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

White House Washington DC

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR — JUNE  30, 2018

Dear Friends,

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

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

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

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

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

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

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

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

Trump’s impact on trade policy cannot be underestimated.

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

Best regards,

Bill Perry

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

SEVERAL POINTS TO CONSIDER

STRONG ECONOMY AND TRADE DEFICIT

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

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

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

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

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

SO MANY TRADE ACTIONS

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

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

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

THE SPEED OF TRUMP AND THE OBAMA LESSON

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

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

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

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

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

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

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

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

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

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

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

TRUMP FEARS NOTHING AND LIKES CHAOS

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

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

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

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

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

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

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

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

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

THE WTO PROBLEM—THE MFN PRINCIPLE BLOCKS RECIPROCITY

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

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

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

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

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

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

AMERICANS ARE COMING AROUND TO TRUMP’S ECONOMIC TRADE NATIONALISM

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

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

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

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

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

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

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

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

G-7 TALKS

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

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

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

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

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

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

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

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

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

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

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

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

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

WILL TRUMP LOSE THE MIDTERMS BECAUSE OF HIS TRADE POLICY?

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

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

COLLATERAL DAMAGE—STEEL ALUMINUM USERS AND FARM BELT

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

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

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

STEEL AND ALUMINUM USERS

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

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

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

AUTOMOBILES 232 CASE

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

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

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

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

AGRICULTURE

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

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

IOWA IS HOLDING OUT FOR TRUMP

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

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

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

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

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

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

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

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

CONCLUSION

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

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

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

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

Best regards,

Bill Perry

US China Trade War Update– 301 Case $50 Billion Tarifffs Imports from China — China Retaliates

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE JUNE 16, 2018

PRESIDENT TRUMP ANNOUNCES $50 BILLION IN TARIFFS AGAINST CHINESE IMPORTS IN THE SECTION 301 CASE — CHINA RETALIATES

On June 15th, in the Section 301 case against China’s misappropriation to US intellectual property rights, through the United States Trade Representative (“USTR”), President Trump announced tariffs on $34 billion of Chinese imports.  The $34 billion will be followed with tariffs on another $16 billion in tariffs for a total of $50 billion.

As stated in the attached USTR announcement:

The Office of the United States Trade Representative (USTR) today released a list of products imported from China that will be subject to additional tariffs as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property.

On May 29, 2018, President Trump stated . . .USTR shall announce by June 15 the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy. Today’s action comes after an exhaustive Section 301 investigation . . . in which USTR found … that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden U.S. commerce.

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

USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices _ United States Trade Representative

The target products on the first $34 billion list are set forth in set 1.  For those products in set 1, an additional duty of 25% will be levied on July 6, 2018.  The Set 1 target list is attached.FIRST SET OF $50 BILLION

A second set of products covering another $16 billion in imports is being examined.  The second set will go through a public hearing process to take products off the list.  The second set is attached.  SECOND SET OF $50 BILLION

There will then be an exclusion process to get products off the list, but it has not been published yet.

There is a lot of machinery and other products on the lists, “containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy”.  Please look at the lists closely and see if you or your clients will be affected by these actions.

As expected, the Chinese government immediately announced its own retaliation against US exports into China.  See attached.  CHINA RETALIATION LIST

Section 301 cases are usually settled through a negotiated settlement between the two countries.  But it is difficult right now to predict the end game in this Section 301 case.  By announcing this $50 billion in tariffs is President Trump trying to increase the US leverage in any negotiations with China?  Or is President Trump simply trying to curtail imports from China?

To understand Trump’s trade policy, however, one has to start with a simple fact   The US Trade Deficit in goods with the World in 2017 was $810 billion, almost a trillion dollars.  The US trade deficit in goods with China in 2017 was $375 billion while the trade deficit in goods with the EC was $151 billion, with Mexico was $70 billion and with Canada was $17 billion.

Trump apparently believes that the US cannot follow the same trade path because the US simply cannot afford it.

One of his key promises in the election is that a President Trump would fix the trade problem. President Trump keeps his campaign promises.

President Trump may simply believe that tough trade politics will lead to better trade agreements.  We will just have to wait and see whether President Trump wants to negotiate or simply raise tariff walls against imports inviting retaliation and a trade war.

 

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE APRIL 10, 2018

Dear Friends,

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

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

“4/8/18, 5:12 AM

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

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

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

“4/10/18, 10:51 AM

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

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

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

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

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

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

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

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

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

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

President Xi also stated:

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

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

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

With regards to intellectual property, President Xi stated:

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

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

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

If anyone has any questions about these cases or about the Trump Trade Crisis, Section 301 IP Case against China, Section 201 Solar Case, Section 232 case on Steel, Aluminum or Uranium or US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR APRIL 7, 2018

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“USE YOUR LEVERAGE

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

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

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

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

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

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

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

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

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

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

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

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

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

THE DOWNSIDE OF TRUMP’S TRADE WAR STRATEGY–AGRICULTURE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Emphasis added.

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

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

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

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

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

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

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

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

Emphasis added.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I think this could be a little shock therapy.”

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

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

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

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

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

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

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

TRADE WAR CHICKEN GAME—WHO WILL BLINK FIRST?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If anyone has any questions about the Trump Trade Crisis, including the Section 232 case on Steel, Aluminum or Uranium or US trade policy, Section 301 intellectual property case against China, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

TRADE IS A TWO WAY STREET

 

US CHINA TRADE WAR STEEL/ALUMINUM TARIFFS EXCLUSION NOTICE UPDATE MARCH 18, 2018

Dear Friends,

On March 8th, Trump issued his tariffs of 25% on imported steel and 10% on imported aluminum in the Section 232 National Cases.

Attached are two documents of interest.

Commerce just issued the atttached EXCLUSION FED REG STEEL AND ALUMINUM exclusion Federal Register notice for the Steel and Aluminum Section 232 Cases.

Two important points about exclusion requests.  First, there is no time limit.  Exclusion requests can be filed at any time, but they must be on specific forms.

Second, foreign producers and US importers need not apply.  The only entities that can request an exclusion are the actual US companies using the steel or aluminum in their production process.

The second document is the attached extensive two part retaliation list issued by the EC in response to the Steel and Aluminum tariffs.  TWO EU RETALIATION LISTS  The document speaks for itself and is very extensive covering numerous different US products exported to the EC.

According to the EU, Part A of the list includes products worth €2.8 billion, which the EU can target with tariffs of 25 percent at any moment after notifying the list to the WTO.

Part B lists those products which would be targeted only after three years. This is because WTO rules allow immediate retaliation only on that amount of trade for which EU steel exports to the U.S. have not increased over the past years.

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

Best regards,

Bill Perry

US CHINA TRADE WAR STEEL AND ALUMINUM TARIFFS UPDATE MARCH 9, 2018

Dear Friends,

On March 8th, Trump issued his tariffs of 25% on imported steel and 10% on imported aluminum.

As explained below, there are some exceptions, but now let the retaliation trade games begin.

The chickens have come home to roost.  For too many years, the average American has not been educated on the benefits of trade.  With $2.3 trillion in US exports in 2017, the United States has a lot to lose in this trade war.

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

Best regards,

Bill Perry

TRUMP’S STEEL AND ALUMINUM TARIFFS

On March 3, 2018, President Trump formally announced the imposition under Section 232, National Security law, of tariffs of 25% against Steel imports and 10% on Aluminum imports.  See the attached proclamations, Presidential Proclamation on Adjusting Imports of Aluminum into Presidential Proclamation on Adjusting Imports of Steel into th.

The tariffs will take effect March 23rd “with respect to goods entered, or withdrawn from warehouse for consumption and shall continue in effect, unless such actions are expressly reduced, modified, or terminated.”

