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 – 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–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–TRUMP REAGAN TRADE DIFFERENCE SECTION 232 STEEL USERS 201 SOLAR NEW TRADE CASES BORDER ADJUSTMENT TAXES NAFTA

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JUNE 16, 2017

Dear Friends,

Trump’s trade war on downstream industries continues with exhibit number 1 being the Section 232 Steel case.  As indicated below, numerous comments were filed May 31st by downstream steel users saying that tariffs on steel imports will devastate their business and cost millions of jobs.

But the question is whether anyone is listening.  Commerce is rushing to turn out the Section 232 report by the end of June.  But it has received numerous comments, but many of those comments are only a few pages long.  The hearing itself limited testimony from each company to 10 minutes each.

When the US International Trade Commission (“ITC”) conducts a injury investigation in steel cases, it sends out numerous multiple page questionnaires to US Steel Producers, US importers, foreign producers and even US purchasers.  In addition to those questionnaire responses, it will often have prehearing and posthearing briefs that are many pages long.  In the recent Cold-Drawn Mechanical Tubing case, for example, we filed a brief that was over 200 pages long.

Now all Commerce Secretary Ross will have is the arguments of the US Steel industry and no in depth data regarding what the impact of these trade restraints will have on downstream users.

Moreover, there is a rush to judgement in the Section 232 cases.  In the ongoing Solar Cells section 201 case, which is comparable to the Section 232 case, the ITC will take 6 months to make its injury determination, 2 months to make a remedy determination.  The ITC will hold two hearings, send out numerous questionnaires and large briefs will be filed.  Not in the Section 232 case, which is only 2 months long.

Although the Section 232 Steel report is due at the end of June, President Trump is stating that the Aluminum Section 232 Steel report should come out at the end of June when the hearing is on June 22nd and comments are not due to June 30.  This is truly a rush to judgement without due regard to the impact on downstream users.

As indicated below, on trade President Trump and President Ronald Reagan are diametric opposites, and Reagan understood that protecting one industry hurts other industries.

Meanwhile, new antidumping and countervailing duty cases have been filed against Fine Denier Polyester Staple Fiber and Citric Acid and ITC and Commerce deadlines are very, very strict.  Also Commerce has ruled Aluminum Pallets are in the Aluminum Extrusions case.

The Section 201 case against imports of solar cells from every country continues.  Border Adjustment taxes are still an issue and NAFTA negotiations will start up, but Trump has told Lighthizer to do no harm to agriculture, which is going to be difficult to pull off.

Again, maybe this is why Trade Adjustment Assistance to Companies is so important.

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

Trump’s trade war continues as downstream steel user industries finally wake up to the damage they could face.  In the Section 232 case, on May 31st, numerous downstream industries from automobiles, equipment manufacturers, forging industry, industrial fasteners, motor and equipment manufacturers, electrical machinery manufacturers, transformers, heavy trucks, and other companies that use steel products filed short public comments stating cutting off their steel raw materials would devastate their companies.

But Trump himself cannot wait to impose tariffs.  On June 8, 2017, Politico reported that:

President Donald Trump appears to be champing at the bit to impose steel import restrictions under a national security probe being conducted by the Commerce Department. In a speech Wednesday in Cincinnati, Trump indicated major action was coming quickly and that it could affect countries besides China, which is often blamed for creating a global steel glut.

“Wait until you see what I’m going to do for steel and for your steel companies,” Trump said. “We’re going to stop the dumping, and stop all of these wonderful other countries from coming in and killing our companies and our workers. You’ll be seeing that very soon. The steel folks are going to be very happy.”

But big US steel consumers, like machinery, auto, energy, including oil and natural gas, are not going to be happy and are extremely worried that Trump’s trade action will damage their US industries and cause companies to close costing millions of jobs.  In Trump’s desire to move quickly to protect the steel industry, he could well damage many other US industries in the process.  This has happened before and likely will happen again.

As the National Foreign Trade Council, which represents more than 200 companies, stated in its public 232 comments filed at the Commerce Department on May 31, 2017:

In considering whether to impose restrictions on steel imports for national security reasons, it is important to keep in mind two important facts about those industries that rely on steel as a key input to their production. First, steel-consuming companies producing goods in the U.S. account for a vastly greater share of total manufacturing output and employment than does the domestic steel industry itself. The U.S.- based auto and auto parts industry employs over 800,000 production workers, more than four times as many as are employed by U.S. steel producers. The construction industry, which accounts for a majority of all steel consumption, employs nearly 8 million production workers. Many other steel-consuming sectors have larger employment than the steel sector.

Secondly, many steel-consuming companies are also major suppliers for our nation’s defense-related needs, building the ships, aircraft, machinery, high technology weapons and other goods that a modern military demands. Therefore, these downstream industries are critical to the U.S. industrial capacity and the nation’s security is weakened if the production capacity of these industries is curtailed.  Because of these two factors – employment effects and national security needs – it is of utmost importance to weigh carefully the potential effects of higher steel tariffs or restrictive quotas on these steel-consuming sectors.

On June 14th Politico reported that Congress is now getting concerned about the impact of the Section 232 case and that Trump administration officials will hold staff-level briefings with the Senate Finance and House Ways and Means committees on June 16th to lay out the context and process for an investigation into the national security threats of steel imports

Apparently, Commerce Department officials are still debating what products should be covered and from where.  One question is whether semi- finished steel, imported and fabricated into various products, should be exempt.

The big question still at issue — what is the magnitude of the national security concern? Disagreement among top White House officials could be partly to blame for slowing the report. Some in the Trump administration see the threat extending all the way to steel used in infrastructure projects while others see it limited strictly to steel used in the defense-industrial base.

