and Washington State French fries increased by 52%.  Increased exports means more jobs.

With a decision not to do the TPP, Senators and Congressmen from agricultural states fear that other countries will replace the United States and get those benefits.  As indicated below, that is a real and justified fear.

TRUMP TRADE AGENDA—OPPOSITION TO THE TRUMP TRADE POLICY IN THE ADMINISTRATION AND IN CONGRESS

Part of the Trump trade problem is the perception by Trump and many on his internal trade staff, such as Peter Navarro, that trade is a one-way street.  The Administration apparently believes it can simply issue an executive order raising tariffs, taxes or barriers to imports with no reaction by foreign countries.

But the Trump Administration is now in the international arena.  Although Trump won the Presidency, he has no political power over foreign countries.  Trade is a two-way street and as stated in several past newsletters, Mexico, Canada, China, and Germany have all threatened retaliation if the US imposes trade restraints, including Border Adjustment Taxes.  Deals have to be negotiated, but most countries, including the US, will not negotiate a deal when a gun is pointed at their head.

INTERNAL ADMINISTRATION TRADE FIGHTS—NAVARRO CREATES AN INTERNAL TRADE WAR

On March 10th the Financial Times reported that a trade war had broken out in White House in what was called “a fiery meeting” in the Oval Office pitting economic nationalists close to Donald Trump against pro­trade moderates in Treasury and the Economic Council from Wall Street.

Navarro is the ultra-nationalist economist who has angered Berlin and other European allies by accusing Germany of currency manipulation and exploiting a “grossly undervalued” euro and calling for bilateral discussions with Angela Merkel’s government over ways to reduce the US trade deficit with Germany.

The fight was between trade hardliners, such as Steve Bannon and Peter Narvarro, against the free trade economic faction led by Gary Cohn, the executive from Goldman Sachs, who heads the National Economic Council.  Note that since Lighthizer has not been confirmed, he could not be part of the discussion.  Bannon and Navarro support the Border Adjustment Tax while Cohn and Treasury Secretary Mnuchin oppose it.

During the last several weeks, Navarro appeared to be losing influence. But during the recent Oval Office fight, Mr Trump appeared to side with the economic nationalists.

Mr Navarro’s case has angered Republicans in Congress because he was criticized for being ill­prepared and vague at a closed­door briefing he held with Senators in February.

Reports have been made that Mr Navarro is becoming increasingly isolated in the administration. He has been operating with a very small staff out of an office in the Old Executive Office Building adjacent to the White House, while Mr Cohn has been adding staff to his NEC base inside the West Wing of the White House.

On March 5th, Navarro published an op-ed in the Wall Street Journal on why trade deficits matter:

Do  trade  deficits matter? The question is important because America’s trade deficit in goods is large and persistent, about $2 billion every day. . . .

Reducing a trade deficit through tough, smart negotiations is a way to increase net exports—and boost the rate of economic growth. . . .

Similarly, if the U.S. uses its leverage as the world’s largest market to persuade India to reduce its notoriously high tariffs and Japan to lower its formidable nontariff barriers, America will surely sell more Washington apples, Florida oranges, California wine, Wisconsin cheese and Harley-Davidson motorcycles. Just as surely, the U.S. trade deficit would fall, economic growth would increase, and real wages would rise from Seattle and Orlando to Sonoma and Milwaukee. . . .

But running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore. . .

Might we lose a broader hot war because America has sent its defense-industrial base abroad on the wings of a persistent trade deficit?

Today, after decades of trade deficits and a mass migration of factories offshore, there is only one American company that can repair Navy submarine propellers—and not a single company that can make flat-panel displays for military aircraft or night-vision goggles. Meanwhile, America’s steel industry is on the ropes, its aluminum industry is flat on its back, and its shipbuilding industry is gathering barnacles. The U.S. has begun to lose control of its food-supply chain, and foreign firms are eager to purchase large swaths of Silicon Valley’s treasures.

Much of Wall Street and most economists simply don’t care. But to paraphrase Mike Pence on the 2016 campaign trail, the people of Fort Wayne know better. The analysts at the Pentagon know better, too. That’s why, for both economic and national-security reasons, it is important to bring America’s trade back into balance—through free, fair and reciprocal trade.

As indicated below, however, do trade deficits justify increased US barriers to imports?  Wouldn’t a policy of making companies more competitive with imports, such as Trade Adjustment Assistance for Companies, explained below be a better option.  TAA does not risk retaliation from other countries.

Moreover, as stated above, focusing on trade deficits ignores the enormous increase in US exports to those countries.  Navarro focuses on a trade deficit and ignores the fact that US exports are over $1 trillion and support millions of jobs.  A trade war will cut those exports and jobs in half.  That will not make America great again.

Recently Navarro attempted to intervene in an antidumping duty case at the Commerce Department on Oil Country Tubular Goods from Korea sparking outrage from the trade lawyers representing the Korean steel mills.  Navarro should keep in mind that the Commerce Department in antidumping cases makes its decision based on the facts on the administrative record and the Commerce Department’s determinations are subject to Court review by the Court of International Trade and the Court of Appeals for the Federal Circuit.  In the past, Courts have made clear that when a Government agency, such as the Commerce Department, makes a decision based on politics, that is a reason for depositions of the government official.  Navarro might be deposed in any appeal of the OCTG case to the Court.

On March 13, John Brinkley of Forbes in an article entitled, “Commerce Secretary Ross Thinks U.S. Is In A Trade War”, which also addressed Navarro’s thinking, stated:

Commerce Secretary Wilbur Ross, responding to concerns that the Trump administration is pushing the United States toward a trade war, said we were already in one.

“We’ve been in a trade war for decades,” he said last week in an interview with Bloomberg News. “That’s why we have the (trade) deficits.”

But not to worry, Ross said. “It’s not going to be a shooting war. If people know you have the big bazooka, you probably don’t have to use it.”

That’s the Luca Brasi negotiating method: bend to our will or we’ll blow you to smithereens. Peter Navarro, the head of the White House National Trade Council, recently suggested that future trade agreements include a rule stating that they can be renegotiated any time the U.S. runs a trade deficit with the partner country. That is, to put it mildly, a non-starter.

Ross’s and Navarro’s remarks are symptomatic of the Trump administration’s singular obsession with trade deficits. However, the fact that the United States has a global trade deficit does not mean we’re in a trade war. It doesn’t mean our trading partners are cheating us any more than that we’re cheating Canada and the United Kingdom by running trade surpluses with them. It means we import more than we export. One of the reasons for that is the strength of the dollar in foreign exchange markets. A strong dollar makes imports less expensive and exports more expensive. That, in turn, leads to more choices and lower prices for American consumers.

Navarro said in a recent speech that trade surpluses were synonymous with economic growth. History suggests otherwise. The U.S. economy added 235,000 jobs in February and the unemployment rate fell to 4.7%. The trade deficit in January (February not available yet) was $48.5 billion, the highest it’s been since March  2012.

The trade deficit decreased during the recession of 2008-09. The United States ran a trade surplus through most of the Great Depression.

Ross didn’t say who the enemy was in this supposed trade war, but President Trump has made it clear that he has it in for China and Mexico, our second and third largest trading partners, respectively. Our largest bilateral trade deficits are with those countries.

So, Trump intends to renegotiate NAFTA. And, he has threatened China with punitive tariffs. He has said doing these things would erase the U.S. trade deficit, cause a renaissance of American manufacturing jobs and bring the 3% GDP growth he promised.

They would do none of those things.

“Withdrawal from the Trans-Pacific Partnership, renegotiation of the North American Free Trade Agreement, and launching trade actions against China ensure political headlines, but they will not make much difference to the global U.S. trade deficit. Nor will they bring more jobs and higher wages to U.S. workers,” said Gary Clyde Hufbauer and Euijin Jung of the Peterson Institute of International Economics in an article published in February.

They also noted that the trade deficit is financed in part by foreign direct investment, which is unquestionably beneficial to the U.S. economy. Foreign-owned companies operating in the United States directly employ 6.1 million Americans, according to the U.S. Commerce Department. FDI stock in the U.S. stands at almost $3 trillion.

One way to reduce the trade deficit would be to devalue the dollar against the Chinese yuan and other currencies.  That would be politically difficult because it’s what Trump (wrongly) accuses China of doing on a regular basis. It would also raise the prices of imported food and manufactured goods and, possibly, cause inflation. That would hurt low-income Americans the most.

A better idea would be for the Trump trade triumvirate to calculate America’s balance of trade with its 20 free trade agreement partners. They would find that we have an aggregate trade surplus with them. Maybe then they’d reconsider their plans to renegotiate or withdraw from those agreements.

If Ross thinks we’re in a trade war now, let him propose raising tariffs against Mexico and China over and above the World Trade Organization’s Most Favored Nation rates. Then, we’d be in a trade war for real.

NAVARRO’S STANDING WITH CONGRESS DROPS

On March 16th, senior trade officials from the administration, minus Robert Lighthizer, headed up to Capitol Hill to talk with members of the House Ways and Means Committee about NAFTA, among other trade topics – marking the latest step in what one administration official described as a series of ongoing consultations between the administration and Congress before the White House formally moves to reopen the agreement.

The next step will be for the administration to formally notify Congress that its NAFTA  plans to begin talks, triggering a congressionally mandated 90-day consultation period before the renegotiation can start.

Commerce Secretary Wilbur Ross stated that the White House hopes to send that notification letter “sometime in the next couple of weeks,” meaning formal talks are likely to begin around early summer. Ross is expected attended the March 16th meeting, as did senior members of the Office of the U.S. Trade Representative including general counsel and acting USTR Stephen Vaughn, and deputy general counsel Maria Pagan.

Peter Navarro, however, did not go to the Capital Hill meeting. After a meeting with the Senate Finance Committee in February – which was described as “a disaster” – Navarro made such a poor impression that Senators viewed it as a reason for why they need to get USTR nominee Robert Lighthizer confirmed as soon as possible.  That meeting also spurred additional questions about who is really in charge on trade and led to strong reminders that USTR holds the statutory authority.

G-20 BECOMES MORE PROTECTIONIST

On March 18th, the trade protectionist rhetoric increased as it was reported that the G-20 member states dropped the no-protectionism pledge, which indicates more trade storms to come.  The G­20 is an informal forum on economic cooperation made up of 19 countries plus the European Union.  Finance ministers from the Group of 20 countries met in the southern German town of Baden­Baden and issued a statement saying only that countries “are working to strengthen the contribution of trade” to their economies.  In last yearʹs meeting under the Obama Administration, called on countries to resist “all forms” of protectionism, which can include border tariffs and rules that keep out imports to shield domestic companies from competition.

During the press conference, I was told that U.S. Treasury Secretary Steven Mnuchin, was peppered with questions about the border adjustment tax.  Munchin did state that trade deals need to offer a win-win scenario and went on to state:

“We believe in free trade: we are one of the largest markets in the world, we are one of the largest trading partners in the world.  Having said that, we want to re­examine certain agreements… And to the extent that agreements are old agreements and need to be renegotiated weʹll consider that as well.”