The terms “entered, or withdrawn from warehouse for consumption” are Customs terms, which means if steel products have not been entered/imported or withdrawn from a Customs bonded warehouse by 12:01AM on March 23rd, the tariffs will apply to those goods.

A Customs bonded warehouse is where products are stored before entry/importation of the products, in this case, steel and aluminum products, into the United States.  So long as the Steel and Aluminum has been entered/imported into the US before March 23rd, it will be ok, but afterwards the products will be hit by a tariff.

The actual steel products covered by the tariff are:

  • For the purposes of this proclamation, “steel articles” are defined at the Harmonized Tariff Schedule (HTS) 6-digit level as: 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS

This probably means that all steel products will be covered, but (2) provides:

“In order to establish increases in the duty rate on imports of steel articles, subchapter III of chapter 99 of the HTSUS is modified as provided in the Annex to this proclamation. Except as otherwise provided in this proclamation, or in notices published pursuant to clause 3 of this proclamation, all steel articles imports specified in the Annex shall be subject to an additional 25 percent ad valorem rate of duty with respect to goods entered, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on March 23, 2018.

Emphasis added.

If this Steel case follows the recent Solar Cells 201 Proclamation process, we will not see the Annex until the Presidential Proclamation is published in the Federal Register in a few days.

But there are doorways for countries and companies to get their products out. For countries that have a “security relationship” with the United States, not Russia or China, they can negotiate a deal with the US.  As the Proclamation specifically states in paragraph 9:

Any country with which we have a security relationship is welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports from that country. Should the United States and any such country arrive at a satisfactory alternative means to address the threat to the national security such that I determine that imports from that country no longer threaten to impair the national security, I may remove or modify the restriction on steel articles imports from that country and, if necessary, make any corresponding adjustments to the tariff as it applies to other countries as our national security interests require.

Also within 10 days of the Proclamation, Commerce is to come up with an exclusion process to get products out of the tariffs, if the products are not produced in the US and if the exclusion request is made by a US company affected by the Tariff.  Foreign companies need not apply, only their US importers and more importantly the US steel using customers can apply.   The Proclamation specifically states in subparagraphs 3 and 4:

“…..The Secretary . . . is hereby authorized to provide relief from the additional duties set forth in clause 2 of this proclamation for any steel article determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality and is also authorized to provide such relief based upon specific national security considerations. Such relief shall be provided for a steel article only after a request for exclusion is made by a directly affected party located in the United States.  , , ,

Within 10 days after the date of this proclamation, the Secretary shall issue procedures for the requests for exclusion described in clause 3 of this proclamation. . . .”

We probably will not know more about the exclusion process until Commerce publishes a notice in the Federal Register.

THE TRADE CHICKENS COME HOME TO ROOST

Although there is an out for negotiations, we can expect other countries, including China and the EC, to retaliate against the steel and aluminum tariffs issued by the US.

But the real lesson of these tariffs is the failure over many past Presidencies to educate the average American about the benefits of trade.  President Trump pushed on by Breitbart refers to free traders as globalists.  Apparently, any person who believes in free trade does so because he supports the interests of the World and not the United States.

But free traders are not globalists.  They strongly believe in free trade because that is in the interest of the United States and the average American.  Free trade has caused the US economy to grow multiple times creating millions of jobs for Americans.

The average American simply does not realize that the US exported in 2017 $2.3 trillion in goods and services, $1.5 trillion in goods.  Half of all agricultural products are exported and one third of Iowa corn is exported to Mexico.

Pundits who favor the tariffs point to the rust belt states of Michigan, Ohio, Pennsylvania and Wisconsin that voted for Trump, but ignore the agricultural states of Kansas, Iowa, Wyoming, North Dakota, South Dakota, Montana and many other states that voted for Trump.  These pundits ignore the farmers.

But of that $1.5 trillion in goods, only $132 billion was agricultural products, exports of industrial supplies and materials at $462 billion and exports of capital goods except automotive at $532 billion were much more important.  Exports of Automotive vehicles and parts at $157 billion, consumer goods at $197 billion and export of other goods at $62 billion were also very important.

See the article on my blog, www.uschinatradewar.com, “Trump and Many Americans Simply Do Not Realize How Much the US Exports” and the Commerce Department report on 2017 Imports and Exports attached to that article.

$2.3 trillion in US exports are a lot of jobs and if these tariffs are the first step to a global trade war, many Americans are going to be very badly hurt by Trump’s trade war.

MARCH 3, 2018 UPDATE

Dear Friends,

Trump has his trade war, but it is not just against China.  This trade war is the United States against the World.  On March 2nd President Trump announced tariffs of 25% on steel imports and 10% on aluminum imports under Section 232 National Security law.  Section 232, however, is not a trade exception, such as 201 or antidumping and countervailing duty cases, approved by the World  Trade Organization (“WTO”) so that gives the other countries  the right to retaliate and they will retaliate.

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

Best regards,

Bill Perry

TRUMP’S TRADE WAR AGAINST THE WORLD

On March 1, 2018, President Trump announced that next week he will impose under Section 232, National Security law, tariffs of 25% against Steel imports and 10% on Aluminum imports.

Many countries around the World, including the EU, Canada, Mexico, China and other countries, immediately threatened trade retaliation against US exports.  Europe is talking about tariffs on US imports of Harley Davidson Motorcycles, Jack Daniels Bourbon and blue jeans.  China is talking tariffs on US agricultural exports, such a Sorghum Grain and Soybeans.

To see the advice the President is getting one has to look no further than the statements by USTR Robert Lighthizer on February 27th, on the Laura Ingraham show on Fox News stating that it was ridiculous to think that we were going to get into a trade war with China and other countries over the 232 cases.  But the reaction of numerous countries to Trump’s announcement of tariffs on Steel and Aluminum imports shows that Lighthizer’s statement was ridiculous.  Lighthizer is Trump’s principle advisor on trade laws and trade agreements, but this statement shows how Lighthizer truly misjudged the situation.

The major problem is that Lighthizer and Trump are focused on the trade deficits rather than the enormous size of US exports at $2.4 trillion.  With $2.4 trillion in exports, there is a lot of targets for retaliation.

Secretary Wilbur Ross states that steel tariffs are about jobs and security and simply leveling the playing field.  See https://www.bloomberg.com/news/videos/2018-03-02/wilbur-ross-says-steel-tariffs-are-about-jobs-and-security-video.

On March 2, 2018, Trump tweeted, “trade wars are good, and easy to win.”  But in wars be they trade wars or real wars, no one really wins everybody loses.

Both the Wall Street Journal and Investors Business Daily both disagree with the Trump trade war.  On March 2, 2018, the Wall Street Journal stated in an editorial entitled “Trump’s Tariff Folly, His tax on aluminum and steel will hurt the economy and his voters”, stated:

Donald Trump made the biggest policy blunder of his Presidency Thursday by announcing that next week he’ll impose tariffs of 25% on imported steel and 10% on aluminum. This tax increase will punish American workers, invite retaliation that will harm U.S. exports, divide his political coalition at home, anger allies abroad, and undermine his tax and regulatory reforms. The Dow Jones Industrial Average fell 1.7% on the news, as investors absorbed the self-inflicted folly.

Mr. Trump has spent a year trying to lift the economy from its Obama doldrums, with considerable success. Annual GDP growth has averaged 3% in the past nine months if you adjust for temporary factors, and on Tuesday the ISM manufacturing index for February came in at a gaudy 60.8. American factories are humming, and consumer and business confidence are soaring.

Apparently, Mr. Trump can’t stand all this winning. His tariffs will benefit a handful of companies, at least for a while, but they will harm many more. “We have with us the biggest steel companies in the United States. They used to be a lot bigger, but they’re going to be a lot bigger again,” Mr. Trump declared in a meeting Thursday at the White House with steel and aluminum executives.