Another question is whether to give a pass to steel imports from Canada and Mexico under certain circumstances.  There’s also statutory authority for treating Canada as a defense partner, which could eliminate any consideration of imports from north of the border as a threat to national security.

Politico reports that the Commerce Department is expected to present three options to the President:

  • A 25 percent tariff that would apply to any steel imports that fall in the scope of the investigation. The tariff would also apply to all existing anti-dumping and countervailing duty orders.
  • A tariff-rate quota that would hit imports with a tariff once they exceed a certain volume. There is also discussion of an alternative that would apply tariffs if imports dip below a certain price, but there is concern that Commerce or USTR may not have the resources to set up a sophisticated system to monitor prices across a range of steel
  • A straight quota that would apply strict limits on imports of certain types of steel products from certain countries.

Politico also indicated another concern whether Commerce and USTR have the manpower to effectively implement and administer any of these trade actions? Sources said that concern is one element driving the debate over what specific trade action to take.

Chairman Kevin Brady of House Ways and Means also expressed his concern with the Section 232 case at The Wall Street Journal’s annual CFO conference, stating:

“Any administration has to be careful in its assessment and its implementation of those provisions.  Done incorrectly, it can send a very protectionist signal to other countries to do the same. It is a tool that has to be wielded very carefully.”

Chairman Brady should be concerned because of the strong possibility of retaliation.  As the US Wheat Associates stated in their May 31st comments to the Commerce Department:

Wheat is often viewed as an import sensitive industry in many countries that are export destinations for U.S. farmers. Before taking action under Section 232, the Department of Commerce should consider the fallout if other countries follow suit and impose restrictions on U.S. wheat or other products as a result of their own national security concerns, whether real or imagined.

U.S. Wheat Associates is extremely concerned about the potential ramifications of import protections based on national security arguments. Under the 1994 General Agreement on Tariffs and Trade (GATT) Article XXI, national security can be a legitimate reason to restrict trade, but this has been rarely cited for very good reason: Article XXI is the Pandora’s Box of the GATT. If it is opened for our import sensitive industries, the results could be devastating.

Outside of a few obvious, generally uncontested areas, such as trade in weapons and nuclear material, most trade in goods are not considered national security issues because the implications are enormous. Steel and aluminum are undoubtedly import sensitive products. But the Department of Commerce should think very carefully about the potential consequences of declaring steel and aluminum imports to be national security concerns.

The U.S. wheat industry is highly dependent on exports, with roughly half of U.S. wheat production exported each year on average. .  . However, anytime a trade restriction is put in place, there is the potential for it to be applied to U.S. exports in response, particularly if trade restrictions are imposed outside the World Trade Organization (WTO) dispute settlement system. . . .

U.S. farmers also rely on international commitments made by countries in the WTO and other trade agreements to keep markets open. However, not every country abides by those rules, and a radical shift by the United States in its respect for trade commitments could give effective ammunition to those who seek to stop or slow food imports under the guise of national security. . . .

As indicated further below, when it comes to trade, people need to understand that Donald Trump and Ronald Regan are 180 degrees, diametrically opposite.  Reagan was a true free trade, but President Trump is a protectionist.  Although his protectionist rhetoric is probably a very good reason for his election victory, especially as it relates to trade agreements, such as TPP and NAFTA, the problem with protectionism is the collateral damage to other US industries.  When one wants to protect raw material industries very quickly with not enough time to consider the full impact of a protectionist action, the collateral damage on other US industries can truly be devastating.  The protectionist cure can be much worse than the trade disease.  Not only in Steel, but also aluminum.

TRUMP’S TRADE WAR ON DOWNSTREAM INDUSTRIES—SECTION 232 STEEL CASE

The real impact of the Trump Steel War on downstream industries is illustrated in spades by the public comments in the Section 232 Steel case by steel consuming industries.  As stated in the last blog post, in response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress, but it is questionable whether Congress can disapprove the decision.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases.  The only check is the injury determination by the independent US International Trade Commission.  There is no such determination under Section 232.

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, Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce Section 232 Investigation on the Effect of Imports of Steel on U.S 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.

Although Section 232 investigations usually take 6 months, at the hearing, Ross stated that a written report would go to the President by the end of June in less than two months.  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.

On May 31, 2017, public comments were filed at the Commerce Department on the Section 232 Steel case.  These are some of the comments by the Downstream Steel Users.

AMERICAN AUTOMOTIVE POLICY COUNCIL (AAPC)

The AAPC represents the common public policy interests of its member companies – FCA US, Ford Motor Company and General Motors Company, and states the following in its May 31st comments:

Although sympathetic to the challenges the steel industry faces, we are concerned that if, as a result of this Section 232 investigation, the President were to increase tariffs on foreign steel or impose other import restrictions, the auto industry and the U.S. workers that the industry employs would be adversely affected and that this unintended negative impact would exceed the benefit provided to the steel industry from this Executive action.

Steel is a critical input into the manufacture of automotive products. The price of steel in the United States is already significantly higher than in the markets where our competitors build the majority of their cars and trucks.  This puts U.S. automakers at a competitive disadvantage.

Inevitably, the imposition of across the board higher tariffs or other restrictions on imports of steel into the United States would only widen the existing price gap by increasing the price of U.S. steel and thus the cost of U.S.-built vehicles. Additionally, outside of the United States, the price of steel will fall further, giving foreign automakers an additional cost advantage over the U.S. auto industry.

As a result of such a Section 232 remedy, sales of domestically-built cars and trucks would fall, auto exports would shrink, and American auto sector jobs would be lost. In the end, this contraction could actually reduce the amount of U.S. steel consumed by U.S. automakers, jeopardizing the very industry the remedy was intended to assist. . . .

