US CHINA TRADE WAR–TRUMP TRADE CRISIS, NAFTA NEAR COLLAPSE, NO FTAS, THIRD COUNTRIES BEAT US OUT ON TRADE DEALS, AD CASES MORE POLITICAL, NO SYMPATHY FOR BOMBARDIER, 201 SOLAR, 301 CHINA, TAA FOR COMPANIES

Winder Building United States Trade Representative Washington DC. United States Trade Representative is chief US trade negotiator. Winder Building created 1848

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 20, 2017

Dear Friends,

Having just returned from a month-long trip to Europe, the trade situation under the Trump Administration has heated up to the boiling point, but the target is not just China.  The Trump Administration appears to be attacking all trade with the firm belief that all prior trade deals that the US entered into were a raw deal.  NAFTA negotiations are at a standstill, and many believe Trump’s real intention is to kill NAFTA.

The United States is at a trade crossroads and apparently Trump and his supporters have decided to become much more protectionist, while the rest of the World is moving to free trade agreements.

As also stated below, directly contrary to statements by Trump supporters, the Trump trade policy is not a continuation of President Reagan’s trade policy.  Although President Reagan took pragmatic trade actions when he had to, he was a strong free trader and we know that was his position because he said so.

President Trump is very protectionist and truly does not want free trade deals.  He ripped up the TPP with no attempt at renegotiation.  He has made such strong demands of Canada and Mexico that he knows they will reject with the purpose of eventually killing the deal.

The decisions on TPP and NAFTA have been taken without any real idea of the negative ramifications, the costs, of terminating these deals on US farmers and corporations, many of which have interconnected supply chains that have been finely calibrated to produce lower cost consumer products so as to be competitive with lower priced imports of that final product from China.  Many believe that the real effect of killing NAFTA will be to move production to China or other lower cost countries.

Moreover, Trump won the election because of rural states and the farmers in those rural states but US agriculture is dependent on exports.  When Trump slams trade, he slams his own constituents, farmers in the rural states, which elected him as President.

One of the other losers in the Trump trade policy besides agriculture will be the high tech companies because these two sectors will bear the brunt of the trade retaliation that is coming.

Trump wants to protect the low tech industry, the Steel industry with its 141,000 jobs and the heck with everyone else.

The Trump trade policy is based on one arrogant presumption—the US market is the largest in the World and the rest of the World must kowtow, come on bended knee, to get into the US and that fact gives the US leverage.  But that fact is no longer true.  The 11 countries in the TPP have a larger market than the US.  China has a larger market than the US.

In fact, Canada and Mexico already can fall back on trade agreements they have with other countries, such as Europe.  The United States does not have that luxury.  The US decision by both Trump and the Democrats to go protectionist is further isolating the US in the trade area and is having and will have major negative economic ramifications on the US economy.  The chickens will come home to roost.

Maybe instead of ripping up trade agreements and making US producers less competitive it is time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  Maybe the US should turn to an existing program, which has saved companies injured by imports, the Trade Adjustment Assistance for Firms/Companies program.

Commerce has made antidumping and countervailing duty investigations more political, but the EC wants to change China’s nonmarket economy status to allow a case by case determination.

But there is no sympathy for Bombardier in the Boeing fight at the Commerce Department in Civil Aircraft Preliminary determinations as Bombardier refused to cooperate with the Commerce Department’s antidumping investigation leading to a decision of all facts available.  So there will be no negotiated agreement in that case.  Bombardier has decided to jointly produce the plans with Airbus at its Mobile, Alabama plant, but it is questionable whether that will really work.

The US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Section 201 case and now it moves to remedy phase.

USTR has also initiated a section 301 case against forced technology transfers in deals with China, but not many companies showed up for the USTR hearing. This may reflect the point made by my partner, Dan Harris, in his August 30, 2017 article “China US Trade Wars and the IP Elephant in the Room” that many US companies make the mistake of simply handing over their IP rights to Chinese joint venture companies with no protection. The US government cannot protect US companies from stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.

In a decision near and dear to my heart, USTR is charging ahead with a Wine case against BC and Canada at the WTO and now EC, Australia, Argentina and other countries are interested.    Canada and BC’s protectionist position on Wine play right into Trump’s argument that NAFTA is not a free trade agreement.

China has filed an antidumping and countervailing duty case against the United States.  More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade issue could well become the most important issue in upcoming elections.

If Trump makes unwise protectionist decisions, the US economy will be hurt, jobs will be lost and he will lose in the next election.

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

Best regards,

Bill Perry

TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA

Prior to his election, with Trump complaining during the election about China so many times, many voters would have believed that Trump’s primary target in the trade area would be China.

But nine months after his inauguration, it is becoming clearer that Trump’s real target is trade in general.  We are at a trade crossroads, and the Trump Administration with substantial support from the Democrats apparently has decided to move down a very protectionist road.

Trump and his Administration firmly believe that the United States has gotten a raw deal in all the trade deals it has entered into.  In effect, Trump sees trade as economic warfare and the United States is losing the war.  When economic competition from imports causes problems for US companies, it must be unfair trade caused by unfair trade deals.

Although Trump will mouth free trade, when Trump pulled out of the Trans Pacific Partnership, it was the first Free Trade Agreement that the United States had ever refused to join.  As described below under the Costs article, this action has put US exporters, including farmers, at a distinct cost disadvantage in World markets and caused enormous economic damage to Trump’s own constituents, workers and farmers.  Many experts believe that there is a better than 50% chance that Trump will pull out of NAFTA.  See articles below from Wall Street Journal and John Brinkley at Forbes about the costs of pulling out of NAFTA.

But killing the TPP and potentially killing NAFTA gores the agriculture ox.  This is the one fly in the ointment, flaw in Trump’s entire economic strategy.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.  In contrast to arguments made by Trump supporters, rural states are not just manufacturing, they are farmers, agriculture, and one half of all US produced agricultural prorducts is exported.

In addition to agriculture, high tech companies will also be hit as they are perfect retaliation targets and all the side agreements on digital and IP protection in the TPP Agreement have died and will die.

Trump supporters attack not only the trade deals, but the WTO itself because ceding power in a trade deal or to the WTO is giving away the sovereignty of the US people.  The WTO’s job, however, is to provide a forum for negotiations and adjudication of trade disputes between different sovereign countries.  The United States simply cannot dictate its trade policy to other sovereign countries.  It must negotiate trade agreements.  If that be globalism, then so be it.

The real issue is what is the US interest in trade negotiations.  The trade deals that the Trump supporters attack were negotiated by the US government and then approved by Congress.  Are all treaties that create multi-government organizations as a forum for negotiations and adjudication of international disputes to be attacked because they result in giving away US sovereignty?  If so, the World returns to 1914, World War 1, and the Guns of August.  The United States has to negotiate with other sovereign countries.  And in negotiation with other sovereign countries, the United States does not always get everything it wants to get.  That is the essence of negotiations.

As stated before, the simplistic Trump approach to trade is that the United States is the largest market in the World and countries must kowtow to get into the US market.  But that is no longer true.  The remaining countries in the TPP represent a larger market than the US.  That is why during the push for Trade Promotion Authority in the House of Representatives, House Speaker Paul Ryan stated that 75% of all consumers are outside the United States.

The Trump supporters also look at economic competition as economic warfare and, therefore, the United States must win each trade deal.  But as stated below, President Reagan himself believed that economic competition is good for the United States because it is the essence of free markets.

WOULD PRESIDENT REAGAN HAVE SUPPORTED TRUMP’S ECONOMIC PROTECTIONIST NATIONALISM?—I THINK NOT

One of the basic arguments of the Trump supporters in the Trade area is that Trump’s trade policy is simply an extension of Reagan’s trade policy and, therefore, President Ronald Reagan would have supported the protectionist economic nationalism of Donald Trump.  In effect, these supporters argue all trade deals in the past, including NAFTA and China’s entry into the WTO, were raw deals that hurt the US working man.  These supporters argue that the trade deals are the reason for the loss of millions of US manufacturing jobs and even a major reason for the US budget deficit.  Therefore, President Reagan would have opposed all of these trade deals.

But I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I do not remember the Reagan trade policy in the same way as being overly protectionist.  I remember a President, who was the most Free Trade President of my generation, who firmly believed in the power of the free market and economic competition.  Although President Reagan took tough trade actions as needed, he also knew that in the long run protectionism would not work because the US companies themselves would only become weaker.  Reagan’s real trade policy is indicated by his actual words and actions, not summary statements by conservative pundits.

Reagan also understood that when dealing with trade, we are dealing with the interests not only of the United States, but the interests of other countries.  Although the US should always represent its own interests first, it cannot dictate the outcome to other countries, because it does not have the power to do so.  The EC, China, Mexico, Canada, Japan, and Australia are sovereign countries too, and they have a say in international trade negotiations.

On October 14, 2017, at the Values Summit in Washington DC, Fox Contributor Laura Ingraham stated that Reagan was an economic populist and pointed to the 45% tariff issued by President Reagan in the Harley Davidson Motorcycles case and the large duties of 100% against Japanese electronics, such as semiconductors.  She then argued that President Trump’s stance on trade was simply a continuation of the Reagan trade policy.  See https://www.youtube.com/watch?v=qofqnUHPGnc.

During the speech, Ingraham stated that every Free Trade Agreement must be either rewritten or repealed and that Trump like Reagan understands the working class and the need to protect US industry and jobs.  She pointed to present USTR Robert Lighthizer, the former Deputy USTR under Reagan, as an example of Trump’s sterling trade policy.

But I too worked in the Reagan Administration and later under Robert Lighthizer.  I simply do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  In the Harley Davidson Motorcycles case, for example, which happened when I was in the General Counsel’s office at the US International Trade Commission, Harley brought a case under Section 201, the Escape Clause, allowing Harley to get short term temporary protection from imports.  After winning the case and after Reagan issued a temporary tariff on imports of motorcycle subassemblies from Japan (Japanese companies had manufacturing facilities in the US too), Harley after only two years asked the Reagan Administration to lift the temporary tariff because it had adjusted to import competition.

Contrast that tariff relief with the tariff relief provided to Mr. Lighthizer’s client in the Steel Industry—30 plus years of protection from imports from many, many antidumping (“AD”) and countervailing duty (“CVD”) orders issued under US AD and CVD laws.  That is not temporary tariff relief; that is permanent tariff relief.  Despite that protection for decades, the US steel industry has declined with Bethlehem Steel going out of business, just as President Ronald Reagan himself predicted.  Trade protection only slows the decline of industries; it does not cure the disease.

Ms. Ingraham’s speech parallels the statements she recently made in her book “Billionaire at the Barricades”, which articulates very well the thinking and many of the arguments from the Trump Administration and his supporters against trade and trade agreements in general.  In the book, Ms. Ingraham states, “Except for Reagan, all modern presidents of both parties campaigned as populists but governed as globalists.”  And that Conservative Populists “are against huge trade deals and international organizations like the World Trade Organization because they take power out of the hands of voters and give it to a far-away and often hostile global elite.”  Page 43.

Ingraham also attacks all trade deals, especially NAFTA, the North American Free Trade Agreement between Mexico and Canada, and China’s entry into the WTO, along with the WTO itself.  With regards to NAFTA, Ingraham states:

“but Perot and millions of Americans—the kind who don’t worship at the Wall Street Journal’s altar of globalism and internationalism for profit’s sake—knew it was a raw deal for workers and bad for America. The biggest “tell” that NAFTA was going to be a boon for elites and a bust for everyone else was the fact that George H. W. Bush and Bill Clinton (as well as their Donor Class” pals) all supported the monstrosity.”

Billionaires at the Barricades at 313 (footnotes omitted).

According to Ingraham, Clinton promised that NAFTA would:

“create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone . .  .Clinton not only lied, he made a “pledge” to the American working class who opposed NAFTA that they would receive “gains.”

They received pink slips instead.

The populists’ NAFTA predictions proved painfully prescient. Between 1993 and 2013, the U.S. trade deficit with Mexico and Canada went from $17 billion to $177.2 billion.  . .

The effects on American workers have been even more catastrophic. EPI data concluded that in just 10 years, NAFTA was responsible for displacing 851,700 American jobs. To put that in context, that’s more people than live in Columbus, Ohio. “All of the net jobs displaced were due to growing trade deficits with Mexico”.  .. .The destruction of nearly one million jobs and the implosion of American manufacturing—that’s Bill Clinton’s NAFTA legacy.”

Billionaires at the Barricades at 385 to 389.

But Ingram forgets to mention that since NAFTA was enacted, total trade among these three countries has increased from $290 billion in 1993 to $1.1 Trillion in 2016 and that trade was not solely imports, but also US exports to those countries.  According to the US Chamber of Commerce, six million US jobs are dependent on US trade with Mexico.

Ingraham then goes on to attack the decision to let China into the WTO:

“If NAFTA had unleashed a flood of dangerous economic currents crashing into the American working class, his [Clinton’s] decision to pave the path for China’s entry into the World Trade Organization (WTO) by giving it Permanent Normal Trade Relations (PNTR, now known as Most Favored Nation) status swelled into an outsourcing tidal wave. Millions of American manufacturing jobs were washed out to sea – the South China Sea, that is. . .  .

It is “one of the most important foreign policy developments” if you want to understand the destruction of American manufacturing. It is also “one of the most important foreign policy developments” for understanding how millions of U.S. manufacturing jobs were vaporized in record speed, even as China grew at a steroidal rate of muscular economic growth.

Let’s start with the basics. The World Trade Organization was officially created during Bill Clinton’s presidency in January 1995, but it had existed in other forms since 1948. . . .

“Seventeen years hence, it is difficult to overstate the economic destruction wrought by China’s entry into the WTO and Congress and President Clinton’s decision to grant the Chinese permanent” “Most Favored Nation status. A 2016 analysis published in the Annual Review of Economics concluded that between 1999 and 2011, America lost between 2 and 2.4 million jobs.  Others, like the left-leaning Economic Policy Institute, put the American jobs loss figures even higher at 3.2 million jobs, when calculated between the years 2001 and 2013.50

The brutal economic reality was a cruel reversal of Clinton’s promises: all the gains were on the Chinese side, all “the losses and devastation were America’s. American manufacturing jobs were eviscerated. From 2001 to 2011, U.S. manufacturing jobs plunged from 17.1 million to 11.8 million.51 That’s a loss of 5.3 million manufacturing jobs, a figure that’s nearly the population of the entire state of Minnesota.

The narrowing of the trade deficit between the United States and China never materialized either. To the contrary, it exploded. In 2000, the annual trade in goods deficit with China stood at a towering $84 billion. After Clinton ushered China to the front of the line, the trade deficit more than quadrupled to a jaw-dropping $367 billion by 2015.  The year before America let China join the WTO (1999), the United States accounted for 25.78 percent of world GDP. By 2014, that figure had dropped to 22.43—the lowest it has been in government records going back to 1969, according to the Economic Research Service of the U.S. Department of the U.S. Department of Agriculture. In 1999, China’s annual GDP was $1.094 trillion. In 2015, it was more than $11 trillion. In 1999, the U.S. national debt was $5.7 trillion (the good ol’ days!). Today, after the big government globalist policies of the last several presidents, U.S. national debt stands at a mind-bending $20 trillion.”

Id. at 415, 417, 427-431 (footnotes omitted).

Let me make one point very clear.  The China WTO Agreement is not a Free Trade Agreement.  Before China entered the WTO, it was already exporting substantial exports to the US.  I know because I represented Chinese companies and US importers in many antidumping cases long before China entered the WTO.  What China’s entrance into the WTO allowed the US to do was to gain leverage with China by putting Chinese trade practices into a forum, the WTO, which gave the US the ability to call some of China’s trade practices into account and discipline them.  The United States has brought many cases against China at the WTO and won many and caused China to change its trade practices, but it should be noted that China has brought cases against the US at the WTO, especially in the antidumping and countervailing duty area, and won many too.

As Charlene Barshefsky, the USTR, who negotiated the US China WTO Agreement, recently stated to the Wall Street Journal in answer to the question whether China’s entry into the WTO accounted for its enormous economic growth:

”No, I don’t think he’s right. If you go back to the mid-1990s, you saw a China that was already growing at about 8%, 8.5% a year, with the world’s largest standing army, a nuclear power, a permanent member of the U.N. Security Council, a fifth of the world’s population, a reformist premier, Zhu Rongji, and willing to orient toward the West.

In the course of doing the WTO negotiation, China opened its market. The U.S. didn’t alter its trade regime, nor did any other country alter  its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.

The key point is that, in the context of a country as large as China entering, were there protections built into the agreement to prevent, for example, unexpected surges of imports? And indeed, there were—a mechanism almost never used by the very industries Steve Bannon is pointing to, although it would’ve been entirely protective of their interests.”

To see what Ms. Barshefsky believes is the real China trade problem see the video at https://www.wsj.com/articles/the-impact-of-china-joining-the-wto-1495504981.

During that interview, Barshefsky pointed to the real China problem.  After 2006 China has shifted to a more protectionist trade policy pushing US and other foreign companies and foreign imports out of China.  The Trump trade policy rightly so could demand more reciprocity from China and demand that China drop its barriers to US imports and investment.

On the other hand, killing all trade with China is not the answer.  Although Ms. Ingraham points to the deficits, China has become the largest importer of US products.  On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily states:

“But didn’t the flood of Chinese factory-made goods to the U.S. decimate American manufacturing during this period? That’s a myth. As the U.S. Federal Reserve’s monthly manufacturing index shows, from 2000 to 2006 American factory output rose a healthy 11.5%. It wasn’t decimated by the surge in Chinese exports to the U.S. It only crashed when the financial crisis hit.  . . .

We hope a negotiated solution can be found. At the same time, we might want to think seriously about it before we back a giant U.S.-China trade war that could make all of us, Americans and Chinese, much worse off.”

In addition, when Ms. Ingraham quotes economic data from left leaning groups, she should keep in mind that these groups are very big supporters of labor unions, which provide the backbone of the Democratic Party.  Labor unions traditionally have been very, very protectionist, anti-free market and economic competition, very anti-Republican and very pro- Democratic party.  That is why Senator Chuck Schumer, who Ingraham does not like, supports the Trump protectionist trade policy, but Schumer believes that Trump is not being protectionist enough.   Chuck Schumer’s views are not the views of President Ronald Reagan.

But Ms. Ingraham also states that:

“Trump’s critics would do well to examine the election data on working-class rural Americans—a group who overwhelmingly went for Trump’s message of economic nationalism. Rural voters accounted for nearly one out of five votes in 2016 and were a pivotal part of Trump’s successful Rust Belt strategy. NBC News exit polls revealed that Trump beat Clinton 57 to 38 percent among Michigan’s rural voters (Romney carried the same group but by only seven percentage points). Among Pennsylvania rural voters, Trump destroyed Clinton 71 percent to 26 percent . . ..”

Id. at 1163-1164.

But Ms. Ingraham herself should also watch out because many of those rural voters are farmers and agriculture is dependent on exports.  Those rural voters could turn against Trump and the Republican party and that is why Republican Senators and Congressmen from rural states are so concerned about Trump’s trade policy.  Farmers want trade agreements, even if Trump and his manufacturing supporters do not.  That is why after listening to the complaints of Republican Senators and Congressmen from agricultural states along with complaints of US Ambassador to China and former Iowa Governor Terry Branstad, Trump told Lighthizer in the NAFTA negotiations to do no harm.

In her book, Laura Ingraham points to Reagan’s history, but misses an important point Reagan lived through the Great Depression and he firmly believed that the protectionist policies in the 1930 Smoot Hawley tariff act, which “protected” the US by increasing tariffs on almost every import, made a depression into the Great Depression.  How do I know?  Because President Ronald Reagan said so.

On June 28, 1986, President Reagan from his ranch in Santa Barbara gave the attache speech, BETTER COPY REAGAN IT SPEECH, on International Trade.  This speech is in effect a point by point rebuttal that Reagan was an economic nationalist.  So I would say to Ms. Ingraham to paraphrase Robert Dole, do not distort Ronald Reagan’s record.  I have quoted the entire speech to show that it came directly from President Reagan and is not a characterization.  As Reagan himself stated in the speech:

My fellow Americans:

This coming week we’ll celebrate the Fourth of July and the birthday of the Statue of Liberty, dedicated one century ago this year. Nancy and I will be in New York Harbor for the event, watching fireworks light the sky over the grand old lady who welcomes so many millions of immigrants to our shores. But I’ve often thought that Lady Liberty also represents another symbol of our openness to the rest of the world. With the ships plying the waters of New York Harbor beneath her, she reminds us of the enormous extent of our trade with other nations of the world.

Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flim flammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.

 You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.

And that’s why I wanted to talk with you today about some legislation that the Congress now has before it that is a throwback to the old protectionist days. It greatly cuts down my flexibility as President to bargain with and pressure foreign governments into reducing trade barriers. While this legislation is still pending before the Senate, it has already passed the House of Representatives. So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity. Yes, the politicians are back at it in Washington. And should this unacceptable legislation continue to move through the Congress, I’ll need your help in sending them a message. So, please consider our talk today an early warning signal on free and fair trade, a jobs and growth alert. And stand by, I may need your help in resisting protectionist barriers that would hinder economic growth and cost America jobs.

Until next week, thanks for listening, and God bless you.

Emphasis added.

I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I too saw the Reagan trade policy and I do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  I saw President Ronald Reagan appoint the most free trade Commissioners in its history to the US International Trade Commission—Susan Liebeler and Anne Brunsdale — and they certainly were not economic nationalists.  These free trade ITC Commissioners used to frustrate Robert Lighthizer in cases brought by the US Steel industry because they refused to go affirmative in certain cases and put antidumping and countervailing duty orders in place.

Let me say at the outset, I am not a Libertarian.  I have no problem with trade policy that hammers countries to open markets.  I have no problem with a domestic policy of low taxes and less regulation.  We need to make our companies, farmers and workers more competitive by giving them back the money they have earned.

I also believe that making America great again and putting America’s interests first is a correct policy position.  I am not a globalist, but firmly believe that we first must know what America’s interest is.

But as indicated below, in the post on Trade Adjustment Assistance for Companies, I firmly believe, like Ronald Reagan, who personally approved of the program, that an answer to the trade crisis is not more protectionism, but finding ways to make US companies more competitive.

Like Ronald Reagan, who was a free trader, I do not believe in putting up protectionist trade barriers, which are not temporary and can stay in place for 30 plus years, such as antidumping and countervailing duty orders against steel that wipe out imports and make downstream companies less competitive, is in the interest of the United States.

As President Reagan himself stated, “the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition,” and competition is what makes and will make America great again.

Like Ronald Reagan I do not believe that protection in the long run saves the industries it is trying to protect.  Robert Lighthizer for decades at Skadden, Arps represented US Steel in the Steel Trade Wars.  My former boss, Mike Stein, represented Bethlehem Steel for decades in the Steel Wars along with Lighthizer, but where is Bethlehem Steel today after 40 years of protection from steel imports—green fields.  Green fields when the steel industry has been protected to some degree for decades from steel imports.