AGRICULTURE WAKES UP BECAUSE IT REALIZES HOW MUCH IT WILL LOSE WITH A PROTECTIONIST ANTI TRADE POLICY

In the past, many reporters have asked me what could China or other countries retaliate against.  The United States does not export much.  US exports are simply too small.  In the face of large trade deficits with China, Mexico and other countries in the manufacturing area, what is the US exporting that can be a retaliation target?

US trade data indicate that US exports for 2016 were over $1 trillion.  In the Robert Lighthizer confirmation hearings, you could hear the real concern of many Senators, especially from the agriculture states, that products from their states could be retaliation targets.  Their worry is certainly justified.

As Senator Pat Roberts stated at the Lighthizer Confirmation hearings:

“I’m going to try and demonstrate that we are going through a pretty rough patch in agriculture.  If Trump makes good on his promises to turn U.S. trade policy into a war against imports, “we are going to get into a very difficult situation.”

During the Confirmation Hearing, Roberts, Grassley and other Agriculture Senators extracted a pledge from Lighthizer that in negotiating trade agreements he would push agriculture interests to the top of the list. Senators and Congressmen from Agriculture states fear that if no new trade agreements are negotiated, US agriculture will lose market share and will become the retaliation target of other countries.

Mexico, in fact, is one of the largest buyers of US corn, much of which comes from Kansas and Iowa.  US exports about $2.4 billion in corn to Mexico.  Now Mexico is talking about retaliation and buying its corn from Brazil and Argentina.  What goes around comes around.

U.S. Senators and Congressmen noticed when a Mexican lawmaker introduced legislation favoring Latin American products over American- exported corn, a key winner in Nafta. That move followed warnings from Mr. Trump that Nafta would be renegotiated and Mexico would have to pay for a new border wall.  In response, Republican Senator Joni Ernst of Iowa stated:

“I have been worried because other countries have pushed back: ‘You want us to build a wall, well we’re not going to take your corn.’  If we’re talking about renegotiating Nafta, we actually stand to lose ground in agriculture—so we would really have to work that very, very carefully.”

On March 6th, leaders of the US Dairy industry were in Mexico to attempt and protect their exports from uncertainty over the future of NAFTA. After NAFTA was signed in 1994, American dairy exports to Mexico more than quadrupled to $1.2 billion, accounting for nearly one-fourth of all U.S. dairy exports last year. Because of Trump’s attacks on Mexico, it has encouraged Mexican importers to find other suppliers in the European Union and New Zealand, which are eager to get into the market, and in New Zealand’s case are part of the TPP.

In response to the criticism that Trump is putting his trade focus on the plight of the U.S. manufacturing sector at the expense of the export-dependent agriculture sector, on March 21st Trump pivoted to agriculture.  Sean Spicer, the President’s press secretary stated:

“While our farmers are the most efficient in the world, margins have been tightening, regulations have been multiplying, and exports, which has historically counted for over one- fifth of the U.S. farm production, have been declining due to unwise trade policies.  The President promised the many people in the agriculture industry and throughout rural America that he would not allow this to continue and he will continue to pursue policy changes that will reverse this disturbing trend.”

John Bode, president and CEO of the Corn Refiners Association praised the statement saying that Trump’s proclamation recognizes that “improved trade balances and a successful agriculture sector are inextricably linked.”  He further stated:

“Our industry’s exports not only deliver jobs at home, they are among America’s fundamental strengths abroad.  We are heartened to know that this White House agrees and that they will seek to increase agricultural exports as they examine existing and future trade agreements.”

Ray Starling, special assistant to the president for agriculture on the National Economic Council, recently stated at a National Ag Day event in Washington:

“The President has talked a lot about our manufacturing imbalance on trade, but that is not meant to neglect ag. That is essentially to say we know ag is doing a good job, we are making strides there, we need to do more.”

Now we have to wait and see if Trump truly means what he says or whether he wants a trade war, which will hurt US exports, especially in the agriculture area.

SENATORS AND CONGRESSMEN WANT MORE TRADE DEALS–BILATERAL VERSUS MULTILATERAL DEALS

Back on January 26, 2017 in an interview with Sean Hannity on Fox News, Trump explained that he did not like multilateral trade deals, such as the TPP, because they are a mosh pit and fall to the lowest common denominator.

During his confirmation hearing, Commerce Secretary Wilbur Ross stated that it easy to negotiate bilateral deals than multilateral deals.  But the question is, will it be easier to negotiate 12 bilateral deals with 12 different countries when one deal, the TPP, would have done it.  More importantly, although the US will renegotiate NAFTA and start trade deals with Japan and eventually Britain, is it truly realistic for the very small USTR to have continual negotiations with dozens of countries at the same time.  The TPP took 10 years to negotiate.  Maybe Ross is just playing a game and does not want more trade deals.

At a recent trade conference on March 13th here in Seattle held by the Washington Council on International Trade, however, it was very apparent that Washington State Congressmen, both Democrats and Republicans, want more trade deals.

At the Conference Congressman Dave Reichert, WA Republican, and Chairman of the Subcommittee on Trade, House Ways and Means, stated that the Trump Administration intends to do more bilateral deals.  He also stated that since NAFTA is a trilateral agreement, all three countries, Mexico, Canada and the US need to be at the table.

Reichert also stated that we cannot give up trade agreements because the cost would be too high.  China will benefit.  He also stated that the United States needs to set the international trade standards through trade agreements or China will do so and 95% of the World’s population and markets are outside US.

Reichert stated that the longer we wait to do trade deals, the more market shares we lose.  He pointed to the FTA with Korea, which dramatically reduced the 24% Korean tariff on cherries, and Washington State cheery exports doubled and Washington French Fries went up 53%.

When NAFTA took place US exports to Mexico doubled reaching $180 billion.  There is now over $500 billion in trade between US and Mexico

Following Reichert, Republican Congressman Dan Newhouse, who represents large Agricultural interests in the Center of Washington stated, “We cannot afford to waste any time as we create opportunities for local producers and exporters to gain access to new markets.”

Congressman Rick Larsen stated that the Administration has to decide whether it will do Border Adjustment taxes or trade deals.  Larsen went on to state that trade is much bigger than just agreements. It is soft power.  Asian countries see the US leading with military power, but the US relationship with the other Asian countries is less secure if the only relationship is military and not trade.

Democratic Congressman Denny Heck stated that TPP went too far too fast and was not politically possible.  Echoing Donald Trump, Heck stated that the white working man has seen no increase in income in 40 years.

But Newhouse stated that after the Korea FTA, Washington State potato growers saw an increase in exports of 670,000 tons of French Fries to Korea.  That is jobs.

On March 22nd, John Brinkley in an article entitled, Trump’s “Trade Policies Would Take From the Many and Give To a Few” points out the problem of relying only on bilateral agreements as compared to multilateral agreements:

“Politics can be defined as taking something from someone and giving it to someone else. Done right, the winners outnumber the losers and the sacrifice will have been worthwhile.

This seems lost on the Trump administration, whose trade proposals are likely to create a lot more losers than winners.

Let’s start with his plan to eschew multilateral trade agreements and negotiate only bilateral ones. With a multilateral agreement, like the Trans-Pacific Partnership, all parties play by the same rules. That means exporters don’t have to figure out what the rules of origin are country-by- country. They’re all the same.

Deciphering and complying with rules of origin under a free trade agreement are among the most difficult and time-consuming chores that exporting companies have to perform. If the rule says 70 percent of a truck’s parts have to have been made in the United States, the company has to go to its suppliers and say, where did the door handles come from? Where did the tires come from?

A lot of smaller companies find it isn’t worth the time and expense, so they ship the product and pay the tariff. Or they don’t export at  all.

Having a series of bilateral agreements makes it even harder, because each agreement would have its own rules of origin. American manufacturers were looking forward to ratification of the TPP, because it was to be a 12-country trading bloc with one set of rules. But Trump withdrew the United States from it.

Renegotiating NAFTA is another idea that would take from the many for the benefit of a few.

Breaking up NAFTA and negotiating separate bilateral agreements with Mexico and Canada would be even worse. U.S. Trade Representative nominee Robert Lighthizer said during his Senate confirmation hearing that the administration might take that course.

NAFTA has been in effect for 23 years. Whatever impacts it had on American employment and economic growth are well in the past. If you look under NAFTA’s hood, you see a complex network of supply chains crossing the three countries’ borders. They make it easy and cost-effective for American manufacturers to buy parts from Mexico or Canada and have them delivered quickly and duty-free.

About half of Mexico’s exports to the United States are parts for products that are built here – car parts, electronic components and so  on.

Making those parts more expensive would make the products they go into more expensive and would reduce the importing companies’ revenues, leading to lay-offs or worse. That is basic economics.

Trump said yesterday that renegotiating NAFTA was “going to be an easy one.” Everyone who has ever been a trade negotiator probably got a chuckle out of that. . .. .

“The United States has been treated very, very unfairly by many countries over the years, and that’s going to stop,” he said last week during a joint press conference with German Chancellor Angela Merkel.

Poor little us. We’re being pushed around by those mean bullies from South Korea and Mexico.

Nonetheless, the U.S. and global economies have been growing at a healthy pace. The U.S. unemployment rate is 4.7 percent, about as low as it can go, and median wages have finally started to increase for the first time since the recession of 2008.

This seems to call for an economic policy of caution and restraint to keep the recovery going rather than taking a machete to our trade agreements and punishing our trading partners for transgressions they have not committed.

That would harm vastly more Americans than it would help.

On February 28th, however, it was reported that the EU expects the Trump Administration to negotiate with the entire block as EU countries pushed back on Trump’s bilateral dreams.  European countries in the EU bloc have been unified against the Trump administration’s reported attempts to bring individual EU countries into direct, bilateral trade deals with the U.S. The EU ambassador at a recent National Press Club meeting stated that bilateral deals are “nonsense”.  David O’ Sullivan stated:

“It’s nonsense to talk about bilateral deals with countries that are part of a single market.  Would American companies really want 28 separate FTAs?”

In Germany, Martin Schäfer, spokesperson for the German foreign ministry, stated:

“The [European] Commission carries out trade negotiations and concludes trade agreements for Europe and for us. This is the legal status, about which we have nothing critical to say.  The new political constellation in the U.S. and elsewhere should not tempt anybody to take up a different position.”

European Trade Commissioner Cecilia Malmstrom also stated recently:

“The U.S. administration seems to favor bilateral relations over multilateralism. And some of the proposals we have seen floated, such as a border adjustment tax, could be at odds with WTO rules. Countries should be able to protect themselves from distortions and unfair trade practices. But that has to be done within the framework of the WTO. Global rules mean everyone playing fair, by a consistent, predictable and transparent rulebook.

In an age when some want to rebuild walls, re-impose barriers, restrict people’s freedom to move … we stand open to progressive trade with the world.”

On March 6th, a top European official stated that U.S. President Donald Trump’s protectionist stance may propel Asian, Middle Eastern and Latin American economic powers into market-opening alliances with the European Union.  Jyrki Katainen, a vice president of the European Commission, the EU’s executive arm, said Trump’s rejection of multilateral commercial deals and border-tax threat are giving impetus to the 28-nation bloc’s push for free- trade or investment pacts with countries including Japan, China, India, Saudi Arabia, the United Arab Emirates, Mexico, Brazil and Argentina.