The U.S. automotive industry makes significant contributions to the U.S. economy, with FCA US, Ford Motor Company and General Motors Company representing the majority of the following 2016 economic contributions.

  • Directly employing/supporting more than 7.3 million American jobs- including manufacturers of auto parts, steel, glass, plastics, rubber and semi-conductors;
  • Exporting $137 billion in vehicles and parts, more than any other U.S. industry sector;
  • Manufacturing 12.2 million cars & trucks;
  • Representing 8% of the manufacturing sector’s contribution to GDP on a value added basis;
  • Investing $8 billion in U.S. plants/equipment, and nearly $20 billion in R&D; and
  • Selling a record 17.5 million cars and light

 The AAPC concludes:

While we strongly support the Administration’s focus on ensuring that our trading partners live up to their commitments and abide by their trade-related obligations, actions taken as a result of this Section 232 investigation to restrict imports of steel, in order to support the U.S. steel industry, could have unintended negative consequences for the domestic automotive industry and the millions of American workers it directly and indirectly employs.

Any such restrictions that this Administration might implement would lead to an increase in the price of U.S. steel and depress the price of steel in foreign markets. This would lead to lower sales of domestically-built cars and trucks in the highly competitive U.S. auto market, a decrease in U.S. auto exports, and a loss of the jobs that those economic activities support. In the end, that would be a net-negative for the U.S. economy, and potentially the U.S. steel industry – the very sector such restrictions were designed to assist.

ASSOCIATION OF EQUIPMENT MANUFACTURERS (“AEM”)

AEM Represents 950 member companies that manufacture equipment and provide services for the construction, agriculture, utilities and mining sectors worldwide.  These manufacturers represent 1.3 million Americans, contribute $159 billion to the U.S. economy and raise over $25 billion in federal and state taxes each year.  As AEM states in its comments:

Manufacturing equipment in America frequently requires the sourcing of steel products  from around the world. While manufacturers in the United States often procure steel from domestic suppliers, they at times must source steel from international producers because the steel’s formula matches a specific spec required to ensure a piece of equipment’s proper function and performance that is not otherwise available in the United States. Inhibiting access to foreign steel will force manufacturers to procure steel from a domestic supplier that may not match required specifications, thus degrading the quality and performance of the equipment and risking operational safety concerns.  In cases where a particular type of steel is available from domestic suppliers, a sudden surge in demand will likely lead to extended procurement timeframes and delays in the manufacturing process.

Restricting the import of foreign steel will also ultimately have a very negative impact on the manufacturing competitiveness of the United States as domestic steel prices rise, and global steel prices fall when steel originally destined for the US enters global markets. With nearly 30 percent of equipment manufactured in the U.S. designated for export, U.S. manufactured exports will become uncompetitive in many global markets if manufacturers are forced to pay higher prices for necessary steel inputs. In addition, restricting raw material imports hurts American jobs by driving up the costs of value-added manufacturing in the U.S.  Furthermore, imported manufactured equipment will become much more competitive in the U.S. market as foreign manufacturers are able to produce and sell equipment at a much lower price by leveraging global steel markets.

CATO INSTITUTE—FORMER ITC COMMISSIONER DAN PEARSON

Former ITC Commissioner Dan Pearson presently at the Cato Institute made the following points:

First, the 232 investigation must be understood in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products from a variety of countries. Steel currently is one of the most protected sectors in the U.S. economy.  . . .

Third, any further import restrictions would do far more harm to steel-using manufacturers than any benefit that could be provided to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers.  Downstream manufacturers that use steel as an input employ 6.5 million, 46 times more. Steel mills account for a fairly small slice of the overall U.S. economy.  The $36 billion in economic value added by steel mills in 2015 equals only 0.2 percent of U.S. Gross Domestic Product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion – 29 times more – or 5.8 percent of GDP.

Any government action to drive up steel prices by restricting imports will hurt steel-consuming manufacturers by artificially increasing their steel costs and reducing their competitiveness relative to companies overseas. It’s clear that the broad public would be harmed by additional steel import restrictions. A decline in U.S. economic welfare is not something the administration ought to pursue. It’s very difficult to have a stronger national defense when the economy is getting weaker.

FORGING INDUSTRY ASSOCIATION

The Forging Industry Association (FIA) is the Association representing the US forging industry.  The Comments state:

In 2016, custom forgings accounted for nearly $10.5 billion of sales in North America. An additional $3-5 billion in catalog and captive sales would bring the industry total for 2016 to the $13.5 – 15.5 billion range. The North American forging industry is comprised of nearly 500 forging operations in 38 states, Canada and Mexico, with the largest US presence of forging operations located in Ohio (79), Pennsylvania  (63), Illinois (54), Michigan (54), California (38), Texas (41), New York (16), Indiana (18), Wisconsin (17), Kentucky (13), Massachusetts (10), and South Carolina (9). . . .These operations provide more than 36,000 well-paid jobs and benefits.

As noted above, the steel forging industry supplies many products essential to national security, including numerous tank and automotive forgings for combat vehicles, small caliber weapons forgings, ordnance forgings, and forgings used in building airplanes, helicopters, ships and submarines. . . .

US steel forgers rely almost exclusively on domestically-produced SBQ steel. SBQ is specialty steel long products made to customer specifications suited for forging into the final product. Because it is heavy, bulky and expensive to ship long distances, the forging industry depends upon a healthy, competitive domestic SBQ steel industry to provide necessary raw material at globally competitive prices for steel forging here in the U.S. The “globally competitive prices” are critically important – if the price for domestic SBQ steel is higher in the U.S. than anywhere else in the world due to tariffs or trade restrictions, then we begin to see less imports of raw material and more imports of downstream products.