Why?  Despite the protection from steel imports, Bethlehem Steel management and union did not take the protection and adjust to import competition so as to make their production facilities more competitive.  In the 90s, when given protection in a Section 201 case from imports, US Steel bought Marathon Oil.  All the trade protection the US can provide will not save the companies if they want to give their workers exorbitant pensions and their management large bonuses and reduce their own competitiveness in the World market.

Antidumping orders against steel imports have led to a higher US steel price than the World market price.  Steel, however, is a raw material input and the antidumping orders against Steel have led to US antidumping orders brought by injured US industries against imports of ironing tables, folding metal tables and chairs, wind towers, stainless steel sinks, boltless steel shelving, steel nails and a myriad of other products that use US steel as a raw material input.  The disease of the steel industry has spread to the downstream steel using industries.

During the speech Laura Ingraham asked what is the problem with trade protectionism?  One major problem is that trade is a two-way street and what the United States does to one country that country can do back to the United States.  The United States cannot dictate trade policy to the other countries in the World because they are sovereign too.  Also the entire world is moving to an open market, when the US appears to be moving backward to a protectionist US market.  This puts US companies and farmers at a distinct cost disadvantage because it means US exports cannot compete on a level playing field, by Trump’s choice

Lighthizer’s and Trump’s answer to trade problems is simply to put up one more brick and build the protectionist wall higher against imports.  If Ms. Ingraham wants a history lesson, I suggest she look at two countries—recently Japan and less recently China, who followed that same strategy.  In the 1980’s when I was at the ITC and Commerce, the big trade target was Japan.  Having worked in Japan I knew that it had numerous non-tariff trade barriers, which blocked many US exports.  Then in the early 1990s Japan’s economy imploded and it entered into the lost decades in large part because of its own trade policy, which explains why Prime Minister Abe wants the TPP.

China also did exactly what Laura Ingraham is proposing.  China closed down and its economy took a nose dive and went back to the Dark Ages.   It took Deng Xiaoping and later Zhu Rongyi to open up China.  China grew not because of the United States, but because it opened its economy up as it was in China’s economic interest to do so.  Many US companies have joint ventures in China.  When GM was having economic problems in the Obama Administration, the one part of the company it was trying to save was its China operations because the GM Buick was the number one selling car in China.  If the US shuts down, it too like China will go back to the dark ages.

Essentially, Trump appears to be adopting the mercantilist trade policies that he has condemned.  With its focus on trade deficits in manufacturing, Trump’s trade policy appears to be that the only trade deals we want are those where the US has a trade surplus.  That is not the way the World works.

THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—THE COSTS OF NOT DOING THE TRADE DEALS

As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and is on the verge of killing the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believe the US did not get enough.  Senator Orin Hatch wanted more on biologics and other Senators and Congressmen wanted a a better deal.

But the big problem at the Trump Presidential and Congressional level with regards to these trade agreements was and is the failure to calculate the cost of not doing these trade agreements or of terminating them.  Keep in mind the only party that is more protectionist than Donald Trump is the Democrats.  Also with Steve Bannon’s attacks on “establishment” Republicans, free traders in the Republican party are becoming few and far between.

The Bannon and Trump approach reveal fatal misunderstandings.  Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing and has created an open road for the economic competitors of US, including EC, China, Mexico, Canada, Australia and other countries, who are all moving in to replace US exports in those markets.  Trump’s and Bannon’s policy combined with the Democrat’s protectionist policies mean the US will lose the economic war because of the US failure to compete in the international economic marketplace.

The arrogance of the Steve Bannon and the Trump trade policy is based on the principle that the United States is the largest market in the World, and this gives the US leverage and, therefore, countries must kowtow and bend their head to get into the US market.  Although that principle may have been true twenty years ago, it is simply no longer true.

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.

Also in many ways, with 1.37 billion people China has a larger market than the US.  In 2006, at a speech in Beijing, the US Commercial Attaché stated that 75% of all Chinese, including rural Chinese, have a color television set.  Now that is close to 95% of 1.37 billion.  That is a larger market than the US with its 323 million.

But it is the costs of terminating the TPP deal, which are becoming much more clear.

As stated in my last newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

In that blog post, I quoted extensively from the attache August 7, 2017 article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine.  To summarize some of the points in that Politico article:

for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.

A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.. . .

In other words, the entire World is moving in the direction of President Ronald Reagan to a more open free trading market, which would have benefitted US companies greatly.  The US is following Trump’s trade policy and moving backward to a more closed protectionist market.

The article went on to state the numerous free trade agreements being negotiated by the other countries in the TPP and now those Agreements are putting US farmers at a distinct disadvantage.  EC pork farmers, which already exports as much pork to Japan as the United States does, have an advantage of up to $2 per pound over U.S. exporters. European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, have a 15 percent tariff advantage over U.S. exporters.

When Donald Trump pulled out of the TPP, Japan turned around and offered the same deal to the EC, which the United States had spent two excruciating years extracting from Japanese trade officials.  The United States is now left out.

Four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance are opening negotiations with New Zealand, Australia and Singapore.

Australia is selling beef at a lower price than the US to Japan.  Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors.

With the TPP, economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

Over the first five months of 2017, U.S. exports to Japan of chilled pork, which is preferable to frozen meat, are up 2 percent over the previous year. But exports of chilled pork from Canada, a prime competitor, are up 19 percent. Likewise, in frozen pork, U.S. exports are up 28 percent. But exports from the EU, the leading competitor, are up 44 percent.

Now there are more indicators that Canada, Mexico and Japan are turning away from US imports because of the Trump protectionist positions.

COSTS OF PULLNG OUT OF NAFTA AND TPP

CANADA

In an October 16, 2017 article in the Globe and Mail, “Canada must prepare for life after NAFTA” former Canadian trade negotiator Gordon Ritchie stated:

“The Canadian government (as well as the provinces, business and labour) is now forced to contemplate life without a free-trade agreement.  While this is far from a preferred choice, it would not be the end of the world. In the absence of a bilateral agreement, the most-favored-nation rules of the World Trade Organization would apply and offer many of the same protections. Tariffs would be restored, but at a much lower level than before the free-trade agreement, averaging roughly 3.5 per cent on shipments to the United States. Unquestionably, existing economic linkages would be put under stress but most would survive. This is clearly not the option the Canadian government would prefer but it could be better than what is currently on offer from the Trump administration.

Meanwhile, the impact on U.S. businesses would be just as severe if not more so. In an unprecedented statement, the U.S. chamber of commerce, the broadest and perhaps most influential business lobby, came out strongly against dismantling NAFTA, which it earlier estimated underpinned about 12 million American jobs.”

MEXICO

On October 16, 2017 in an article entitled “Mexico Braces for the Possible Collapse of Nafta”, the New York Time reported:

“Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy would adapt without the deal that has guided relations between the neighbors for a quarter-century. .  .

President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.

Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State. . . .

Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open.

Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.

The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.

“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments. . . .

If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.

The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.

Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead. . . .”

JAPAN

Despite Japanese noises of a bilateral trade agreement with the US after meetings with Vice President Pence, on October 15, 2017 in the attached article entitled “Japan exasperated by Trump’s trade policies”, Japan exasperated by Trump’s trade policies – POLITICO, Politico reported:

“As U.S. farmers suffer under high tariffs, Japanese officials are in no rush to cut a new trade deal with the United States.

TOKYO — Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.

The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region.

Meanwhile, there is growing evidence that the failure of the TPP is taking a sharp toll on rural America. In August, the volume of U.S. sales of pork to Japan dropped by 9 percent year over year, a serious blow to farmers who had been preparing for a big increase in sales because of lower tariffs in the TPP.

Instead, other countries that export meats, grains and fruits have seized on their advantage over American growers and producers in the wake of the U.S. pullout from the TPP. And a new Reuters poll shows Trump’s favorability in rural America — once a great stronghold — dropped from 55 percent last winter to 47 percent in September. The poll also showed a plunge in support for Trump’s trade agenda among rural voters. . . .

in interviews with POLITICO, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral — two-nation — deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.

“Our prime minister has made it quite clear that we respect the U.S. decision. … That is our official position, but I think withdrawal from TPP is very wrong,” said one senior official. “Honestly, it has diminished many of things that the U.S. has achieved in the region.”

In response, Japan has continued negotiating with American trade competitors, striking a political deal on a landmark free-trade agreement with the European Union in July while continuing to work toward closing a deal with the 11 remaining members of the TPP. In interviews, the senior Japanese officials made clear their ultimate goal is to persuade the United States to rejoin the TPP.

“In the conduct of our affairs with the United States, we need to have leverage,” said one former senior Japanese Cabinet official. “In order for us to convince the U.S., we need to have our own leverage, and our own leverage needs to be free-trade agreements [with U.S. competitors].”

There are some signs the Japanese strategy is working. Republicans in Congress, many of whom were TPP supporters, are expressing impatience with the administration and a conviction that U.S. agricultural industries are suffering because of tensions unleashed by the TPP pullout.

“We cannot allow much more time to lapse in creating opportunities to have other agreements, and especially when you look at Japan,” said Rep. Dave Reichert of Washington state, chairman of the House Ways and Means Trade Subcommittee, as his panel wrapped up a hearing last week on trade opportunities in the Asia Pacific region.

Trump himself has shown no sign of second- guessing his pullout from the TPP, which he described in an interview with Forbes magazine this month as “a great honor.”

“I consider that a great accomplishment, stopping that. And there are many people that agree with me,” he said. “I like bilateral deals.” .  . . .

Perdue’s comments came amid growing frustration in the farm belt. U.S. producers expect to continue losing market share in meat exports to other countries, even as domestic production reaches an all-time high, until something is done to address high import tariffs on the other side of the Pacific. Japan remains the top market for U.S. beef, and exports are up 22 percent from a year ago, but the impact of a recent hike in tariffs on frozen beef from 38.5 percent to 50 percent — a move that would have been avoidable if the TPP had been in force — will soon be felt, the U.S. Meat Export Federation predicts. The volume of pork exports of pork to Japan, the leading market for the U.S. in terms of value, dropped by 9 percent in August year over year. . . .

But Japan is in no rush to do so, according to the interviews with senior Japanese officials, who suggested that their country’s frustrations with the Trump administration are vast. . . .

For the ever-powerful career officials who sit in the unadorned buildings lining the leafy streets of Tokyo’s government district, there is one concern about the U.S. president that overrides all others: Trump’s determination to measure the effectiveness of trade deals in terms of which side sells more to the other.

Indeed, there are many people in the United States who share the view that free trade grows the global pie, with competition serving to promote efficiency and let countries take advantage of their own assets — such as the vast farming sector in the center of the United States, which has no parallel in Japan. . . .

Trump’s view, backed up by “American first” rhetoric, presumes that countries are inherently competitors, and that there are clear winners and losers.

“We want to avoid the relationship turning into a zero-sum game,” said a senior Japanese official.

“Each country has its own policy objectives, but Japan does not see trade deficits or surplus as the only driving force for trade negotiations,” said another senior government official. “A rules-based system is very important.”

Thus, Japanese officials are watching closely as the Trump administration renegotiates the North American Free Trade Agreement through ongoing talks with Canada and Mexico. To support its America- first agenda, the administration is threatening to blow up the 23-year-old trade deal and unravel complex supply chains that have grown over the life of the pact.

“They’re watching NAFTA and, frankly, in East Asia, they’re saying if the United States is so stupid as to screw up its agreements with its continental powers in Canada and Mexico, what can we in East Asia expect from these guys?” said Robert Zoellick, who served as President George W. Bush’s chief trade negotiator and later as World Bank president. “That’s a realistic question.” . . .

The failure of the TPP is a subject of contention between the two men — because Japan not only risked its economic future in hopes of a multinational trade deal but also pinned much of its national security hopes on the deal.

The need to counter the growing clout of China is an all-consuming priority in Tokyo, and Japanese officials felt that with the TPP they were on the verge of a genuine breakthrough, tying the United States, Canada, Vietnam, Mexico, Chile and other large nations on both sides of the Pacific into an economic alliance greater than anything China could muster. . . .

Seeking to fill the void left by the TPP, China has accelerated the pursuit of its own mega-deal with other Asian nations, called the Regional Comprehensive Economic Partnership, or RCEP.

The United States leaving TPP “created a vacuum in the region, that’s for sure,” the official said. “It’s why RCEP is gaining momentum. That is why the government is asking the U.S. to come back to the TPP. We keep continuing to say so.” . . .

“The Japanese government has no mind of going back to the table for a bilateral negotiation,” said another senior official. “TPP was risky for Abe; a bilateral will require an even bigger leap.”

AGRICULTURE

On September 11, 2017 in article in Bloomberg entitled, “Four Ways to Rebuild Consensus on Agricultural Trade, The U.S. is losing ground fast to global rivals in Asia”, two former US Senators Max Baucus and Richard Lugar stated that they had formed a new group, Farmers for Free Trade stating:

“The financial health of American farmers depends on trade. In what remains the “breadbasket of the world,” U.S. farmers export half of all major commodities they grow, contributing to a projected trade surplus of $20 billion this year alone and supporting millions of direct and indirect jobs. At a time when American farm incomes have been rapidly declining, trade is what’s helping to keep farmers, ranchers and many rural communities afloat.

Not so long ago, we served in Washington D.C. when these realities were well understood. It was a time when bipartisan support for opening new markets to our farmers was assumed and expected. As globalization took hold, we understood that trade agreements were our only tool to ensure that American wheat, soy or beef could out-compete other countries’ products vying for the same markets. It was a consensus that delivered for millions of American farmers. Today, that consensus has faded.

American agricultural trade is facing risks not seen in a generation. Public attitudes toward trade agreements have shifted as protectionist sentiment has grown. Threats of tariffs on U.S. trading partners invite the specter of retaliation. Meanwhile, our competitors plot to assume the mantle of global supplier the U.S. has long occupied.

We need to rebuild consensus on agriculture trade. It must be one that incorporates the position of American farmers; that reflects the needs of rural communities; that is echoed by state and local leaders, and that seeks to heal the deep fissures on trade in Washington D.C.

We believe that consensus can be built around four important steps.

First, we need to get off the sidelines and get back in the business of negotiating trade agreements. The U.S. currently does not have a single ongoing trade negotiation that gives our farmers access to the rapidly growing Asian market. Our absence in Asia means that China is quickly moving into the void with its own trade deals that outflank U.S. agricultural producers. One of those China-led deals, the Regional Comprehensive Economic Partnership, involves 15 other Asia-Pacific countries with growing middle classes, many of whom are clamoring for the agricultural bounty the U.S. once supplied.

Meanwhile, agriculture powerhouses like Canada, New Zealand and Australia are cutting bilateral deals that provide preferential treatment for their commodities.

Take the example of beef. According to the National Cattlemen’s Beef Association, as of this week, the U.S. has now lost out to Australia on more than $165 million in beef sales to Japan. That happened because Australia cut a trade deal with Japan in 2015, and we recently walked away from one.

These sharp competitive disadvantages are becoming the norm, and while it’s difficult to calculate all the untapped gains the U.S. has lost, the numbers are clear on how we reverse the trend. Since 2003, U.S. agricultural exports to countries we do have trade agreements with increased more than 136 percent.

Second, we need to remove the threat of retaliation against U.S. agriculture. Our trading partners are not novices when it comes to whom and what they retaliate against when the U.S. runs afoul of our international commitments. U.S. farmers are always target number one.

That is because our trading partners know it is the economic engine for so many states, and because the pain inflicted is immediate and acute.

For example, the last time Mexico retaliated against the U.S., their targets included everything from corn, to apples, to almonds and grapes. The Department of Agriculture estimated that those measures cost U.S. growers close to $1 billion in lost sales.

We know there are onerous trade practices that must be addressed through diplomacy and other mechanisms for setting disputes. But threatening our closest trading partners with blanket tariffs, border taxes or aggressive enforcement actions risks a trade war that would have no winners.

Third, we need to modernize NAFTA in a way doesn’t erode the enormous gains it has delivered for American farmers and ranchers. That means working to eliminate any remaining tariff and non-tariff barriers, simplifying packaging and labeling requirements, and improving agriculture opportunities through e-commerce platforms.

But it also means doing no harm to a pact that — according to the Farm Bureau — has resulted in an annual jump of agriculture exports from $8.9 billion in 1993 to $38 billion last year.

The Trump administration has a real opportunity to expand on those gains. They should do it quickly and thoughtfully so we can turn to the task of keeping pace with our competitors.

Finally, to rebuild consensus on trade, we need to organize and educate. We know there are officials in the administration and in Congress who understand the value of agricultural trade. Yet, recent trade debates have too often become a microcosm of our broader partisan politics.

To support this effort, we’re launching a bipartisan, not-for-profit organization called Farmers for Free Trade, to build a coalition of farmers, mayors and community leaders in congressional districts across the country. This isn’t only about the over 1 million U.S. jobs supported by agriculture trade, but also the secondary and tertiary jobs it creates in rural communities: from growers, harvesters, processors, and packagers to grain elevator operators, railroad workers, truck drivers and port operators.

Rebuilding consensus on trade begins in the heartland and capitalizes on the great strength of American farmers and ranchers. If we can do that, America wins.”

U.S. ANTI-TRADE STANCE AIDS EU

Meanwhile who benefits from the US decision to turn toward protectionism, other countries and the EU.  Jyrki Katainen, the European Commission’s vice president for jobs, growth, investment and competitiveness recently stated:

“We are willing to negotiate with third countries all the time – it’s part of our economic strategy. And now we have seen that many countries have been concerned about rising protectionism and entities which undermine the multilateral system, so they have been contacting us.”

The Wall Street Journal article below outlines the negative impact of terminating NAFTA on the US automobile industry.

US CHAMBER OF COMMERCE

Instead of listening to the protectionist steel industry and the unions, maybe it is time for the Trump Administration to listen to the winners in the Trade World.  On October 10, 2017, in Mexico City, U.S. Chamber of Commerce President Tom Donohue spoke out against the Trump administration’s approach to negotiating the North American Free Trade Agreement, which he said has been riddled with “unnecessary and unacceptable” poison pill proposals from the U.S. side.  As Donohue stated:

“All of these proposals are unnecessary and unacceptable.  They have been met with strong opposition from the business and agricultural communities, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. Ladies and gentlemen, we’ve reached a critical moment, and the Chamber has had no choice but ring the alarm bells.

“[NAFTA withdrawal] would abruptly slam the door on future negotiations because those governments have made it very clear they won’t negotiate with a gun to their head.  The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts.”

Donohue specifically criticized the foolish reliance on the need for the agreement to reduce the U.S. trade deficit:

“The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is not only the wrong way to measure who’s ‘winning’ on trade, it’s the wrong focus, and is impossible to achieve without crippling the economy.”

NAFTA NEGOTIATIONS HAVE STALLED

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES:

On October 18th, Politico reported that the NAFTA negotiations are at a standstill as Canada and Mexico have rejected the strident US proposals and potentially insurmountable disagreements on areas ranging from auto rules of origin to dairy market access and a sunset provision. The next round is to start on November 17th in Mexico.

At the closing press conference, the Canadian and Mexican trade ministers attacked the United States for making impractical demands and an overall unwillingness to compromise.

US Robert Lighthizer responded:

“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners. As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.

We have seen no indication that our partners are willing to accept any change that will result in a rebalacing and a reduction in these huge trade deficits.  Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantages.”

In a press briefing in his private conference room, Lighthizer later stated that his primary goal is to reduce the trade deficit and:

“take away what I consider to be in many cases artificial incentives to encourage investment overseas that are not market based. If we get that right, we’ll have an agreement that the president will be enthused about and at that point if the president is enthused, I think the Congress will be enthused.”

Lighthizer has also argued that NAFTA is just frosting on the cake for major corporations:

“I think it’s possible to take a little of the sugar away and have them say, ‘Yeah we’re still doing pretty well.  I understand that everybody that’s making money likes the rules the way that they are. That’s how it works and they can make a little less money or make more money in a different way and we can get the trade deficit down and we can also have what I consider at least in the investment realm to be a market-based investment decision. I think if we do that business will be fine, and if we do that labor will come along and say this is a step in the right direction and it’s worth changing the paradigm in doing that.”

On October 16, 2017, in an article entitled Trump’s NAFTA Threat”, the Wall Street Journal made the opposing argument.

“Donald Trump is threatening again to terminate the North American Free Trade Agreement if Canada and Mexico don’t agree to his ultimatums.

If this is a negotiating tactic of making extreme demands only to settle for much less and claim victory, maybe it will work. Otherwise Mr. Trump is playing a game of chicken he is playing a game of chicken that he can’t win

Mr. Trump’s obsession with undoing Nafta threatens the economy he has so far managed rather well. The roaring stock market, rising GDP and tight job market are signs that deregulation and the promise of tax reform are restoring business and consumer confidence. Blowing up Nafta would blowup all that too. It could be the worst economic mistake by a U.S. President since Richard Nixon trashed Bretton-Woods and imposed wage and price controls.

U.S. demands in the Nafta renegotiations­ which returned to Washington last week-are growing more bizarre. U.S. Trade Representative Robert Lighthizer now wants to add a sunset clause, which would automatically kill it in five years unless all three governments agree to keep it. In other words, the U.S. proposes to increase economic uncertainty and raise the incentive for businesses to deploy capital to more reliable investment climates.

The U.S. also wants to change Nafta’s “rules of origin” for autos. Cars now made in North America can cross all three borders duty-free if 62.5% of their content is Nafta-made. Mr. Lighthizer wants to raise that to 85% and add a sub­ clause requiring 50% be made in the U.S.

Mr. Lighthizer needs to get out more. Nafta’s current rules-of-origin for autos are already the highest of any trade agreement in the world, says John Murphy of the U.S. Chamber of Commerce. Raising them would give car makers an incentive to source components from Asia and pay America’s low 2.5% most -favored-nation tariff. A higher-content rule would hurt Mexico, but it won’t bring jobs to the U.S

It’s hard to overstate the damage that ending Nafta would inflict on the U.S. auto industry. Under Nafta, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. As Charles Uthus at the American Automotive Policy Council said last week, Nafta “brings scale, it brings competitiveness, it brings efficiencies [and] synergies between all three countries, and it brings duty-free trade.” Its demise would be “basically a $10 billion tax on the auto industry in America.”

Last week the Boston Consulting Group also released a study sponsored by the Motor & Equipment Manufacturers Association that found ending Nafta could mean the loss of 50,000 American jobs in the auto-parts industry as Mexico and Canada revert to pre­ Nafta tariffs.