Katainen stated that:

“When there has been some signals to raise protectionism, especially from the U.S. side, the rest of the world seems to be fighting back and saying that this is not our line, this is something which we don’t want. This is music to our ears.”

The comments signal that Trump’s “America First” approach that seeks to reduce the U.S.’s $502 billion trade deficit may be as much an opportunity as a threat to the EU.

Recently, the US equipment manufacturing industry, which supports more than 1.3 million jobs, expressed its concern about exports.  A report by the Association of Equipment Manufacturers stated that about 30 percent of the construction equipment and about 30 percent of the agricultural equipment manufactured in the United States is designated for export – and would therefore be hit hardest by any slowdown in global trade:

“Slow international growth combined with uncertainty about trading rules under the Trump administration could act as a drag on the equipment manufacturing industry’s overall performance.  Any steps the Trump administration might take to revisit or exit existing trade agreements could further complicate the challenging economic environment outside the United States.

It is difficult to precisely forecast how the Trump administration might rewrite existing trading rules, but any steps that make it more difficult for manufacturers to export their products could hinder growth in the industry.”

TPP CONTINUES WITHOUT THE US

On March 14th Government officials from the 12 Trans-Pacific Partnership nations minus the United States held a two-day summit in Chile to discuss a path forward on trade following the US decision to withdraw from the TPP.

New Zealand Trade Minister Todd McClay stated:

“I have recently visited Australia, Japan, Singapore and Mexico, met with ministers from Brunei and Malaysia and talked directly with trade ministers from all other TPP countries.  It is clear our partners remain committed to the benefits high quality trade agreements provide.”

Even though the TPP requires that at least six countries composing at least 85 percent of the entire TPP’s collective economic production, with the US withdrawal, the other 11 countries have decided to move forward with the TPP.  As Wendy Cutler, a former trade negotiator at USTR, stated:

“A TPP agreement without the U.S. is still relevant and would have significant economic value.  You’d still have four of the world’s 20 largest economies — Japan, Canada, Australia, and Mexico — alongside significant emerging economies, like Vietnam and Malaysia.”

In other words, other countries will replace US exports in those markets because they will have the benefit of the TPP.

After the meeting in Chile, Australian Trade Minister Steven Ciobo stated:

“I was particularly pleased there was continuing movement on the TPP.  Countries remain committed to exploring all the avenues and opportunities in relation to the TPP. There was broad agreement on the high level of ambition in the TPP being a benchmark and something we shouldn’t just let slip away.”

Japanese State Minister Takao Ochi stated:

“As long as Japan is concerned we don’t want to exclude any possible ways and we would like to take initiative in discussing with each of the member countries.”

The 11 countries will now work to preserve the trade deal’s innovations, which included new rules on digital trade, disciplines for state-owned companies and what have been touted as the toughest labor and environment protections of any modern trade agreement. The innovations also include new market access that countries negotiated on everything from milk powder to insurance services.

BORDER ADJUSTMENT TAXES

As stated in my last newsletters, the big issue in the trade area right now is border adjustment taxes and tax reform.  New Treasury Secretary Mnuchin says tax reform will take place in August 2017 and it is a priority for the Trump Administration.  Part of that reform is Border Adjustment Taxes (“BAT”).  See http://www.foxbusiness.com/politics/2017/02/23/treasury-secretary-mnuchin-lays-out-aggressive-timeline-for-tax-reform.html.  As Mnuchin states, a US deficit of $20 trillion, which was doubled by President Obama, is a concern, but more important is economic growth, which will result in more tax revenue.  To get economic growth, taxes and regulations have to be cut.

But with the failure of Obamacare in the House, taxes, including border adjustment taxes, move to the front of the Congressional calendar.  Trump and Republicans in the Congress, especially the House, appear to be moving ahead with an alternative to tariffs to spur US manufacturing and that is taxes.  There is now an attempt in Congress to give American-made products a big tax advantage over their foreign competitors through border adjustment taxes, and, in effect, counter the value added taxes used in other countries to deter imports.  As Kevin Brady, Chairman of House Ways and Means, argues, almost 80% of countries border adjust their taxes.  That includes Mexico, Canada, China, and the European countries, putting US exports at a substantial disadvantage.  For Brady’s argument, see videos at the following links, https://www.youtube.com/watch?v=1yYHGoFmNEk&feature=youtu.be and

https://waysandmeans.house.gov/icymi-chairman-brady-cnbc-makes-case-ending-made-america-export-tax/.

Under a border adjustment tax (“BAT”), a 20% tax would be applied against all domestic products and imported products.  But the domestic producer would be allowed to deduct all the domestic costs associated with producing that product.  Thus if a $100 product was produced in the US, the domestic producer could deduct $70 in costs, resulting in a 20% tax on $30 or a $6 tax.  But there would be no deduction of domestic costs for a $100 import resulting in a 20% tax on the full $100 or a $20 tax, giving the domestic product a 14% tax advantage.  The BAT would not apply to exports.

This proposal has welled up from the House of Representatives and is strongly supported by House Speaker Paul Ryan and the Chairman of House Ways and Means, Kevin Brady.  Their argument is that border adjustment tax is needed to offset value added taxes in other countries.  Brady argues that the BAT is the only way to end the “Made in America” tax.

One example given is that if an automobile is produced in the US and exported to Mexico, a 35% corporate tax is levied on the profits of the US automaker and then the US automobile is hit with a 16% value added tax when it comes into Mexico.  On the other hand, when an automobile is produced in Mexico for shipment to the US, there is no corporate tax on the export and no corresponding tax in the US on the Mexican export to the US.  In effect, Ryan and Brady argue that this is a tremendous incentive to move manufacturing out of the United States to countries with value added taxes, such as Mexico, China, Canada, EU and many other countries.

Border adjustments serve as a way to level the playing field and alter value-added consumption taxes many countries, including European countries, Mexico, Canada and China, impose on each stage of production, as products are sold internationally.  Proponents argue that the BAT is not trade policy and does not favor exports over imports.  To see the companies that have VAT taxes in place, see the Ways and Means website at https://waysandmeans.house.gov/ending-made-america-tax-three-major- wins-american-people/.

The Trade War in the Administration on border adjustment taxes has become clear as Bannon, Navarro and others are in favor, but Cohn and Treasury Secretary Mnuchin are opposed.  Wilbur Ross is on the fence.  Trump himself has not taken a position.

On March 25th During a morning interview, Mnuchin said he had been overseeing work on the administration’s tax bill over the past two months and it would be introduced soon. He said the goal was still to win Congressional approval of the tax measure by August. But if the timeline is delayed, he said he expected the proposal to pass by the fall.  Mnuchin did not reveal whether the administration will include the Border Adjustment tax.

On March 9th Bloomberg reported that the BAT is in deep trouble.  The BAT is important because it is expected to raise more than $1 trillion in revenue, which would offset the cut to corporate tax rates:

Companies that rely heavily on exports, such as Boeing Co. and Oracle Corp., love the plan—for obvious reasons. Beyond profits, they also say a BAT would make American manufacturers more competitive by putting them on equal footing with foreign competitors around the world.

Importers hate the BAT. Big retailers such as Walmart Stores Inc. and Best Buy Co. contend that border adjustments will dent profit margins and force them to raise prices on everything from avocados and furniture to Nike shoes and French cheese. In a Feb. 28 letter to congressional leaders, the Americans for Affordable Products coalition said the tax would raise consumer costs “by as much as $1,700” in the first year. . . .

Companies are taking their message to consumers. In late February the National Retail Federation, which opposes the BAT, started airing TV commercials that parody an OxiClean infomercial, telling shoppers that “the all-new BAT tax is specially designed to make your disposable income—disappear!” Proponents, through the American Made Coalition that includes Johnson & Johnson and Pfizer Inc., launched a Twitter feed to support the tax. Both sides have created Facebook pages and websites with auto-form letters that viewers can send to Congress. Both, too, routinely pepper media outlets with press releases citing prominent people in the private sector and academia who either love or hate it.

As Bloomberg further states in Congress the BAT is running into opposition from Republicans:

A core group of House Republicans has come out in recent weeks against the BAT, citing the higher prices they’d inflict on consumers. Republican Senate support is in doubt, too. Tom Cotton, a Republican from Walmart’s home state of Arkansas, told a Senate floor session on Feb. 15 that border adjustments are “a theory wrapped in speculation inside a guess.” The next day, Senate Majority Whip John Cornyn, a Texas Republican, said, “The hard reality is the border tax is on life support.”

But as Bloomberg further states:

“Ryan and Brady aren’t backing down. Without border adjustments, they say, their plan to rewrite the tax code can’t happen. That $1.1 trillion in revenue is crucial to the politics of the BAT, since it helps keep it deficit- neutral, a prerequisite for passing a tax bill through the Senate without Democratic votes. “What it boils down to is that it’s a way to pay for the rest of the tax plan,” says Veronique de Rugy, an economist at George Mason University. “Only revenue comes from this feature—economic growth doesn’t.” That $1 trillion is also crucial to how the BAT might affect the economy. Says Ross, “That is way too big a number to get wrong.”

EUROPE, THE WTO AND CHINA

Meanwhile, other countries are lining up to retaliate if the BAT is passed.  On February 28th, it was reported that the EU is preparing a legal challenge against Donald Trump’s US border tax plan in what could be biggest trade dispute in a century.  Jyrki Katainen, the European Commission’s Vice President, told the newspaper: “If someone is behaving against our interests or against international rules in trade then we have our own mechanisms to react.”  He said the EU was seeking to avoid a potential trade war with the US as it would be “disastrous” for the world economy.

“We have all the legal arrangements within the EU but we are also part of global arrangements like the WTO and we want to respect the global rule base when it comes to trade.”

One WTO trade dispute expert estimated that a defeat in such a case could see around $385bn a year in trade retaliation against the US.  Volker Kauder, parliamentary floor leader of Merkel’s conservatives, also recently stated:

“If Donald Trump imposes punitive tariffs on German and European products, then Europe should also impose punitive tariffs on U.S. products.”

Meanwhile, the Chinese government has been seeking advice from think tanks and policy advisers on how to retaliate against trade penalties imposed by the US.  China’s strongest responses would likely include finding alternative suppliers of agricultural products, machinery and manufactured goods, and reducing the number of consumer goods like cellphones and laptops that it exports to the United States. Other possibilities could include levying a tax or other penalty on major U.S. companies that do business in China or restricting access to the country’s services sector.

NAFTA RENEGOTIATION

The first trade agreement, which the Trump Administration will negotiate is NAFTA.  President Trump has already formally notified both Canada and Mexico that he intends to renegotiate NAFTA.  The negotiations will probably start sometime this summer.

On March 12, 2017, Commerce Secretary Wilbur Ross stated that the Trump administration has yet to determine what the trade agreement replacing NAFTA will look like.  As Ross stated:

“One size doesn’t fit all.  The issues of automotive are not the same as the issues of agriculture; they’re not the same as the issues of electronics, or steel. It’s a very, very complicated situation. So it’s very hard to paint just with one big broad brush.”