The US steel forging industry relies heavily on 6 domestic SBQ steel producers with mills in multiple locations. SBQ steel imports accounted for 15% of the consumption in 2016, and domestic consumption was 4 million tons of SBQ steel, while SBQ imports totaled only 600,000 tons.  This import volume has remained relatively flat over the past few years. . . . Generally speaking, we do not believe the SBQ steel industry has been adversely affected by steel imports. The domestic SBQ steel market is currently running close to capacity, and producers recently announced substantial price increases.

While SBQ raw material import penetration has been relatively insignificant, the import of steel forgings has grown significantly and at an ever increasing rate, threatening the health and viability of the domestic steel forging industry.   . . .

In effect, when current trade laws are used to remedy injury in one subsector of the economy, such as steel, they often shift the injury to another tier within the manufacturing sector.

INDUSTRIAL FASTENER INSTITUTE (“IFI”)

The IFI represents approximately 85% of fastener production capacity in North America, and there are few, if any, products used in the pursuit of national security that do not contain fasteners.

In its comments, the IFI stated:

In 2015, the U.S. fastener industry accounted for $13.4 billion (of a $69.6 billion global market), and is projected to grow +2.6% per year to roughly $15 billion by 2020. In the U.S., the fastener industry employs approximately 42,000 people at about 850 different manufacturing facilities.  . . ..

The fastener industry is critical to all segments of our manufacturing industrial base, including the defense industry.  .

Fastener manufacturing is a major consumer of metals, including steel. Since fasteners can be made anywhere in the world, the U.S. industry is dependent on access to adequate supplies of globally priced raw materials such as steel to remain globally competitive. . .  .

However, even with a healthy domestic industry, history has shown that fastener manufacturers must sometimes import raw material because the particular types of steel needed are not available in the quantities, quality or form required. (Fasteners are made out of round form, not sheet, flat or bar products.) By some accounts, the U.S. steel industry is able to produce only about 70 percent of the total steel consumed in the U.S. . . .

No one disputes that unfair trade exists, and that trade remedy laws can be a useful tool to combat it when it occurs. However, while the trade remedy laws can provide some protection for domestic metals producers, they are a double-edged sword for downstream users such as fastener manufacturers, who may be negatively impacted by higher raw material costs and may not be able to fully utilize the trade remedy laws themselves. In particular, downstream users of products subject to trade remedies have no standing under U.S. law to participate in the process that may lead to the imposition of duties on those products.  In addition, these downstream users are likely to be smaller companies who do not have the financial resources to pursue trade cases, which can cost millions of dollars to fully prosecute.

The fastener industry has experienced this scenario many times, where efforts to protect a basic raw material segment of the economy create unintended consequences throughout the rest of the economy. The most recent example occurred in 2002, when President Bush, at the urging of the U.S. steel industry concerned about a surge of imports, imposed 30% tariffs on nearly all imported steel under a Global Safeguard action. The impact on steel consuming industries was immediate and devastating. The evidence of harm to the broad economy grew quickly, leading President Bush to terminate the Global Safeguard order after only eighteen months instead of the full three years, but by then 1.3 million manufacturing jobs in steel consuming and related industries had been lost.

The fastener industry not only understands the need to ensure that the U.S. has the necessary industrial capacity to provide for our national defense needs, we are a vital part of that very capacity. To be frank, steel is a commodity until somebody makes it into a part/end item. We are concerned that the proposed 232 investigation will not give proper consideration to the importance of downstream industries to that industrial capacity.

MOTOR & EQUIPMENT MANUFACTURERS ASSOCIATION (MEMA)

MEMA represents 1,000 vehicle suppliers that manufacture and remanufacture components and systems for use in passenger cars and heavy trucks providing original equipment (OE) to new vehicles as well as aftermarket parts to service, maintain and repair over 260 million vehicles on the road today. In its comments, the MEMA stated:

the total employment impact of the motor vehicle parts manufacturing industry is 4.26 million jobs. Nearly $435 billion in economic contribution to the U.S. GDP is generated by the motor vehicle parts manufacturers and its supported activity. In total, motor vehicle parts suppliers contribute more than 77 percent of the value in today’s vehicles. .

Free and fair trade is imperative for a strong domestic supplier industry. Disruption to supply chains or increases in production costs will not contribute to the national security of the United States.

Our industry is closely associated with the U.S. defense industry.  . . . Adjustments to steel imports that prevent our members from obtaining the type of steel they need in a timely manner or increases to production costs would jeopardize our ability to manufacture in the United States and to provide these critical products to the U.S. defense industry.

Adjustments to steel imports will adversely impact MEMA member companies by disrupting U.S. manufacturing operations and increasing costs. Suppliers expect adjustments to steel imports to cause job losses due to a decrease in production if steel is not available in a timely manner or the costs of production increase. Adjustments to steel imports would also be likely to decrease overall U.S. production because production of the downstream products using steel subject to such adjustments would move abroad.

Member companies would have to compete with those finished goods imports, which likely would take market share from MEMA member companies. Finally, other countries may retaliate against the U.S. for imposing such restrictions by imposing their own restrictions, which could detrimentally impact exports of MEMA member companies.

MEMA member companies need specialized steel that either is not available at all in the U.S. or is not available in sufficient quantities. Certain foreign steel producers worked closely with MEMA member companies to develop the specialized steel and this type of collaboration benefits the U.S. by improving products. Continued access to these types of steel are critical to our industry. Attached to these comments is a non-exhaustive list of steel products that must be excluded from any import adjustments (see Appendix I). Several of our member companies are submitting exclusion requests directly as well. . . .