Mexico has elections next year and no party that bows to unreasonable demands by Mr. Trump can win. The Mexican political class appears willing to call his bluff, which is making American business very nervous. More than 300 state and local chambers of commerce signed an Oct. 10 letter to Mr. Trump imploring him to “first ‘do no harm’ in the Nafta negotiations.”

It noted that 14 million American jobs rely on North American daily trade of more than $3.3 billion. “The U.S. last year recorded a trade surplus _o f $11.9 billion with its NAFTA partners when manufactured goods and services are combined,” the letter said. “Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada.”

Ending Nafta would be even more painful for U.S. agriculture, whose exports to Canada and Mexico have quadrupled under Nafta to $38 billion in 2016. Reverting to Mexico’s pre-Nafta tariff schedule, duties would rise to 75% on American chicken and high-fructose corn syrup; 45% on turkey, potatoes and various dairy products; and 15% on wheat. Mexico doesn’t have to buy American, and last week it made its first wheat purchase from Argentina-30,000 tons for December delivery.

Canada and Mexico know that ending Nafta will hurt them, but reverting to pre-Nafta tariff levels could hurt the U.S. more. Mr. Trump can hurt our neighbors if he wants, but the biggest victims will be Mr. Trump’s voters.”

On October 16, 2017, in an article entitled “Trump Trying To Destroy NAFTA with Pin Pricks Instead Of A Sledgehammer” John Brinkley at Forbes outlined the US demands in the NAFTA negotiations and why they are being rejected:

“It appears increasingly likely that NAFTA is headed for the trash heap. People involved in the re-negotiation of the 23-year-old trade pact are pessimistic about its chances for survival, because the Trump administration seems bent on causing its death by 1,000 cuts.

An inexplicable aspect of this is that there is no constituency in the United States for NAFTA’s termination.

Not even the most fervent NAFTA-haters — e.g., the AFL-CIO, the Sierra Club, Public Citizen’s Global Trade Watch, and Democratic House members from Rust Belt states — have demanded the death of NAFTA. Businesses large and small, farmers and ranchers, mayors of most American cities and most members of Congress want NAFTA to stay in force. No one of note has said NAFTA has to go. So, whose interests is President Trump trying to protect?

It’s clear that what he would like to do is simply withdraw from the agreement, which he can easily do by providing Canada and Mexico six months’ notice in writing. But instead, his negotiators have tabled several proposals – poison pills would be a more apt description – that they know the Canadians and Mexicans won’t accept. This will allow Trump to blame them for NAFTA’s demise.

“Issues are being put on the table that are practically absurd,” former Mexican   Jaime Serra told Reuters during the fourth round of talks, which ended Sunday. “I don’t know if these are poison pills, or whether it’s a negotiating position or whether they really believe they’re putting forward sensible things.”

Here are four of them:

A sunset provision that would automatically terminate NAFTA after five years unless all three countries vote to keep it in force.

Deletion of NAFTA Chapter 19, which allows parties to defend themselves against dumping and illegal subsidies by one another.

A so-called opt-in provision to NAFTA’s investor-state dispute settlement (ISDS) chapter.

A change to automotive rules of origin that would make it more difficult for Canada and Mexico to export cars to the United States.

Let’s look briefly at each of these.

A five-year sunset clause would add so much uncertainty to NAFTA’s future that businesses in all three countries would be reluctant to plan and invest with regard to cross-border trade. It would also trigger a renegotiation of NAFTA every five years.

Scrapping Chapter 19 would end 23 years of fairness and equality in the way the three NAFTA parties pursue anti-dumping and illegal subsidy cases. Conservative opponents of Chapter 19 say it impinges on U.S. sovereignty by requiring the government to adhere to a supranational system. That is an argument based on principle. It has no practical merit.

ISDS allows a private company operating in a foreign country to challenge an action by that country’s government that hurts the company. Allowing one country to opt in or out of ISDS would be like allowing a driver who is pulled over for speeding to opt out of having to obey the law against speeding – sorry, officer, I have my own speed limit and it’s higher than yours.

NAFTA requires that 62.5% of the content of NAFTA-built cars and light trucks originate in the U.S. if those vehicles are to be exported duty-free to the U.S. The Trump administration wants to raise that to 80%. This is a purely protectionist measure that would raise the price of cars sold in the United States, including those made here.

The governments of Mexico and Canada vehemently oppose these proposals and others the administration has presented. But Trump has said, no problem, if the NAFTA renegotiations don’t work out, he’s willing to negotiate separate bilateral free trade agreements with the two countries.

It’s apparent that what he really wants is to get rid of Mexico. He has said most illegal Mexican immigrants were rapists and murderers, vowed to build a wall along the Mexican border, threatened to invade the country to rid it of some unspecified “bad hombres,” and threatened to impose a 20% border tax.

And we’re to believe that he wants to sit down with the Mexican government and negotiate a free trade agreement in good faith?

Yeah, right.”

TRUMP THREATS ARE NOT WORKING WITH THE US SOUTH KOREA TRADE AGREEMENT

Meanwhile, South Korean Trade Minister Kim Hyun-chong recently indicated that Seoul is willing to let President Donald Trump kill the pact, rather than bow to unreasonable U.S. demands for concessions to bring bilateral trade more into balance.

Kim also stated that cutting trade ties with South Korea will only push the country, as a matter of necessity, economically closer to China, the source said.

US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL

Recently there has been a distinct difference in the antidumping and countervailing duty area.  Friends have told me that internally at Commerce all countervailing duty and antidumping duty determinations go to the Secretary’s office of his personal review.  That was not true when I was at the Commerce Department during the Reagan Administration.

Countervailing duty and antidumping determinations are legal proceedings that are subject to Court review.  The Court of International Trade and the Court of Appeals for the Federal Circuit can overturn as not based on substantial evidence on the record if there is not a factual underpinning for the Commerce Department decisions.

If politics become a large part of the case, that is a reason for the Court to overturn Commerce decisions as arbitrary and capricious and not based on substantial evidence on the record.

Every time Commerce issues a determination in an antidumping and countervailing duty case, Commerce Secretary Wilbur Ross makes a personal statement.  When the Countervailing Duty preliminary determination of 212% in the Bombardier Civil Aircraft case was issued, Secretary Ross stated:

“The U.S. values its relationships with Canada, but even our closest allies must play by the rules.  The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

In past newsletters, I have argued that Commerce is a hanging judge in AD and CVD determinations finding dumping and subsidization in close to 100 percent of the cases.  But in contrast to a China case, where Commerce uses fake numbers, in a market economy case against Canada, for example, Commerce is to use actual domestic prices and costs to determine dumping and actual government payments to determine subsidization in the case and actual commercial values in that country to value them.  Thus, in counseling foreign companies in antidumping and countervailing duty cases, if they are in market economy countries, I tell them that they can use computer programs to run their numbers and make sure that they are not dumping.  Also companies can usually figure out whether they have taken subsidies from the Government.

As indicated in the Article about the Bombardier/Civil Aircraft case below, however, although the AD and CVD rates were very high at 219% and 79%, Commerce did give reasoned decisions as to how it calculated those high rates.

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

Just before the countervailing duty preliminary determination in the Civil Aircraft from Canada case, I was interviewed by BBC radio and by various investment companies asking me for my views on the case.  During those interviews, I emphasized that the US countervailing duty and antidumping cases against Canada were legal proceedings and that the Commerce Department’s preliminary determinations were normal operating procedure pursuant to the US antidumping (“AD”) and countervailing duty (“CVD”) law.  The Commerce Department must follow the statutory requirements of the AD and CVD law, and these preliminary determinations were not political decisions.  They were legal decisions made pursuant to the law and the statutory deadlines in those laws.

With all the political arguments from both the Canadian and UK Governments in the wind, during those interviews, however, I also suggested the case could result in a negotiated suspension government to government agreement, much like happened in the Canadian Lumber case.  After the CVD preliminary determination, USTR Lighthizer also mentioned the possibility of a government to government negotiated deal in the Bombardier case.

But then Commerce issued a preliminary CVD rate of 219.63%.  Immediately the Canadian government complained about the unfairness of the decision, and the UK government threatened a trade war with the US because Bombardier has a production plant in Northern Ireland.

Commerce issued the very high CVD rate as indicated in the attached Commerce Department’s Issue and Decision Memo, 2017.09.26 Aircraft Prelim I&D Memo, because of the massive equity infusion of $1 billion by the Quebec Government directly into Bombardier, making it in effect a state-owned company, much like the Chinese state-owned companies.

The entire purpose of the US CVD law and CVD laws in general is that private companies should not have to compete in commercial markets against the Government and that is just what has happened.

Although the argument is made that Boeing is financed by its military sale of airplanes to the US government, Boeing itself is a publicly traded company on the New York stock exchange and certainly has not received $1 billion in a direct equity infusion into the company by a Government to finance its production operations.

But then Bombardier seriously damaged its own chances for a negotiated government to government suspension agreement because Commerce issued an antidumping preliminary determination of 79.82% antidumping rate based on All Facts Available (“AFA”) because Bombardier refused to provide sales information regarding its contracts with Delta and Air Canada and cost information.

Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation.  The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response.  The EC takes the same position. If a respondent refuses to cooperate in EC antidumping and countervailing duty cases, the EC will use all facts available.

I firmly believe that because of the decision not to cooperate with Commerce, the Trump Administration will refuse to do a suspension agreement in this case.  Commerce will not reward bad behavior in AD cases.  A company cannot refuse to cooperate with Commerce and give them the information they need to make a decision and then expect Commerce to give it a political deal.

Also the UK threat of a trade war indicates an ignorance of how AD and CVD law works, which is understandable because all AD and CVD cases in the EC are handled in Brussels.  As stated above, these preliminary determinations were legal determinations under the US AD and CVD law, which are based on the WTO Antidumping and Countervailing Duty Agreements and agreed to by all countries in the WTO, including Canada, the EC and through the EC, the UK.

Bombardier argued that it could not provide the sales information because the airplanes had not been exported to the US.  As indicated in the attached AFA memo, ANTIDUMPING AFA BOMBARDIER, the US Antidumping Law, which is based on the WTO Antidumping Agreement, covers “sales” and in the absence of sales offers for sale.  As the AFA Memo states:

Additionally, section 772 of the Act defines export price and constructed export price as the price at which merchandise under consideration is first sold or agreed to be sold. Moreover, 773(a)(1)(B) of the Act states that normal value is the price at which:

the foreign like product is first sold (or, in the absence of a sale, offered for sale) for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade and, to the extent practicable, at the same level of trade as the export price or constructed export price.

In addition, as previously mentioned, under 19 CFR 351.102(b)(43), the term “sale” includes a contract to sell. Furthermore, a Ways and Means Committee report describes the reason for amending the countervailing duty law, along the lines of what already existed in the antidumping duty law, to make clear that the Department could initiate countervailing duty cases and render determinations in situations where actual importation had not yet occurred but a sale for importation had been completed or was imminent. The House Report explained that “{a}ntidumping law has, since its inception, applied not only to imports, but to sales or likely sales. This report additionally explained that the amendment (including the phrase “or sold (or likely to be sold) for importation” in section 701(a) of the Act) was “particularly important in cases involving large capital equipment, where loss of a single sale can cause immediate economic harm and where it may be impossible to offer meaningful relief if the investigation is not initiated until after importation takes place.” This logic described in the House Report is relevant in this antidumping duty investigation as well. For these reasons, the Department appropriately requested information related to Bombardier’s purchase contracts for merchandise under investigation in the United States and the home market.

According to Commerce, Bombardier only submitted arguments in response to sections B through D of the questionnaire.  It did not provide the facts to support those arguments.  Under US AD law, however, Commerce Department decisions and respondent’s arguments have to be based on the facts on the Administrative Record.  When there are no facts, Commerce will use All Facts Available.

Through intermediaries, I have been told that Bombardier refused to release that information to Commerce because of fear it would be released to Boeing.  If that is true, it reveals the failure of Bombardier’s outside lawyers to discuss how Commerce Department Administrative Protective Orders work in AD and CVD cases.  Under US AD and CVD law, only outside counsel, not Boeing’s inside counsel, are granted access to Bombardier information and if those outside lawyers reveal that information to Boeing, they can be disbarred.  Trade counsel in the US take very seriously the APO requirements under the US AD and CVD Law.  In addition, Bombardier’s outside counsel has had access to Boeing’s confidential information under Administrative Protective at the US International Trade Commission so there is simply no sympathy for Bombardier’s arguments.

Finally, the latest news is that Bombardier is asking Airbus to take a majority share in its production of C Series Aircraft and Airbus will shift the production to Mobile, Alabama to get out of the case.  Boeing has argued that Boeing’s move will not have an effect on the case because any orders issued will cover parts.

But that is not quite correct.  The jurisdiction in AD and CVD cases is in rem over the things, products, being imported into the US.  So the critical issue is how did Boeing describe the products to be covered by the case and that are in the Scope of the Merchandise Section in the Federal Register notice issued by the Commerce Department.

The Scope of the Merchandise Section in the Federal Register notice states that the AD and CVD orders will cover imports of:

“aircraft, regardless of seating configuration, that have a standard 100- to 150-seat two-class seating capacity and a minimum 2,900 nautical mile range, as these terms are defined below. . . .

The scope includes all aircraft covered by the description above, regardless of whether they enter the United States fully or partially assembled, and regardless of whether, at the time of entry into the United States, they are approved for use by the FAA.”

The scope does not include “parts thereof” language so the real question is whether Customs will consider any parts imported into the United States to be “partially assembled” civil aircraft.

The key point is that the desperate measure to joint venture with Airbus, however, means Bombardier has given up on a government to government Suspension Agreement to settle the case.  I suspect Bombardier will have major problems going forward.

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.

The ITC had to determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”

The ITC reached an affirmative injury determination in the case on September 22, 2017, and now it has entered a remedy phase on which remedy to recommend to the President.

The Commission will issue its report to the President on November 13, 2017 and the President within 60 days must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

Although the ITC remedy phase is important, the real remedy will be determined by President Donald Trump with the assistance of the USTR after November 13th.

On October 3, 2017, the ITC held a hearing in the remedy phase.  The proposed remedies from the parties are:

The petitioners, Suniva and SolarWorld Americas, in their public briefs, proposed two remedies: a tariff plus a price floor for solar cells, or a tariff plus a quota. The two companies agree that the commission should choose one.

The Solar Energy Industries Association, the users coalition, along with solar producer SunPower, argued that a tariff will result in the loss of 62,800 jobs in 2018 and 80,000 jobs in later years. Tariffs will simply increase the price of panels, which will kill solar projects. SEIA in its brief also argued that if tariffs are imposed, the big winner will be Arizona-based thin-film manufacturer First Solar, which does much of its manufacturing in Malaysia.

At the hearing, Suniva and SolarWorld requested a 32-cent-per-watt tariff on crystalline silicon photovoltaic cells.  Suniva continued to push for a price floor on solar panels of 74 cents per watt, while SolarWorld wants a quota on imported cells and panels to cap import supply; both support each other’s idea in the alternative.  In its brief, Suniva stated:

“The crisis caused by foreign market overcapacity now facing the U.S. CSPV cell and module industry is so extreme, the financial losses so great, that, to be effective, any remedy … must be bold, extensive and multifaceted.  [A] strong and effective remedy is required to stop the industry’s bleeding, and then provide breathing space for this American-invented manufacturing technology to grow and thrive.”

But SEIA, which maintains that such trade barriers will devastate the entire U.S. solar industry by raising prices and crippling demand, says the two manufacturers are failing for internal and not external reasons and have asked for more help than the government can grant. Since the ITC must recommend a remedy by mid-November with Trump then to decide within 60 days, SEIA offers these alternatives: technical assistance and job training assistance from government agencies, and an import licensing fee to fund manufacturing growth.

The interesting point is that Suniva and Solar World failed to submit an adjustment plan to the ITC to show, in direct contrast to Harley Davidson, how they will adjust to import competition if they are given relief.

SEIA argued in its brief:

“The commission should rely on its trade policy expertise to create and recommend constructive advice instead of resorting to trade restraints.  Denying the existence of the tens of thousands of jobs that are at stake, denying the reality and importance of grid parity, and denying the domestic industry’s internal problems in favor of scapegoating imports will not help the industry or serve the national interest.”

TRUMP AND CHINA

But what about developments regarding trade with China, as indicated below new trade cases are being filed against China in the antidumping and countervailing duty area and for IP violations under Section 337.

During her speech mentioned above, Laura Ingraham argues that there is no remedy if imports come into the US that infringe US intellectual property rights.  That simply is not true.

Under Section 337, 19 USC 1337, Petitioners holding valid IP rights can filed a Section 337 case at the US ITC and after a year long proceeding, the ITC will issue an order excluding the infringing imports at the border.

In addition, if the imports infringe US trademarks or copyrights, Petitioner can go directly to Customs, which will exclude the infringing exports at the border.

In addition, if Chinese exports infringe US intellectual property rights, such as trademarks and copyrights, a US company can go directly to Chinese Customs and stop the export of infringing exports.

But with China’s decision to help on North Korea, I suspect that during Trump’s visit to China in November deals will be reached.  But as Charlene Barshefsky has indicated in her speech to the Wall Street Journal above, the real problem is China’s decision to close down areas to US investment and put up barriers to US imports.

In light of the US position in the NAFTA talks, we can expect the US to demand reciprocity.  Trump and Congress may well take the position that we will close off the US market to the Chinese investment in the same areas where China blocks US investment in.  The US should also consider closing off Chinese imports into sectors where the US cannot export into.  That is reciprocity.

There are many fights to come.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

In the attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, 301 INITIATION NOTICE, President Trump pulled the trigger on the Section 301 Intellection property case against China.  The Section 301 investigation could take a year and probably will lead to negotiations with the Chinese government on technology transfer.  If the negotiations fail, the US could take unilateral action, such as increasing tariffs, or pursue a case through the World Trade Organization.  Unilateral actions under Section 301, however, also risk a WTO case against the United States in Geneva.

The notice states that the USTR will specifically investigate the following specific types of conduct:

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

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

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

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

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.  Juergen Stein, CEO of SolarWorld Americas stated that his company was a victim of Chinese “state-sponsored hacking and theft” while it was pursuing his AD and CVD cases against China.  Stein further stated that this “greatly weakened SolarWorld’s first-mover status, and again left SolarWorld vulnerable to China’s relentless effort to take over the U.S. solar industry through the sale of solar cells and panels below the cost of production,”

Just one other company, American Superconductor Corp., testified that it had been badly hurt by Chinese theft of its intellectual property.  The company accused a Chinese state-owned enterprise, Sinovel Wind Group, of stealing its intellectual property. AMSC has lost over $1.6 billion in company value and 70 percent of its workforce over the past six years as a result, AMSC President Daniel Patrick McGahn said.

“We believe that over 8,000 wind turbines – most owned by large Chinese utility state-owned enterprises – currently are operating on stolen AMSC IP I personally believe such actions should have consequences. The negative impact of Sinovel’s IP theft on the financial health of AMSC has been dramatic.”

A third company, ABRO Industries, said it had learned to work within the Chinese intellectual property protection system to address problems when they arise. William Mansfield, director of intellectual property at ABRO, also urged the Trump administration to refrain from rash action, stating, “The time for gunboat diplomacy is long since past.”

Acting Assistant USTR for China Terry McCartin, commenting on the dearth of business witnesses, said some companies had expressed concern “about retaliation or other harm to their businesses in China if they were to speak out in this proceeding.”

But as indicated in an article by Dan Harris, the problem may be that US companies on their own gave away their IP because of bad business decisions.  The US government cannot protect US companies from the consequences of bad business decisions.  See August 30, 2017 article by Dan Harris entitled “China-US Trade Wars and the IP Elephant in the Room”, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html.

CHINA NME STATUS

On the question of China’s nonmarket economy status in AD and CVD cases, in light to the expiration of the 15-year deadline in the China-WTO Agreement on December 16, 2016 and a Chinese case in the WTO, the EU on October 3rd reached agreement with the European Council and Parliament to overhaul its antidumping procedures.  Pursuant to the Agreement, the EU will decide the issue on a case-by-case basis, leaving it up to the EU Government to determine whether a Chinese industry has demonstrated enough independent from the Chinese government.

In the announcement, the EU stated:

“The new legislation introduces a new methodology for calculating dumping margins for imports from third countries in case of significant market distortions, or a pervasive state’s influence on the economy.  The rules are formulated in a country- neutral way and in full compliance with the EU’s WTO obligations.”

EU Trade Commissioner Cecilia Malmström further stated:

“Having a new methodology in place for calculating dumping on imports from countries which have significant distortions in their economies is essential to address the realities of today’s international trading environment. The commission has repeatedly stressed the importance of free but fair trade and the agreement today endorses that view.”

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, a case which is near and dear to my heart, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia, according to a WTO document circulated on Monday.

According to the US complaint:

“The BC wine measures provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves.  The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called store within a store.”

According to prior statements from the government and the industry backing the case, many retailers in Canada have not taken the necessary steps to set up their “store within a store” to sell foreign wine, likely because of the high costs associated with controlled access and separate cash registers.

According to the complaint:

“These measures appear to be inconsistent with Canada’s obligations … because they are laws, regulations or requirements affecting the internal sale, offering for sale, purchase or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin.”

In the following months, Argentina, Australia, the European Union and New Zealand all asked to join the case, according to the World Trade Organization website.

USTR asserts the provincial regulations discriminate against imported wine because they only allow wine from British Columbia to be sold on regular grocery store shelves. In contrast, imported wine may only be sold in the province’s grocery stores through a so-called store within a store.

“British Columbia’s discriminatory regulations continue to be a serious problem for U.S. winemakers,” USTR spokeswoman Amelia Breinig said. “USTR is requesting new consultations to ensure that we can reach a resolution that provides U.S. wine exporters fair and equal access in British Columbia.”

In fact, BC Wine regulations are probably the most protectionist in the World, worse than China requiring the equivalent of an 80% tariff to sell imported wine.  BC protectionist measures on wine simply feed right into the Trump argument on NAFTA that it is not a free trade agreement.

SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED

The Section 232 Steel and Aluminum cases appear to have stalled for the time being.  No news on the Section 232 front raises the question what can be done for US Steel and Aluminum companies injured by imports without distorting the US market and expanding the problems.  Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products.  Such a remedy would probably result in the loss of 100s of thousands of US job.

That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

But does that mean the US government should simply let the US Steel industry and other manufacturing industries die?  The election of Donald Trump indicates that politically that simply is not a viable option.

Although Joseph Schumpeter in his book Capitalism, Socialism and Demcracy coined the term “creative destructionism”, which conservatives and libertarians love to quote, they do not acknowledge the real premise of Schumpeter’s book that capitalism by itself could not long survive.  Schumpeter himself observed the collateral damage created by pure capitalism.