On March 16, 2017, Canadian Prime Minister Trudeau stated:

“NAFTA’s been … improved a dozen times over the past 20 years. There’s always opportunities to talk about how we can make it better. It has led to a lot of great jobs for a whole lot of people on both sides of the border and I very much take him [Trump] at his word when he talks about just making a few tweaks. Because that’s what we’re always happy to do.

“We’ve got auto parts crisscrossing the border six times before they end up in a finished product. You’ve got over $2 billion a day going back and forth. So, making sure that the border is … secure but also smooth in its flow of goods and people is essential to good jobs on both sides of the border.”

Meanwhile, there are a number of meetings between US, Canadian and Mexican officials preparing for the NAFTA negotiations.

On March 21st, the Trump administration created the attached list, KEY ELEMENTS, of more than 20 foreign trade practices it would like to address in a renegotiation of NAFTA and in any bilateral trade deal it might pursue.  The list includes relatively new areas like foreign currency manipulation, where achieving agreement could be difficult, but also a host of others like intellectual protection that have long been mainstays in U.S. trade agreements.  Payne Griffin, deputy chief of staff at the Office of U.S. Trade Representative, stated:

“These are market problems that the administration has identified either through vigorous consultations with Congress or their own internal research.  It is a non-exhaustive list of things that may be addressed in these bilateral trade agreements.”

CHINA NONMARKET ECONOMY

China has initiated a mandatory 60-day consultation period with both economies before deciding to request a dispute settlement panel to hear its complaint.  China has now decided to only target the EU, which is in the process of trying to change antidumping methodology. Brussels is trying to come up with a new way of treating China under its trade remedy law while still recognizing that Beijing intervenes heavily in its economy.

The United States has said it would only consider a change in response to a formal request from China to be treated as a market economy, something it has not done since 2006.

Apparently, China is trying a strategy of ‘divide and conquer’.  Take on the EU first, because it is already revising its law and they might get a good WTO decision, then face the tougher battle against the U.S.”

MORE TRADE CASES COMING

A law firm that specializes in bringing antidumping (“AD”) and countervailing duty (“CVD”) trade cases recently told me that they are in the process of preparing a number of new cases against China and other countries.  With a sympathetic Trump Administration and a very sympathetic Wilbur Ross as the new Secretary of Commerce, more cases are going to be filed.

ALUMINUM FOIL FROM CHINA

On March 9, 2017, the US Aluminum Foil Trade Enforcement Working Group, including Aleris Inc., Alpha Aluminum, Golden Aluminum, Granges Americas Inc., JW Aluminum Company, Novelis Corporation, Republic Foil Inc., Reynolds Consumer Products, and United Aluminum Corporation, filed major AD and CVD cases against more than $658 million of aluminum foil imports from China in 2016.

The petition alleges duties ranging from at a minimum of 38 percent to a high of 134 percent and targets 232 Chinese exporters and producers of aluminum foil.  The aluminum foil covered by the complaint covers household aluminum foil as well as aluminum foil used in cookware, product packaging and heat exchangers found in cars and HVAC systems.

US importers can be liable for CVD duties on aluminum foil imports from China as soon as August 6, 2017 and AD duties on October 5, 2017.

Attached are the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, 2017.03.08 CHN-ALUMINUM FOIL Petition Vol I 1Narrative IMPORTERNAMES.  If anyone has any questions, please feel free to contact me.

SILICON METAL FROM AUSTRALIA, BRAZIL, KAZAKHSTAN AND NORWAY

Although the US industry may believe AD and CVD petitions will move the Chinese imports share to the US industry, that is not necessarily the case.  Case in point, on March 8, 2016, Globe Specialty Metals Inc. filed major AD and CVD cases against imports of Silicon Metal from Australia, Brazil, Kazakhstan and Norway.  Chinese silicon metal has been under an AD order with shut out rates since 1991.

Attached are the relevant parts of the AD and CVD complaints along with a list of the targeted foreign exporters/producers and US importers, SMALL SILICON METAL PETITION.

The first hearing at the ITC is March 29th.  Commerce will issue questionnaires probably in the first week of April.  Commerce Department preliminary determinations in the Countervailing Duty cases, which is when liability for importers begins, can happen as soon as August.

If anyone has any questions, please feel free to contact me.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

Previous newsletters stated Wilbur Ross has made it very clear to reach the 3% plus growth rate, the US must increase exports.  Yet, at the same time, the Trump Administrations keeps concentrating on deficits and accusing foreign governments of treating US companies unfairly.  Trump and his Administration do not look internally and try to find ways to make the US companies more competitive, which will not create a trade war.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

As stated in my last blog post, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

With the election of Donald Trump, as stated in my last blog post, the Universal Trade War will continue.  In addition to the US bringing AD and CVD cases, countries around the World, such as EC, Canada, Mexico, Brazil, Argentina, India, Turkey, Ukraine, Russia, China, Indonesia, Malaysia, Korea, Japan, Taiwan, Australia, Thailand, South Africa, and Vietnam, all are filing antidumping and countervailing duty cases against each other and the United States.  These countries have adopted the US law which finds dumping in 90% of the cases.  The US and the EC have created a Frankenstein in the antidumping law and the whole World has adopted it.

Compromise is the best way to settle trade disputes, but it is very difficult, if not impossible, to settle US antidumping and other trade cases.  What is “fair” trade for the United States is “fair” trade for every other country.  Many countries want to make their industries Great again.

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.  It will also discuss potential US exports that can be retaliation targets.

MEXICO

On March 6, 2017, Alexandro N. Gomez-Stozzi, a Mexican trade lawyer, at the Gardere firm in Mexico City sent me the following summary of Antidumping and Countervailing Duty Investigations in Mexico:

Mexican Antidumping and Countervailing (AD/CVD) Investigation Procedures Factsheet

  • AD/CVD investigations in Mexico may take from 12 to 18 months as of the publication in the Diario Oficial regarding the initiation of investigation. Terms within the investigative process may be extended with cause, at the discretion of the authority. Investigations are generally conducted as follows (variation of a chart created by Mexican authorities):
  • There is a single investigating authority, the Ministry of Economy´s International Trade Practices Unit (known by its Spanish acronym UPCI, for Unidad de Prácticas Comerciales Internacionales). UPCI makes all relevant findings: (i) dumping or countervailing, (ii) material injury or threat thereof and (iii) causation. Final AD/CVD orders are signed by the Minister of Economy; although informally, trade policy considerations in other sectors come into play before deciding to issue an AD/CVD order. UPCI is also in charge of safeguard investigations.  
  • Investigations are usually requested by Mexican producers representing at least 25% of the total production, although UPCI may initiate investigations if it deems so appropriate.
  • Exporters and importers of affected goods are strongly encouraged to retain Mexican counsel, as all appearances have to be made in Spanish and a domestic service address has to be designated.
  • When issuing a preliminary determination, the authority may: (1) impose a preliminary AD/CVD duty and continue with investigation, (2) continue the investigation without an AD/CVD duty, or (3) terminate the investigation on insufficient evidence grounds.
  • In its final determination, the authority may (i) confirm or modify its preliminary determination to impose an AD/CVD duty, or (2) declare the investigation concluded without imposing an AD/CVD duty. Under stringent circumstances, final determinations may impose retroactive duties for up to three months from date of publication of the preliminary determination.
  • During the course of an investigation, Mexican law allows for interested parties to ask UPCI to convene conciliatory meetings, at which proposals may be presented to resolve the case and terminate the investigation. These proceedings coexist with Antidumping Agreement´s price undertakings.
  • AD/CVD orders remain in effect for 5 years. They may be renewed for similar periods when warranted after a sunset review which covers both dumping (or countervailing) and injury.  Circumvention, actual coverage of AD/CVD orders, and similar proceedings can also be initiated as long as orders are in effect.
  • World Trade Organization (WTO)´s Antidumping and Subsidies Agreements are applied as is in Mexican investigation proceedings. Mexican trade-remedy law and regulations may sometimes be contradictory with WTO agreements; in case of conflict, the WTO Agreements would prevail in court.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law, Team’s newsletter-EN Vol.2017.09.

CFIUS—WILL INVESTMENT RECIPROCITY BE A NEW REQUIREMENT??

There is movement within the United States to establish investment reciprocity as a criteria in investigations by the Committee on Foreign Investment in the United States into its national security reviews of inbound transactions, a policy shift that would weigh the heaviest on Chinese buyers if enacted.

Investment reciprocity — the idea that the U.S. should block a foreign entity’s investment in a particular industry when a U.S. buyer would be similarly blocked in that entity’s country — has been on politicians’ radar since before Donald Trump took office.

Trump made no secret of his leanings on the campaign trail, criticizing in particular a Chinese investment group’s acquisition of the 130-year-old Chicago Stock Exchange, a deal that has since been cleared by CFIUS.

If the U.S. does decide to go this route, there are at least a couple ways the government could go about it. The President could direct CFIUS to focus more heavily on particular industries or use a broader definition of national security, as long as those directives don’t stray too far from the regulations dictated by the Foreign Investment and National Security Act of 2007, or FINSA. Congress can also amend FINSA to expand either the range of industries susceptible to national security review, or even expand the review itself from one focused solely on national security to a review that more broadly considers foreign investments in the U.S.

CHINESE MILITARY BUILDUP TO PROTECT ITS TRADE INTERESTS???

As mentioned in prior blog posts, there is a close relationship between defense/security and trade.  The Japanese attack on Pearl Harbor was created, in part, by the US naval embargo of Japan.

One of the strongest arguments for the Trans Pacific Partnership was the geo-political argument that the TPP would bring us closer to the Asian countries.  Former defense secretary Ash Carter stated at one point that the TPP was equivalent to another US aircraft carrier.

On March 15, 2017, Malia Zimmerman for Fox News in an article entitled “China next US threat? Beijing beefs up military to protect trade”, stated:

With a laser-like focus on protecting its lifeblood – trade – China is dramatically altering its military operations, creating specialized teams that can protect its maritime resources, routes and territorial expansion plans. . . .

Harry Kazianis, director of the Washington, D.C.-based Defense Studies for The Center for the National Interest, stated:

“The great Achilles heel of China is trade—especially natural resources that come via sea and into its ports—and a big reason it will inevitably become a globally deployed military power. Beijing’s armed forces are working to slowly but surely reinforce and protect its overseas hubs as well as trade routes that move from Europe, the Middle East and Africa and into China’s territorial waters.”

ZTE HIT WITH SANCTIONS FOR VIOLATING EXPORT CONTROLS ACT

On March 7, 2007, in a notice and judgement, which will be attached to my blog, judgment 3-22ZTE Corporation Agrees to Plead Guilty and Pay Over $430, the US Justice Department announced that ZTE Corp, has agreed to plead guilty and pay a combined a penalty of $1.1.9 billion for violating U.S. sanctions by sending U.S.-origin items to Iran.  As the Justice Department notice states:

ZTE Corporation has agreed to enter a guilty plea and to pay a $430,488,798 penalty to the U.S. for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement. ZTE simultaneously reached settlement agreements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). In total ZTE has agreed to pay the U.S. Government $892,360,064. The BIS has suspended an additional $300,000,000, which ZTE will pay if it violates its settlement agreement with the BIS. . . .

“ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s – they lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts,” said Attorney General Sessions. “This plea agreement holds them accountable, and makes clear that our government will use every tool we have to punish companies who would violate our laws, obstruct justice and jeopardize our national security.  . . .”

“ZTE engaged in an elaborate scheme to acquire U.S.-origin items, send the items to Iran and mask its involvement in those exports. The plea agreement alleges that the highest levels of management within the company approved the scheme. ZTE then repeatedly lied to and misled federal investigators, its own attorneys and internal investigators. Its actions were egregious and warranted a significant penalty,” said Acting Assistant Attorney General McCord. “The enforcement of U.S. export control and sanctions laws is a major component of the National Security Division’s commitment to protecting the national security of the United States. Companies that violate these laws – including foreign companies – will be investigated and held to answer for their actions.”

“ZTE Corporation not only violated our export control laws but, once caught, shockingly resumed illegal shipments to Iran during the course of our investigation,” said U.S. Attorney Parker. “ZTE Corporation then went to great lengths to devise elaborate, corporate-wide schemes to hide its illegal conduct, including lying to its own lawyers.”

“The plea agreement in this case shows ZTE repeatedly violated export controls and illegally shipped U.S. technology to Iran,” said Assistant Director Priestap. “The company also took extensive measures to hide what it was doing from U.S. authorities. This case is an excellent example of cooperation among multiple

U.S. agencies to uncover illegal technology transfers and make those responsible pay for their actions.”

The plea agreement, which is contingent on the court’s approval, also requires ZTE to submit to a three- year period of corporate probation, during which time an independent corporate compliance monitor will review and report on ZTE’s export compliance program. ZTE is also required to cooperate fully with the Department of Justice (DOJ) regarding any criminal investigation by U.S. law enforcement authorities.  . . .”

According to David Laufman, chief of the counterintelligence and export control section at the DOJ’s National Security Division, it was “extraordinarily difficult” to obtain key documents and witnesses located in China until on March 7, 2016, the Commerce decision to add ZTE to the so-called Entity List.  According to Laufman, “The game-changing event in this case, was the Commerce Department’s decision to pursue an entity listing of ZTE, demonstrating the efficacy of the whole-of- government approach” to national security.

Companies end up on the Entity List after Commerce determines they are tied to illicit weapons programs, terrorism or other national security threats, and thereafter can’t trade with U.S. companies without a special dispensation from the agency.

This may be the first case in which the Commerce Department has used an Entity List designation to force a foreign company to cooperate in a probe.  Commerce will probably start using this strategy in future investigations.

SECTION 337 AND IP CASES

DOMESTIC INDUSTRY FROM PATENT LICENSEE

On March 8, 2017, the US International Trade Commission (“ITC”) issued the attached interesting decision, 2 PAGE ONE PAGE DI, in the Section 337 case Certain Silicon-On-Insulator Wafers.  In that decision, the ITC Administrative Law Judge determined that it could find a domestic industry in a Section 337 if the US patent licensee’s activities show domestic activity.  Even though the patent holder was a non-practicing entity, the ALJ determined:

Silicon Genesis Corporation (“SiGen”), has established contingently a domestic industry in the United States through the activities of its licensee, SunEdison Semiconductor Limited (“SunEdison”) . . . through its licensee, SunEdison, SiGen has proven by a preponderance of evidence that it has made a significant domestic investment in plant and equipment, in capital and labor, and a substantial investment in research and development to produce certain silicon-on-insulator (“SOI”) products at issue in this Investigation.

The decision did not break new ground, but it reminds nonpracticing entities, (“NPEs”) that one way to meet the domestic industry requirement under Section 337 is through the actions of patent licensee in the United States.

NEW 337 CASES AGAINST CHINA

On March 10, 2017, in the attached ITC notice, Intravascular Sets, Curlin Medical, Inc., Moog, Inc., and Zevex, Inc. filed a section 337 case against imports of Intravascular Administration Sets from Yangzhou WeiDeLi Trade Co., Ltd., China.

If you have any questions about these cases or about Trump and Trade, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP, APPOINTMENTS, TRADE POLICY, TAA FOR COMPANIES, CHINA NME AT WTO, SOLAR CELLS, HARDWOOD PLYWOOD, CYBERHACKING, TRADE CASES IN CHINA, CANADA AND MEXICO

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR DECEMBER 19, 2016

Dear Friends,

This newsletter contains several articles about trade and Trump after his victory on November 8th.  As mentioned in my last blog post, the Trump victory will have a significant impact on trade policy.  The TPP is dead.

But the next question is how will Trump help revive manufacturing in the United States and help the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, which put him in the White House?

Will there be a trade war with China and other countries?  Trump’s tough talk on the One China policy indicates a trade war, but his appointments to the US Ambassador to China and to the Commerce Department Secretary indicate the contrary.  Trump, however, may be trying to use uncertainty to create leverage and a deal with the Chinese government on trade and other issues.

Will Trump use taxes to give US manufacturing an advantage at the detriment of imports?

Trump will try and do everything possible to increase jobs in the United States.  Hopefully, that will mean more support to Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them without damaging US downstream production.

In addition, this blog post describes the recent WTO complaint China filed against the United States and the EC for failing to give it market economy status under the US and EC antidumping and countervailing duty laws.  The newsletter also gives the upcoming deadlines under the Solar Cells and Hardwood Plywood cases against China.

Under the Universal Trade War theme, under China is an article on ways in which the Chinese government can retaliate against US companies in the trade war and newsletters from a Chinese law firm.  In addition, under Canada attached is an article from Dan Kiselbach, a Canadian trade lawyer, about whether the Trump Administration can truly get out of NAFTA and also information about the recent Softwood Lumber Case against Canada.  Finally, from Mexico there is information about a recent Carbon Steel Pipe and Tube case filed against imports from Korea, India, Spain and Ukraine, along with a brief description of Mexican antidumping law.

Finally, there is an announcement from the Justice Department about the accomplishments in the recent US/China meetings on Computer Hacking and also recent 337 intellectual property cases against China.

If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address bill@harrisbricken.com.

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP AND TRADE – A BULL IN A CHINA SHOP OR A SAVVY NEGOTIGATOR?

On December 2, 2016, President-elect Donald Trump took a phone call from President Ing Wen Tsai of Taiwan.  Trump’s decision to take the phone call from the Taiwan President created a fire storm as commentators questioned whether the United States would stick to the “one China” policy that implies that Taiwan is a part of China and that the long term relationship between China and the US would change.

In response, many commentators wrote articles suggesting that Trump was a “Bull in a China shop”, a clumsy inexperienced person taking actions without thinking about consequences.  Chinese media called Trump “an ignorant child.”

It has since come out that the specific phone call with President Tsai had been discussed for several months and set up by former Republican Congressional leader Bob Dole.  In fact, in addition to taking the call from President Tsai, President-elect, Trump met with Henry Kissinger, who is serving as a liaison for the Chinese government.

Instead of a Bull in China Shop, what President-Elect Donald Trump may have been trying to do with China is create a perception of strength and set up a sense of uncertainty.  What is Trump going to do?

President Ronald Reagan was a master at playing a similar game.  Projecting strength and also a feeling of uncertainty.  What is Reagan going to do?  Reagan’s projection of strength and uncertainty created agreements with Russia that led to the collapse of the Soviet Union.

A projection of strength and a sense of uncertainty gives Trump something Reagan had—leverage, which makes it easier to negotiate better deals.

On December 11. 2016, Trump stated on Fox News:

“I fully understand the ‘one China’ policy, but I don’t know why we have to be bound by a One China policy unless we make a deal with China having to do with other things, including trade.”

Companies and countries should not make the mistake that many in the mainstream US media have made.  Do not underestimate Donald Trump.  He is not an ignorant child and many of his advisors are very knowledgeable about China.  Trump wants a deal with China and he will not give something for nothing.

TRUMP’S APPOINTMENTS DO NOT INDICATE A TRADE WAR WITH CHINA

BRANSTAD TO BE AMBASSADOR TO CHINA

Through his appointments, Trump is indicating that he realizes how important the relationship is with China and he intends to appoint experts that understand China.  On December 7th at a “Thank You” rally in Iowa, President-elect Trump announced that six term Iowa Governor Terry Branstad will be his pick for Ambassador to China.  Governor Branstad has personally known Chinese President Xi Jinping since 1985 when Branstad was governor of Iowa and Xi was an agricultural official in northern China. For two weeks, Xi stayed with a family in the town of Muscatine, Iowa, an experience he likes to recall when visiting the State.  Subsequently he met with Gov. Branstad in 2012 as vice chairman of the Chinese government.

Chinese foreign ministry spokesman Lu Kang welcomed Branstad as an “old friend of the Chinese people” playing “a bigger role in China–U.S. relations”.

Branstad is also a friend of Trump, working actively on Trump’s campaign.  During the general election, his son, Eric Branstad, managed Trump’s campaign in the state. Trump then won in Iowa, 51% of the vote to 42% for Clinton.

This appointment may be a signal that President-elect Trump does not want a trade war with China because Iowa has $2.3 billion in exports to China mostly agricultural exports, including corn and soybeans.  Trump’s selection of Branstad for the most important diplomatic position to China suggests that the president-elect wants to keep negotiating channels open with Beijing, rather than adopt a knee jerk confrontational attitude

On December 8, 2016, at a speech in Iowa, which can be found at https://www.youtube.com/watch?v=-rPh9YG3AmY, Trump stated:

“One of the most important relationships we must improve and we have to improve is our relationship with China.  The nation of China is responsible for almost of half of America’s trade deficit.

China is not a market economy they got a lot of help and that is why we designate them as being them as a nonmarket economy.  Big thing.”

Trump went on to state, that the Chinese government has not “played by the rules, and they know it’s time that they’re going to start.” Trump went on to cite that China was responsible for “massive theft of intellectual property,” “putting unfair taxes on our companies,” “massive devaluation of their currency” and “product dumping”.

Trump further stated that the Ambassador he was going to appoint to China has “lots of friends there”.  According to Trump, Branstad requested that Trump not speak ill of China because in Iowa “we do well with China”.

Trump also stated that he is looking to work on the relationship between China and the US and that Governor Branstad “knows China and likes China” and “knows how to deliver results.”  Trump went on to state that Governor Branstad is highly respected by Chinese officials and a great friend of mine.

Donald Trump finished by stating “We’re going to have mutual respect, and China is going to benefit and we’re going to benefit. And Terry is going to lead the way.”

As the phone call with President Tsai of Taiwan indicates and his statement to Fox News, Trump is no push over.  There is a new strong President in town so do not try and bully him.  This President has options.

On the other hand, during the Primary and even after the election, well-respected conservative newspapers and commentators have stated that President Trump has to be careful not to create a trade war, especially with China.  As recently as November 30, 2016, in Investors Business Daily, the one newspaper that projected a Trump victory prior to the election, two commentators, Congressman David Mcintosh and Scott Linicome in an article entitled “Trump Should Tread Softly On His New Trade Agenda” stated:

“exploiting ambiguities in the current web of U.S. trade laws to enact the President’s trade priorities by executive fiat could engender opposition from Congress, the U.S. business community and U.S. trading partners, thus leading to court challenges similar to those fled by the Republican Congress against President Obama’s executive actions on immigration.