Motor vehicle component and systems manufacturers are the largest employers of manufacturing jobs in the U.S. and many of these companies import steel of all types, including specialized steel products, to manufacture goods in the U.S. that are then sold to the U.S. defense industry, U.S. government and consumers. Disrupting American manufacturing operations or increasing costs through adjustments to steel imports would not benefit the national security of the United States. Such adjustments to steel imports would, in fact, detrimentally impact U.S. employment, compromising our economic and national security.

NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION (NEMA)

NEMA represents nearly 350 electrical and medical imaging manufacturers and stated in its comments:

Our combined industries account for more than 400,000 American jobs and more than 7,000 facilities across the U.S. Domestic production exceeds $117 billion per year and exports top $50 billion.

Many NEMA member companies import specific types of steel from abroad for their U.S. manufacturing operations. Accordingly, NEMA urges the Administration to refrain from recommending or pursuing measures to adjust imports of fairly-traded electrical steel.

Power and distribution transformers are essential components of the U.S. electrical grid. Grain oriented electrical steel (GOES) can be the most expensive material used in the manufacture of transformers as the steel core is a very large percentage of the overall cost of a transformer, more than 50% in some cases. GOES is also the most important material in terms of quality and performance of a transformer. . .  .

Some electrical steels are imported into the U.S. because they are not available from domestic or North American suppliers. Loss of access to these materials would cause grave harm to NEMA manufacturers, who would no longer be able to manufacture and supply DOE-compliant products, and their customers – which include U.S. electric utilities as well as tens of thousands of industrial, commercial, and defense/national security facilities – but would have no effect on domestic or North American steel manufacturers, since they do not manufacture/produce or offer for sale those materials today.

The significant anti-dumping and countervailing duties in place have effectively eliminated supply from the seven largest NOES-producing countries. There is only one North American producer of NOES, who is effectively petitioning the government to become a protected monopoly.

If access to NOES were to be restricted further based on this Section 232 investigation, U.S. production of finished goods would face even greater pressure to move outside the United States.

U.S. motor manufacturers should not be forced by government policy to purchase from only a single U.S. monopoly supplier.

U.S. electrical manufacturers compete in a global market. Measures to restrict or block access by U.S. finished-product manufacturing operations to fairly-traded essential materials will harm domestic manufacturing and high-paying manufacturing jobs, and national and economic security. It would be patently unacceptable and un-American for the U.S. government to prevent U.S. manufacturers to mitigate supply chain risks through the use of a diversity of suppliers of fairly-traded materials.

Similarly, suggestions that the federal government should place restrictions, on national security grounds, on the importation of fairly-traded components and finished goods could not be more misguided. If products are entering the U.S. at less than fair value and causing injury to a domestic industry producing like products, then U.S. trade remedy laws are in place to address such situations. Steel manufacturers/producers do not have standing to call for restrictions on fairly-traded imports of products that they do not manufacture; therefore motors, transformers and steel cores (regardless of size) should not be part of this Section 232 discussion.

Many commentators, including US Auto Parts companies, requested exclusion of their specific type of imported steel because the US steel producers could not produce the specific type of steel used to make the downstream products.

BORG WARNER

In its comments, Borg Warner, a large US auto parts company, first listed 18 different specific types of steel and parts produced from that steel and went on to state:

The list above is crucial to our U.S-manufactured products that require types of specialty steel that are not available domestically. The products we make with these specialty materials provide key essential vehicle propulsion technologies for improving fuel-efficiency, emissions, and performance. These technologies are critical in helping automakers meet federal regulations for Corporate Average Fuel (CAFE) standards and achieving better overall environmental conditions.

These technologies take many years to refine and often require specialized materials in its engineering and production. We have worked closely with these specialty steel suppliers to develop our products to ensure quality and affordability for our customers and consumers. Any major changes to our supply chain could hurt our engineering and manufacturing processes, delay production, and or jeopardize our ability to meet the vehicle production demands of the industry. If these steel exclusions are not granted, the cost of these types of products would increase and ultimately be passed onto the consumers in the overall price of the vehicle. Most importantly, a major shift in steel supply could hurt U.S. vehicle sales and therefore negatively impact U.S. automotive manufacturing jobs.

BSH HOME APPLIANCE

In its comments, BSH states that it manufactures appliances sold under the Bosch, Thermador and Gaggenau names at factories in North Carolina and Tennessee, with warehouses, sales offices and show rooms throughout the United States.  BSH further states in its comments:

If the Department decides that some steel is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security, BSH requests that steel used for home appliances—light gauge sheet metal, galvanized pre-painted steel, and light gauge stainless steel—be exempt from that determination. . . .

Steel is one of the main materials used by home appliance manufacturers in the construction of their products. In particular, home appliance manufacturers typically use light gauge sheet metal, galvanized pre-painted steel, and light gauge stainless steel in the construction of their products. These materials are critical to the design, function, and durability of home appliances and, should the Department decide to recommend action, we ask that the steel used for home appliances be exempt.

First, we are concerned that any action to ban or limit the quantity of steel imported into the United States will overly burden U.S. steel capacity. U.S. steel capacity is insufficient to meet the demands of industry, including the home appliance industry. Were steel to become more difficult to source, it would hamper the industry’s ability to deliver products to consumers. In addition, some manufactures use specialty steel that is simply not available in the U.S. and must be sourced internationally.

Second, foreign competition in the steel industry improves the welfare of the home appliance industry, which is a low margin business. Competition between U.S. steel producers and international steel producers results in lower steel prices. Without this competitive pricing, it is likely that the home appliance industry could become less competitive and/or, in some cases, would need to pass price increases onto consumers.