So what can be done for the steel and other manufacturing industries?  Answer work with the companies on an individual basis to help them adjust to import competition and compete in the markets as they exist today.  Moreover, there is already a government program, which can serve as a model to provide such a service—the Trade Adjustment Assistance for Companies Program.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs stop wallowing in international trade victimhood and to cure its own ills first before always blaming the foreigners.  That is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As stated above, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition.  This program has a true track record of saving US companies injured by imports.

This was a problem personally approved by President Ronald Reagan.  The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports on an individual basis to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $50,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $133 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.

Are such paltry sums really going to help solve the manufacturing crisis in the Steel and other industries?  Of course not!!

But when the program was originally set up, the budget was much larger at $50 to $100 million.  If the program was funded to its full potential, yes steel companies and other companies could be saved.

To those libertarian conservatives that reject such a program as interference in the market, my response is that this program was personally approved by your icon, President Ronald Reagan.  He understood that there was a price for free trade and avoiding protectionism and that is helping those companies injured by import competition.  But teaching companies how to be competitive is a much bigger bang for the buck than simply retraining workers.  And yes companies can learn and be competitive again in the US and other markets.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

PTFE RESIN

On September 28, 2017, the Chemours Company FC LLC filed AD and CVD cases against imports of Polytetrafluoroethylene (PTFE) Resin from China and India.

FORGED STEEL FITTINGS

On October 5, 2017, the Bonney Forge Corporation and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed AD and CVD cases against imports of Forged Steel Fittings from China Italy and Taiwan.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN

HYDRIOC ACID FROM THE US and JAPAN

On October 16, 2917, China Ministry of Commerce (“MOFCOM”) published the attached initiation notice of antidumping investigation against Hydriodic Acid from the USA and Japan, Initiation Notice_Hydriodic Acid_EN.  The alleged dumping margin on the US imports is 36.09% and Japanese imports is 41.18%

The Target companies in the US are: USA: Iofina Chemical, Inc.; IOCHEM Corporation and Ajay North America, LLC

The Target Companies in Japan are: SE Chemicals Corporation, NIPPOH CHEMICALS CO., LTD. and TOHO Earthtech, Inc.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2017.37 Team’s newsletter-EN Vol.2017.38 Team’s newsletter-EN Vol.2017.39 Team’s newsletter-EN Vol.2017.40

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

REUSABLE DIAPERS

On September 19, 2017, Cotton Babies, Inc filed a section 337 case against imports of Certain Reusable Diapers, Components Thereof, and Products Containing the Same.  The respondent companies named in the complaint are:

Alvababy.com, China; Shenzhen Adsel Trading Co., Ltd.d/b/a Alva, China; and Huizhou Huapin Garment Co., Ltd., China.

AMORPHOUS METALS

On September 19, 2017, Metglas, Inc. and Hitachi Metal, Ltd. filed a section 337 case against imports of amorphous metals and products containing same.  The named respondents in the case are:

Advance Technology & Materials, China; AT&M International Trading Co., Ltd., China; CISRI International Trading Co., Ltd., China; Beijing ZLJG Amorphous Technology Co., Ltd., China; Qingdao Yunlu Energy Technology Co., Ltd., China; Dr. Hideki Nakamura, Japan; and Mr. Nobrou Hanai. Japan.

LED LIGHTING

On September 21, 2017, Philips Lighting North America Corp. and Philips Lighting Holding B.V. filed a section 337 case against imports of LED Lighting Devices and LED Power Supplies.  The named respondents in the case are:

Feit Electric Company, Inc., Pico Rivera, California;  Feit  Electronic  Company,  Inc., (China),  China;  Lowe’s  Companies,  Inc.,  Mooresville,  North  Carolina; L G Sourcing,  Inc., North  Wilkesboro,  North Carolina; MSi Lighting, Inc., Boca Raton, Florida; RAB Lighting Inc., Northvale, New Jersey; Satco Products, Inc., Brentwood, New York;  Topaz  Lighting Corp.,   Holtsville, New York; Wangs Alliance Corporation d/b/a WAC Lighting Co., Port Washington, New York; and WAC Lighting (Shanghai) Co. Ltd. , China.

REUSABLE RAZORS
On September 27, 2017, The Gillette Company LLC filed a section 337 case against imports of Certain Shaving Cartridges, Components Thereof and Products Containing Same.  The named respondents in the case are:

Edgewell Personal Care Company, Chesterfield, Missouri; Edgewell Personal Care Brands, LLC, Shelton, Connecticut; Edgewell Personal Care, LLC, Shelton, Connecticut; Schick Manufacturing, Inc., Shelton, Connecticut; and Schick (Guangzhou) Co., Limited, China.

BEVERAGE CONTAINERS

On September 28, 2017, YETI Coolers, LLC filed a section 337 case against imports of Insulated Beverage Containers, Components, Labels, and Packaging Materials.  The named respondents are:

Alibaba (China) Technology Co., Ltd., Hong Kong; Alibaba Group Holding Limited, c/o Alibaba Group Services Limited, Hong Kong; Alibaba.com Hong Kong Limited, Hong Kong; Alibaba.com Singapore E-Commerce Private Limited, Hong Kong; Bonanza.com, Inc., Seattle, Washington; ContextLogic, Inc. d/b/a Wish, San Francisco, California; Dunhuang Group, China; Hangzhou Alibaba Advertising Co., Ltd., Hong Kong; Huizhou Dashu Trading Co., Ltd., China; Huagong Trading Co., Ltd., China; Tan Er Pa Technology Co., Ltd., Hong Kong; Shenzhen Great Electronic Technology Co., Ltd., China; and SZ Flowerfairy Technology Ltd., China.

If you have any questions about these cases or about the Trump Trade Crisis, NAFTA, FTAs, , including the impact on agriculture, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP SIMPLISTIC APPROACH TO TRADE INJURES US COMPANIES, US AGRICULTURE BADLY HURT, NAFTA NOT GOING WELL, SECTION 301 AND 232 CASES, TRADE ADJUSTMENT ASSISTANCE, SOLAR, FALSE CLAIMS ACT, MORE CASES

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 AUGUST 30, 2017

 

Dear Friends,

As stated in many past blog posts, it is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.  Trump’s decision to push protectionism endangers his standing with a core constituency—farmers and rural America.  As stated below, Trump’s decision to tear up the Trans Pacific Partnership (“TPP”) has already had a major negative impact on farmers.

Trump’s call for an economic war with China and other countries is already having a ramification.  Trump’s threat to pull out of NAFTA is not helping the US position in the negotiations.  Trump simply does not understand the ramifications of the trade deal when he terminated the TPP or when he threatens to tear up NAFTA.

The Trump trade policy is based on one arrogant presumption—the US market is the largest in the World and the rest of the World must kowtow, come on bended knee, to get into the US and that fact gives the US leverage.  But that fact is no longer true.  The 11 countries in the TPP have a larger market than the US.  China has a larger market than the US so the Trump Administration has to be very careful when it plays this card.

In fact, Canada and Mexico already can fall back on trade agreements they have with other countries, such as Europe.  The United States does not have that luxury.  The US decision by both Trump and the Democrats to go protectionist is further isolating the US in the trade area and is and will have major negative economic ramifications on the US economy.  The chickens will come home to roost.

Trump simply did not understand the dynamics of the Trans Pacific Partnership (“TPP”) and the ramifications of simply terminating it.  During the campaign, Candidate Trump stated that the TPP was a bad deal and if only he led the negotiating the team, it would be a better deal.  Thus, Trump argued that the TPP deal should be terminated and the US should then negotiate bilateral deals with the eleven countries in the TPP.

But two major problems with that strategy are becoming very clear.  First the United States Trade Representative (“USTR”) does not have the personnel to negotiate 11 separate trade deals with the individual countries.  It took more than five years to negotiate the TPP.  With Trump’s steep cuts to the Government bureaucracy, the government resources simply are not there.

Second, Trump did not understand the dynamics of the TPP deal.  During those negotiations, countries could give the US concessions because they would get offsets from other countries and the importance of gaining access to the markets of 11 other countries was worth the concession to the US.

But with no other countries in bilateral deals, the other countries are less willing to make the concessions the US is demanding.  In fact, as Robert Lighthizer, the USTR, has discovered, many of the countries in the TPP do not want to have a bilateral deal with the US.  They fear and rightly so that the US will demand too much.  Much easier to export and import from other countries.

The same problem is happening in the NAFTA negotiations.  Trump is threatening to leave NAFTA when he simply does not understand the dynamics of the deal and the devastating impact that such a withdrawal would have on US farmers and also US manufacturing industries, such as the US auto industry.  Trade is very complicated and running into the trade area like a bull in a China shop simply creates enormous damage.  That damage will be borne by the US agricultural industry and US manufacturers and that means the loss of 1000s if not 100s of thousands of jobs.

Labor unions and working men like the sound of being politically tough on trade and the foreigners, but when jobs are lost, those same people may not like the actual reality of a very protectionist policy.  Many American politicians, such as Donald Trump and Senators Chuck Schumer and Bernie Sanders, like to be tough on trade because foreigners do not vote.  But if the economy is hurt by Trump’s trade actions, his base will be hurt and he will not be the next President.  So there a lot riding on Trump’s trade policy and his Administration has run straight into the Wall of actual trade reality.

The only saving grace for Trump is that as evidenced by Senators Chuck Schumer and Bernie Sanders, the Democrats are even more protectionist than Trump.  But neither the Democrats nor Trump understand the true ramifications of simply walking away from trade deals that open up foreign markets.  The US agricultural industry is now learning those ramifications.

By kowtowing to the Steel industry with its 141,000 jobs, these trade actions could costs thousands, if not hundreds of thousands, of jobs in downstream industries and other industries, such as Agriculture. It is time for the United States to wake up to the benefits of trade.

It is also time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  See the article on Trade Adjustment Assistance for Companies below and how companies, including steel companies, can be saved from import competition by making them competitive again.

USTR has also initiated a section 301 case against forced technology transfers in deals with China.  But in an August 30, 2017 article by Dan Harris, my partner, entitled “China US Trade Wars and the IP Elephant in the Room”, Dan states that in over one hundred deals with Chinese companies, he has not seen US companies forced to give over their Intellectual Property (“IP”) by the Chinese government.  Instead he has seen US companies make bad decisions leading them to give away their IP by their own volition.  If US companies do not protect their IP rights, they will lose them.  The US Government cannot protect against stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.  The Section 201 case against imports of Solar Cells continues with the ITC hearing being 11 hours long. The United States has intervened in a False Claims Act case against Furniture.  Commerce has also issued a circumvention determination in the Aluminum Extrusions case.

More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade beat goes on.

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

THE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—TRADE

Donald Trump’s political strategy is fight the cultural war, but win the next election because of his economic policy.  If jobs and wages are up, more companies move into the US, Trump’s firm belief is that he wins the next Presidential election.  Even Michael Moore, the Democratic gadfly, believes that Trump will win reelection by carrying the states that he already won.  See https://www.fastcompany.com/40459122/michael-moore-says-trump-is-on-track-to-win-again-in-2020.

There is only one fly in the ointment, flaw in this strategy—Trade.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.

The economic nationalist Steve Bannon, who is credited with helping get Donald Trump elected by in part pushing the American First Trump policy, was recently forced out of the White House.  Before he left, however, Bannon made his trade position crystal clear.  in an article entitled “Steve Bannon Unrepetent”, in the American Prospect” magazine on August 16, 2017, Bannon stated with regards to trade policy:

“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and  it’s gonna be them if we go down this path.  . .

Bannon went on to describe his battle inside the administration to take a harder line on China trade, and not to fall into a trap of wishful thinking in which complaints against China’s trade practices now had to take a backseat to the hope that China, as honest broker, would help restrain Kim.

“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we’re five years away, I think, ten years at the most, of hitting an inflection point from which we’ll never be able to recover.”

Bannon’s plan of attack includes: a complaint under Section 301 of the 1974 Trade Act against Chinese coercion of technology transfers from American corporations doing business there, and follow-up complaints against steel and aluminum dumping. “We’re going to run the tables on these guys. We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”

From Bannon’s point of view, trade is economic war.

Although Bannon has since left the White House, President Trump and Commerce Secretary Ross apparently share Bannon’s thinking.  On August 22nd, without understanding the ramifications on his voter base, President Trump announced that he might simply cancel NAFTA.  Apparently, Trump believes that both Mexico and Canada are winning the economic war against the United States.

On August 28th, in an article entitled “Exclusive: Trump vents in Oval Office, “I want tariffs. Bring me some tariffs!”, Axios reported that in the first Oval Office meeting with Chief of Staff John Kelley and the last meeting with Steve Bannon, President Trump stated:

Trump, addressing Kelly, said, “John, you haven’t been in a trade discussion before, so I want to share with you my views. For the last six months, this same group of geniuses comes in here all the time and I tell them, ‘Tariffs. I want tariffs.’ And what do they do? They bring me IP. I can’t put a tariff on IP.”  . . .

“China is laughing at us,” Trump added. “Laughing.”

Kelly responded: “Yes sir, I understand, you want tariffs.” . . . .

Staff secretary Rob Porter, who is a key mediator in such meetings, said to the president: “Sir, do you not want to sign this?” He was referring to Trump’s memo prodding Lighthizer to investigate China — which may lead to tariffs against Beijing.

Trump replied: “No, I’ll sign it, but it’s not what I’ve asked for the last six months.” He turned to Kelly: “So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs.”

Kelly replied: “Yes sir, understood sir, I have it.” . . .

Trump made sure the meeting ended with no confusion as to what he wanted.

“John, let me tell you why they didn’t bring me any tariffs,” he said. “I know there are some people in the room right now that are upset. I know there are some globalists in the room right now. And they don’t want them, John, they don’t want the tariffs. But I’m telling you, I want tariffs.” . . . .

Emphasis in the original.

Trump’s statements in this article ring true because during the Presidential campaign, Donald Trump made it very clear that he likes tariffs.

On August 28th, however, George Will in an Op-ed article entitled “Trump, The Novice  Protectionist” in Investors Business Daily responded to the Trump trade policy stating:

“Foreigners, however, have their uses. After the president trumpeted that the Dow surpassing the 22,000 mark was evidence of America’s resurgent greatness, The Wall Street Journal rather impertinently noted this: Boeing, whose shares have gained 50% this year and which accounted for 563 of the more than 2,000 points the Dow had gained this year en route to 22,000, makes about 60% of its sales overseas. Boeing has a backlog of orders for 5,705 planes, 75% going outside North America. For Apple, the second-biggest contributor (283 points) to this year’s Dow gain at that point, foreign sales are two-thirds of its total sales. Foreign sales are also two-thirds of the sales of McDonald’s, the third-biggest contributor (239 points).

Mark Perry of the American Enterprise Institute says that in the last 20 years the inflation-adjusted value of U.S. manufacturing output has increased 40% even though — actually, partly because — U.S. factory employment decreased 5.1 million jobs (29%).  . . . Increased productivity is the reason there can be quadrupled output from the same number of workers.  According to one study, 88% of manufacturing job losses are the result of improved productivity, not rapacious Chinese.

But those Democrats who think government should fine-tune everything are natural protectionists (Sen. Charles  Schumer: “They’re  rapacious, the  Chinese”)  and probably think Trump is too fainthearted because he is not protecting Americans from competition from Americans.  . . .”

TRUMP TRADE WAR—THE SIMPLISTIC APPROACH TO TRADE COULD WELL DAMAGE THE US ECONOMY AND DOOM THE TRUMP ECONOMIC PLAN

In the above articles about Bannon’s and Trump’s approach to trade along with the below op-ed article in the Wall Street Journal by Commerce Secretary Wilbur Ross, the Trump trade team reveal the protectionist bent of the Trump Administration, which is based, in part, on blind arrogance and a simplistic approach to trade policy.

The Bannon and Trump approach reveal fatal misunderstandings:  trade is a two-way street, and US exports are critical to the wellbeing of Donald Trump’s own constituents.  In international trade, what goes around comes around.  What the US does to other countries, they can do back to the US.

Moreover, Bannon, Ross and Trump are confusing economic warfare with economic competition.  The United States has always strongly believed that economic competition is good for the economy, the country and the US consumer.  The bedrock principle of the importance of economic competition to wellbeing of the US economy is the reason the US antitrust laws were enacted. As Deputy Assistant Attorney General Roger Alford of the US Justice Department’s Antitrust Division recently stated on August 30th at a Competition Policy Forum in Shanghai China:

Our continued engagement on this topic is significant for competition enforcement. We are the guardians of strong and vigorous competition for economic prosperity. Our lodestar is to promote competition, not to give preference to specific competitors, even when individual businesses jockey for advantage.  . . .

Emphasis added.

Bill Gates believed that Microsoft had to go to war with its competition, but frankly that is why Microsoft produced such good software.  CEOs of companies are driven by competition to produce better products at lower prices, which means stronger US companies and prosperity for the US economy and US consumers.  Stronger US companies means more jobs at higher wages.

Protecting US companies from international competition does not strengthen the US companies.  It weakens them and the poster child for such a point is the US Steel industry, which has had 40 years of protection from steel imports.

This is exactly why President Ronald Reagan was so opposed to protectionism.  As President Reagan stated above in June 1986: “Protectionism is destructionism. It costs jobs.”

Moreover, Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing, and, therefore, it will lose the economic war.  Trump’s and Bannon’s combined with the Democrat’s protectionist policies mean the US will lose the economic war because of its decision to look inward and no longer compete in the international economic marketplace.

US companies do not get stronger by protecting them from international competition, which simply promotes the mentality of international trade victimhood.  US companies get stronger by looking inward and working harder to become internationally competitive.  See the article about Trade Adjustment Assistance for Companies below.

The arrogance of the Steve Bannon and the Trump trade policy is based on the principle that the United States is the largest market in the World, and this gives the US leverage and, therefore, countries must kowtow and bend their head to get into the US market.  Although that principle may have been true twenty years ago, it is simply no longer true.

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

Maybe this is a major reason US companies move to Mexico and Canada to get better access to other foreign markets.  The United States is competing with other countries too.

Also in many ways, with 1.37 billion people China has a larger market than the US.  In 2006, at a speech in Beijing, the US Commercial Attaché stated that 75% of all Chinese, including rural Chinese, have a color television set.  Now that is close to 95% of 1.37 billion.  That is a larger market than the US with its 323 million.

Also the upper class and upper middle class in China, which numbers between 250 to more than 300 million, have an income closer to the US and that segment of the China market is the same size, if not larger, than the US.  That is why in the push for the Trans Pacific Partnership (“TPP”), House Speaker Paul Ryan used to state that 75% of the World’s consumers are outside the United States.

But China is also not this overwhelming behemoth with an economic juggernaut that is going to crush the US.  Yes, it may have a larger market, but on a per capita basis, it is much smaller.  Thus, the US per capita income on average is $57,000 where the Chinese per capita income is $8,000.  China has its own problems—keeping its people happy and fed.

Along with these problems, China has major weaknesses, which can be exploited by the US.  China has a very high personal tax rate, which can be as high at 45%.  This high tax rate is why many Chinese have emigrated to the US, looking for a lower tax rate and a better opportunity to keep the money they earn.  If Trump can drive taxes lower, that may result in more entrepreneurs and businesses moving to the US, e.g. Foxconn.

Another problem is the Chinese government’s strict control of information flowing into China by its very strong control of the internet.  Strict control of the internet stops knowledge flowing into China, which especially hurts the country’s high tech sector.  When information and knowledge stop, economies do not do as well.  The free flow of knowledge and ideas is critical for the most advanced economies and yet that is not true in China.

But arrogance is one of the great sins because it blinds you to all options.  To make a better deal in trade negotiations, the Administration has to do its homework and first understand the actual American interest.  If one is going to make America great again, one must first understand what is the nature of America’s interest in trade.  This requires understanding the dynamics of the trade deal in question, which President Trump prides himself in doing.  The Trump Administration must understand the actual trade deal closely, the US leverage points and the US weaknesses, what trade deals will help the US and the what trade deals will hurt the US interest.  Donald Trump’s failure in trade negotiations is to understand the dynamics of the deal and the leverage that the US has in trade negotiations.  In other words, with regards to trade, Trump simply does not understand “The Art of the Deal”.

In ripping up the TPP without even trying to renegotiate, Trump failed his own test because he did not understand the elements of the deal.  Trump’s philosophy was to do away with multilateral deals because they fall to the lowest common denominator and do only bilateral deals because that gives the US more control over the deal and if the country does not live up to its side of the bargain cancel the deal.

The problem with that approach is first the US government does not have the personnel at USTR, which is very lean and mean, to negotiate 11 separate trade deals with all the countries in the TPP.  It took more than 5 years to negotiate the TPP.

But secondly and more important, in recent bilateral negotiations, Canada, Mexico and Japan have all told the US do not assume that in bilateral deals or NAFTA, the United States will get the same deal it would have gotten in the TPP.  In fact, as indicated below, many countries in the TPP simply do not want to do a bilateral deal with the US—too much work.  Canada, Mexico and Japan were willing to give the US a better deal because they would gain access to a much greater market, the market of 11 additional countries.  That gave countries the political ability to play one national interest against another national interest.  Thus, Canada could give in to the US on dairy products because of the potential access to the much larger TPP market, including the Japanese and US markets.  Thus, countries in the TPP could use tradeoffs with other countries to open their markets further to US exports.  Those trades offs and the market access to the markets of 12 different countries does not exist with a bilateral deal with just the US.

On August 24, 2017, in an article entitled “Revived TPP may exclude trade concessions sought by US”, Nikkei, a Japanese newspaper, stated:

TOKYO — Japan is proposing suspending trade concessions made to the U.S. as part of the Trans-Pacific Partnership in order to resurrect the pact with the 11 remaining members.

Tokyo sounded out that proposal to other nations in the “TPP 11,” as those members became known after the U.S. withdrew from the deal. Senior negotiators will cite items they wish to see shelved during three days of talks starting Monday in Australia.

Washington had secured a number of major concessions from other nations in exchange for lower American tariffs on their exports. Though President Donald Trump pulled the U.S. out of the deal, those concessions remain on the TPP’s books — to the consternation of other members.

If all the 11 participants agree unanimously, any such concession would be put on hold, and national regulations governing that element of the pact would remain in place.
But the suspensions would be lifted if and when the U.S. decides to return to the partnership.

While the remaining members are leaning toward keeping the lower tariffs agreed on among the initial group, they are likely to revisit specific trade rules.

The U.S. sided with major domestic drug companies and settled on an effective eight-year window before competitors can have access to proprietary pharmaceutical data. That moratorium exceeds international standards, and other countries think it would impede development of cheap generics. All members of the TPP 11 are expected to agree on freezing that provision.

Other provisions that may be suspended involve copyright protection periods, fair-competition policies governing state-owned enterprises and the opening of government procurement to foreign capital.

American exports would face a competitive disadvantage if an 11-member TPP goes into force. Tokyo hopes that U.S. meat industry leaders will speak up in favor of rejoining the trade deal.