No, they won’t. The immediate impact will be to make the U.S. an island of high-priced steel and aluminum. The U.S. companies will raise their prices to nearly match the tariffs while snatching some market share. The additional profits will flow to executives in higher bonuses and shareholders, at least until the higher prices hurt their steel- and aluminum-using customers. Then U.S. steel and aluminum makers will be hurt as well.

Mr. Trump seems not to understand that steel-using industries in the U.S. employ some 6.5 million Americans, while steel makers employ about 140,000. Transportation industries, including aircraft and autos, account for about 40% of domestic steel consumption, followed by packaging with 20% and building construction with 15%. All will have to pay higher prices, making them less competitive globally and in the U.S.

Instead of importing steel to make goods in America, many companies will simply import the finished product made from cheaper steel or aluminum abroad. Mr. Trump fancies himself the savior of the U.S. auto industry, but he might note that Ford Motor shares fell 3% Thursday and GM’s fell 4%. U.S. Steel gained 5.8%. Mr. Trump has handed a giant gift to foreign car makers, which will now have a cost advantage over Detroit. How do you think that will play in Michigan in 2020?

The National Retail Federation called the tariffs a “tax on American families,” who will pay higher prices for canned goods and even beer in aluminum cans. Another name for this is the Trump voter tax.

The economic damage will quickly compound because other countries can and will retaliate against U.S. exports. Not steel, but against farm goods, Harley-Davidson motorcycles, Cummins engines, John Deere tractors, and much more.

Foreign countries are canny enough to know how to impose maximum political pain on Republican Senators and Congressmen in an election year by targeting exports from their states and districts. Has anyone at the White House political shop thought this through?

Then there’s the diplomatic damage, made worse by Mr. Trump’s use of Section 232 to claim a threat to national security. In the process Mr. Trump is declaring a unilateral exception to U.S. trade agreements that other countries won’t forget and will surely emulate.

The national security threat from foreign steel is preposterous because China supplies only 2.2% of U.S. imports and Russia 8.7%. But the tariffs will whack that menace to world peace known as Canada, which supplies 16%. South Korea, which Mr. Trump needs for his strategy against North Korea, supplies 10%, Brazil 13% and Mexico 9%.

Oh, and Canada buys more American steel than any other country, accounting for 50% of U.S. steel exports. Mr. Trump is punishing our most important trading partner in the middle of a Nafta renegotiation that he claims will result in a much better deal. Instead he is taking a machete to America’s trade credibility. Why should Canada believe a word he says?

***

Mr. Trump announced his intentions Thursday, so there’s still time to reconsider. GOP Senators Orrin Hatch (Utah) and Ben Sasse (Nebraska) spoke up loudly against the tariffs, but a larger business and labor chorus is required. Mr. Trump is a bona fide protectionist so he won’t be dissuaded by arguments about comparative advantage. But perhaps he will heed the message from the falling stock market, and from the harm he will do to the economy, his voters, and his Presidency.

The Investors Business Daily followed suit stating in a March 2, 2018 editorial entitled “Sorry, Mr. President: Your Trade Protectionism Will Cost The U.S. Dearly”:

Trade: Protectionism is a political feel-good policy that does nothing for the economy. It’s a big cost with very few tangible benefits. That’s why President Trump has made a big mistake in imposing big tariffs on steel and aluminum.

We understand, of course, that President Trump feels beholden to his constituencies in the U.S. who have been hurt by foreign competition, particularly in basic industries like steel and aluminum. But the 25% tariff on steel and 10% tariff on aluminum that Trump seeks to impose will lead to higher prices for all, the loss of thousands of jobs and a political-crony windfall for a handful of big companies. . . .

We have no doubt that what Trump says is true. But if so, it should be remedied through trade talks, not a trade war.

And make no mistake: The broad nature of Trump’s tariffs, hitting all exporters to the U.S., will invite some kind of retaliation from those who’ve been hit.

Already, EU Commission President Jean-Claude Juncker is threatening to respond in kind: “We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk,” he said. “The European Union will react firmly and commensurately to defend our interests.” . . .

Beijing is already looking at imposing trade penalties on U.S. sales of sorghum there, and may soon also target our sales of soy, too. Meanwhile, India, emboldened by the U.S. turn toward protectionism, might use Trump’s moves as a reason to protect its own wheat and rice sectors from U.S. imports.

So the steel and aluminum industry’s gains will be the loss of others.

Trump’s justification for tariffs is “national security.” But, as some have pointed out, the U.S. military uses only about 3% of domestic steel output, and much of our imported steel comes from allies like Canada. So the “threat” really isn’t much of one.

Of greater concern is what the higher prices for steel and aluminum — remember, a tariff is actually a tax — will do to our domestic economy.

As the R Street Institute think tank reminds us, “According to 2015 U.S. Census data, steel mills employ about 140,000 Americans, while steel-consuming industries, including automakers and other manufacturers who rely on imported steel, employ more than 5 million. It is estimated that nearly 200,000 jobs and $4 billion in wages were lost during the 18 months during 2002 and 2003 that President George W. Bush imposed tariffs on imported steel …” . . .

In short, trade protection, especially tariffs, is a very bad deal for consumers and workers. But it’s very profitable for politically connected corporations. That’s why the financial markets melted down on Thursday. Will this event mark the end of the Trump bull market? It’s too soon to tell, but it bears watching. While most stocks fell on Thursday, steel and aluminum shares had a great day. Good for them, bad for the rest of us.

Maybe so, but what’s truly tragic is that Trump’s penchant for trade protection will in part offset the benefits to the economy from other free-market policies he has put in place, including tax cuts, deregulation, withdrawal from the Paris Accords on climate change and badly needed changes to ObamaCare.

We understand why he walked away from the Trans-Pacific Partnership trade deal and reopened NAFTA. He thought they were flawed, and they were.

But protectionism is a bad road to travel. Let’s hope this move by President Trump is merely a negotiating ploy, and not a long-term policy. If it’s the latter, buckle up — we’re in for a bumpy ride.

CNN has called Trump ignorant on trade, but the only one more protectionist than Donald Trump is the Democrats, who were all applauding Trump’s decision to impose tariffs.  In truth Trump’s ignorance reflects the ignorance of many Americans, who simply believe that the US does not export much and all imports are unfairly traded because they are all dumped.

For years, however, the Commerce Department has created dumping rates by using a policy called zeroing, which allowed Commerce to create dumping rates when there simply were none.  Also with regards to China, Commerce creates dumping rates because it refuses to use actual prices or costs in China, instead using surrogate values from import statistics in 5 to 10 different countries to construct a cost.

Commerce, in effect, is a hanging judge.  That would not matter but when that faulty premise is used to justify a trade war than the US truly does have problems.

Americans also are ignorant because they simply do not understand that in 2017 the US exported $2.4 trillion in goods and services, $1.6 trillion in goods.  See the Commerce Department report below in my post on US exports.

That reality means that foreign countries have many, many retaliation targets against US exports.  This trade war will not be pretty and many Americans and American companies will be hurt.  No one wins a trade war.  Trade wars are a lose lose situation.

US CHINA TRADE WAR FEBRUARY 24, 2018

Dear Friends,

In my last blog post, I asked whether President Trump’s economic juggernaut could be stopped by a trade war.  At the start of the Trump Administration, economic growth was a meager about 2% and there was a true unemployment crisis.  But one way to cure the economy and the trade problem is by making US companies more competitive and that is just what Trump and the Republicans have done with their tax bill and cutting regulations.  Economic growth is approaching 3% or higher.  Unemployment, including Black and Hispanic unemployment, is the lowest in decades.