The crucial difference, however, is that the months of uncertainty surrounding the trade challenges would imperil trillions of dollars’ worth of goods and services, especially if the courts refused to enjoin the executive branch from acting while any such litigation is pending.”

WILBUR ROSS—NEXT COMMERCE DEPARTMENT SECRETARY

In addition, as explained in more detail below, Trump has decided to appoint billionaire private equity investor Wilbur Ross, a Warren Buffet type, to be the next Commerce Department Secretary.  Trump’s decision to appoint Ross, a brilliant investor, industry expert and deal maker, indicates a decision to put trade/business professionals at the highest level in his Administration, who are very experienced with regard to business, international competition and China.

Ross was one of the important creators of Trump’s economic plan, which the campaign claimed will increase federal revenues by $1.7 trillion.  With regards to Tariffs, Ross has specifically stated:

“Tariffs will be used not as an end game but rather as a negotiating tool to encourage our trading partners to cease cheating.  If, however, the cheating does not stop, Trump will impose appropriate defensive tariffs to level the playing field.”

In this video interview with the Epoch Times, Wilbur Ross himself shows a great knowledge of the US relationship with China, http://www.theepochtimes.com/n3/1751796-billionaire-investor-wilbur-ross-china-still-lags-us-in-innovation/.  In the video, Ross acknowledges that although China has made progress, the US is the most innovative country in the World.  Ross also states that in 2003 when he spoke out against China he was acquiring the majority interest in Bethlehem Steel and he was against Chinese companies’ product dumping:

“namely selling products for less in a foreign market than their true price in your domestic market.

That’s the kind of activity that we think should be protected against. We are generally free market people but what was happening back in the early 2000s with steel and what is starting to happen again, is that product was actually being sold in this country for less than the total cost of manufacturing it.

That’s not legitimate competition. If someone can make things more inexpensively in their country and sell it here that’s fine with me. But it shouldn’t be that they have one price in their country and a lower price outside.”

In the video Ross further states that the reason China was dumping is:

“they had a period of overcapacity and because China is so much about jobs as opposed to profits, it was very important for the government to maintain jobs. So to maintain jobs they had to maintain production, even though there was not enough demand for it. The way they tried to solve the problem was by dumping it outside.”

Ross is correct that with its large overcapacity, most Chinese steel companies were dumping and probably at very high rates.  But as indicated below, since the Commerce Department continues to treat China as a nonmarket economy and refuses to look at actual costs and prices in China, no one knows for certain which Chinese companies are truly dumping and what the real dumping rate of the Chinese companies is.

With regard to Chinese innovation, Ross indicates that he is very knowledgeable about China stating:

“China is coming along in terms of innovation. They now have the world’s biggest and fastest computer. That would have been unimaginable a decade ago. They’ve launched spaceships into outer space. They have not yet gotten to be as innovative as the United States is, nobody has been as innovative. Year after year the United States gets more patents than any other country by a wide margin. Interestingly, it’s Japan that comes in second.”

As to why China lags the US in innovation, Ross states:

“The United States is basically a free market economy and their entrepreneurship has been highly prized here for centuries and centuries so there’s a real tradition of risk-taking. Innovation involves a lot of risk-taking.

A state-owned enterprise is much less likely to be a big risk-taker then private capital. Since China had been so dominated by the state-owned enterprises it’s hard in a big bureaucratic system to be innovative. Look at the U.S. government itself, what interesting innovations have they come up with?”

Being a Warren Buffet type and very involved in the US Stock market, Wilbur Ross also has very educated views about the problems with the China Stock Market:

We think that China has two separate problems right now. One is the market itself, the equity market, and that got completely out of control. . . .

I think what then happened, the government seemed to have panicked and made lots and lots of very panicky moves. They first raised the margin requirement then they lowered it. They threw hundreds of billions of dollars into the market. Now they’re prosecuting people who spread negative stories about the market.

I think the difficulty with all that is, when a government shows signs of panic, particularly a government that historically has been able to control what happens pretty well, when that government shows panic it makes people more frightened, not less frightened.

Like many China experts, Ross believes that China’s growth numbers are not accurate:

The Chinese economy clearly is not growing at anything like 7 percent. We have felt for a couple of years that those figures were very, very generous. If you look at physical indicators—electricity consumption, natural gas consumption, oil consumption, cement consumption, steel consumption, telecom consumption, retails sales—if you look at all those indicators, none of them were growing at a rate that was equal to 7 percent and neither were the exports.

With regard to economic reform in China, Ross states:

I think what they’re trying to do is several things all at once and that makes it very challenging.

They’re trying to become more of a consumer-driven economy, but the reality is that their largest driver is capital investment. It’s hard to make that transition because capital investment is still about 44 percent of the economy.

They’re trying to make the transition, but meanwhile they’re doing the very- much-needed anti-corruption drive and that in a strange way has hurt consumer spending.  . . .

I think they’ll get there, just that the transition is a hard one. Meanwhile there is super-imposed upon it, the economic issues in the rest of the world. Combined with China’s rising labor costs and the very strong currency, make it very difficult to be an exporter.

These responses along with the video indicate that Ross is not a knee-jerk protectionist and has a deep knowledge of China, which does not indicate a trade war any time soon.

COULD TAXES BE THE WAY TRUMP MAKES US INDUSTRY GREAT AGAIN

On the other hand, Trump and Republicans in Congress may be creating an alternative to tariffs to spur US manufacturing and that is taxes.  In the Congress, one proposal in the House Republicans’ tax-reform plan is to give American-made products a big tax advantage over their foreign competitors.  Although some commentators have pointed to a potential trade war, Ways and Means Chairman Kevin Brady stated, “We are now in the process of designing all aspects of our ‘Build for Growth’ tax plan to withstand any WTO challenge. We’re confident we can win any case.”

The key issue is a plan to fundamentally remake the tax system by taxing US companies based on where they sell their goods, not where the business happens to be located. As part of that, Republican tax legislators want to include what experts call “border adjustments” — new taxes on imports as well as tax rebates on exports.  This plan would replace the current corporate tax code with something known among experts as a “border-adjustable, destination-based” tax system.  Under their proposal, imports would be charged the same 20 percent tax that domestic companies would face. Exports would be excused from taxes.  It would amount to a fundamental change, with the government taxing companies based on where they sell their wares, rather than where the business is located.

According to tax experts, this new tax plan would offset inversions and other types of international tax avoidance because companies would have less incentive to go to other countries looking for tax savings. The proposal would also finance a huge chunk of the Republicans’ overall tax plan — the Tax Policy Center estimates border adjustments would raise $1.2 trillion, making it the third-largest pay-for in the plan.

The proposal is already controversial because it threatens big tax increases to many large retailers, such as Walmart and Home Depot and other companies, which heavily rely on imports.

But critics say it would also violate free-trade agreements by favoring American-made goods over imports. That’s because, while they would all be subject to the same 20 percent tax, U.S. companies would be able to deduct the cost of workers’ pay when calculating their tax bills. Imports would not be given the same treatment and the difference could be dramatic.

If a U.S. company sold a product for $100 and it spent $70 on its workers’ pay, under the Republican plan the remaining $30 would be subject to the 20% tax. That would produce a $6 tax bill. An imported version of the same product would be forced to pay the 20% tax on the entire $100 sale, producing a $20 tax bill.

On December 7, 2016, Koch Industries came out against the Border Adjustment provision of the new tax overhaul with Philip Ellender, the head of government affairs at Koch Companies Public Sector LLC, stating that the so-called border adjustment proposal currently being considered by Republican lawmakers:

“would adversely impact American consumers by forcing them to pay higher prices on products produced in and goods imported to the U.S. that they use every single day.  While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long term consequences to the economy and the American consumer could be devastating.”

Another problem is the World Trade Organization (“WTO”) allows border adjustments for so-called indirect taxes on transactions, such as value-added taxes, but not on direct taxes, such as income taxes. The Republican plan is a hybrid, raising questions about how the WTO would categorize it.

Any change in US tax treatment could be challenged by other countries in the WTO as a violation of the WTO Agreement of most favored nation, which requires imports to be treated the same as domestically produced products.  If a WTO tribunal were to rule against the United States, the prevailing countries could be allowed to retaliate against US exports to account for the injury to their exports, which could be as high at $1.2 trillion.

But any challenge in the WTO will take years to litigate.  A good example of this is the Byrd Amendment.  The Byrd Amendment allowed US petitioner companies to get the dumping and countervailing duties collected by Customs.  The Byrd Amendment passed in 2000 and after WTO litigation resulting in possible retaliation by other countries against the United States, the Congress repealed the Byrd Amendment in December 2005 on 51 to 50 vote in the Senate with Vice President Cheney breaking the tie.  But for five years US petitioners collected the duties.

So instead of a direct protectionism using tariffs, any protectionism may be indirect, but it will have the same effect.  Give US companies a major incentive to produce their products in the US, rather than rely on imports.

But the real problem with the tax plan is international trade/globalization victimhood which will lead the companies not to make the changes they need to make to be competitive.  Just like the steel industry, US companies would continue to hunker down behind protectionist walls and never modernize their production to meet competition.  That is the problem.  As President Reagan himself observed, protectionism makes companies weaker not stronger and in the end does not save the companies and industries that are being protected.

On December 13th in a letter to Congress more than 50 retail and manufacturing associations urged Congress to abandon border tax adjustments saying the proposal to increase taxes on all imports could hurt domestic industry.  Although the retail groups argue that border tax adjustments could raise consumer prices, as the letter states the real problem is the impact of higher raw material costs on downstream US production:

“Companies that rely on global supply chains would face huge business challenges caused by increased taxes and increased cost of goods, which would in turn likely result in reductions in employment, reduced capital investments and higher prices for consumers.”

Congress does not care if prices for consumer products go up a few dollars at Walmart, but what happens when US downstream producers in Congressional districts are forced to close down because of higher raw material costs.  As one friend, who represented a major steel producer for years, told me, the total employment in the entire Steel industry is less than one high tech company and yet we want to protect the Steel industry at the expense of downstream high value added US production?

TRUMP APPOINTS WILBUR ROSS A PRAGMATIST TO BE COMMERCE DEPARTMENT SECRETARY

As indicated above, President Elect Donald Trump has announced that he will appoint billionaire investor Wilbur Ross as the next Secretary of Commerce.  Ross is a pragmatist, not an ideologue, who understands and values the problems of the working class more than other capitalists.  As Ross states in the following video http://www.theepochtimes.com/n3/1750905-billionaire-investor-wilbur-ross-on-the-people-factor-in-investing/:

“That man who has stood behind a machine for 15 or 20 years, he knows better than the people who built it, how to get more productivity out of it. So you need   to create an environment where he feels someone will pay attention if he makes a suggestion, and if it turns out to be a good suggestion, that he’ll be rewarded for it.”