Trade is the one weak link in Trump’s economic plan.  As indicated below, the decision to kill the TPP has already had a major negative impact on US agriculture and part of Trump’s base, the rural states, where agriculture is king.

SIMPLICITY IS OFTEN A GOOD TRADE POLICY BUT NOT WHEN THE POLICY IS SIMPLE MINDED AND NARROWLY FOCUSED

Trump has slowed down the Section 232 Steel and Aluminum Investigations because its “complicated”, but when Bannon and Trump take a very simplistic, black and white view of trade, it is extremely dangerous to the US economy and Donald Trump’s own constituents.

This is not a fight between Globalism and America First.  The America First strategy requires the Administration to understand deeply the interest of the United States and the interest of all the significant US industries in trade negotiations, including agriculture, not just the narrow Steel and Aluminum Industries. The Trump and  Bannon statements indicate a deep failure to analyze why Trump won the election and what the interest of the entire United States is in trade negotiations and also the interest of Donald Trump’s own constituents, the voters that elected Donald Trump President.

Bannon thinks that if we create a trade war with China and are tough on them we will win the economic trade war with China. But Bannon truly has forgotten why voters elected Donald Trump.

First, it was not just the US Steel and Aluminum industries that put Trump in the White House, it was the working man in many manufacturing plants throughout the United States.  Because of their economic, black white view of the World, Trump and Bannon want to put up barriers to steel imports to protect the US Steel industry and its 141,000 jobs without realizing the damaging impact of such an action on the millions of jobs in the downstream steel consuming industries.  Truthfully, if Donald Trump is going to be reelected, Trump himself, his trade team and Steve Bannon cannot be so simple minded.

More importantly Donald Trump also won because of farmers.  Although Trump won the States in the Blue Wall, Michigan, Ohio, Pennsylvania and Wisconsin, he was also able to win the Presidency because he won the US heartland, including the states of Iowa, Kansas, Nebraska, Wyoming, Montana, North Dakota, South Dakota, Arizona, Oklahoma, Utah and Florida.  What do those states have in common and in common with Wisconsin—Agriculture.  And the Trump trade policy is and has seriously hurt US farmers because US farmers are dependent on exports.

As the US Wheat Federation stated in the Section 232 Steel case, half of US wheat is exported.  Putting up protectionist walls invites retaliation against US agricultural exports.

Finally, one other point in direct response to Steve Bannon’s and Trumps statement, substantial trade relations prevent real shooting wars.  As indicated below in the Section 301 article, China is becoming more amenable on North Korea because of its enormous trade relationship with the United States.  The total US China trade relationship is $578.6 billion with $115.8 billion in US exports and $462.8 billion in imports from China.

In direct contrast, the US trade relationship with Russia is much, much smaller.  The total US Russia trade relationship is $38.1 billion with $11.2 in US exports and $27 billion in imports from Russia.  Truly peanuts in the global trade market.  It is better to compete with countries in the economic arena as compared to a real war, where millions die.

DEMOCRATS MORE PROTECTIONIST THAN DONALD TRUMP

The only saving grace for Donald Trump on trade is that the Democrats are even more protectionist.  On August 13th, Senator Chuck Schumer, who heads the Democrats in the Senate, told John Catsimatidis on his New York AM 970 radio show “The Cats Roundtable” that he is closer now to President Donald Trump than he ever was with former President Barack Obama on trade.  Senator Schumer stated:

“Trade is the thing [China cares] most about, and they’ve been treating us very badly on trade for a long time, frankly,.  I was closer in trade views to Donald Trump than I was to either George Bush or Barack Obama, on China anyway. I think we were much too easy on them. But if we got tough on them now, maybe they would relent, but we have to be real tough. So far, the administration has not been as tough as they should be, as far as I’m concerned.”

The Trump Administration should be very tough with China on trade, but it should carefully analyze what its true interests are and the interests of US voters that elected Donald Trump.  The US government should do everything in its power to drop barriers to US exports in China and other countries.  But protectionism for protectionism’s sake will not cure the problems of US manufacturing and right the US China trade balance

TRUMP’S TRADE WAR HURTS US AGRICULTURE AND US FARMERS

As mentioned in prior newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  On August 7, 2017, in the attached extensive article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine, Politico did its homework and described in detail the deep negative impact of the Trump trade policy on US agriculture:

EAGLE GROVE, Iowa—On a cloud-swept landscape dotted with grain elevators, a meat producer called Prestage Farms is building a 700,000-square-foot processing plant. The gleaming new factory is both the great hope of Wright County, which voted by a 2-1 margin for Donald Trump, and the victim of one of Trump’s first policy moves, his decision to pull out of the Trans-Pacific Partnership.

For much of industrial America, the TPP was a suspect deal, the successor to the North American Free Trade Agreement, which some argue led to a massive offshoring of U.S. jobs to Mexico. But for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.

A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.

“I’m scared to death,” said Ron Prestage, whose North Carolina-based family pork and poultry business made its huge investment in the plant near Eagle Grove in part to reap expected gains from the TPP. “I don’t guess I’ve gone beyond the point of no return on the new plant, but we did already start digging our wells and started moving dirt.”

He and other agricultural business people and workers have reason for concern.

On July 6, the EU, which already exports as much pork to Japan as the United States does, announced political agreement on a new deal that would give European pork farmers an advantage of up to $2 per pound over U.S. exporters under certain circumstances—a move which, if unchecked, is all but certain to create a widening gap between EU exports and those from the United States.

European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, would also see a 15 percent tariff on exports to Japan disappear while U.S. exporters would continue to face that duty at the border. For other products, the deal essentially mirrors the rates negotiated under the TPP, which the United States has surrendered, giving the EU a clear advantage over U.S. farmers.

The EU’s deal is all the more noteworthy because American farmers were relying on the TPP—to which the EU was not a member—to give them an advantage over European competitors. But in a further rebuke to the United States, Tokyo decided within a matter of weeks to offer the European nations virtually the same agricultural access to its market that United States trade officials had spent two excruciating years extracting through near-monthly meetings with their Japanese counterparts on the sidelines of the broader TPP negotiations; the United States is now left out.

The EU, which also recently inked a deal with Vietnam, is now moving forward with talks with Malaysia and is in the process of modernizing a pre-existing trade deal with Mexico.

Meanwhile, a bloc of four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance—is quickly becoming the leading force for free trade in the region, announcing near the end of June it would commence its own negotiations with New Zealand, Australia and Singapore, heedless of its neighbor to the north.

On its own, Australia, which in 2015 cut a deal to undersell the United States in beef exports to Japan, announced another round of scheduled tariff cuts with Japan. Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors. Australia is also prioritizing the conclusion of trade talks with Indonesia, the largest nation in Southeast Asia by gross domestic product.

The remaining 11 TPP countries have already met two times, with a third meeting planned, to move ahead with the revival of the deal without the United States. The so- called TPP-11 would be in direct response to Trump’s trade policy. Economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

As China, which was never a part of the TPP, senses blood in the water, it is moving quickly to assert itself, rather than the United States, as the region’s trade arbiter. China is aiming to close talks by the end of this year on its behemoth Regional Comprehensive Economic Partnership—a trade agreement involving 15 other Asia-Pacific countries.

None of these deals are yet in effect. But already there are signs that competitors are gaining market share over U.S. producers in the post-TPP landscape, as Pacific nations take a closer look at alternatives to U.S. exporters.

Over the first five months of 2017, U.S. exports to Japan of chilled pork, which is preferable to frozen meat, are up 2 percent over the previous year. But exports of chilled pork from Canada, a prime competitor, are up 19 percent. Likewise, in frozen pork, U.S. exports are up 28 percent. But exports from the EU, the leading competitor, are up 44 percent.

Japan, which saw the TPP not only as a source of economic growth but a counterweight to China, is now taking the lead in salvaging the deal. Its goal is to have some sort of agreement between the 11 other countries in place for the annual summit of Asia-Pacific leaders in November. Trump is expected to attend, creating the awkward possibility that he will witness all the handshakes and back slaps as his fellow leaders congratulate themselves on a deal.

For his part, Trump once promised a slew of “beautiful” deals to replace the TPP, but his administration has yet to lay out a detailed strategy. U.S. Trade Representative Robert Lighthizer told lawmakers that an analysis is underway to determine where it makes most sense to pursue negotiations.

In the meantime, Lighthizer, a trade attorney who pressured Japan to voluntarily restrain its steel exports when he was a trade official in the 1980s, said Tokyo should just go ahead and lower their tariffs without expecting anything in return.

“I think in the areas like beef and the others, they ought to be making some unilateral concessions, at least temporary concessions,” he told lawmakers in June. “And I don’t quite understand why that doesn’t happen.”

Lighthizer said the administration still hopes to strike bilateral trade deals—that is, separate agreements with individual countries—but he conceded that “some of the TPP countries don’t want to do bilaterals.” The value of the TPP for many countries was that they could justify giving up protective tariffs in exchange for their own access to the markets of a wide pool of countries; many are unwilling to make such concessions for the smaller gains of a bilateral deal.

Lighthizer acknowledged that even Japan, at least for the time being, may not be interested in one-on-one negotiations with the U.S. . . .

That leaves workers in 13,000-person Wright County, whose survival depends largely on agriculture, with relatively few signs of optimism. Trump’s decision to walk away from the TPP has stoked uncertainty about U.S. trade policy and, more notably, the president’s commitment to rural America.

“He fooled a lot of people,” said Sandy McGrath, mayor of Eagle Grove, who is not affiliated with any party and did not support Trump. . . .

But the plant’s success will depend largely on export opportunities. More than 26 percent of the pork produced in the U.S. in 2016 was exported to foreign markets. And more than $1.5 billion of the nearly $6 billion in U.S. pork exports in 2016 headed for Japan.

“At the time those investment decisions were made, the U.S. had never turned down a free trade opportunity,” said Dermot Hayes, an agricultural economist at Iowa State University, referring to the Prestage plant and other pork-industry investments.

Hayes said the livestock industry had in its sights a future of expansion amid soaring export growth. After Trump’s withdrawal from the TPP, “that has pretty much disappeared,” he said. . . .

In April, when Trump was on the verge of withdrawing from NAFTA, Maier said he watched corn prices plummet in anticipation of the president’s decision. Trump relented, at the request of Perdue, the agriculture secretary, who appealed to the president with colorful maps showing the president’s base was largely concentrated in states that heavily rely on agriculture.

Ultimately, Trump agreed to renegotiations with Canada and Mexico instead. But Maier remains wary that, despite pledges by the administration to “do no harm” for agriculture, the mere act of reopening the deal with Canada and Mexico, the two largest destinations for U.S. agricultural exporters, could mess up what has been a very good thing for American farmers in the Midwest.

“Farmers are willing to open up NAFTA, but if we open up NAFTA, there’s the risk of going backwards,” he said. . . .

The Obama administration, backed by a large cadre of free-trade Republicans, used that reality to grow support for the TPP among businesses and agricultural interests eager to grab a better foothold in a fast-growing area of the world where the U.S. has few formal trade deals.

But through the slow churn of negotiations, the dazzlingly complex deal among 12 countries soon fell victim to time and circumstance. After more than five years of talks, bleary-eyed trade negotiators were finally able to close the deal at an Atlanta hotel on October 5, 2015. But the agreement quickly became mired in election politics. Labor unions and blue-collar voters declared it to be a successor to NAFTA, which was blamed for the loss of factories. And while the U.S. trade commission predicted the deal would be broadly beneficial to the overall economy, some areas including food and agriculture were predicted to score more gains than others.

Even as supporters of the deal insisted it would put U.S. manufacturers on a stronger footing versus overseas competitors by enforcing higher labor and environmental standards, Trump and Bernie Sanders used anti-TPP fervor as a key plank of their campaign platforms, declaring that it would cost America jobs. Even Hillary Clinton, normally a supporter of freer trade, turned on the deal, saying she wanted to negotiate better terms.

Trump escalated his rhetoric on trade after the primaries and Congress, which has final say on trade deals, shied away from bringing TPP up for a vote. After Trump’s victory, the fate of the deal in the GOP-controlled Congress was all but sealed as Republican lawmakers put it aside to concentrate on tax reform and a bid to roll back Obamacare.

On his first full day in office, Trump signed an executive order withdrawing from the TPP, calling the action a “great thing for the American worker.”

“The Trans-Pacific Partnership is another disaster done and pushed by special interests who want to rape our country, just a continuing rape of our country,” Trump said during a campaign stop in Ohio. “That’s what it is, too. It’s a harsh word: It’s a rape of our country.” . . .

But even as Iowa was voting for Trump by 51 percent-42 percent, its farmers were looking to Asia as their savior. . . .

But despite Trump’s intense personal interest in trade, the White House has been slow to build the dream team of negotiators the president promised on the campaign trail. Lighthizer, who once served as a deputy U.S. trade representative under President Ronald Reagan, was confirmed on May 11. The people tapped to serve in the agency’s three deputy positions await confirmation, as does the administration’s pick for chief agriculture negotiator.

Iowa’s Republican Sen. Chuck Grassley says he thinks a trade deal with Japan would make up for much that was lost for agriculture by dropping TPP, but it will take “a lot more personnel, a lot more time to get it done, a lot more separate actions by Congress.”

As far as the administration’s strategy to get there, Grassley, who still owns his farm in Butler County, Iowa, said he hasn’t gotten much direction.

“I asked Lighthizer maybe a month ago in a meeting, and I didn’t get an answer,” Grassley said in a recent interview. “In a sense he answered, but not very definitively because their policy isn’t established.” . . .

Maybe the lesson of TPP demise for the protectionist firebreathers is be careful what you wish for.  The negative ramifications of not doing the TPP appear to be infinitely higher than doing the trade deal.

NAFTA NEGOTIATIONS

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.

But Trump keeps stirring the pot with his anti-NAFTA rhetoric. On August 22nd, during a speech in Phoenix President Trump announced that he might simply cancel NAFTA.

As Politico stated on August 23rd, “Trump’s  threat  of  NAFTA  withdrawal lose its edge”:

“Canada and Mexico appear to have reached a conclusion that when President Donald Trump threatens to withdraw from NAFTA, it is a negotiating ploy that is all bark and no bite. . . .

Instead, concerns were raised from within the United States government, where officials and lawmakers who support the deal see little value in the president repeatedly going to the well of harsh rhetoric in a way that makes the United States’ negotiating position more difficult.

“I don’t know a single person with a working brain cell that thinks that’s a good idea,” said one U.S. government source close to the talks, referring to renewing the threat of terminating the deal. “It’s a stupid message to send during the  negotiations.”

Part of the reason Mexico and Canada might be less intimidated by Trump’s bluster is that they have plenty of other trading partners to fall back on if the relationship with the U.S. sours. Both countries have separate deals in place with the European Union — Mexico is currently ramping up talks to update theirs — and both are part of the effort to reboot the Trans-Pacific Partnership, which the remaining 11 members are pushing toward completion even without the U.S.

But after Trump cast aside the TPP almost immediately upon taking office, the U.S. has fewer such options to fall back on — so pro-NAFTA lawmakers and those from export- dependent states have repeatedly urged him to focus on modernizing and updating NAFTA, rather than terminating it.

House Ways and Means Chairman Kevin Brady — whose home state of Texas counts Mexico as the No. 1 market for its exports, followed by Canada — cautioned Trump on Wednesday to be more aware of the effects his words have on the country’s trade relationships.

“The president’s rhetoric is red-hot, and it creates real impact,” Brady said during a town hall discussion at AT&T headquarters in Dallas. “I think the rhetoric, the words from the president matter, so I’d like to see that take a different approach in tone.”

Brady, whose powerful committee oversees trade on Capitol Hill, is one of a core group of Republicans whose support will be crucial if the administration succeeds in renegotiating a new deal with Canada and Mexico, since it will likely have to go through Congress for approval . . ..

The political question is whether Trump would discard NAFTA in the face of what certainly would be fierce resistance from Congress and industries like agriculture, which would take a significant hit in that event amid a sustained downturn in the farm economy.

Back in April, intense lobbying from the Hill and on the farm helped talk Trump down from inking a prepared executive order to withdraw from the deal. News of the planned order sparked such a public outcry and flurry of reaction in support of the deal that business and trade insiders sometimes refer to it as “Black Wednesday.” . . .”

Meanwhile, a chorus of industries are telling the Administration not to be so tough in the NAFTA negotiations because tweaks are fine, but the failure of the NAFTA deal would be disastrous to US industry and US agriculture.  On August 10th Automobile and Auto Parts makers urged the Administration to cool down the rhetoric on rules of origin for automobiles and auto parts because major changes to automobile rules of origin through NAFTA modernization could have the unintended consequence of making North America’s auto industry less competitive.  As Charles Uthus, vice president of international policy at the American Automotive Policy Council, the main lobbying arm of U.S. auto companies in Washington, stated:

“It’s the highest automotive rule of origin anywhere that you can find. It’s already extremely rigorous, very difficult to meet as it is. To actually strengthen it, there is a huge risk of unintended consequences.”

Ann Wilson, senior vice president of government affairs for MEMA, stated:

“Our members really struggle with finding a connection between changing the rules of origin and the reshoring of jobs. They do not see that connection.”

On August 17th Politico reported that Trump’s tough rhetoric has created intense hatred in Mexico, which will make it politically very difficult for Mexico to make concessions or agree to a deal that would clearly benefit the US.  Thus, Mexican President Enrique Peña Nieto is not afraid to walk away from the table if needed, potentially overturning the entire U.S.-Mexico bilateral trade relationship in the process.

Again, Trump does not understand the dynamics of the deal and the fact that since Mexico has more trade agreements than the US, it has leverage and is not afraid to walk away from the table.

Thus, both Mexico and Canada are resisting US pressure for a new “national content” provision in NAFTA’s auto trade rules to encourage more parts to be made in the United States.  As Mexican Economy Minister Ildefonso Guajardo stated:

“It will not be best practice to introduce that kind of rigidities into the industrial process.  It’s not good for American companies. It’s not good for Mexican companies.”

Canadian Foreign Minister Chrystia Freeland also stated: “Canada is not in favor of specific national content in rules of origin”.

Meanwhile, the Canadian Dairy Producers stated that they will fight any U.S. effort to duplicate in NAFTA the dairy concessions secured through TPP negotiations. As Yves Leduc, director of policy and international trade for the Dairy Farmers of Canada, stated, “Not a possibility – as far as we are concerned, we would never agree to that.”

The small amount of dairy access that Canada granted the U.S. during the TPP talks – equal to 3.25 percent of Canada’s domestic milk production – was balanced out by concessions Canada secured in negotiations involving all of the 11 other countries. Those circumstances don’t apply to NAFTA, which involves only three countries. As Leduc stated, “To ask us to open up our market to allow more subsidized goods from the U.S. to enter the Canadian market, the answer is simple: It’s no.”

Meanwhile, US famers joined with Canadian and Mexican farmers to urge US negotiators to not let specific demands undermine the market access US farmers and ranchers enjoy under the existing agreement.  Although all three groups want to lower trade barriers to exports and imports, it was their unified position to defend existing market access that was most notable, given the fear on the farm that Trump could use agriculture as a bargaining chip to satisfy his obsession with reducing America’s trade deficit in manufactured goods.

THE PHRASE “FREE BUT FAIR TRADE” IS A FRAUD BECAUSE COMMERCE HAS SO DEFINED DUMPING AS TO FIND ALMOST EVERY IMPORT DUMPED

In an article along the same lines as the Bannon article and the Trump quote, on August 1, 2017, Commerce Secretary Wibur Ross penned an article in the Wall Street Journal entitled, “Free Trade Is a Two Way Street”.  In the article, Commerce Secretary Ross argued that many countries erect barriers to US exports, but then went on to state:

“Both China and Europe also bankroll their exports through grants, low-cost loans, energy subsidies, special value-added tax refunds, and below-market real-estate sales and leases, among other means. Comparable levels of government support do not exist in the U.S. If these countries really are free traders, why do they have such formidable tariff and nontariff barriers?

Until we make better deals with our trading partners, we will never know precisely how much of our deficit in goods is due to such trickery. But there can be no question that these barriers are responsible for a significant portion of our current trade imbalance.

China is not a market economy. The Chinese government creates national champions and takes other actions that significantly distort markets. Responding to such actions with trade remedies is not protectionist. In fact, the World Trade Organization specifically permits its members to take action when other countries are subsidizing, dumping and engaging in other unfair trade practices.

Consistent with WTO rules, the U.S. has since Jan. 20 brought 54 trade-remedy actions— antidumping and countervailing duty investigations—compared with 40 brought during the same period last year. The U.S. currently has 403 outstanding orders against 42 countries.

But unfortunately, in its annual reports, the WTO consistently casts the increase of trade enforcement cases as evidence of protectionism by the countries lodging the complaints. Apparently, the possibility never occurs to the WTO that there are more trade cases because there are more trade abuses.

The WTO should protect free and fair trade among nations, not attack those trade remedies necessary to ensure a level playing field. Defending U.S. workers and businesses against this onslaught should not be mislabeled as protectionism. Insisting on fair trade is the best way to ensure the long-term strength of the international trading system.

The Trump administration believes in free and fair trade and will use every available tool to counter the protectionism of those who pledge allegiance to free trade while violating its core principles. The U.S. is working to restore a level playing field, and under President Trump’s leadership, we will do so.

This is a true free-trade agenda.”

Let me begin by saying no one has a problem with US government actions challenging foreign, including Chinese, barriers to US exports.  Every Administration be it Republican or Democrat has taken a tough stance to drop foreign barriers to US exports.  In fact, many Senators and Congressmen are pressuring the Trump Administration for more free trade agreements because they remove barriers to US exports.  The TPP, Trans Pacific Partnership, would have dropped tariffs down to 0 on more than 18,000 products exported by US companies, many agricultural products.

Although no one doubts that the Chinese market is significantly distorted, many foreign markets and in some cases US markets are significantly distorted.  The US steel market with the many outstanding trade orders blocking steel imports is a good example of a significantly distorted market in which the US price for steel is much higher than the World market price.

Also no one doubts that many countries subsidize their exports or dump in the US market.  For many years, the Commerce Department was able to find very high dumping rates on Japanese imports in antidumping cases by using price to price comparisons, which found that Japanese prices were significantly higher, sometimes four times higher, than US prices for the same Japanese product.  That is classic dumping using higher prices in the home market to fuel lower prices to the United States.

The Japanese companies were able to use dumping because the Japanese Government erected non-tariff trade barriers to block imports from the US and other countries creating very high domestic Japanese prices.  To protect its mikan /tangerine industry, for example, for many years Japan blocked all imports of citrus fruit.  But it is also interesting to note that there are no outstanding countervailing duty/anti-subsidy orders against Japanese products.