In January, however President Trump had not yet started a trade war yet.  What a difference one month can make. In January President Trump imposed large tariffs on imports of solar cells and washing machines, wants to impose tariffs on imports of steel and aluminum pursuant to Commerce’s recommendations in section 232 National Security cases and wants to hammer China with more tariffs for intellectual property violations.  It appears that President Trump wants to solve all his disputes with foreign countries by raising tariffs.

But as indicated below, Trump’s desire for more tariffs simply reflects the feeling of many Americans that tariffs should go up to protect various US industries because Trump and many Americans simply do not understand how much the US exports.  The average American has been led to believe that imports are bad, exports are good and US exports very little.  That is the reason for the trade deficits and, therefore, all imports must be unfairly traded.  Trump’s and the average American’s belief is very dangerous thinking because it ignores the reality that the US in 2017 exported over $2 trillion in goods and services.  People in glass houses should not throw tariff stones and the United States has a very big glass house.  Belittling US exports is truly playing with trade war fire.

Trump and many average Americans do not understand what goes around comes around.  Trump, in fact, is inviting trade retaliation and igniting a trade firestorm.  In response to the self-initiation of the Aluminum Sheet case, the Chinese government has upped the game and responded with its own trade case against $1.25 billion of US agricultural exports of Sorghum Grain to China.  There are strong indications that the Chinese government is looking at antidumping and countervailing duty cases against $13.9 billion in US exports of soybeans to China, which will equal to 10% of US agricultural exports in total.

Pursuant to WTO trade rules, the EC, Japan, Korea and China are all asking for trade compensation for the Solar and Washing Machine tariffs imposed on their imports, and these same countries are sure to retaliate if Trump issues high tariffs on imports of steel and aluminum from these same countries.

Meanwhile, the Wall Street Journal is reporting that the US agricultural industry is hurting and one of the reasons is trade disputes and now trade retaliation.  President Trump and many Americans should be careful what they wish for, because they may get it.

But there are rays of sunlight in the US economy, President Trump and Vice President Pence have made noises about possibly rejoining the Trans Pacific Partnership (“TPP”).  More importantly, the Trump tax cuts and cut in regulations has made US producers much more competitive and created a manufacturing renaissance.  A trade war, however, could kill the economic golden goose.

Exclusions are a big issue in the Section 201 Solar case and in a stunner the ITC voted against Boeing in the Bombardier Civil Aircraft case.  More trade cases are being filed against imports.

But there is a remedy to trade problems that is not protectionist and does not invite retaliation.  That is making US companies more competitive.  As stated below, Trade Adjustment Assistance for Companies, a program personally approved by President Reagan, works and is able to save companies injured by imports.  Since 1984, the Northwest Trade Adjustment Assistance Center, which I am involved in, has been able to save 80% of the companies that got into the program.  If you save the companies, you save the jobs that go with those companies.

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

Best regards,

Bill Perry

PRESIDENT TRUMP’S ADMINISTRATION APPEARS TO BE PREPARING FOR A TRADE WAR AND THE CHINESE GOVERNMENT HAS ALREADY CREATED A RETALIATION LIST WITH AGRICULTURE BEING THE NUMBER ONE TARGET

As stated above, up to now, President Trump has not started a trade war, but that appears to be changing.  As stated below, on January 21st, President Trump announced large tariffs on imports of solar cells and washing machines and the target countries are already asking for trade compensation, tariffs on US exports.  Every day President Trump appears to use the tariff hammer to deal with different foreign policy disputes and it looks like tariffs on imported steel and aluminum products are coming.

On February 4th, in a meeting with State Department, Defense Department, and Homeland Security officials, Trump promised to use tariffs to deal with immigration problems and put tariffs on the goods of countries and sanction others that refuse to take their citizens/nationals back upon deportation.  Trump stated:

“But if they don’t take them back, we’ll put sanctions on the countries. We’ll put tariffs on the countries. They’ll take them back so fast your head will spin. We’ll just tariff their goods coming in, and they’ll take them back in two seconds. You have a lot of people from those countries, and they’ll take them back.”

This is just one example where President Trump indicates his strong belief that Tariffs on imports are the weapon to use to pressure countries to fall into line with US policy interests.

Moreover, President Trump has promised his base during the election to be very tough on trade.  But President Trump unfortunately does not realize there is a price to pay for a trade war—retaliation against US exports.

DESPITE THE REAGAN WARNING MANY AMERICANS APPARENTLY WANT INCREASED TARIFFS TO PROTECT US INDUSTRIES EVEN IF US EXPORTS GET SMASHED

But President Trump’s favorable view of tariffs on imports may simply reflect the beliefs of many Americans that trade is bad.  Exports are good, but all imports are bad.  Therefore, if there is a trade deficit, that must mean that trade and imports are hurting US industry because all imports are unfairly traded and the solution is simply put more trade barriers up.

Such a way of thinking is perpetuated by a Commerce Department that finds dumping in almost 100% of the cases, especially against China, because Commerce uses fake numbers, surrogate values from 5 to 10 different countries, to create dumping margins in Chinese cases.  Literally, over the past few decasdes, the number of cases in which the Commerce Department reached a no dumping and no countervailing duty case, turning the case off can be counted on less than two hands.  Commerce is a hanging judge, but when that hanging judge creates a myth that all imports into the US  are dumped and subsidized, that is when real probelms begin.  Although Paul Ryan, Speaker of the House, once stated that 70% of all customers are outside the United States, that point apparently has been forgotten and does not register with the average American, who thinks that putting up high tariffs will solve the trade problems and protect US manufacturing.

On January 26, 2018, Rasmussen Reports in an article entitled “Americans Still Favor Use of Protective Tariffs” stated that polls show that Americans favor tariffs:

“President Trump this week imposed heavy tariffs on foreign manufacturers of washing machines and solar panels to protect U.S. businesses. Americans by a two-to-one margin think tariffs are a good way to go.

The latest Rasmussen Reports national telephone and online survey finds that 50% of American Adults believe the federal government should place tariffs on goods from countries that pay very low wages to their workers. Twenty-six percent (26%) oppose tariffs on such goods even though the low wages mean these manufactured items often cost less than comparable American products. One-in-four (24%), however, are undecided.”

On February 6, 2018, Breitbart reported on the Rasmussen Poll in an article entitled “Americans Increasingly Support Tariffs to Protect US Against Globalization”, stating:

“Americans are increasingly supportive of tariffs on cheap, imported goods from foreign countries to protect American industries and workers against wild globalization.

In a poll by Rasmussen Reports, roughly 50 percent of Americans said the federal government should “place tariffs on goods from countries that pay very low wages to their workers,” as opposed to only 26 percent of Americans who said tariffs should not be imposed on foreign countries.

About 24 percent of Americans said they were “not sure” if the government should use tariffs to protect American industries.

Additionally, a plurality of Americans, about 44 percent, said the federal government is not doing “enough” to protect U.S. manufacturers and businesses from foreign competition” from globalization which has been exacerbated by endless multinational free trade agreements supported by the Democratic and Republican party establishments.

The support for protective tariffs has increased from two years ago, in 2015, when 47 percent of Americans polled by Rasmussen Reports said the federal government should place tariffs on foreign countries dumping cheap, imported products in the U.S.

In that 2015 poll, a plurality of Americans, about 40 percent, said free trade agreements like NAFTA and KORUS “take jobs away” from Americans.

The support for tariffs is positive news for President Trump’s administration, which is combatting globalization by imposing tariffs to protect American industries. In the Trump administration’s latest “America First” trade move, the White House placed a 30 percent tariff on imported solar products.

The tariff, as Breitbart News reported, has already resulted in a Chinese solar company announcing plans to build a solar plant in the U.S. rather than overseas.