Ross, worth $2.9 billion according to Forbes, has made his name in distressed assets investments and rose to fame turning around Bethlehem Steel for a short time as well as Burlington Industries.  Ross also worked closely with labor unions, stating:

“There’s a big misconception in management–labor relations throughout the industrial world; too often management and labor view each other as adversaries. We truly view labor as our partner because they only have one company they’re working with and we only have one group of workers.

So we think it’s very important that we have a good, functional relationship. We don’t negotiate with unions having a big battalion of lawyers and accountants and human relations people. We tend to negotiate mano-a-mano with the union leadership. Once we’ve worked out the essence of the deal, we then turn it over.”

Ross probably knows the Rust Belt better than any politician, one of the reasons why President-elect Trump picked him.   In the early 2000s he combined Acme Steel, LTV Steel, and Bethlehem Steel saving all of them from bankruptcy for a short period of time and returning the employees to the job but under new work rules and with 401(k)s instead of pensions.

Meanwhile, in early 2000, China suddenly had an insatiable demand for steel, combined with the U.S. automakers’ zero-percent financing push.  American steel was suddenly red hot. The price per ton of rolled steel soared and Ross took the new entity, ISG, public in December 2003.  Ross then sold ISG combined entity to Indian steel giant Mittal in 2005 for $4.5 billion.  As Ross stated:

“It’s nice being the chairman of a huge company in a vital industry. But it’s nicer to make fourteen times your initial investment in just two years.”

Eventually, however, Bethlehem Steel fell into bankruptcy.

OPEN LETTER TO NEW COMMERCE DEPARTMENT SECRETARY WILBUR ROSS— ONLY TRADE REMEDY PROGRAMS THAT SAVE US COMPANIES—TAA FOR FIRMS/COMPANIES AND MEP

The Honorable Wilbur Ross

New Commerce Department Secretary Trump Administration

Re: Trade Adjustment Assistance for Firms/Companies and MEP– Only Trade Remedy Programs That Save US Companies

Dear Secretary Ross,

The Press reports that President-elect Donald Trump has nominated you to be the next Commerce Department secretary.  Your expertise in working with bankrupt US companies, such as Bethlehem Steel, gives the United States a unique chance to make its industry great again.

In the 1980s during the Reagan Administration, I worked at the Commerce Department and before that at the US International Trade Commission.  Since the 1980s, I have represented many US importers/foreign producers in international trade cases, including metal, chemical and steel products, and am now on the Board of Directors of the Northwest Trade Adjustment Assistance Center in Seattle, Washington, which provides assistance to US companies injured by imports.

In my experience, ultimately these unfair trade cases do not work.  Although they provide a breathing space, they do not save the companies and the jobs that go with them.  Importers simply switch to a new country.  Both of us have experience with Bethlehem Steel, which had 40 years of trade protection from steel imports through various antidumping and other trade orders.  Where is Bethlehem Steel today? Green fields.

But trade cases also create enormous collateral damage in downstream industries that need competitive raw material inputs.  Many US companies may use the cases to hide behind protectionist walls.  The “hunker down” mindset is not in America’s DNA.  Instead, this nation’s manufacturing businesses need to regain the competitive dynamism they once possessed. We need a new aggressive US manufacturing policy unleashing American global competitiveness to make companies strong enough to not only survive, but thrive in the US market.

A starting point would be for the Commerce Department to build upon two existing programs that have proven track records of success in this area that can be quickly ramped up and can have an immediate and tangible impact on the 250,000 small and medium manufacturing companies which serve as the bases of our supply chain: EDA’s Trade Adjustment Assistance for Firms /Companies (“TAAF”) and NIST’s Manufacturing Extension Partnership Program (“MEP”) (inexplicably, these programs have been marginalized by the Obama Administration).  TAAF has 11 regional (multi-state) TAAF Centers but the program has been cut to only $12.5 million annually. The system has the band-width to increase to a run rate of $50 million.  Projecting a four-year ramp up of $90 million (FY18-FY21), the TAA program could serve an additional 2,150 companies.

No federal funds go to any companies in the program. In fact, companies are required to pay into the program by matching any federal monies on a dollar-for-dollar basis. This sharing of costs between Uncle Sam and the companies creates a pool of seed dollars subsequently used to hire outside professionals. These professionals create a series of knowledge-based projects aimed at permanently upgrading key business processes over the span of several years. Here’s the kicker – the program does not block imports in any way.

Does it work? Yes it does. In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, 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.

NIST’s MEP program provides high quality management and technical assistance to the nation’s small manufacturers through independent Centers in every State and Puerto Rico, staffed by non-federal advanced manufacturing experts and is one of the remedies suggested by TAAF.  MEP reaches nearly 30,000 firms each year, and works intensively (think “McKinsey for manufacturers”) with nearly 10,000 of them.  As a consequence of a just completed nation-wide reinvention and reform of the program, MEP is positioned to assist even more companies.  Currently funded at $130 million, a commitment of $100 million over four years would serve an additional 8400 firms.  These funds could be targeted to those small and medium enterprises that are the base of our domestic supply chain, critical to your overall reshoring agenda.  Like the TAAF program, no MEP funds go directly to the companies, which instead are required to cost share the cost of expert consultants.  They have “skin in the game”.

Increasing funding will allow the TAA for Firms/Companies and the MEP programs to expand their bandwidth and provide relief to larger enterprises, including possibly even steel producers.  If companies that use steel can be saved, why can’t those who produce it?

Attached is a longer proposal on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

I wish you great success in your new appointment.  It gives me a level of confidence for the future of America’s manufacturing base that hasn’t been felt for quite some time.

I hope that the above has been of some interest. I would consider it an honor to expand on it in person if you think it appropriate.

Very truly yours,

William Perry

CHINA SUES US AND EC IN WTO FOR FAILURE TO GIVE CHINA MARKET ECONOMY STATUS IN AD AND CVD CASES ON DECEMBER 11, 2016

As indicated in past blog posts, pursuant to the China WTO Accession Agreement, from the Chinese point of view December 11, 2016 is the date when countries can no longer treat China as a nonmarket economy country under their antidumping (“AD”) and countervailing duty (“CVD”) law.  Neither the United States nor the EC declared China a market economy country on December 11th so predictably China has filed a WTO complaint against the US and EC over their price comparison methodologies used in their AD and CVD laws.

On December 12, 2016, in the attached notice, wto-2016-news-items-china-files-wto-complaint-against-us-eu-over-price-comp, the WTO announced:

“China notified the WTO Secretariat that it had requested dispute consultations with the United States and the European Union regarding special calculation methodologies used by the US and EU in anti-dumping proceedings.”

Pursuant to US antidumping law, since China is a nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping.  Instead Commerce constructs a cost for the Chinese company using consumption factor information from China and “surrogate” values from import statistics in 5 to 10 different surrogate countries. In its proceedings, the Commerce Department can choose value data from different countries between a preliminary and final determination and between initial investigation to review investigation.   Because of the numerous surrogate values from many different surrogate countries, it is impossible for the Chinese company, never mind the US importer, to know whether the Chinese company is dumping.

As former USTR General Counsel Warren Maruyama recently stated:

“The nonmarket economy methodology tends to generate extremely high margins and a lot of Chinese companies have basically concluded that it’s futile to defend NME cases, so this is a dispute with extremely high stakes for both sides.”

The controversy surrounds Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, which provides:

Price Comparability in Determining Subsidies and Dumping . . .

(a) In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules: . . .

(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product. . . .

(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member’s national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.  In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

In other words, pursuant to the China WTO Accession Agreement, Commerce’s right to us a nonmarket economy methodology in Article 15 (a)(ii) “shall expire 15 years after the date of accession”.  China acceded to the WTO on December 11, 2001 so Section 15(d) should have taken effect on December 11, 2016, but did not.

But where did the 15 years come from?  It came from a demand by the United States in the 2000 US China WTO negotiations and the resulting US-China WTO Accession Agreement. In fact, several years ago, former USTR Charlene Barshefsky, who negotiated the US China WTO Agreement, was asked at a conference in Beijing where the 15 years came from.  Her response was that she knew what she needed to get from the Chinese government to get the Agreement through Congress.  A USTR negotiator once told me that, in fact, this was “nonnegotiable demand” from the US government.  So you would think that the US government would follow the Agreement it negotiated with China and the demand that it made of the Chinese government.  Not so fast.

The United States’ apparent position is that although the 15 years was demanded by the US, since the 15 years is in not in a Treaty approved by Congress, the US does not have to follow the provision because it is not in the US Antidumping and Countervailing Duty law.

Iran has market economy status and has always been considered a market economy country.  Although once classified as nonmarket economy countries, Russia and Ukraine have market economy status under the US antidumping law.  Why and how did they become market economy countries?

For Russia, it was 911.  As a result, of the 911 attack the US government wanted Russian bases to attack Afghanistan.  President Putin told the United States Government make Russia a market economy country under the US antidumping law.  Secretary Evans of Commerce flew into Russia and said looks like a market economy to me.  See http://news.bbc.co.uk/2/hi/business/2032498.stm; http://www.themoscowtimes.com/business/article/washington-mulls-status-of-russias-economy/247431.html; http://www.russialist.org/archives/5545-4.php.

As CBS news stated about the announcement:

The Russian leader has aggressively pursued closer ties with the West since the Sept. 11 terrorist attacks, and many analysts had predicted the United States would grant Russia market economy status and help in its WTO bid in exchange for Putin’s strong support for the U.S.-led campaign in Afghanistan.

http://www.cbsnews.com/news/russia-joins-club-capitalism/

Sources in China reported that when he learned about the decision then Premier Zhu Rongyi in China was extremely angry, stating how could Russia get market economy before China?  The answer—politics and the Chinese know it.

What about Ukraine?  How did it get market economy?  Orange Revolution.  On February 17, 2006, Commerce determined that Ukraine is a market economy country.  See http://www.trade.gov/press/press_releases/2006/ukraine_021706.asp; 71 Fed. Reg. 9520 (February 24, 2006).

Regarding China’s challenged in the WTO, Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics, recently stated:

“I think this is potentially far more significant than most trade disputes … because the Chinese believe, with some justification, that they were promised something both verbally and in writing back at the time when they were negotiating their accession and now both Europe and the United States are walking away from it.”

SOLAR CELLS FROM CHINA PRELIMINARY DETERMINATION

On December 19, 2016, the Commerce Department issued the attached preliminary determination, 2014-2015-solar-cells-from-china-preliminary-determination, in the 2014-2015 antidumping revivew investigation on Solar Cells from China.  Trina received an antidumping rate of 7.72%, Canadian Solar 30.42% and separate rate companies received a rate of 13.97%, the weighted average of Trina and Canadian Solar’s dumping rates.  These are just preliminary rates and those rates can change in six months in a preliminary determination.

SOLAR CELLS FROM CHINA REVIEW INVESTIGATION STARTS THIS MONTH

As indicated in the attached Commerce Department review notice, december-2016-commerce-opportunity-to-request-reviews, this is the month to request review investigations in the Solar Cells ( formal name “Crystalline Silicon Photovoltaic Cells”) from China case.  Requests for review investigation must be filed at the Commerce Department by December 31st.

There has been much confusion about the difference between the Solar Cells case and the Solar Products (formal name “Crystalline Silicon Photovoltaic Products”) case.