Moreover, an action to impose a ban or limit on the quantity of steel imported into the United States or a tariff on steel imports is a disincentive to manufacture home appliances in the United States. It is likely that, in response to such actions, companies producing products domestically would be at a disadvantage compared to products produced internationally. Thus, limits on imported steel and/or tariffs on imported steel could result in companies deciding to produce home appliances outside of the United States in an effort to avoid higher steel prices or the unavailability of domestic steel. . . .

The Department and the President must ensure that in assisting one industry, they do not negatively impact others.

BUSINESS AND INSTITUTIONAL FURNITURE MANUFACTURERS ASSOCIATION (“BIFMA”)

BIFMA is the trade association for business and institutional furniture producers and is the Association for the commercial furniture industry.  BIFMA stated in its May 31st comments:

It is difficult to imagine how it is in our national security or national economic interests to impose tariffs or quotas that risk thousands of jobs in steel-consuming industries. Disregarding or discounting the economic impact of adjustments on consuming industries could have serious and unintended consequences. We urge the Department to refrain from, or carefully limit, any import adjustment recommendations.

Any adjustment to steel imports is likely to increase steel prices domestically. Adjustments that restrict supply and increase costs domestically will cause significant, negative financial consequences for companies. A sudden increase in material costs would be extremely detrimental for our members and the customers that they supply . . . . We urge the Department to take into consideration the serious ramifications to steel- consuming manufacturers while considering any recommendation it may make to the President.

STEEL BUILDING AND CONSTRUCTION COMPANIES

In its May 31st comments, more than ten steel building and construction companies stated:

Our companies produce building materials, such as prefabricated building sections, roofs, etc. from galvalume and galvanized steel coils.  Our companies are very concerned about the threat to our company’s future if the imports of flat rolled galvalume steel we rely on are restricted by additional tariffs or quotas. Only a few American mills produce galvalume at all; those mills are not interested in selling this at a competitive price to most users. There also are not enough mills producing this product to satisfy demand. Only certain selected customers are able get pricing at competitive levels. Without access to imported galvalume, our ability to compete will be reduced or eliminated.

American national security is not threatened by imports of galvalume. Not only are coated products not used in defense applications; most American mils are profitable, to the extent that they are expanding their coated steel operations, not reducing them.  . .

We urge you to not restrict the steel imports that are vital to our survival.

TRANSFORMER MANUFACTURERS

Several transformer manufacturers stated in their comments:

The proposal made in oral comments that the Department initiate remedies on the import of electrical grade steel, including GOES, deeply troubles the Transformer Manufacturers. This proposal presumes that the importation of GOES or cut steel for use in power transformers is a threat the national security. We propose that protecting the interests of the domestic transformer manufacturers and their employees is more vital to national security than the risk associated with importing GOES, which only accounts for a portion of the total market. One thing is certain of the proposal if adopted as recommended, it will severely damage the domestic transformer marketplace, the underlying companies and their United States employees. . . .

Simply put, at present there is no other domestic alternative to AK Steel as a source of GOES. Granting its requested relief will, in effect, further entrench a domestic de facto monopoly for GOES. While each of the below entities wants to continue to work with AK Steel and maintain positive commercial relationships, the potential economic impact of an unrestricted sole-source domestic provider could be devastating on the domestic transformer manufacturing industry.

TRUCK AND ENGINE MANUFACTURERS ASSOCIATION

EMA represents the world’s leading manufacturers of heavy- duty commercial vehicles, as well as the world’s leading manufacturers of the internal combustion engines that power the vehicles and equipment used in virtually all applications other than passenger cars and aircraft.  In its comments EMA stated:

members maintain significant manufacturing operations in the United States that employ tens of thousands of workers engaged in the manufacture of, among other things: trucks, buses, heavy-duty pickups and vans, construction and agricultural equipment, mining equipment, law and garden equipment, along with the wide array of internal combustion engines that power those myriad applications, as well as the engines that power locomotives and marine vessels. All of those very significant and vital manufacturing operations – operations that quite literally produce the machinery that powers and moves our domestic economy – use significant amounts of steel. As a result, EMA and its members have a significant stake in the DOC’s pending investigation.  . . .

While all of those concerns are certainly genuine and significant, there is also a significant national interest in ensuring that domestic manufacturers are not forced to purchase steel at prices that are materially higher than those that prevail in foreign manufacturing markets.

Steel is a key commodity in the manufacture of the goods produced by EMA’s members. In addition, those steel-derived goods are sold into world-wide markets, and so necessarily compete with goods manufactured in multiple foreign locations. To the extent that U.S.-based manufacturers are compelled to pay more for necessary steel inputs than their foreign competitors, they will be at a significant and unfair disadvantage from the outset.

Restrictions on the imports of steel could result in increases in the price of steel based on reduced supplies in the U.S. marketplace. That cost increase, as noted above, could cause significant competitive disadvantages for U.S.-based manufacturers that utilize steel as a key commodity in their manufacturing operations. It also could force manufacturers to pass on higher prices for their finished goods to U.S. consumers, thereby compounding the negative impacts of the increased price of steel in the U.S. Accordingly, in addition to the important concerns that are motivating the DOC’s investigation, the DOC should take into account, and give high priority to, the potential impacts on the competitiveness of U.S.-based manufacturers. A proper assessment of those impacts should be a key component of any recommendation that the DOC submits to the President on this matter.