The Trump administration’s pro-American trade initiatives are a break from over two decades of globalist trade agendas of past administrations under President George W. Bush and President Obama. For years, both political establishments have joined forces to push multinational free trade deals that outsource and offshore Americans’ jobs to foreign nations.

As Breitbart News reported in 2016, South Carolina is just one example of a state that was devastated by NAFTA, with the state losing about one-third of its manufacturing jobs since 1994 when the free trade agreement was signed.

In Trump’s most significant pushback against the Democratic and Republican apparatus on free trade and global initiatives, rather than individual nation-state efforts, he ended the Trans-Pacific Partnership (TPP) free trade agreement and the Paris Climate Agreement. . . .”

But President Ronald Reagan understood that the there is a price to pay for tariffs on imports—retaliation against US exports.  As President Reagan stated in a speech on June 28, 1986:

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

We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper. . . .

But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.”

Like Breitbart, many Americans believe that the US simply does not export much.  The cost of President Trump’s protective tariffs, however, will be very high when US exports in 2017 were over $2 trillion.  On January 21st, President Trump imposed high tariffs on imports of solar cells and washing machines.  On January 24th, the Wall Street Journal in an editorial entitled “Trump Starts His Trade War”, stated:

“Can Donald Trump stand prosperity? Fresh from a government shutdown victory and with the U.S. economy on a roll, the President decided on Tuesday to kick off his long-promised war on imports—and American consumers. This isn’t likely to go the way Mr. Trump imagines.

“Our action today helps to create jobs in America for Americans,” Mr. Trump declared as he imposed tariffs on solar cells and washing machines. “You’re going to have a lot of plants built in the United States that were thinking of coming, but they would never have come unless we did this.”

The scary part is he really seems to believe this. And toward that end he imposed a new 30% tariff on crystalline silicon photovoltaic cells and solar modules to benefit two bankrupt companies, and a new 20%-50% tariff on washing machines to benefit Whirlpool Corp. The tariffs will hurt many more companies and people, and that’s before other countries retaliate.

The solar tariff is a response to a petition filed at the International Trade Commission by two U.S.-based manufacturers—Chinese-owned Suniva, which filed for bankruptcy last year, and German-owned SolarWorld Americas, whose parent company filed for bankruptcy last year. Under Section 201 of U.S. trade law, the companies don’t need to show evidence of dumping or foreign subsidies. They merely have to show they were hurt by imports, which is to say by competition.

The two companies once employed some 3,200 Americans. But the wider solar industry, which depends on price-competitive cells as a basic component, supports some 260,000 U.S. jobs.

Costs will rise immediately for this value-added part of the industry, which the Solar Energy Industries Association (SEIA) says includes the manufacture of “metal racking, high tech inverters, machines that improve solar output by tracking the sun and other electrical products.”

The Journal reported Tuesday that the Trump tariff may spur an unnamed panel manufacturer to invest in a new plant in Florida that will create 800 new jobs. But SEIA says it expects that the tariff will cost 23,000 U.S. jobs this year alone. It will also mean that billions of dollars of solar investments are likely to be postponed or canceled. Utility companies facing green-energy mandates from state governments will also suffer as it gets more costly to deliver solar- produced electricity.

Mr. Trump will also make doing the laundry great again, or at least more expensive, with a new 20% tariff on the first 1.2 million imported washing machines every year. Above that the tariff will go to 50%. Don’t even think about assembling a washer with foreign parts, which get whacked with a 50% tariff above 50,000 imported units in the first year. . . .

Manufacturers will also lose flexibility in sourcing parts, which is critical to competitiveness. In South Carolina, where Samsung has a new $380 million appliance plant, the Trump tariffs aren’t welcome. Republican Gov. Henry McMaster is worried they’ll hurt the investment climate and invite retaliation.

Mr. Trump conducts trade policy as if U.S. trading partners have no recourse. With exports of $30.9 billion in 2016 and among the country’s highest level of exports per capita, South Carolina knows better. By justifying tariffs solely on the failure to compete, Mr. Trump is inviting other countries to do the same for their struggling companies. Their case at the World Trade Organization will also be a layup, allowing legal retaliation against U.S. exports.

By the way, if Mr. Trump thinks these new border taxes will hurt China, he’s mistaken again. China ran a distant fourth as a producer of solar cell and modules for the U.S. in 2017, after Malaysia, South Korea and Vietnam. Korea and Mexico are the two largest exporters of washing machines to the U.S. Mr. Trump’s tariffs are an economic blunderbuss that will hit America’s friends abroad and Mr. Trump’s forgotten men and women at home.”

TRUMP AND MANY AMERICANS SIMPLY DO NOT REALIZE HOW MUCH THE US EXPORTS AND PEOPLE IN GLASS HOUSES – –

President Trump and many Americans simply do not understand that despite the trade deficit, in 2017 total US exports of goods and services was $2.4 trillion.  $1.622 trillion was US exports of goods, such as machinery, semiconductor chips and other items.  China and other countries have many ripe targets for retaliation against the US.

On February 16, 2018, in the attached report, 2017 TRADE DATA, the U.S. Census Bureau U.S. Bureau of Economic Analysis of the Commerce Department reported that for full year 2017:

Exports were $2,329.3 billion in 2017, up $121.2 billion from 2016. Imports were $2,895.3 billion in 2017, up $182.5 billion from 2016.

In other words, US exports in 2017 of goods and services were $2.3 trillion and imports were $2.8 trillion creating a trade deficit of $566.0 billion.  With regards to US exports, of the $2.3 trillion, export of services was $777.9 billion.  Services include exports of financial services, express delivery, media and entertainment, distribution, telecommunications and computer service.  Exports of goods was over $1.5 trillion, including industrial supplies and materials, crude oil, capital goods, including industrial machines and aircraft engines.

Although exports of agricultural products are important at about $132 billion, exports of industrial supplies and materials at $462 billion and exports of capital goods except automotive at $532 billion are much more important.  Exports of Automotive vehicles and parts at $157 billion, consumer goods at $197 billion and export of other goods at $62 billion are also very important.

The focus of this piece is on exports because much to the surprise of many in the Trump Administration and possibly Trump himself and the average American, these US Commerce statistics establish that the US exports a lot of goods to various countries around the World and this creates tempting targets for retaliation and it is not just agriculture.  People in glass houses should not throw stones and putting up tariff barriers to imports invites a trade retaliation firestorm.

When I mentioned US exports, one self-proclaimed conservative responded, “You mean apples.”  Uh, no exports of industrial goods are much larger than exports of agricultural products.

If Trump creates a trade war, the United States has a lot to lose.

STATE OF THE UNION—TRADE RECIPROCITY OR MANAGED TRADE??

In his January 30, 2018 State of the Union address, President Trump did not mention trade much but stressed in his speech on his economic policies have helped bring back manufacturing to the US and increased US jobs, stating:

“3 million workers have already gotten tax cut bonuses — many of them thousands and thousands of dollars per worker. And it’s getting more every month, every week. Apple has just announced it plans to invest a total of $350 billion in America, and hire another 20,000 workers. And just a little while ago, ExxonMobil announced a $50 billion investment in the United States, just a little while ago. . . .

Very soon, auto plants and other plants will be opening up all over our country. This is all news Americans are totally unaccustomed to hearing. For many years, companies and jobs were only leaving us. But now they are roaring back. They’re coming back. They want to be where the action is. They want to be in the United States of America. That’s where they want to be. . . .”

But President Trump then went on to state about trade:

“America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our wealth. Our nation has lost its wealth, but we’re getting it back so fast. The era of economic surrender is totally over. From now on, we expect trading relationships to be fair and, very importantly, reciprocal.