The Solar Cells from China case covers exports and imports of Chinese Solar Panels with Chinese produced solar cells in them. The anniversary month is December to request a review investigation and the review period will cover imports and sales of Solar Cells to the United States during the period December 1, 2015 to December 31, 2016.

The Solar Products from China case covers exports and imports of Chinese Solar Panels with foreign produced solar cells in them. The anniversary month is February to request a review investigation and the review period will cover imports and sales of Solar Products to the United States during the period February 1, 2016 to January 31, 2017.

NEW HARDWOOD PLYWOOD AD AND CVD CASE AGAINST CHINA

On November 18th, the Coalition for Fair Trade in Hardwood Plywood and its individual members: Columbia Forest Products (Greensboro, NC), Commonwealth Plywood Inc. (Whitehall, NY), Murphy Plywood (Eugene, OR), Roseburg Forest Products Co. (Roseburg, OR), States Industries, Inc. (Eugene, OR), and Timber Products Company (Springfield, OR) filed an AD and CVD case against imports of hardwood plywood from China.

On December 9, 2016, in the attached factsheet, factsheet-prc-hardwood-plywood-products-ad-cvd-initiation-120916, the Commerce Department initiated the AD and CVD cases.  To get a separate antidumping rate in the AD case, Chinese companies must submit a quantity and value questionnaire by December 22, 2016 and a separate rates application by January 13, 2017.

If anyone has any questions about this process, please feel free to contact me.

STEEL TRADE CASES

On November 30, 2016, in the attached factsheet, factsheet-multiple-clt-plate-ad-final-113016, Commerce announced its affirmative final determinations in the AD investigations of imports of certain carbon and alloy steel cut-to-length plate from Brazil, South Africa, and Turkey.  The Brazil AD rate is 74.52%.  The South African rate ranges from 87.72% to 94.14%.  The Turkey rate ranges from 42.02% to 50%.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

With the election of Donald Trump, as stated in my last newsletter, the Universal Trade War will continue.  In addition to the US bringing AD and CVD cases, countries around the World, such as EC, Canada, Mexico, Brazil, Argentina, India, Turkey, Ukraine, Russia, China, Indonesia, Malaysia, Korea, Japan, Taiwan, Australia, Thailand, South Africa, and Vietnam, all are filing antidumping and countervailing duty cases against each other and the United States.  These countries have adopted the US law which finds dumping in 90% of the cases.  The US and the EC have created a Frankenstein in the antidumping law and the whole World has adopted it.

Compromise is the best way to settle trade disputes, but it is very difficult, if not impossible, to settle US antidumping and other trade cases.  What is “fair” trade for the United States is “fair” trade for every other country.  Many countries want to make their industries Great again.

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.

CHINA

HOW THE CHINESE GOVERNMENT CAN RETALIATE

What Happens When Trump Starts a Trade War with China

By Adams Lee, Partner, Harris Bricken

During the campaign, Donald Trump said “we can’t continue to allow China to rape our country” and vowed to aggressively fight back against China’s unfair trade practices. Trump promised his trade agenda would:

(1) declare China to be a currency manipulator,

(2) impose a 45 percent tariff on all Chinese imports into the U.S.,

(3) abandon/ renegotiate “bad” trade agreements such as the Trans-Pacific Partnership (TPP), and

4) use the full arsenal of US trade laws against Chinese unfair trade practices.

President-elect Trump’s trade actions likely will raise many legal and policy questions.  Can he really do that? Should he do that? Will those actions achieve anything? Pundits, academics, lawyers, and ultimately U.S. judges will weigh in on these questions, but it is fair to assume China will not wait for the resolution of these questions.  Instead China likely will retaliate with its own actions. This post looks at three possible ways China could respond to any attempts under the Trump administration to get tough against China.

  • China’s AD/ CVD Actions

Unbeknownst to many, China has initiated many of its own antidumping (AD) and countervailing duty (CVD) actions against the United States and other countries.  Having been on the receiving end of the most number of AD/CVD actions worldwide, China has incorporated into its own AD/CVD procedures some of the most effective techniques and practices from the AD/CVD investigations conducted by the U.S., EU, and other jurisdictions. For example, China’s AD questionnaires have burdensome and comprehensive sales and cost data requests, similar to, and even exceeding US practice. China’s AD/CVD margin calculation methodologies are as non-transparent as the EU’s margin calculations. China has even copied many of the annoying administrative practices of the US and EU such as giving only limited extensions, disregarding national holidays, or insisting on burdensome filing requirements (e.g., all documents of all filings must be fully translated into Chinese).

To date, China’s AD/CVD actions have largely been symbolic and timed to be initiated after specific U.S. actions against China.  Although many of China’s AD/CVD cases have involved well-known companies (e.g., Corning, Dupont, Tyson Foods, Cadillac), most of these cases have had only limited economic impact. For example, in 2010, China imposed AD/CVD duties against U.S. chicken broiler products after the U.S. imposed special safeguard duties against Chinese tires in 2009. Most of the U.S. exports to China were of chicken feet, which had limited demand in the U.S., other than as a byproduct to make animal feed.

More recent China AD/CVD actions, however, have had greater strategic economic impact.  After the US and EU filed AD/CVD actions against Chinese solar cells and modules in 2011, China retaliated by initiating its own AD/CVD actions against solar-grade polysilicon from the United States, EU and Korea. China’s AD/CVD action effectively closed off the largest export market for US polysilicon producers, and was a significant contributing factor to REC Silicon’s decision to shutter its polysilicon production operations in Washington and Montana.

Even more recently, China in late September announced preliminary AD duties of 33.8% and CVD duties of up to 10.7% against imports of U.S. distillers dried grains (DDGS), an ethanol by-product used as animal feed. The U.S exported $1.6 billion of DDGS to China in 2015.

China apparently already has an AD/CVD action prepared against U.S. soybeans exports to China and is just waiting for the right time to initiate the action. The U.S. is the largest producer and exporter of soybeans and exported over $10 billion of soybeans to China in 2015.  If Trump wants to get tough against China, US soybean producers may well become collateral damage in the latest round of the escalating US-China trade war.

  • China’s Antitrust Enforcement

Another option for China to respond against any anti-China trade actions from the U.S. would be through the enforcement of its antitrust laws.  Although China implemented its anti-monopoly law only in 2008, China has become increasingly active in reviewing mergers and investigating abuse of market dominance. In February 2015, Qualcomm paid $975 million fine to settle Chinese antitrust investigations into its alleged abuse of market dominant position.  In 2016, China’s antitrust authorities have targeted pharmaceuticals, medical devices, vehicle manufacturing, ocean shipping, and smart manufacturing as industries of particular concern.  U.S. companies operating in these industries should be aware of possible dawn raids of its corporate offices in China and other enforcement action by Chinese antitrust authorities. Because these industries are already prioritized for extra scrutiny, China could ramp up its antitrust enforcement actions as an indirect way to retaliate quickly against Trump’s actions against China.

  • China’s Criminal Enforcement

China could also retaliate by simply enforcing its own criminal laws against foreign (i.e., U.S.) company officials while in China. Earlier this month, China detained at least three employees of Crown Resorts, Ltd, an Australian gambling company, and will be pursuing criminal charges because under Chinese law casinos are not allowed to promote gambling in China or organize groups to go to casinos overseas. No one knows where and when the next China anti-corruption effort will occur, but foreign companies doing business in China in important or politically sensitive industries need to be extra cautious.  Company officials need to know which way the wind is blowing in China, particularly when Trump’s enflamed trade rhetoric may trigger Chinese backlash.

So far, although Trump has talked a lot about China, China has taken the high road noting that U.S.-China trade relations are “too big to fail”. China appears to be waiting to see if Trump’s actions will in fact harm China.  For example, Trump’s decision to abandon the Trans-Pacific Partnership actually opens the door for China to step in and fill the TPP void by promoting its own regional trade agreement (RCEP – Regional Comprehensive Economic Partnership).  If, however, Trump does do anything that China considers excessive, it would be naïve to think China will do nothing.  Unlike the U.S.-Japan trade wars from the 1980s, China has a home market that is often the biggest export market for US producers. China has many options under its own laws to directly or indirectly retaliate against U.S. interests.  Anyone wishing to do business in China or with China should consider these risks that they could be targeted for symbolic retaliation in a spiraling US-China trade war.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters teams-newsletter-en-vol-2016-44, teams-newsletter-en-vol-2016-45 teams-newsletter-en-vol-2016-46, from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office.

CANADA

LUMBER FROM CANADA CASE COMES BACK

On November 25, 2016, the Committee Overseeing Action for Lumber International Trade or Negotiations, the domestic lumber companies, filed an antidumping and countervailing petition against softwood lumber products from China.  In the attached notice, factsheet-canada-softwood-lumber-productsad-cvd-initiation-121616, on December 16, 2016, the Commerce Department initiated an antidumping and countervailing duty case on solftwood lumber products from Canada.

THE CANADIAN VIEW

In attached footnoted article, trumpnaftafinal, Dan Kiselbach, a well-known Canadian Trade and Customs lawyer, at Deloitte Tax Law in Vancouver, Canada discusses whether and how Trump can cancel NAFTA.

MEXICO

MEXICAN ANTIDUMPING CASE—CARBON STEEL TUBE FROM KOREA, SPAIN AND UKRAINE.

On December 15, 2016, in the attached notice in Spanish, dof-15-dic-16-resolucion-inicio-investig-antidumping-import-tuberia-de-a, the Mexican Government started up its own antidumping investigation against imports of carbon steel tube from Korea, India, Spain and Ukraine.  A large number of US companies have been named as respondent exporters.  All the exporters are named in pages 7 to 11 of the notice.

In the attached memorandum, carbon-steel-pipe-and-tube-mexicowhich will be attached in full on my blog, www.uschinatradewar.com, David Hurtado Badiola, a well known Mexican Trade and Customs lawyer, at Jauregui y Del Valle, S.C. in Mexico states:

Antidumping investigation on seamless carbon steel pipes, originating in Korea, Spain, India and Ukraine.

Below is a summary of the Initial Antidumping Resolution on seamless carbon steel pipes, produced in Korea, Spain, India and Ukraine, published today on the Federal Official Gazette.

The investigation is initiated today for importations of steel pipes described below, carried out at alleged dumping prices.

The products included in the investigation are seamless carbon steel pipes, with different diameters and thicknesses, classified under the following tariffs are:

Tariff fraction Description
Chapter 73 ARTICLES OF IRON OR STEEL
Heading 7304

Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or Steel.

Line pipe of a kind used for oil or gas pipelines

Subheading 7304.19 Other

Tariff

7304.19.01

Hot-rolled tubes, uncoated or other surface-worked work, including Hot-drawn or lacquered: of an external diameter not exceeding o equal to 114.3 mm and a wall thickness equal to or exceeding 4 mm without exceeding 19.5 mm

Tariff

7304.19.02

Hot-rolled tubes, uncoated or other surface-worked work, including Hot-drawn or lacquered: of an external diameter

exceeding 114.3 mm but not exceeding 406.4 mm and having a wall thickness of 6,35 mm or more but not exceeding 38.1 mm .

Tariff

7304.19.99

The others.
Subheading 7304.39