Previous experience with additional tariffs and related restrictions on steel imports is highly instructive. In 2002, the U.S. government imposed tariffs on a broad range of steel imports over a 3-year period. In subsequent studies of the economic impact of those tariffs, it was found that the tariffs had resulted in a number of unintended adverse consequences, including the following: (i) 200,000 Americans lost their jobs due to higher steel prices; (ii) one-quarter of those job losses occurred in the machinery and equipment, and transportation equipment sectors; (iii) every U.S. State experienced employment losses from higher steel costs; and (iv) steel tariffs caused shortages and higher steel prices that put U.S. manufacturers of steel-containing products at a disadvantage relative to their foreign competitors. The same types of unintended adverse consequences could result in this case, depending on the types of “adjustments” to steel imports that the DOC may choose to recommend as an outcome of the pending study. . . .

Like the chorus in a Greek tragedy, US manufacturers that rely on steel as a key raw material input are crying their warning about imposing restrictions on steel imports.  Many more jobs on a factor of 10 could be lost by the restraints than are saved by the restraints.  The real question is whether Commerce Secretary Wilbur Ross and President Trump are listening.

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.  See the attached documents related to the Case Section 232 Investigation on the Effect of Imports of Aluminum on US National S ALUMINUM FED REG PUB Aluminum Presidential Memo Summary.  The hearing will be June 22, 2017 at the Commerce Department.

Trump has indicated that he is expecting the Aluminum report by the end of June.  But the hearing will be held on June 22nd with written comments due by June 29th.  That certainly shows a rush to protectionist judgment when aluminum users will have the same concerns as steel users.

DONALD TRUMP AND RONALD REAGAN—DIAMETRICALLY OPPOSITE IN ONE IMPORTANT AREA—TRADE

It is important to note that there is one area in which President Ronald Reagan and President Donald Trump are diametrically, 180 degrees opposite and that is trade.  None of the news shows that are Pro-Trump and Pro-Republican highlight the trade views of the Gipper, but he was certainly no Donald Trump and Donald Trump is no Ronald Reagan when it comes to trade.

At a time like this, it is important to review President Reagan’s June 28, 1986 speech on international trade. President Reagan knew something that President Trump does not work.  Protectionism destroys jobs.  As Reagan stated:

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 flimflammery 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. . . .

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.

Now I know that others, including USTR Lighthizer himself, argue that Reagan was not really a free trader.  But the trade actions he took, including his appointment of very free traders as ITC Commissioners, show that Reagan deeply understood the dangers of protectionism.  He lived through the Great Depression and the effects of the 1930 Smoot Hawley Tariff Act.  Donald Trump did not live during that time period and the comments of the US Steel users above indicate that President Trump does not understand the dangers of protectionism.

SOLAR 201 ESCAPE CLAUSE CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC are due on June 22nd at the ITC.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

COMMERCE AND ITC DEADLINES ARE VERY VERY STRICT

In the ongoing Tool Chests from China antidumping case, Commerce just bounced nine Separate Rates Applications from Chinese companies filed by a US law firm on the due date because of computer problems at Commerce and the law firm.  Most documents are now filed electronically at both the Commerce Department and the International Trade Commission in trade cases.  Computer problems and other filing issues are why we are so paranoid about Commerce and ITC deadlines and try to file documents, if possible, before the deadline date.

Computer systems including the Commerce and ITC computer systems, can have problems and one can miss the deadline.  If deadlines are missed, truly there is hell to pay.

ALUMINUM PALLETS ARE WITHIN THE SCOPE OF THE ALUMINUM EXTRUSIONS CASE

In the attached memorandum, PALLETS IN ALUMINUM EXTRUSIONS CASE, to prevent circumvention, the Commerce Department has determined to include aluminum pallets in the Aluminum Extrusions case.  In one situation, one Chinese producer/exporter exported 1000s of aluminum pallets into the US in an attempt to evade the antidumping (“AD”) and countervailing duty (“CVD”) orders on Aluminum Extrusions.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

FINE DENIER POLYESTER STAPLE FIBER

On May 31, 2017, DAK Americas LLC, Nan Ya Plastics Corporation, America, and Auriga Polymers Inc. filed an AD and CVD petition against imports of Fine Denier Polyester Staple Fiber from China, India, Korea, Taiwan, and Vietnam.  The preliminary determination in the CVD case is due October 28th and the AD Preliminary Determination is due December 27, 2017.

CITRIC ACID AND CITRATE SALTS FROM BELGIUM, COLOMBIA AND THAILAND

On June 2, 2017, Archer Daniels Midland Company, Cargill, Incorporated, and Tate & Lyle Ingredients America LLC filed AD and CVD petitions against imports of Citric Acid and Certain Citrate Salts (“Citric Acid”) from Belgium, Colombia, and Thailand.

AD duties are imposed on subject imports that are found to be sold in the United States at less than “normal value.” CVD duties are imposed on imports that benefit from unfair government subsidies. For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

This is the second AD/CVD case filed against Citric Acid. AD/CVD orders were previously imposed on citric acid from Canada and China in 2009.  The cases are targeting Chinese subsidiary companies in Thailand and other countries.

Alleged AD Rates

Belgium: 56.02 – 118.44%

Colombia: 41.18 – 49.46%

Thailand: 4.6 – 67.1%

Petitioner also identified various Thai government subsidy programs under the Thai Investment Promotion Act, along with other export-import loans, grants and export promotion measures.

Estimated Schedule of AD/CVD Investigations

June 2, 2017 – Petition filed

June 22, 2017 – DOC initiates investigations

June 23, 2017 – ITC staff conference

July 17, 2017 – ITC Preliminary Determination

October 30, 2017 – DOC CVD Preliminary Determination (assuming extended deadline)

December 29, 2017 – DOC AD Preliminary Determination (assuming extended deadline)

May 13, 2018 – DOC AD/CVD final determinations (assuming AD, CVD aligned and extended)

June 27, 2018 – ITC Final Determination (extended)

July 4, 2018 – DOC AD/CVD orders issued (extended).