We will work to fix bad trade deals and negotiate new ones. And they’ll be good ones, but they’ll be fair. And we will protect American workers and American intellectual property through strong enforcement of our trade rules.”

In response to the State of the Union address, on January 31st, John Brinkley in an article in Forbes entitled “With No Accomplishments To Report, Trump All  But Skips Trade In SOTU” stated:

“Last week, at the World Economic Forum meeting in Davos, Switzerland, President Trump suggested he was open to rejoining the Trans-Pacific Partnership. That was surprising, given that one of the first things he did as president was withdraw the United States from it.

Last night, in his State of the Union address, he devoted all of 78 words to trade policy, including nothing he hadn’t said before, nothing about the TPP, nothing about NAFTA (which he recently called a “bad joke”) and nothing direct about the U.S. trade deficit.

“From now on,” he said, “we expect trading relationships to be fair and, very importantly, reciprocal.”

The Merriam-Webster Dictionary defines “reciprocal” as “mutually corresponding.” If Trump wants every dollar of imports to be matched by a dollar of exports, that is an impossible goal. Tinkering around with NAFTA and the Korea-U.S. Free Trade Agreement, as his administration is doing, will have no appreciable effect on the U.S. trade deficits with Mexico and South Korea.

By now, he’s heard enough from the U.S. Chamber of Commerce, his friends in the business world, even his own secretary of agriculture, about how important trade is to them. None of them asked him to renegotiate NAFTA or the Korea agreement.

None of them asked him to withdraw from the TPP. You’ll recall that it was delegates to the 2016 Democratic Convention who held up “No TPP” signs and that Hillary Clinton and Bernie Sanders ran away from the agreement as though it were a rattlesnake.

Trump and Sanders were dead wrong about the TPP and about trade in general, but at least they believed what they said. Clinton, on the other hand, was dead wrong, and she knew it.

“We will work to fix bad trade deals and negotiate new ones,” Trump said last night. Does he still believe this strategy is going to lead to reciprocal trade? Or is he just saying what his base wants to hear? . . . .

Bottom line: Trump’s State of the Union claims that “America has also finally turned the page on decades of unfair trade deals” notwithstanding, he has yet to make good on any of his trade-related threats and promises. We still have all the trade deals we had a year ago, and the U.S. trade deficit has increased.”

On February 12th in an article entitled “Trump Says US Will impose A Reciprocal Tax on Imports”, Breitbart reported:

“President Donald Trump said on Monday that the U.S. government will impose a “reciprocal tax” on imports from countries that levy tariffs against American made goods.

“We’re going to charge countries outside of our country–countries that take advantage of the United States, some of them are so-called allies but they’re not allies on trade,” Trump said during a White House meeting on infrastructure. “We’re going to be doing very much a reciprocal tax and you’ll be hearing about that during the week and coming months.”

Commerce Secretary Wilbur Ross applauded the idea, saying that the U.S. needs to “claw back” the revenue other countries raise by taxing U.S. products.

The U.S. has very low tariffs compared with some of our biggest trading partners. The trade-weighted average of U.S. tariffs is just 2.4 percent. China’s is 4.4 percent.”

While Congress has the authority to set taxes and tariffs, the law authorizes the president to unilaterally impose tariffs in certain circumstances. In January, for example, the administration announced that it would impose tariffs on washing machines and solar products. The administration could potentially expand its use of these types of sanctions instead of waiting on Congress to pass new tariffs.”

Under the Constitution, however, the Congress controls trade, not the President and any new reciprocal tariff would probably have to go through Congress, which would not agree to such a new law.  On January 30th, Politico reported in an article entitled “Republicans seek to Tame Trump on Trade”:

“The GOP has long been a party of free traders. During the past two years of President Barack Obama’s presidency, Senate Republicans labored to pass a bill giving him the ability to quickly negotiate new trade deals. Now they have a president of their own party who prefers to scrap trade deals and slap tariffs on other nations.

Senate Finance Chairman Orrin Hatch (R-Utah), who led the fight to give Obama so-called Trade Promotion Authority, said he wants to hear Trump “extrapolate” concrete policies, because “right now they’re just suggestions.”

“I’m not uncomfortable. But I’m not comfortable either,” Hatch said of Trump’s trade stance. “I’m a free-trade guy. And I believe that this ought to be a free-trade country, especially when it comes to NAFTA and our hemisphere.”

Republican sources said GOP senators’ disagreements with Trump on trade surface far more often in party lunches than what the president said on Twitter or the chaotic story of the day from within the White House. Senators will often wait to complain about Trump’s policies until Tuesdays, when Vice President Mike Pence often visits the GOP lunch, hoping that bending Pence’s ear will help moderate Trump.

And in some cases, Trump has listened. His decision to impose tariffs on solar panels wasn’t as severe as some senators had feared. And Trump opened the door last week to re-engaging on the Trans-Pacific Partnership, a massive deal negotiated by Obama with Pacific Rim countries that Trump rejected shortly after taking office. The Trump administration has also sought to soothe some senators over NAFTA in recent weeks, according to GOP senators.”

But if by reciprocity, Trump means busting up barriers to US exports, that is fine with me and fine with President Reagan.  President Reagan and many successive Presidents have taken aggressive enforcement actions to break down barriers to US exports and investment.  If China has high tariffs on certain exports or bars US exports or investment in certain sectors, why should the US open up its border to Chinese imports and investment in those sectors?

But the major problem with such a new reciprocal tariff is the WTO Agreement and the bedrock agreement of Most Favored Nation.  The MFN principle provides that once a country becomes part of the WTO, with its general tariffs, it must treat all imports equally and cannot discriminate against imports from different countries, except with a Section 201 Escape Clause case or if dumping, subsidization or other unfair trade practices are involved.  Thus, a reciprocal tariff will invite retaliation by foreign countries pursuant to the WTO Agreement.  That is why many knowledgeable persons in the trade field have pushed for free trade agreements that lower tariffs, where the US has much to gain.

But because of his focus on trade deficits, if Trump means managed trade, not free trade, to reduce trade deficits, which means putting up high tariff walls to imports to equalize competition, count me and many other countries out, which will have no inclination to negotiate a bilateral trade deal with the US.

THE US BUILT THE WTO FREE TRADE MODEL THAT TRUMP APPARENTLY WANTS TO TEAR DOWN

On February 6, 2018, in an article entitled “US Leadership in International Trade: Recalibration or Retreat?” in The Diplomat, Mercy Kuo interviewed Ambassador Rufus Yerxa, president of the National Foreign Trade Council (NFTC) and deputy director general of the WTO from 2002 to 2013.  On a personal note, I used to work with Ambassador Yerxa many years ago at the International Trade Commission.  During this interview, Ambassador Yerxa made two very important points about the Trump trade policy:

“Is the U.S. retreating from or recalibrating its leadership role in international trade?

There is clearly a significant danger for the United States and for world trade generally if the Trump administration applies its concept of economic nationalism in the wrong way – by building trade barriers in sectors where we are uncompetitive, withdrawing from our trade alliances, or starting trade wars with excessive use of unilateral tariffs or other forms of trade retaliation. The dangers are three-fold: first, we will be turning inward and losing our competitiveness; second, by shelving our existing preferential free-trade arrangements just when our competitors are expanding theirs, we will lose our competitive position in export markets; and third, by abandoning WTO principles and acting unilaterally, we will make it more likely that other countries will write global trade standards without us and further isolate us from the global economy.