The Chinese governments, especially the local governments, also subsidize their exports and provide low interest loans to their companies, but so does the US government, through its subsidies in the Agriculture area, and the State Governments, which will waive state income taxes or help with low interest loans, to encourage production of companies, such as Foxconn, to move to their states.

But the US Countervailing Duty law applies to China now and the Commerce Department has not been shy in finding Chinese imports into the United States to be subsidized.  It should be noted, that the WTO has overturned 28 US Countervailing Duty cases against China, in part, because the WTO has ruled that Chinese state-owned companies are not necessarily the Chinese government itself, as the Commerce Department has ruled.

The US too has state-owned companies, such as the Tennessee Valley Authority, which provides electricity to certain parts of the US.  Should foreign governments assume that all electricity from the TVA is subsidized because it is owned by the US government?

The major problem, however, is the Commerce Department’s application of the antidumping law.

In the 1980s, James Bovard authored a book called the “Fair Trade Fraud”, which outlined many of these same problems in the US antidumping law.  But nothing has changed.  Instead Commerce has just developed new methodologies to increase antidumping rates even higher.

Moreover, the same economic warfare arguments were made about Japan in the 1980s.  Although China does not have clean hands, that does not mean that every single import from China is unfairly traded.  In fact, I would argue that a significant percentage, if not the majority, of imports from China are fairly traded.  The Chinese government simply does not care about the Chinese Mushroom, Honey, Crawfish or Shrimp industries and does not set the prices for those products or any of the inputs.  Does the Chinese government really care about the price of cow manure in China, a major input for mushrooms?

Remember Commerce over decades has so distorted the US antidumping law that it finds dumping in 100% of the cases from China because it refuses to look at actual prices and costs in China.  If you have a hanging judge, does that mean every single import from China is dumped/unfairly traded?

Instead, Commerce should start easing the restrictions on the market economy status of China so as to determine which Chinese companies are truly dumping in the US market and nail them to the wall.  Commerce should make its antidumping cases against China mirror actual reality in China, not for the Chinese companies, but for US importers and downstream customers.

Right now, because of its refusal to use actual prices and costs in China, neither Donald Trump, nor Wilbur Ross nor the Commerce Department know which Chinese companies are truly dumping and which Chinese companies are not.  Until Commerce starts uses actual prices and costs in China, no one will know which Chinese company is truly dumping,

Finally, the Commerce Department decision to tilt the playing ground and find dumping in every antidumping and countervailing duty case against China and also against almost all every other foreign county has created a situation so that the public perception is that almost every import into the US is dumped.  These hanging judge decisions fuel the protectionist/isolationist political rhetoric in the United States badly damaging US industry and agriculture.  It has also led to a mentality by many US companies of international trade victimhood.  We poor US companies simply cannot compete in the international or US market because all foreign exports and US imports are subsidized or dumped.

Instead, US companies want to rely on US government issued protectionist walls to protect themselves from competition rather than finding a way to make the US companies competitive again.  See the article on Trade Adjustment Assistance for Companies below.

SECTION 232 STEEL AND ALUMINUM CASES STALLED

The Section 232 Steel and Aluminum cases continue to be stalled.  On August 21ST,  Politico reported:

“WHITHER THE NATIONAL SECURITY STEEL INVESTIGATION? White House chief strategist Steve Bannon’s departure from the White House . . tipped the balance of Trump’s economic advisers firmly toward the more centrist “globalist” wing – and that could mean that two reports examining whether to limit imports of steel and aluminum for national security reasons could be indefinitely delayed. The Commerce Department has prepared a report on its findings that is circulating among agencies, but the administration has decided to dial down the investigations as it turns its attention to tax reform . . . .

Part of the reason is the departure of Bannon, who had been a major proponent of the move. But the decision to put off the investigations was also made in part because of opposition from business groups and Republican lawmakers who were worried it would hurt steel users and the broader economy, the news report said. .

Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality.  The major problem is that the steel industry has only 141,000 jobs at stake while downstream steel users have millions of jobs at stake.

As background, on April 20, 2017, President Trump and the Commerce Department in a 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.

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.

Under the terms of the executive order, an interagency group will 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.

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.”

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, 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 steel and aluminum users, which are dependent on high quality, competitively priced steel products to produce competitive downstream products made from steel and aluminum.

In response to the delay in the Section 232 Steel case, American steel industry executives appealed directly to President Donald Trump for immediate import restrictions because steel imports have surged back to 2015 levels.  As the letter states:

“The need for action is urgent. Since the 232 investigation was announced in April, imports have continued to surge.  Immediate action must meaningfully adjust imports to restore healthy levels of capacity utilization and profitability to the domestic industry over a sustained period.”

The American Iron and Steel Institute (AISI), an industry trade group, reported on Wednesday that total steel imports through July this year were up 22 percent from the same period a year ago, with imports taking 28 percent of the U.S.  market.

In the letter, Steel company executives from Nucor Corp., U.S.  Steel, ArcelorMittal and Commercial Metals Co. said the sustained surge of steel imports into the United States had “hollowed out” much of the domestic steel industry and was threatening its ability to meet national security needs.

“Your leadership in finding a solution to the crisis facing the steel industry is badly needed now. Only you can authorize actions that can solve this crisis and we are asking for your immediate assistance.”

The collateral damage to the many US producers that produce downstream steel products created by any across the board tariffs on steel imports makes it very difficult for the Administration to use a broad brush to fix the steel problem.  That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

But does that mean the US government should simply let the US Steel industry and other manufacturing industries die?  The election of Donald Trump indicates  politically that simply is not a viable option.

Although Joseph Schumpeter in his book Capitalism, Socialism and Demcracy coined the term “creative destructionism”, which conservatives and libertarians love to quote, they do not acknowledge the real premise of Schumpeter’s book that capitalism by itself could not long survive.  Schumpeter himself observed the collateral damage created by pure capitalism.

So what can be done for the steel and other manufacturing industries?  Answer work with the companies on an individual basis to help them adjust to import competition and compete in the markets as they exist today.  Moreover, there is already a government program, which can serve as a model to provide such a service—the Trade Adjustment Assistance for Companies Program.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs to stop wallowing in international trade victimhood and cure its own ills first before always blaming the foreigners.  That is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As stated above, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition.  This program has a true track record of saving US companies injured by imports.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports on an individual basis to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $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 TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $13.3 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.  The press release specifically stated:

“WASHINGTON – U.S. Secretary of Commerce Wilbur Ross today announced $13.3 million in U.S. Economic Development Administration (EDA) grants to support 11 Trade Adjustment Assistance Centers (TAACs) in California, Colorado, Georgia, Illinois, Massachusetts, Michigan, Missouri, New York, Pennsylvania, Texas, and Washington that help manufacturers affected by imports adjust to increasing global competition and create jobs.

“The Trump administration is working every day to help America’s manufacturers, their workers, and their communities,” said Secretary Ross. “This funding is one element of a government-wide effort to restore American jobs and strengthen U.S. manufacturing.”

The 11 grants include:

$1.7 million to the University of Michigan, Ann Arbor, for the Great Lakes Trade Adjustment Assistance Center

$1.2 million to the Mid-Atlantic Employers’ Association, King of Prussia, Pennsylvania, for the Mid-Atlantic Trade Adjustment Assistance  Center

$978,000 to the New England Trade Adjustment Assistance Center, Inc., North Billerica, Massachusetts

$1.1 million to the Research Foundation, State University of New York Binghamton, for the New York, New Jersey and Puerto Rico Trade Adjustment Assistance Center

$1.2 million to the University of Colorado at Boulder for the Rocky Mountain Trade Adjustment Assistance Center . . .

$1 million to the University of Missouri–Columbia for the Mid-America Trade Adjustment Assistance Center …

$1.2 million to the Trade Task Group, Seattle, Washington, for the Northwest Trade Adjustment Assistance Center…

EDA’s Trade Adjustment Assistance for Firms program funds 11 Trade Adjustment Assistance Centers across the nation. The centers support a wide range of technical, planning, and business recovery projects that help companies and the communities that depend on them adapt to international competition and diversify their economies.  . . .

The mission of the U.S. Economic Development Administration (EDA) is to lead the federal economic development agenda by promoting competitiveness and preparing the nation’s regions for growth and success in the worldwide economy.”  . . .

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.

In the attached article entitled “Steel Competitiveness Seriously?”, Steel Competitiveness, William J. Bujalos, the head of the Mid-Atlantic Trade Adjustment Assistance Center,  makes the proposal to expand the program to help large manufacturing companies, including steel producers.  Mr. Bujalos states:

“Current reports suggest that the nation’s steel industry is experiencing a rebound – a rebound driven by a growing collective confidence about America’s economic future.

That’s all good but irrelevant because confidence is not a strategy for growing the nation’s global competitiveness. What is relevant is the extent to which our companies are able to grow other much more important things, like metrics critical to their competitive success. Do that and the power of any confidence index won’t matter.

Let me explain. Since 1998 I have been leading the nation’s Trade Adjustment Assistance for Firms (TAAF) program in the Mid-Atlantic region. My business experience during the last 50 years has yielded insight into the kinds of things that have the highest probability for success at reversing an enterprise’s negative fortunes irrespective of the competitive battlespace that they’ve chosen to play in. Prior lives involved corporate management in both private and public sectors (large and small companies) in a wide variety of markets that included: management consulting, chemicals, plastics, medical devices, pharmaceuticals, automotive systems, battery tech and steel – and I’ve learned that there are some things that are universal …

For example, I’m a believer that, for businesses of all stripes, there is only one true asset to be quantified and listed on the Balance Sheet – knowledge. Nothing else really matters at the end of the day. And the overarching value of TAAF is that it is this nation’s singularly effective business model that injects it directly into a company’s bloodstream over an extended period of time, i.e. half a decade. That sort of holistic, long-term approach yields the biggest chance for success because it has a high probability of permanently upgrading a company’s core DNA.

In my view steel companies don’t operate in markets that are fundamentally any different from markets in general. No markets are forgiving. No customer base is loyal. Some players don’t play fair. No amount of investment is worth it if indigenous leadership is of poor quality. So as a direct consequence, all companies that are serious about permanently enhancing their global competitiveness must achieve mastery over stuff like: competitive intelligence, customer intelligence, market dynamics intelligence, costs/managerial finance, talent/leadership development, product development, planning effectiveness, etc., etc., etc.

In other words: it’s the knowledge stuff that’s critical and little else. And in my humble opinion, focusing the attributes that TAAF brings to the table on that industry on a larger scale would yield stunning results.

The TAAF business model places its nationwide network of Trade Adjustment Centers (i.e. TAACs) in the unique position of being the right catalyst at the right place at the right time. Does it always work? Certainly not. What does? But it works better than just about anything else in America’s tool kit. It is unique. And here’s the kicker, we don’t ask for equity. On behalf of the American taxpayer we simply insist on pure, unadulterated, robust, and relentless commitment from the Chief Executive Officer down to the shop floor. Absent that? Well, it’s unfortunate but some companies probably should fail.

This approach really works, without costing a great deal of money or causing economic disruption while at the same time providing our political establishment the cover it needs to smooth passage of critical treaties – and, because a company must match our injection dollar-for-dollar throughout the process, the American taxpayer is assured of management’s total and focused commitment for one simple reason … they share in the risk!

Bottom line? The long-term holistic approach is effective. The business model, stipulating unique strategies addressing each company’s unique circumstances, is effective. The program’s neutral economic impact is effective. It’s ability to support passage of trade agreements while not impeding the benefits of free trade is effective. It’s ability to lessen the costs associated with the engagement of outside expertise to reengineer critical business processes is effective.

And I firmly believe that it’s application is not limited to America’s smallest makers – only its funding is. For several decades that’s been little more than an afterthought.

Consider …

  • All manufacturing companies were at one time small ones.
  • All manufacturing companies are impacted by globalization.
  • Small ones need outside expertise to teach them basic stuff.
  • Larger ones need outside expertise to teach them sophisticated stuff.
  • Small makers, because they’re learning the basics and have little resources to tap, take a longer time to turn the corner.
  • Larger makers, because the basics are already inculcated and they have the requisite resources at hand, can turn the corner at much higher speed.
  • And if you were the Chief Executive of a tier-one domestic manufacturer, would you doubt for a minute –
    • That your supply chain probably has several thousand companies in it?
    • That extensive improvement in their performance would have a significantly positive impact on your performance?
  • Improvement in the performance of the small cohort will increase the probability that fewer will fail because a greater proportion will grow into larger ones – driving concomitant growth in good-paying manufacturing jobs and the creation of wealth. Go ahead. Beat that with a stick!”

For those who would simply dismiss the idea as impossible and too simplistic, watch the video.  The program works.  See http://mataac.org/howitworks/.

TRUMP AND CHINA

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

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 notice states that the USTR will specifically investigate the following specific types of conduct:

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

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

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

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

The United States Trade Representative (“USTR”) will hold a hearing on October 10th at the International Trade Commission and public comments are to be submitted by September 28th.

In an August 30, 2017 article by Dan Harris, who heads my law firm, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html, entitled “China-US Trade Wars and the IP Elephant in the Room”, Dan states that in over one hundred negotiations with Chinese companies, he has not seem the Chinese government demand IP rights.  What he has seen is bad negotiating:

“I have been called by reporters at least a half dozen times in the last couple of weeks regarding the Trump Administration’s planned investigation of China’s IP practices. But what I tell these reporters fits so badly with THE narrative that my name is not showing up in print. Sorry, but I can’t help it.

Here’s the situation. The Trump Administration is claiming that China’s government forces American companies to relinquish its IP to China and my problem is that despite my firm having worked on literally hundreds of China transactions that involve IP, I have very little proof of this. So no real story there.

Here though is the story as seen from my eyes and from the eyes of the China attorneys at my firm, readily conceding that we have not seen even close to everything.

We have never been involved in a China transaction where it has been clear to us that the Chinese government has forced our client to relinquish its IP to China. We have though been involved in a million transactions where the Chinese party on the other side — sometimes a State Owned Entity, but way more often not — has vigorously and aggressively sought to get our client to part with its IP for a very low price. Is the Chinese government behind this sort of pressure? Don’t know? Probably sometimes, but probably most of the time not. If the transaction involves rubber duckies, we can assume not. If it involves next generation computer chips, well that is probably a very different story.

Anyway, as we write on here so often, there are many terrible technology transfer and other sorts of IP deals to be had with Chinese companies and we have too often — even against our China attorneys’ clear counsel to our clients not to do it — seen our clients make bad deals that will involve them turning over their IP with little to no chance of receiving full value for it. But these companies have not been forced, not in the sense that any government was forcing them to do anything. These companies were simply willing to take huge risks either because they could not grasp the risks or because they felt they had no other choice for financial reasons.

In Three Myths of China Technology Transfers, we wrote about how our clients all too often forge ahead with bad deals and why, and we nowhere mention government compulsion:

A Chinese company that intends to violate a licensing agreement and run off with the foreign company’s IP will usually have a very clear plan. What the China lawyers in my office call the Standard Plan works as follows. First, the Chinese company will negotiate in a way that guarantees a weak license that cannot be enforced against them by the foreign party. The tricks used to do this are quite standardized. Second, the Chinese company will ensure that it does not make any (or else it makes very few) payments until after it has already received the technology. If the Chinese company makes any payment at all, it will make a minimal number of payments, usually late and in violation of the agreement and then once it has received enough of the technology it seeks, it will cease making any payments entirely.

When our China attorneys encounter a Chinese company clearly working on the Standard Plan, we warn our clients. However, it is also typical for our clients to nonetheless want to forge on ahead. The client will usually explain how their situation is unique and that means the Chinese could not possibly be planning to breach.

We discuss again in China Technology Transfers: The Relationship and Deal Structure Myths how it is that American companies lose their IP to Chinese companies and we again leave out government force:

Due to a partnership relationship, the foreign side often wrongly believes it is somehow better protected against IP theft. The foreign side then lets down its guard, only to learn that its China partner has appropriated its core technology. This sense of partnership is most common with SMEs and technology startups, especially those companies whose owner is directly involved in the relationship with the Chinese entity.

In China and The Internet of Things and How to Destroy Your Own Company I rant about technology companies that literally destroy themselves by failing to do enough to protect their IP from China:

Well for what it is worth, I will no longer describe technology companies as a whole as our dumbest clients when it comes to China. No, that honor now clearly belongs to a subset of technology companies: Internet of Things companies. And mind you, we love, love, love Internet of Things companies. For proof of this, just go to our recent post, China and the Internet of Things: A Love Story. Internet of Things (a/k/a IoT) companies are sprouting all over the place and they are booming. Most importantly for us, they need a ton of legal work because just about all IoT products are being made in China, more particularly, in Shenzhen. And just about all IoT products need a ton of complicated IP assistance.

So then why am I saying they are so dumb about China? Because they are relinquishing their intellectual property to Chinese companies more often, more wantonly, and more destructively than companies in any other industry I (or any of my firm’s other Chinese lawyers) have ever seen. Ever. And by a stunningly wide margin.

I then list out the following as “my prime example, taken from at least a half dozen real life examples in just the last few months”:

IoT Company: We just completed our Kickstarter (sometimes Indiegogo) campaign and we totally killed it and so now we are ready to get serious about protecting our IP in China.

One of our China Lawyers: Great. Where are you right now with China?

IoT Company: We have been working with a great company in Shenzhen. Together we are working on wrapping up the product and it should be ready in a few months.

China Lawyer: Okay. Do you have any sort of agreement with this Chinese company regarding your IP or production costs or anything else?

IoT Company: We have an MOU (Memorandum of Understanding) that talks about how we will cooperate. They’ve really been great. They have told us that they would enter into a contract with us whenever we are ready.

China Lawyer: Can you please send us the MOU? Have you talked about what that contract will say?

IoT Company: Sure, we can send the MOU. It’s one page. No, we haven’t really talked much beyond just what we need to do to get the product completed.

China Lawyer: Okay, we will look at your MOU and then get back to you with our thoughts.

Then, a day or two later we a conversation like the following ensues:

China Lawyer: We looked at your “MOU” and we have bad news for you. We think there is a very good chance a Chinese court would view that MOU as a contract. (For why we say this, check out Beware Of Being Burned By The China MOU/LOI) And the Chinese language portion of the MOU — which is all that a Chinese court will be considering — is very different from the English language portion. The Chinese language portion says that any IP the two of you develop (the IoT company and the Chinese manufacturer) belongs to the Chinese company. So what we see is that as things now stand, there is a very good chance the Chinese company owns your IP. This being the case, there is no point in our writing a Product Development Agreement because your Chinese manufacturer is not going to sign that.

IoT Company: (And I swear we get this sort of response at least 90 percent of the time) I’m not worried. I think you have it wrong. I’m sure that they will sign such an agreement because we orally agreed on this before we even started the project.

China Lawyer: That’s fine, but I still think it makes sense for you to at least make sure that the Chinese company will sign a new contract making clear that the IP associated with your product belongs to you, because if they won’t sign something that says that, there is no point in our drafting such a contract and, most importantly, there is no point in your paying us to do so.

So far not a single such IoT company has been able to come back to us with an agreement from their Chinese manufacturer to sign.

Again, no government force, just an overzealous and insufficiently careful foreign company.

Now before anyone excoriates me for ignoring reality, let me say that I have read about instances where the Chinese government has “forced” foreign companies to turn over their IP to China; high speed rail is an often cited example of that. And I do not doubt that it happens in critical industries (nuclear power would be another example). And I am also not unaware of how China is increasingly forcing foreign companies to store their data in China, which absolutely puts technology at risk. But even in these instances the foreign company has some choice. Not good choices, I know. And arguably it is no choice at all when the decision is between doing business in China or not. The last thing I want to do is get all philosophical on anyone regarding what constitutes choice so I will leave it to our individual readers to determine for themselves where on the continuum of force and choice they want to put any and all of the above.

There is plenty to complain about how China protects IP and there is plenty to complain about how China protects foreign companies that do business in China or with China, but I am just not sure complaining about forced IP transfers goes at the top of that list for most American companies. When I talk with American and European and Australian companies about China their biggest legal complaint is invariably how expensive it is for them to comply with China laws and how they resent that their Chinese competitors generally are not held to the same legal standards.

A couple of years ago, I gave the following testimony before The US-China Economic and Security Review Commission of the United States Congress:

I was introduced as an expert, and I’d like to qualify that by saying do not think of myself as an expert. I am just a private practice lawyer who represents American and Australian companies and some European and Canadian companies as well in China.

I’m going to tell you a little bit about what we do so you can get a little bit better perspective of where I’m coming from on this. The bulk of my firms’ clients are small and medium-size businesses, mostly American businesses, but some European and Australian and Canadian businesses as well. Most of them have revenues between 100 million and a billion a year. Our clients are mostly tech companies, manufacturing companies and service businesses.

About 20 percent of our work is for companies in the movie and entertainment industry. We have some clients in highly-regulated industries, like health care, senior care, banking, insurance, finance, telecom and mining, but those companies make up less than ten percent of our client base.

Most of the China work we do for our clients is relatively routine. We help them register as companies in China. We register their trademarks and copyrights in China. We draft their contracts with Chinese companies. We help them with their employment, tax and customs matters. We oversee their litigation in China, and we represent them in arbitrations in China. We help them buy Chinese companies.

For our clients, the big anti-foreign issue is whether they will be allowed to conduct business at all in China as that is certainly not always a given. Certain industries in China are shut off or limited to foreign businesses acting alone. For our clients, publishing and movies are most prominent.

Essentially anything that might allow for nongovernmental communication to or between Chinese citizens is problematic, but it is not clear to me that these limitations are intended to be anti-foreign, as China does not really want any private entities, foreign or Chinese, engaging in these activities without strict governmental oversight.

So do these limits against foreign companies arise from anti-foreign bias or just the Chinese government’s belief that it can better control Chinese companies? To our clients, that distinction doesn’t matter.

On day-to-day legal matters, our clients are almost invariably treated pursuant to law, and so long as they abide by the law, they seldom have any problems. The problem for our clients isn’t so much how the Chinese government treats them; it’s how they are treated as compared to their Chinese competitors who are less likely to abide by the laws and more likely to get away with it.

I have no statistics on this. I doubt there are any statistics on this, but I see it and I hear it all the time.

I see it when one of our clients buys a Chinese business that has half of its employees off the grid and has facilities that are not even close to being in compliance with use laws, and I know foreign companies cannot get away with that.

And I hear it from Chinese employees of our clients who insist that there is no need for our clients to follow various laws. They insist there is no need to follow various laws and to do so is stupid. Is this disparity due to anti-foreign bias or is it due to corruption? Again, for our clients, the answer is irrelevant.

Is the Trump administration’s IP investigation a negotiating ploy done as much to get at disparate treatment as it is to get at forced technology transfers? I do not think it is, but some who know more about such things tell me it may be.