OTHER TRADE CASES

SECTION 201 ESCAPE CLAUSE CASE AGAINST RESIDENTIAL WASHERS

On May 31, 2017, Whirlpool Corp. filed another Section 201 Escape Clause case against imports of Large Residential Washers.  The petition indicates that this is an attempt by Whirlpool to go after the Korean producers, including Samsung.  Whirlpool tried AD and CVD cases against Korea, but that failed because the Korean producers moved to another country.  Now like the Solar Cells 201 case, the US producer is trying to close the holes in the trade protection.

But do note another point, what is the major raw material input for residential washing machines—Steel. When US steel prices are many times higher than the world market price, that puts US steel users at a major competitive disadvantage.

USTR ROBERT LIGHTHIZER CONFIRMED—NAFTA FIGHT

Countries are still gearing up for NAFTA negotiations.  President Trump has told USTR Lighthizer not to do any damage and add to the bottom line.

Attached is an article with my quotes about the Mexico/Sugar suspension agreement to settle the dumping case against Mexico, Wilbur Ross likely will impose Mexico sugar deal over industry objections.  The Suspension Agreement will be finalized on June 30th with some possible tweaks to make the US industry feel better.  In fact, on June 16, 2017, Politico reported that the US sugar industry has given its blessing to the US-Mexico sugar deal making Commerce Secretary Ross’s day.  As Secretary Ross stated:

“I am glad all parties have agreed that the new sugar agreement is fair and addresses the shortcomings of the original deal.  I look forward to seeing the public comments on this deal, but am hopeful that we can successfully implement this new agreement with the support and cooperation of all stakeholders.”

The Sugar deal shows that Wilbur Ross wants to clear up trade issues before the NAFTA negotiations begin in earnest so we can expect a similar deal in the Lumber case.

On June 14, 2017, Robert Samuelson, a well-known economist, in an article in the Washington Post entitled “Trump is Deluded About NAFTA” stated:

The Trump administration is determined to renegotiate the North American Free Trade Agreement (NAFTA) — which created a single market from Mexico’s southern border to the Yukon — but the main political appeal of this policy rests on a popular myth: that “fair” trade requires the United States to have a surplus or balanced trade with both Mexico and Canada.

We are supposed to feel especially aggrieved that Mexico regularly has a sizable surplus with us, $63.2 billion in goods in 2016, according to Commerce Department figures. This shows, as the president repeatedly has said, that U.S. trade officials negotiated a bad deal for American firms and workers. Trump has promised to do much better.  That will be hard. . . .

In addition, the trade imbalances within NAFTA aren’t as large as they seem. It’s true — as noted — that the United States had a $63.2 billion deficit in goods trade (cars, computers, plastics) with Mexico. But the U.S. surplus on services (travel, transportation, consulting) was $7.6 billion, reducing the overall deficit with Mexico to $55.6 billion. On the same basis, covering goods and services, the United States had a trade surplus of $12.5 billion with Canada in 2016.

So: The total trade deficit with Canada and Mexico was $43.1 billion ($55.6 billion minus $12.5 billion). All trade — exports and imports — between the United States and Canada and Mexico totaled $1.207 trillion in 2016. Our net deficit equaled 3.5 percent of total trade and about two-tenths of 1 percent of U.S. GDP. This hardly seems crushing.

Against that backdrop, the notion that either Canada or Mexico is going to offer the United States vast new markets in their countries — without corresponding U.S. concessions — seems wishful thinking. “The administration appears to perceive Mexico and perhaps Canada as surplus countries,” writes [Fred} Bergsten, “whereas they (more accurately) see themselves as deficit countries,” seeking to increase exports or dampen imports. This is Trump’s delusion.

BORDER ADJUSTMENT TAXES

Although the Trump Administration says that the Border Adjustment tax (“BAT”) is dead, it continues to raise its head.  On June 7th Senate Finance Committee Chairman Orrin Hatch stated at a global transfer pricing conference in Washington DC that although Congressional Republicans and the White House are generally 80 percent in agreement on key issues for tax reform, he has not ruled out the BAT proposal.

Hatch noted the resistance against the BAT, including from certain industries that are “downright apoplectic” about it, but then went on to state that it will have a difficult time becoming law:

“I don’t think I’m making any news when I say that, given the small margin of error we have in the Senate and the number of senators who oppose the very concept of a [BAT], the proposal will have a difficult time becoming law. That said, I want to see the specifics of the proposal and find out if it works like its proponents say it will. Until then, I’m not going to publicly rule anything out.”

Hatch also said on Wednesday that the tax reform plan should include a conversion to a territorial system, which would see only revenue generated in the U.S. taxed. Under the current system, all revenue earned by U.S. ­incorporated companies, regardless of where it is earned, is taxed.  As Hatch stated

“My position has, I believe, remained clear: A territorial system will put us on par with other industrialized countries and allow our businesses to compete in the global marketplace.”

On June 15, 2017, it was reported that Kevin Brady, Chairman of House Ways and Means, has proposed a five year transition to a BAT to make it more palatable.  As Brady stated:

“My current thinking on border adjustment … is a five-year transition.  We’ll be lifting the ‘Made in America’ tax [on exports] at the same rate.  A very gradual five-year phase-in really resolves a lot of the challenges.”

But many opponents argued that a five year transition did not make the BAT a good idea.

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 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 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 Chinese trade law.  Team’s newsletter-EN Vol.2017.22 Team’s newsletter-EN Vol.2017.23

SECTION 337 AND IP CASES

NO NEW 337 CASES AGAINST CHINA

If you have any questions about these cases or about Trump and Trade, the impact on downstream industries, 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’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

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