So far, the Trump administration’s rhetoric on this idea of economic nationalism has far exceeded its actions. But the administration’s worrying belief in mercantilist trade polices as a panacea for all our economic ills runs the risk of moving our country decisively in the direction outlined above. In the end, such a philosophy may cause our economy and our workers far more harm than good. American industries are willing to support a tougher line on enforcement of trade rules, as well as a more resolute stand against the nationalistic, unfair trade, and investment policies of China. But these things need to be done in the context of our broader support for the open trading system we led the world in building. If we send the signal that we do not believe in that system – even though it is there because of our leadership – we will lose the support we have built over 70 years for free and fair trade, and with it we will lose our leverage to shape the future of globalization.

What might the World Trade Organization (WTO) look like without U.S. involvement?

It is not a very pretty thought. The WTO system was designed to reflect core U.S. values, such as non- discrimination, transparency, and respect for the rule of law. These values are embedded in the organization’s rules, and help to commit other countries to the basic ideals of free market economics that America was built upon. For example, the WTO has some fairly effective rules about subsidy practices, dumping, and non-tariff measures (such as technical barriers to trade). These are important safeguards for U.S. industries.

For the U.S. to disengage from the WTO system, particularly at this critical moment in the globalization process, would leave the door open for politically influential countries such as China and Russia to push a trade model based much more on state-run capitalism and authoritarian economics than on our free market principles. This could pose a long-term problem that could take decades to repair. In fact, it took decades for us to push the Europeans in the right direction on state intervention, and the WTO’s predecessor, the GATT, was an important tool in that effort. Now the Europeans have a respectable state aids code and have adopted far greater discipline on agriculture subsidies. But if China, Russia, and others with less attachment to free market economics become the dominant force in the WTO, the Europeans themselves could be drawn back towards their earlier model, just as a matter of survival! That would not be a good world for Americans.”

AGRICULTURE HAVING A HARD YEAR BECAUSE OF TRUMP’S TRADE POLICY

The argument that consumers will be hurt by rising import prices simply carries no weight either with the Trump Administration or the US Congress.  If prices go up a few dollars at Wal Mart, no one in Washington DC other than the economic intellectuals care.  What does carry weight, however, is the strong argument that trade protectionism seriously damages US companies, including agriculture, and the strong and justified fear that many US companies, including US agriculture and manufacturing companies, will be badly hurt by trade retaliation.  President Trump’s decision to tear up the Trans Pacific Partnership, without trying to renegotiate it, may have appealed to those people in his base that are not knowledgeable about trade, but this decision to tear up the TPP and the failure to create more US free trade agreements puts many US agriculture companies at risk.

As stated before in past blog posts, no one in the Trump Administration or the Congress assessed the real costs to US industry of not doing the Trans Pacific Partnership.  Every day those costs are becoming clearer and clearer.

On February 15, 2018, Capital Press in an article entitled “Wheat industry seeks to re-enter TPP” describes in detail what the withdrawal from the TPP means for the US wheat industry and what that means for US jobs:

“If the United States doesn’t re-enter the Trans-Pacific Partnership, Northwest wheat exports to Japan could drop by half within a few years, says the leader of the Washington Grain Commission.

The Pacific Northwest currently exports roughly 800,000 metric tons of Western white wheat, a popular blend of soft white wheat and subclass club wheat, to Japan each year, commission CEO Glen Squires said.

Hard red winter and hard red spring wheat exports would also be impacted, affecting Montana and North Dakota, and other states exporting off the West Coast, Squires said.

Japan wants the U.S. in TPP, and is not interested in bilateral agreements, Squires said.

Wheat industry representatives met in Washington D.C. last week. Many legislators are aware of the concerns about the Trans-Pacific Partnership proceeding without the United States, Squires said. It will essentially amount to a tariff on U.S. wheat, putting the country at a price disadvantage in key markets compared to competing wheat-producing countries that are remain in the trade pact.

Changes under TPP will occur over nine years, but Squires said the impact on shipments could be much faster.

“This is a massively big deal,” he said.

Reduced demand would result in lower wheat prices, Squires said.

A national coalition of agricultural commodities is forming to address the situation, Squires said. The industry will appeal to the Trump administration to rejoin the trade deal.

“President Trump is the guy who can negotiate, and get us back involved,” Squires said. “It’s clearly a big impact: It’s the equivalent of handing our competitors a $500 million check per year.” . . .

Squires warned of “ripple effects” throughout the industry, which could happen as soon as U.S. wheat becomes uncompetitive in overseas markets. . . .

Without exports to Japan, the grain commission estimates volume would drop by 62.5 million bushels. That equals 19,000 fewer rail cars and nearly 70 bulk vessels each year. Impact would be felt by port facilities, barges, elevator longshoremen, ship handlers, and other industry members, Squires said.

Every $1 billion in farm exports supports more than 8,000 jobs in 2016. Wheat export losses of $500 million per year would lead to reductions in the work force across the supply chain, Squires said. . . .”

Emphasis added.

Keep in mind that rural America and farmers are a key constituency of the Trump Presidency. Trump won the Presidency not only because of Michigan, Ohio, Pennsylvania and Wisconsin, but also the states of Iowa, Kansas, Nebraska, Wyoming, Montana, North Dakota, South Dakota, Idaho, Utah, Arizona, and many other states where farmers and agriculture are very important for the economy of those States.

Yet the Wall Street Journal reported on February 8, 2018 that in contrast to the rest of the economy, Farm Incomes are falling:

“Farm Belt Braces for Falling Incomes, Trade Disputes

Farm incomes are forecast to decline 7% to $60 billion in 2018.

U.S. farmers are gearing up for another tough year.

Farm incomes are expected to hit their lowest point since 2006 and borrowing costs are rising, federal data shows, as a deepening slump in the agricultural economy enters its fifth year.

A string of bumper corn and soybean harvests has added to a glut of grain world-wide, eroding prices for U.S. farmers. Foreign rivals like Russia and Brazil are also chipping away at U.S. dominance in the global grain trade, helping to fuel a multiyear downturn that is pushing some farmers out of business.

“The state of the rural economy is fragile,” Agriculture Secretary Sonny Perdue told lawmakers during a hearing of the House Agriculture Committee on Tuesday. “There’s a lot of stress and a lot of duress on the farms today.”

The U.S. Department of Agriculture on Wednesday forecast that farm incomes would fall 7% to $60 billion in 2018 on lower crop and livestock revenue, less than half of the record $124 billion farmers earned in 2013. Farmers are already borrowing more to keep farms running. . . .

As spring planting looms, farmers are looking to South America for clues on demand for their own crop. The USDA boosted its forecast for Brazil’s soybean harvest on Thursday, and cut its projection for U.S. exports of the oilseed this season thanks to stiffer competition from South America.”

As stated many times in past blog posts, President Trump’s decision to rip up the Trans Pacific Partnership and talk about more tariffs on various trade areas has led to many foreign countries, including China, to not look at the US as a reliable partner in the trade area.  It has also resulted in many foreign countries, including Mexico, China, Japan and the EC, to switch sourcing products from the US and turn to alternative sources of supply.  Since almost 50% of all agriculture products are exported, one third of Iowa corn is exported to Mexico, agriculture and the farm states are starting to feel real pain because of the Trump trade policy.

TRANS PACIFIC PARTNERSHIP (“TPP”) RISES AGAIN???

As mentioned in my last blog post, Trump’s trade team is starting to realize that countries do not want to negotiate bilateral trade deals with the US.  Even though NAFTA may ultimately be renegotiated, the real problem is that with Trump’s policy of weaponizing trade agreements, no other country will enter into a trade agreement with the US.  As Robert Zoellick, the former United States Trade Representative (“USTR”) under President George W. Bush, stated on January 7th in the Wall Street Journal in an article entitled “Trump Courts Economic Mayhem”:

“No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade.”

As stated above, that is a huge problem for US farmers because almost 50% of farm products produced in the US are exported.