CNN was the only one of the media companies that both interviewed me on the above issues and ended up quoting me and I like how it handled the issue in its article, President Trump is set to crank up the pressure on China over trade:

Beijing has other ways of getting its hands on valuable commercial information. Officials often insist on taking a close look at technology that foreign companies want to sell in China.

“Chinese government authorities jeopardize the value of trade secrets by demanding unnecessary disclosure of confidential information for product approvals,” the American Chamber of Commerce in China said in a report published in April.

Some experts say that handing over technology has effectively become a cost of doing business in China — a market too big for most companies to ignore.

“Many Chinese companies go after technology hard and the tactics they use show up again and again, leading us to believe there is some force (the government?) teaching them how to do these things,” said Dan Harris, a Seattle-based attorney who advises international companies on doing business in China.

“The thing is that the foreign companies that give up their technology usually do so at least somewhat of their own volition,” he told CNNMoney. “Yes, maybe they need to do so to get into China, but they also have the choice not to go into China, right?”

Closing the stable door?

Other analysts say that the U.S. administration is coming to the problem too late.

“Intellectual property (IP) theft is yesterday’s issue,” wrote Lewis of the Center for Strategic and International Studies.

“In part because of past technology transfer and in part because of heavy, sustained government investment in science and research, China has developed its own innovative capabilities,” he wrote.

“Creating new IP in the United States is more important than keeping IP from China.”

These are really complicated issues and I realize the above is more of a stream of consciousness “thoughts dump” than a coherent position paper. So more than ever, I’d love to hear your thoughts in the comments below.”

Dan’s point is that it is often bad negotiating tactics by the US side that leads to companies giving away their technology, not Chinese government pressure.

On August 15th, Investors Business Daily speculated that “Trump’s Trade War With China Is War On North Korea By Other Means” stating:

“But they [the Chinese government] may have underestimated Trump: He has the will, and likely the political support, for an even-more damaging war with China over trade. With the U.S. China’s largest market — in 2016, U.S. imports from China totaled nearly half a trillion dollars — a trade war is a serious threat to China, which is already showing signs of economic slowing.

That’s what’s behind Trump’s sudden decision to investigate China’s rampant theft of U.S. intellectual property. And on trade grounds only, Trump is right to investigate this, since it’s enshrined in both U.S. law and international trade treaties that egregious trade violations warrant retaliatory actions if the violations aren’t fixed.

The U.S. has been jawboning China on this for years, to no effect. China for years has seen the U.S. as a paper tiger, too feckless to act on its own behalf. Now, Trump is showing it otherwise. . .

Once again, Trump the savvy business negotiator seems to know his foe’s weak points.

Perhaps hoping to stall Trump’s trade action, China announced that it would cease North Korean imports of coal, iron and lead, and seafood, starting Sept. 5, in keeping with U.N. sanctions imposed on Kim Jong Un’s regime.

In a joint statement Monday, Secretary of State Rex Tillerson and National Security Advisor Gen. James Mattis made explicit the link between China, trade and North Korea: “China is North Korea’s neighbor, sole treaty ally and main commercial partner,” they wrote. “Chinese entities are, in one way or another, involved with roughly 90% of North Korean trade. This affords China an unparalleled opportunity to assert its influence with the regime.”

The clear message: If you support North Korea’s regime economically, we’ll hurt you economically in return. It’s a Trumpian twist on Von Clausewitz’s famous dictum about war and politics: “(A trade) war is the continuation of politics by other means.”

As we’ve said before, we take a back seat to no one in advocating on behalf of free trade. But when one side routinely and systematically steals hundreds of billions of dollars worth of intellectual property, that’s no longer free trade. It’s piracy. . . .

North Korea’s nuclear blackmail, aided by China’s patronage, is not acceptable. If it takes trade sanctions to get China’s diplomatic attention, so be it. It’s time that China’s charade over its support of North Korea comes to an end.”

On August 8th, in an article entitled “Second Thoughts on Trade with China” William Galston for the Wall Street Journal stated:

“It is China’s techno-nationalism that poses the greatest threat to our future. In 2006 the Chinese government adopted a long-term plan to promote what it called “indigenous innovation.” As James McGregor, a leading expert on the Chinese economy, writes, China’s leading-edge firms were directed to obtain technology from their multinational partners through “co-innovation and re-innovation based on the assimilation of imported technologies.”

In practice, this meant giving American firms an offer Don Corleone would have recognized—either to “share their technologies with Chinese competitors—or refuse and miss out on the world’s fastest-growing market.” China’s ultimate goal is to use forced technology transfer to replace the U.S. as the world’s leading economy. . . .

Existing legal tools may not suffice to end these discriminatory practices. Although the WTO prohibits mandatory technology transfers, the Chinese government’s position is that trading technology for market access is purely a business decision. Protectionist government purchases are a key part of China’s strategy. . . .

If turning over our technological crown jewels to a foreign power is against the national interest, then our government should have the power to prevent it. But wielding this power without blowing up the international trade regime will not be easy.”

On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily tempered its initial response on the Section 301 case stating:

“Everyone is angry at China right now, and perhaps with good reason. China’s regime often bends trade rules to its own needs, and breaks them or ignores them when it’s convenient. . . .

The U.S. shouldn’t tolerate cheating on trade, by China or anyone else. It’s a matter of jobs and income for Americans and the companies that employ them.

Even so, that doesn’t mean everything China has done has been bad for the U.S. Far from it.

A new study, ” How Did China’s WTO Entry Benefit U.S. Consumers?” from the prestigious National Bureau of Economic Research, shows why. It notes that from the time China joined the World Trade Organization in 2000 to 2006, the U.S. inflation index for factory goods fell an estimated 7.6%.

This might not sound like a lot, but it is. “The resulting savings were large,” the study says. “U.S. manufacturing sector production was valued at $4.5 trillion in 2014, so if prices had been 7.6% higher, that production would have cost $340 billion more.”

That is, profits for U.S. firms were likely billions of dollars higher over that six-year period than otherwise. And prices to American consumers fell.

How did this happen? The simple answer is freer trade. China cut its average tariff on manufacturing inputs from 15% in 2000 to 9% in 2006, a 40% reduction. Meanwhile, China’s government lifted export limits on its domestic companies, got rid of capital requirements, eased restrictions on foreign investment, raised its limits on textile exports and lowered the number of goods that required import licenses.

The result: China’s factory exports to the U.S. surged 290% from 2000 to 2006.

According to the study, “69% of the growth was driven by new exporters offering a widening variety of products, while 16% was created by incumbent firms exporting new products.”

The lower tariffs and other reductions in trade restrictions led to a Chinese   productivity boom, with an average 10% per year gain in productivity for Chinese companies that exported to the U.S. As for the price of U.S. manufactured goods, about two-thirds of the 7.6% reduction in factory prices here was due to China’s tariff cuts.

But didn’t the food of Chinese factory-made goods to the U.S. decimate American manufacturing during this period? That’s a myth. As the U.S. Federal Reserve’s monthly manufacturing index shows, from 2000 to 2006 American factory output rose a healthy 11.5%. It wasn’t decimated by the surge in Chinese exports to the U.S. It only crashed when the financial crisis hit.

For its part, China’s communist    government in the  early  2000s  found   that taking  its hands off  the economy’s windpipe and engaging with the rest of the world through trade was  an  effective  strategy for making its economy grow. We  also  benefited  from that.

Now the Trump administration is warning an increasingly hostile China that its recent trade violations aren’t acceptable. China, in response, has blasted the U.S. for its “protectionism.”

We hope a negotiated solution can be found. At the same time, we might want to think seriously about it before we back a giant U.S.-China trade war that could make all of us, Americans and Chinese, much worse off.”

In early 2000, China’s brilliant economic guru Premier Zhu Rongyi believed that China should join the WTO, not for the benefit of the United States or Europe, but for the benefit of China.  Premier Zhu realized that China would benefit from free trade by breaking down its own protectionist walls, which isolated China from the rest of the World.

It is somewhat ironic that the United States is apparently moving in the opposite direction, building protectionist walls to protect its companies from foreign competition.  Many US politicians have fallen into the trap of international trade victimhood because they simply do not understand the benefits of free trade to the United States.

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  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.

Prehearing briefs and posthearing briefs have been filed at the ITC and the ITC hearing was held on August 15th and was reportedly 11 hours long.

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. Attached is the ITC public prehearing staff report, 2017.08.01 ITC Solar 201 Prehearing Report PUB.

The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016.  Moreover, US producers’ profits and sales have increased in the period.  This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd.

Meanwhile, sixteen US senators have urged the ITC to consider how the increased tariffs on foreign solar cells could hurt the broader domestic solar industry. The letter specifically stated:

“We respectfully request that the commission carefully consider the potential negative impact that the high tariffs and minimum prices requested would have on the tens of thousands of solar workers in our states and on the hundreds of companies that employ them.”

The letter was signed by Senators: Heinrich (D-N.M.), Tillis (R-N.C.), Bennet (D- Colo.), Feinstein (D-Calif.), Whitehouse (D-R.I.), Perdue (R-Ga.), Gardner (R-Colo.), Heller (R-Nev.), Van Hollen (D-Md.), Moran (R- Kan.), Scott (R-S.C.), Cardin (D-Md.), King (I-Maine), Collins (R-Maine), Markey (D-Mass.) and Cortez Masto (D-Nev.).

ALUMINUM EXTRUSIONS CIRCUMVENTION

On July 26, 2017, in the attached memorandum, prc-aluminum-extrusions-ar-072617, the Commerce Department published in the Federal Register a notice of affirmative final determination of circumvention of the antidumping and countervailing duty orders on aluminum extrusions from the People’s Republic of China. The Department determined that heat-treated extruded aluminum products that meet the chemical specifications for 5050 grade aluminum alloy, regardless of producer, exporter, or importer, constitute later-developed merchandise, are circumventing the orders.

As a result of the Department’s anti-circumvention determination, all heat-treated extruded aluminum products from the People’s Republic of China that meet the chemical specifications for 5050 grade aluminum alloy are considered to be in-scope merchandise and must be included in responses to the Department’s questionnaires.

FALSE CLAIMS ACT—FURNITURE

In a previous blog post,  I mentioned that the real hammer against transshipment of products to evade trade orders is not recent legislation from Congress, but the False Claims Act.  Under the False Claims Act, private parties can file suits in Federal District Court alleging fraud on the US government because of foreign exporters and US importers decision to use transshipment and other methods to evade US antidumping and countervailing duties.  Under the FCA, the relator can look back at 10 years of past imports and the antidumping duties in question can be over 100, 200 or even 300%.  Under the FCA the remedy is triple damages and when looking at imports over such a long period of time, the remedy can result in enormous payouts.

The private party files an FCA complaint as a relator on behalf of the US government.  The US government then decides whether or not to intervene in the case.  If the US government chooses to intervene, the relator is entitled to 15 to 25% of the recovery of the US government.  In one small FCA case here in Washington regarding medical bills, a clerk at a hospital received a payout of $2 to 3 million so anyone can be a relator.

More on point, In an intervention complaint, US GOVT INTERVENTION BLUE FURNITURE CASE, the US government intervened in a False Claims Act filed against evasion of millions of dollars in antidumping duties on imports of wooden bedroom furniture from China.

The lawsuit brought by University Loft Co., an Indiana-based wooden bedroom furniture company, accuses Florida-based Blue Furniture Solutions LLC, founder and president and its chief financial officer  of importing wooden bedroom furniture from China without paying the 216.01 percent anti-dumping rate by making false statements to U.S. Customs and Border Protection (“CBP”).

In doing so, Blue Furniture escaped paying millions of dollars in duties and fees owed to the federal government from 2011 through 2015, the suit says.

The complaint states:

“To avoid the payment of anti-dumping duties and fees, defendants conspired with their Chinese manufacturers and exporters to fraudulently avoid customs duties and underpay fees owed to the United States by making false representations in entry documents about the nature and value of the imported merchandise.”

Specifically, the complaint states that Blue Furniture falsely identified its entries to Customs and Border Protection with codes and descriptions for merchandise that are not subject to antidumping duties.  But the complaint states that many of the wooden chests, dressers, nightstands, wardrobes and many of the beds imported were subject to antidumping duties.

In addition, the FCA complaint accuses the Florida-based company of instructing its China-based manufacturers and exporters how to mislabel and misclassify the merchandise on documents to be shown to CBP.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

STAINLESS STEEL FLANGES FROM CHINA

On August 16, 2017, the Coalition of American Flange Producers and its individual members, Core Pipe Products, Inc., and Maass Flange Corporation filed new antidumping and countervailing duty cases against imports of Stainless Steel Flanges from China and India.

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.2017.30 Team’s newsletter-EN Vol.2017.32 Team’s newsletter-EN Vol.2017.33.

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

WI-FI ENABLED ELECTRONIC DEVICES

On August 29, 2017, Sharp Corporation and Sharp Electronics Corporation filed a section 337 case against imports of Wi-Fi Enabled Electronic Devices.  The respondent companies named in the complaint are:

Hisense Co., Ltd., China; Hisense Electronic, Co., Ltd., China; Hisense International (Hong Kong) Co. Ltd., Hong Kong; Hisense USA Corporation, Suwanee, Georgia; Hisense Electronics Manufacturing Company of America Corporation, Suwanee, Georgia; Hisense USA Multimedia R&D Center, Inc., Suwanee, Georgia; and Hisense Inc., Huntington Beach, California.

If you have any questions about these cases or about Trump and Trade, including the impact on agriculture, the impact on downstream industries, the Section 232 and 301 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR – SECTION 232 CASES SLOW DOWN, CHINA TRADE PROBLEMS INCREASE, TAA FOR COMPANIES, SECTION 201 SOLAR, BAT DIES, NAFTA NEGOTIATING OBJECTIVES, NEW AD 337 CASES

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE AUGUST 7, 2017

Dear Friends,

Recently there have been two developments of note in US China trade relations.

NORTH KOREA AND NO SECTION 301 CASE AGAINST CHINA FOR THE TIME BEING

As mentioned in my last blog post, the North Korea crisis is affecting the US China Trade Relationship.  The decision of China to back the UN Security Council resolution on sanctions against North Korea has caused the Trump Administration to pull back and not move forward with a Section 301 case against China.

As Politico reported today:

NORTH KOREA SANCTIONS WAYLAY CHINA TRADE PROBE: To be honest, there were conflicting signals from administration officials early last week on the timing of an announcement that Trump would ask U.S. Trade Representative Robert Lighthizer to investigate Chinese policies that compel foreign compel transfer technology and other intellectual property to do business there. Some said the announcement would come Thursday or Friday; others said it was not imminent.

It now appears that the “not imminent” camp was right. The reason was the State Department’s fear of upsetting its successful push for Chinese cooperation on new UN sanctions against North Korea. The new Security Council resolution, which passed 15-0 on Saturday, targets North Korea’s largest source of external revenue by imposing a total ban on the country’s exports of coal, in addition to iron, iron ore, lead, lead ore and seafood.

The resolution imposes “over one billion dollars in cost to N.K.,” Trump wrote on Twitter, referring to a State Department estimate of how much Pyongyang would lose in hard currency in terms of export earnings.

As for the IP probe for China, sources said it could still happen, but there were conflicting signals on how soon. One administration official suggested there might not be an announcement this week because Lighthizer is out of the country.

Emphasis added.

When China helps the US on North Korea, Trump is going to lay back and not attack China over trade issues.  As mentioned before, Trump is the first President to overtly link trade deals with foreign policy issues.  He has made it very clear to China help us on North Korea and China will get a better trade deal.  So far that seems to be Trump’s goal with China.

President Trump is learning that trade is complicated.

SECTION 201 SOLAR CELLS CASE

Many companies have been calling me about the Section 201 Solar Cells case.  In that case, the US International Trade Commission {“ITC”) just issued its attached public prehearing report, 2017.08.01 ITC Solar 201 Prehearing Report PUB.  The hearing is scheduled for August 15th and the Commission’s injury determination is to be sent to the President on September 22nd.

The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016.  Moreover, US producers’ profits and sales have increased in the period.

This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd.  The August 15th hearing will be very interesting.

If you have any questions about these cases, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR JULY 31, 2017

Dear Friends,

With the passage of the Trump Executive Order telling agencies, including the Department of Defense (“DOD”), to further study the problem, Trump’s trade war in the Section 232 Steel and Aluminum cases has run into reality—the impact on US downstream producers.  With a Greek Chorus of Senators and Congressmen telling the Administration to go slow, the dire warnings by downstream US users of these raw materials, and the threats of retaliation from many foreign countries, President Trump punted and decided to further study the situation.  As indicated below, in their comments numerous steel users were telling Commerce not only that Steel Tariffs would seriously damage their companies causing the loss of hundreds of thousands of jobs, but also that the Steel tariffs themselves could damage US national security by cutting DOD suppliers from very important supply lines for raw materials.

Apparently, President Trump and the Trump Administration listened.  It is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.

Now is the time for an Emperor has no clothes moment.  The problems of the Steel industry go back decades long before Wilbur Ross arrived because of the decision to give big bonuses to management and large pensions to the Steel unions, which the companies simply can no longer fund.  These payments led to the failure to modernize and update steel production facilities and also produce specialized types of steel. That failure to produce many specialized types of steel at cost efficient prices has led to screams by US downstream steel producers with millions of jobs at stake.

But with Commerce saying there is no time deadline for the Section 232 Steel report and the Steel Unions crying doomsday and the loss of thousands of jobs, what is the solution?? As explained below, TAA for Companies, not trade protection, is the solution.  An alternative solution is needed for the Steel crisis that will not harm national security and injure more US industries.  TAA for Companies makes US companies more competitive without affecting the market in any way.

Meanwhile,  there is now talk of significant US trade sanctions against China because of North Korea.  Commerce also continues to find China a non-market economy country, and the US China Economic Talks fell apart over steel and aluminum, but also, in part, North Korea.

There are also dire warnings about the impact of the Section 201 Solar Case on US solar projects and the loss of thousands of jobs.  But the Border Adjustment tax is now officially dead, and USTR has released NAFTA negotiating objectives and the negotiations themselves are scheduled to start up on August 16 with one real issue being the impact on US agricultural exports.

New antidumping and countervailing duty cases have been filed against Cast Iron Soil Pipe Fittings and a Section 337 case against Ribbon Cables.

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 PUNTS ON THE SECTION 232 STEEEL AND OTHER NATIONAL SECURITY CASES

Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality.  Even though Commerce Secretary Wilbur Ross promised to send completed Section 232 reports to the President by the end of June and President Trump promised that July would be the month of trade, nothing has happened to date, except for a Trump Executive Order stating that the Department of Defense and other agencies are to further study the manufacturing base needed to support US national security.

The first problem is an Emperor has no clothes moment—the problems of the Steel Industry go back decades.  The Steel industry’s problems boil down to large bonuses to management n the 1970s and 1980s and the large pensions given to Steel unions, which are in place today.  Those bonuses and pensions prevented the Steel industry from modernizing their production facilities and also specializing into specific types of steel.  Downstream steel users, such as the automotive industry, are moving away from commodity products as raw material steel inputs, and to specialized steel made to order of the downstream user.  All industry has become specialized and the US Steel Industry has not modernized so it can no longer produce certain types of steel or produce certain types of steel cost efficiently and that seriously damages downstream steel users that also manufacture in the United States.

That leads to the second big problem the steel industry has only 141,000 jobs while the jobs in the Steel Users industry are in the millions.  This is probably the reason that the Department of Defense (“DOD”) woke up.  Steel users probably told DOD you want your tank parts?

This is the time for the US Government and Congress to look at another alternative.  Tariffs and quotas simply will not save the Steel Industry, but Trade Adjustment Assistance for Companies just might.  It is time for the US government to back a proven alternative that has saved 1,000s of US manufacturing companies in the past.  A program that both President Obama and President Trump want to write off, but actually has a proven track record of saving US trade injured manufacturing companies without any impact on US market or imports.

In fact, as indicated below, directly contrary to statements of Secretary Ross, many US companies that are receiving trade adjustment assistance are steel users and cannot be competitive with imports because US steel price are higher than world market prices.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs to cure its own ills first before always blaming the foreigners and that is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

SECTION 232 STEEL CASE

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.

On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, COMMERCE FED REG SECTION 232 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.

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.

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 in trade cases is the injury determination by the independent US International Trade Commission, but there is no such determination under Section 232.

On July 26th Politico reported that the Section 232 Steel and Aluminum cases had stopped:

TRUMP HITS THE BRAKES ON 232 REVIEWS: The Trump administration is unlikely to make any decisions regarding whether to limit imports of steel and aluminum for national security reasons any time soon, after the president himself told The Wall Street Journal on Tuesday that “we don’t want to do it at this moment.”

The administration had already missed its initial deadline of wrapping up the pair of Section 232 reports by the end of June, and Trump indicated Tuesday that was in part because of various regulations regarding any decisions.  . . .

 Back of the queue: Trump was confident that his administration would eventually be “addressing the steel dumping,” which he called “a very unfair situation.” He did not, however, indicate the action would be imminent: He started by saying it would come “very” soon, but then backed off and said it would be “fairly soon.”

It will also likely come after other high-profile items on his policy agenda are completed. “We’re waiting ’til we get everything finished up between healthcare and taxes and maybe even infrastructure,”

The initial report on the Trump decision was a July 25th article in the Wall Street Journal in which Trump stated that with regards to the Section 232 Steel case, “we don’t want to do it at this moment” because of the complexity of the issue.  Trump further stated:

“You can’t just walk in and say I’m doing to do this.  You have to do statutory studies … It doesn’t go that quickly.”

The Wall Street Journal reported that Trump started to say he would make a move “very” soon but stopped himself and instead said “fairly soon.”

Trump also stated that the steel issue is “a very unfair situation”, and that any final decision would not be made until work is done on other major initiatives.  As Trump stated:

“We’re waiting till we get everything finished up between healthcare and taxes and maybe even infrastructure.”

On July 26, 2017, it was reported that a Commerce Department spokesman refused to suggest a revised date for its determination on whether to impose new national security trade restrictions on steel imports saying only that the President’s comments “speak for themselves.”

On July 27th, before House Ways and Means, Commerce Secretary Ross indicated sympathy with comments from users where certain steel and aluminum products were not produced domestically, but had no sympathy with the argument that steel prices could be so high as to hurt downstream producers stating that is the nature of dumping and what eventually happens when “we let imports run amok.”

After the briefing, Congressional representatives stated that tariffs and/or quotas will be delayed for a while longer.  The Representatives indicated that during the meeting Ross had read the President’s statement from the Wall Street Journal that “we don’t want to do it at this moment” and that the Administration would most likely take action “fairly soon.”

On July 26th it was also reported that that the United Steelworkers union (“USW”) had stated that Trump decision to delay a Section 232 determination on steel imports could have “devastating” consequences on the US Steel industry and the jobs in that industry as foreign trading partners rush to export steel to the U.S. under a long-delayed threat of tariffs.  As USW President Leo Gerard stated:

“Since the President announced an investigation in April, attacks on the U.S. steel sector have skyrocketed, with imports up 18 percent.  Trading partners have targeted the U.S. market for fear that the United States will finally stand up for its producers and workers and protect our national security.”

Gerard acknowledged that trading relationships in the steel sector are “complex.”, but went on to state:

“But enough time, attention and investigation have passed to know what needs to be done.  Steel, the foundation of our national security, is crumbling under the onslaught of foreign imports. Much of that is illegally traded.”

Meanwhile, even before the July 25th statement, on July 5th Kevin Brady, Chairman of House Ways and Means, urged the President to take it slow.  Brady stated:

“Our advice to the President has been pretty public: Take your time, get it right.  We want to make sure that however the White House frames their ultimate action, that it doesn’t punish our allies who are trading fairly. And we want to make sure it doesn’t give a green light to those trading unfairly to do more of it. And it’s important, too, that whatever that ultimate decision is that it actually works for America and doesn’t backfire.”

Brady acknowledged that overcapacity in the global steel market was causing problems for domestic producers. But he called for a “balanced” solution that takes into account other interests as well.

On July 7th it was reported that the Department of Defense intended to drill down on the Steel Report and was “tapping the brakes on any potential effort by President Donald Trump to hit steel imports with tariffs of up to 25 percent.”

On July 21st President Trump issued an Executive Order ordering a thorough review of the national defense industrial base and the government to gather information about whether U.S. companies can meet the commercial demand for national security goods including steel, aluminum, circuit boards and flat-panel displays.

Under the terms of the executive order, an interagency group will 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.

The attached Executive Order, Presidential Executive Order on Assessing and Strengthening the Manufacturing a, specifically stated in part:

Presidential Executive Order on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States . . .

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Policy. A healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States. The ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains. Modern supply chains, however, are often long and the ability of the United States to manufacture or obtain goods critical to national security could be hampered by an inability to obtain various essential components, which themselves may not be directly related to national security. Thus, the United States must maintain a manufacturing and defense industrial base and supply chains capable of manufacturing or supplying those items.

The loss of more than 60,000 American factories, key companies, and almost 5 million manufacturing jobs since 2000 threatens to undermine the capacity and capabilities of United States manufacturers to meet national defense requirements and raises concerns about the health of the manufacturing and defense industrial base. The loss of additional companies, factories, or elements of supply chains could impair domestic capacity to create, maintain, protect, expand, or restore capabilities essential for national security.

As the manufacturing capacity and defense industrial base of the United States have been weakened by the loss of factories and manufacturing jobs, so too have workforce skills important to national defense. This creates a need for strategic and swift action in creating education and workforce development programs and policies that support job growth in manufacturing and the defense industrial base.

Strategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains is therefore a significant national priority. A comprehensive evaluation of the defense industrial base and supply chains, with input from multiple executive departments and agencies (agencies), will provide a necessary assessment of our current strengths and weaknesses.

Sec. 2. Assessment of the Manufacturing Capacity, Defense Industrial Base, and Supply Chain Resiliency of the United States. Within 270 days of the date of this order, the Secretary of Defense, in coordination with the Secretaries of Commerce, Labor, Energy, and Homeland Security, and in consultation with the Secretaries of the Interior and Health and Human Services, the Director of the Office of Management and Budget, the Director of National Intelligence, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Trade and Manufacturing Policy, and the heads of such other agencies as the Secretary of Defense deems appropriate, shall provide to the President an unclassified report, with a classified annex as needed, that builds on current assessment and evaluation activities, and:

  • identifies the military and civilian material, raw materials, and other goods that are essential to national security;
  • identifies the manufacturing capabilities essential to producing the goods identified pursuant to subsection (a) of this section, including emerging capabilities;
  • identifies the defense, intelligence, homeland, economic, natural, geopolitical, or other contingencies that may disrupt, strain, compromise, or eliminate the supply chains of goods identified pursuant to subsection (a) of this section (including as a result of the elimination of, or failure to develop domestically, the capabilities identified pursuant to subsection (b) of this section) and that are sufficiently likely to arise so as to require reasonable preparation for their occurrence;
  • assesses the resiliency and capacity of the manufacturing and defense industrial base and supply chains of the United States to support national security needs upon the occurrence of the contingencies identified pursuant to subsection (c) of this section, including an assessment of: . . .
    • exclusive or dominant supply of the goods (or components thereof) identified pursuant to subsection (a) of this section by or through nations that are or are likely to become unfriendly or unstable; and the availability of substitutes for or alternative sources for the goods identified pursuant to subsection (a) of this section;
  • identifies the causes of any aspect of the defense industrial base or national-security- related supply chains assessed as deficient pursuant to subsection (d) of this section; and
  • recommends such legislative, regulatory, and policy changes and other actions by the President or the heads of agencies as they deem appropriate based upon a reasoned assessment that the benefits outweigh the costs (broadly defined to include any economic, strategic, and national security benefits or costs) over the short, medium, and long run to:
    • avoid, or prepare for, any contingencies identified pursuant to subsection (c) of this section;
    • ameliorate any aspect of the defense industrial base or national-security-related supply chains assessed as deficient pursuant to subsection (d) of this section; and
    • strengthen the United States manufacturing capacity and defense industrial base and increase the resiliency of supply chains critical to national . . . .

DONALD J. TRUMP

THE WHITE HOUSE, July 21, 2017

Emphasis added.

EMPEROR HAS NO CLOTHES —STEEL INDUSTRY PROBLEMS HAVE BEEN GOING ON FOR DECADES BECAUSE OF ITS FAILURE TO MODERNIZE DESPITE 40 YEARS OF PROTECTION FROM STEEL IMPORTS

After graduating from law school, in the late 1970s I went to work for a law firm in Washington DC and one of our clients was Bethlehem Steel Shipbuilding.  In the Spring of 1979, at a firm party, one of the heads of the company told me all I want to do is stop in the imports.  After joining the US International Trade Commission (“ITC”) in October 1980 I watched Bethlehem Steel file case after case against steel imports.  In 1985 while at the ITC, I asked the head of Bethlehem Steel’s Sparrow’s Point Factory how important the Continuous Castor was to Bethlehem Steel.  He replied, “We’ve bet the company on the continuous castor”.  Bethlehem Steel bet too late. The Korean steel producers already had the continuous castors.

Later, my former boss, the former ITC General Counsel, represented Bethlehem Steel for decades bringing trade cases against steel imports.  The US steel industry has had 40 years of protection from steel imports and yet it continues to decline.  Bethlehem Steel after 40 years of protection from steel imports is now green fields.

On July 14, 2017, former ITC Commissioner Dan Pearson of the Cato Institute summarized some of these problems in a Market Watch article entitled “Trump would further damage U.S. manufacturing if he restricts steel imports” stating:

“In a recent hearing on the investigation, Secretary Ross made clear that highly protectionist measures are under consideration. What Ross didn’t address is whether additional steel import restrictions would harm the U.S. economy.

Unfortunately, they certainly would. Our country may be only weeks away from presidential action that would further damage the competitiveness of the broad manufacturing  sector.

Five points are particularly relevant:

First, it’s not clear there is any legitimate national security justification for invoking Section 232. There is no doubt that much U.S. military equipment requires steel. The key question is how best to obtain specific types of steel needed for various national-security applications.

Most steel used by the military comes from domestic suppliers, such as United States Steel Corp. . ., AK Steel Holding Corp.  . . and Nucor Corp. . . . or from countries with which the United States has amicable relations. Keeping the U.S. market open to steel imports would assure that the military will have access to both foreign and domestic steel products needed to maintain national security. If the Pentagon wishes to ensure domestic sources for some products, it could establish long-term contracts with U.S. mills—no import controls are required.

Second, potential Section 232 restrictions must be viewed in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products, making steel one of the country’s most protected sectors. As a result, U.S. prices for many steel products are significantly higher than world prices, greatly disadvantaging American manufacturers that require steel as an input.

Third, any additional import restrictions would do far more harm to steel-using manufacturers than any benefit that could accrue to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers. Manufacturers that use steel as an input employ 6.5 million, 46 times more.

Steel mills account for a rather narrow slice of the overall U.S. economy: $36 billion in 2015, equaling only 0.2% 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% of  GDP.

Any government action to drive steel prices even higher by further restricting imports will hurt steel- consuming manufacturers. Their costs will rise, thus reducing their competitiveness relative to companies in other countries. Carrier, the company that in December said it wouldn’t shift 800 jobs from Indianapolis to Mexico after all, is hardly the only firm that could reduce its steel costs by shifting production overseas.

Fourth, other nations likely would retaliate. When a foreign power acts arbitrarily to curtail its imports, negatively affected exporting countries aren’t amused. Since the United States is only a minor exporter of steel, retaliation likely would be focused on innocent, export-competitive sectors. The United States is the world’s largest exporter of military equipment, so those firms may be targeted.

The United States also is the world’s largest agricultural exporter; farm and food products would be vulnerable across the board.

Fifth, a country that imposes import restrictions always reduces its own economic welfare. This is true even if other countries don’t retaliate. Economists have understood since the work of David Ricardo that it is unwise to try to be self-sufficient when others are able to provide products at lower costs.

Import restrictions lead to inefficient resource use, lowering national economic welfare in the process. In other words, consumers are hurt more than protected industries are helped.

The Section 232 process may be intended to inflict pain on foreign nations by curtailing their exports. We can’t be sure whether U.S. import restrictions will hurt other countries, but we can be certain that restrictions will hurt America. Limiting steel imports creates a genuine threat to economic growth and prosperity. It is very difficult to build a stronger national defense when the economy is getting weaker.

But shouldn’t something be done to help steel mills and their workers as they deal with import competition? The Department of Commerce should think seriously about proposing enhanced economic adjustment assistance. It would be good public policy to encourage this historically protected industry to restructure and adapt to free trade in steel. . . .

My former boss, who later represented Bethlehem Steel for decades in trade cases, in the early 2000s told me that the problem with steel is that the employment in the entire US steel industry is less than one high tech company.

CONCERNS OF DOWNSTREAM STEEL INDUSTRIES

On May 31, 2017, public comments were filed at the Commerce Department on the Section 232 Steel case.  My last newsletter contained numerous comments from large associations representing steel users, including the American Automotive Policy Council (“AAPC”) and the truck and engine manufacturers association warning about the devastating impact high steel tariffs would have on the automotive and truck industry.  Not only would restraints on Steel imports damage downstream industries, but they would also damage the national security of the United States.  Many suppliers to the US DOD are dependent on imported steel made to certain specifications to make the downstream products to DOD specifications.  In many cases, US steel producers no longer produce steel to the specifications required by the DOD and many downstream users, such as the US automotive industry.

Thus the AAPC stated;

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.

The Association of Equipment Manufacturers warned not only about the devastating impact on their industry, but went on to warn that steel tariffs would have a negative impact on US national security stating that US equipment manufacturers:

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.

Since equipment manufacturers provide parts and equipment to the Department of Defense, in fact, high tariffs on imported steel could, in effect, damage the national security of the United States.

The Forging Industry Association representing the US forging industry also stated:

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. . . . 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. . . .

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.

The Industrial Fastener Institute representing the US Fastener industry warned that:

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. . . .

The Motor & Equipment Manufacturers Association was even more explicit about the potential negative impact of this case on US national security:

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. . . .

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.

The National Electrical Manufacturers Association (“NEMA”) stated in its comments:

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.

Like the chorus in a Greek tragedy, US manufacturers that rely on steel as a key raw material input cried their warning that not only would imposing restrictions on steel imports injure downstream steel manufacturers, but also US national security itself. President Trump now appears to be listening.

ALUMINUM

The other Section 232 case that is behind steel is 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 Presidential Memo Summary ALUMINUM FED REG PUB Section 232 Investigation on the Effect of Imports of Aluminum on US National S.  The hearing was on June 22, 2017 and the video of that hearing can be found at https://www.youtube.com/watch?v=k3Bnwi3DWHg.

But in a letter to Commerce, 44 Senators and Representatives argued that the ongoing investigation under Section 232 could include aluminum imports that have little to do with national security but is used to make things like food and beverage cans.  The Congressional representatives and Senators stated that specific type of rolled can aluminum sheet and primary aluminum “could yield import restrictions or tariffs on these products – a result that would not increase their availability in the U.S. but would necessarily impose additional costs to American end-users and American consumers.”

The National Foreign Trade Council said in comments filed on behalf its 200 member companies in sectors including energy, capital goods, transportation, consumer goods, technology, health care products, services, e- commerce and retailing “We believe that imposition of high tariffs or restrictive quotas on aluminum products is not an appropriate response” to concerns that excess capacity in China has led to the closings of many aluminum smelters in the United States.  The NFTC went on to state:

“Many of the industries that rely on aluminum as an input are themselves suppliers for our nation’s defense- related needs, building the ships, aircraft, machinery, high technology weapons and other goods that a modern military demands.”

In contrast to the Commerce lack of data in the Section 232 Steel case, however, in the Aluminum case, in June 2017 the US International Trade Commission (“ITC”) has just issued the attached fact finding report on the US aluminum industry, ITC ALUMINUM PUBLICATION, which is based on questionnaires sent to US producers.

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 injured by imports.

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 fact, many of the companies receiving trade adjustment assistance are steel users or downstream US manufacturing companies, which have been injured by US trade actions.  They are the collateral damage caused by US trade actions.

A cursory analysis comparing companies in the TAA for Firms program to trade actions (AD, CVD, etc.) in 2015 revealed a strong correlation between those companies and trade actions. TAA for Firms works with small, medium sized, mostly manufacturing companies that encounter business declines linked to import competition.  ITC maintains a list of current AD/CVD cases, which, when combined with other known trade actions, yielded 116 unique product descriptions. Between 2005 and 2015 1,654 companies entered TAAF – publicly available information provides a brief description of these companies’ products. For the TAAF companies, 70% of the product descriptions match with trade actions. Steel actions alone match with 31% of the TAAF companies.

On the one hand, this is not surprising, trade actions occur in industries with concerning levels of trade, therefore, one would expect trade impacted companies in those industries. This only supports the assertion that TAAF is being applied where it should be expected.

On the other hand, the variety of companies in the TAAF program is surprising to anyone who looks closely – they certainly do not fall into predictable categories. The variety of products and level of specialization among manufacturing companies is astounding.  The TAAF companies are not the subjects of the trade actions, but the downstream buyers of those products. That one category of product, steel, would match so often, strongly stands out. An often heard anecdote from the TAAF program, quotes the business owner who says his cost of raw materials exceeds the cost of the finished imported product. It was only after performing this analysis that recollection confirmed that the anecdote was most often repeated related to companies using steel as a raw material.

It should be emphasized that this was a cursory analysis.  TAAF firms are thought to be a fraction of those experiencing trade impact. The level of analysis consisted only in rough comparisons of rough descriptions. Perhaps more surprising is that with over 45 years of TAAF program operation and what has become a vast national debate about manufacturing and jobs, no thorough analysis of trade impact exists. We do know there is a lot of it in a lot of different products and industries. And we strongly suspect that the experience of TAAF confirms the damaging downstream impact of trade actions. The good news is that TAAF companies tend to recover and grow.  Some consistent outcomes of the program are longevity of companies, sales increases that exceed the economy and industry levels,  strong productivity growth, and job growth that at least recovers lost jobs and one can infer, preserves many more.

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.

TRUMP AND CHINA

US CHINA’S NORTH KOREA PROBLEM MAY MEAN ROCKY TRADE PROBLEMS

Recently, at a speech to Chinese government officials, when asked what the major trade issues are between China and the US, I mentioned North Korea.  During the election campaign, Donald Trump often pointed to China as a source of the many trade problems for US companies.

At the Mar -A -Lago meeting with Xi Jinping, however, Donald Trump appeared to step back and explicitly linked Chinese help with North Korea to a better trade deal between the two countries.  This is the first time a US Administration has directly linked a foreign policy objective with a trade relationship.

But now Trump is frustrated because he believes China is not helping enough with North Korea and wants to develop a “cogent China strategy”. On July 31st, based on conversations with administration officials,Politico reported that the Trump Administration is considering “a handful of economic measures to punish China, with a final decision coming as soon as this week . .  . ..  The article goes on to state:

Trump’s aides met over the weekend to discuss options, including trade restrictions or economic sanctions, and they will continue those conversations today. It remains too early, however, to say what the president might decide, the officials said. . . .

The decision may come as the president grows increasingly frustrated with Beijing over its handling of the North Korea missile situation, including Friday’s latest intercontinental ballistic missile test. “I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!” Trump said on Twitter over the weekend.

On the trade front, Trump has also long complained about what he sees as unfair trade practices by Beijing, and he has been encouraged particularly by some of the harder-line aides in his administration – like chief strategist Steve Bannon and Office of Trade and Manufacturing Policy Director Peter Navarro – to crack down on China.
To read more about this issue, please see the attached July 31st article from Politico, Trump plan on China may come as soon as this week – POLITICO.

CHINA STILL A NONMARKET ECONOMY COUNTRY IN CVD CASES

On July 25th, since the argument was made that China is a market economy country in the Aluminum Foil case, Commerce released the attached memo, DOC CHINA BANKING NONMARKET, starting that the interest rates set by Chinese banks are not set by market forces and thus no Chinese bank interest rates can be used in CVD cases.  This memo indicates that Commerce is not going to treat China as a market economy country in antidumping and countervailing duty cases any time soon.

STEEL AND ALUMINUM PROBLEMS STOP US CHINA TRADE NEGOTIATIONS

On July 19th, optimism was reported at the start of the U.S.-China Comprehensive Economic Dialogue.  Chinese Vice Premier Wang Yang stated “The giant ship of China-U.S. economic and trade relations is sailing on the right course.”

But on July 20th the optimistic tone changed as the disagreement over excess Chinese steel and aluminum production capacity along with North Korea problems stopped the conference in its tracks.  China refused to agree to specific cuts in steel and aluminum production capacity and the United States was unwilling to move onto other concerns.

Chinese Vice Premier Wang Yang stated:

“Let me stress here that dialogue and negotiation are different from each other.  The core objective of negotiation is to have visible and tangible results, but the primary task of dialogue is to increase mutual understanding, mutual trust and consensus.

“Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both.

“President Trump said, ‘Coming together is a beginning, keeping together is progress and working together is a success.  China is ready to work together with the U.S. and make sure this CED will build on existing achievements and achieve win-win results.”

NAFTA NEGOTIATIONS

The United States, Canada and Mexico will sit down together for the first round of talks to formally reopen NAFTA on Aug. 16 in Washington.

On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.

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 were 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.

On June 26, 2017, Green Tech Media in the attached article, Suniva and SolarWorld Trade Dispute Could Halt Two-Thirds of US Solar Installat, along with a report estimated that if the ITC reaches an affirmative determination and if Trump adopts the solar import trade tariffs Suniva and SolarWorld Americas are seeking, such an action could wipe out as much as 65.5 percent of solar projects that are expected to be built in the U.S. from 2018 through 2022.

The GTM article further states:

Suniva’s and SolarWorld’s new trade dispute would strike a devastating blow to the U.S. solar market, erasing two-thirds of installations expected to come on-line over the next five years.

If the petition is successful, shockwaves will be felt across all segments of U.S. solar. Utility-scale solar is most at risk, with more than 20 gigawatts already at risk of cancellation if module prices fall back to 2012 levels.

The report determined that such a trade action would “cause unprecedented demand destruction”, and went on to state:

If Suniva’s and SolarWorld’s proposal is approved by the U.S. International Trade Commission and President Trump, there will be a new minimum price on imported crystalline silicon solar modules and a new tariff on imported cells. Put together, the U.S. could miss out on more than 47 gigawatts of solar installations. That’s more than what the U.S. solar market has brought on-line to date.

On July 24th, Reuters reported:

Installations in the United States last year hit a record. Jobs are mushrooming too. The domestic industry now employs more than 260,000 people, according to The Solar Foundation, most of them construction workers hammering panels on rooftops and erecting utility-scale solar plants in the nation’s blistering deserts.

But signs of a chill are already visible as the industry waits to see how President Donald Trump responds to a recent trade complaint lodged by a Georgia manufacturer named Suniva. The company has asked the administration effectively to double the price of imported solar panels so that U.S. factories can compete. About 95% of cells and panels sold in the U.S. last year were made abroad, with most coming from China, Malaysia and the Philippines, according to SPV

That has the solar industry bracing for the worst. Panic buying has sent spot prices for solar panels up as much as 20 percent in recent weeks as installers rush to lock up supplies ahead of potential tariffs.

Skittish U.S. energy customers are putting some solar projects on hold. Manufacturers are eyeing other markets to develop. And some investors are running for cover. Funding for large U.S. solar deals fell to $1.4 billion in the second quarter, down from $3.2 billion in the first quarter and $1.7 billion a year earlier, primarily due to concerns about the trade case, according to research firm Mercom Capital Group.

Developers of solar farms that provide utilities and big companies with energy are particularly vulnerable; panels account for as much as half of the cost of their projects.

A steep rise in panel prices “could be huge and disastrous for large-scale solar,” said Tom Werner, chief executive of San Jose-based SunPower Corp . . ., a top U.S. solar company that is majority owned by France’s Total  . . … “Developers are alarmed and planning.”

BORDER ADJUSTMENT TAXES (“BAT”) ARE FINALLY DEAD

On July 27th it was reported that White House and congressional leaders agreed to drop the BAT as they move to comprehensive tax reform. The proposal, which would have placed a tax on all imports, had been a very important part of House Republicans’ tax reform blueprint as a way to pay for a corporate tax cut. House Speaker Paul Ryan, House Ways and Means Chairman Kevin Brady, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, and National Economic Council Director Gary Cohn said in a statement.

“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,

[W]e are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.”

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

CAST IRON SOIL PIPE FITTINGS FROM CHINA

On July 13, 2017, the Cast Iron Soil Pipe Institute filed an antidumping and countervailing duty case against Cast Iron Soil Pipe Fittings from China.

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.2017.27 Team’s newsletter-EN Vol.2017.28 Team’s newsletter-EN Vol.2017.29

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

RIBBON CABLES

On June 30, 2017, 3M Company and 3M Innovative Properties Company filed a Section 337 case against Shielded Electrical Ribbon Cables.  The proposed respondents are Amphenol Corporation, Wallingford, Connecticut; Amphenol Interconnect Products Corporation, Endicott, New York; Amphenol Cables on Demand Corporation, Endicott, New York; Amphenol Assemble Technology (Xiamen) Co., Ltd., China; Amphenol (Xiamen) High Speed Cable Co., Ltd., China; and Amphenol East Asia Limited (Taiwan), China.

If you have any questions about these cases or about Trump and Trade, the impact on downstream industries, the Section 232 cases, North Korea US China trade problems, 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 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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