Because of this failure, if Trump keeps going down this road, the US may conclude no free trade agreements.  This would have a devastating impact on US exporters, including US agricultural companies.  The entire World is moving to free trade agreements and because of Most Favored Nation principle, the US with lower tariffs than many other countries would benefit the most.   Because of this reality, in my last blog post I suggested that Trump might want to renegotiate the TPP, but only under strict conditions.

Lo and behold, in January and February there were noises from the President and the Administration about coming back to the TPP.

On January 23rd, in an article entitled, “TPP Members Reach Agreement on Major Trade Pact”, the Wall Street Journal reported:

“TOKYO—Negotiators from 11 Pacific Rim nations agreed Tuesday on a Trans-Pacific Partnership trade deal, the Japanese minister in charge of TPP said, a year after President Donald Trump withdrew the U.S. from the talks.

Negotiators gathered again in Tokyo Tuesday and cleared away the remaining sticking points, said Toshimitsu Motegi, the Japanese minister handling the talks. He said the 11 nations aim to sign the agreement on March 8 in Chile. . . .

The TPP deal came just a half-day after the Trump administration slapped steep tariffs on imported solar panels and washing machines, a move to implement Mr. Trump’s harder line on trade that he has touted since his election campaign.

Japan has depicted itself as a free-trade champion that can assume the kind of leadership role previously taken by U.S. administrations.

“Now in some parts of the world, there is a move toward protectionism, and I think the TPP-11 is a major engine to overcome such a phenomenon,” Mr. Motegi said.

He said the deal was “epoch-making for Japan as well as for the future of the Asia-Pacific region.” He also reiterated a hope frequently expressed by Japanese officials that once the 11- nation TPP is up and running, the U.S. might consider rejoining the deal.

The TPP agreement could also provide a framework for a future Nafta deal should the current one be scrapped by the Trump administration, according to people familiar with the trade talks. Senior Mexican officials see the TPP agreement as an indication that the free-trade train is rolling forward with regional pacts, with or without the U.S. aboard, as Nafta is being renegotiated.”

On January 26, 2018, during a meeting at the World Economic Forum in Davos, Switzerland, Trump discussed trade and eventually turned to the TPP stating:

“The United States is prepared to negotiate mutually beneficial, bilateral trade agreements with all countries. This will include the countries in TPP, which are very important. We have agreements with several of them already. We would consider negotiating with the rest, either individually, or perhaps as a group, if it is in the interests of all.”

In response to a question in an interview with CNBC’s Joe Kerne, Trump further stated:

“I would do TPP if we were able to make a substantially better deal.  The deal was terrible, the way it was structured was terrible. If we did a substantially better deal, I would be open to TPP.”

During his Davos address, however, Trump did not mention the TPP and instead put forth a very tough statement on trade:

“The United States will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning.  These and other predatory behaviors are distorting the global markets and harming businesses and workers, not just in the U.S., but around the globe.”

In line with the tough stance against international trade, during Davos Economic Forum, on January 24th, in an article entitled, “U.S. Commerce Secretary Slams Beijing for Protectionist Actions Under Free-Trade Rhetoric” the Wall Street Journal reported:

“The Chinese have for quite a little while been superb at free-trade rhetoric and even more superb at highly protectionist activities,” U.S. Commerce Secretary Wilbur Ross told a trade panel Wednesday in Davos, Switzerland. Mr. Ross went on to blame both Beijing and the European Union for unfairly benefiting from higher tariffs and challenged the other two big economies to lower their import duties to U.S. levels.

“We really are the least protectionist, and unfortunately we have the trade deficits to show for it,” Mr. Ross said.

The Trump administration is seeking to push its own trade message at the annual Davos economic gathering, which is closely linked to globalization and multilateralism. Mr. Ross backed the administration’s bilateral approach to negotiating trade agreements and defended President Donald Trump’s exit from the unratified 12-nation Trans-Pacific Partnership agreement a year earlier, saying there was “no political appetite” for the pact in either party.”

But then the TPP story continued to grow.  During his visit to Tokyo last year in 2017, Vice President Mike Pence stated as far as the Trump administration is concerned, the TPP is a “thing of the past.” But during his most recent trip to Tokyo in February 2018, his tune seemed to change.  On February 7th, Kyodo News reported that in discussions with Japanese Deputy Prime Minister Taro Aso, Vice President Pence “referred to the possibility of the United States returning to the Trans-Pacific Partnership free trade deal.”  Apparently, Pence’s statement was in response to a question from the Deputy Prime Minster about Trump’s statement at Davos.  Apparently, Pence and Aso then exchanged views on the strategic importance of the TPP.

On January 31st, the famous economist Robert Samuelson in an article in Investors Business Daily entitled “Trump Dumped TPP A Year Ago – -What Did it Accomplish” stated:

“As President Trump appraises the state of the union, it’s worth remembering what still ranks as one of the worst decisions of his presidency: the withdrawal of the United States from the Trans-Pacific Partnership, or TPP. It happened just about a year ago.

You’ll recall that the TPP was an agreement between the U.S. and 11 other countries — Australia, Japan, New Zealand, Canada, Mexico, Singapore, Malaysia, Vietnam, Brunei, Chile and Peru — representing about 40% of the world economy.

Rejecting the TPP was, for Trump, a highly symbolic act buttressing his assertions that the United States has made bad trade deals that have diverted jobs, incomes and influence to foreign countries. He pledged to do better.

The reality is just the opposite, as a short analysis by economist Jeffrey Schott of the Peterson Institute makes clear. It turns out that the other 11 countries weren’t willing to sacrifice the TPP’s benefits. They decided to adopt the agreement anyway — without the United States — calling it the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or (a mouthful) CPTPP. It’s scheduled to be signed on March 8 in Chile.

The new agreement makes the United States “the biggest loser” from the whole TPP episode, writes Schott. For starters, there will be lower exports and incomes. Economic simulations done by researchers at the Peterson Institute estimated that the TPP would ultimately raise U.S. gross domestic product by $131 billion, or 0.5% of GDP. Those gains are now gone.

Schott notes that a number of TPP provisions advocated by the United States but opposed “by most other countries” have been dropped in the new agreement. These include “obligations regarding patents on certain pharmaceutical products, procedures involving investor-state disputes, prohibitions on the illegal taking and trade in wildlife” and restrictions on government-owned firms.

The biggest winner in the TPP episode is, almost certainly, China. Although China wasn’t a member of the TPP, Trump’s decision to withdraw leaves other Pacific-rim countries less dependent on the United States for their trade and more dependent on China — and, therefore, more subject to Chinese economic and political influence.

Rarely has the United States embraced a policy that, in contrast to the supporting rhetoric, is so contrary to its own interests. Even Trump may recognize this. In his speech at the World Economic Forum in Davos, he hinted obliquely that he might resume negotiations with the other TPP nations “if it is in the interests of all.”

The open question now is whether the president will repeat his mistake by repudiating the North American Free Trade Agreement (NAFTA), the trade pact among the United States, Mexico and Canada that Trump has sharply criticized. The damage would be even greater.”

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believed the US did not get enough and many Senators and Congressmen wanted a a better deal.  But now there is no deal and the costs of not doing the TPP are becoming clearer.

On February 16th, 25 Republican Senators, many from agriculture states, such as Hatch, Grassley, Ernst, Enzi, Gardner, McCain and Daines, sent the attached letter to President Trump, 021618 Letter to POTUS on TPP1, strongly urging him to rejoin the Trans Pacific Partnership stating:

“Mr. President:

We write in support of your recent comments expressing interest in re-engaging with the Trans­ Pacific Partnership (TPP) to bring about a stronger agreement for the United States. Reducing barriers to trade and investment, protecting American intellectual property rights, and leveling the playing field for U.S. businesses, manufacturers, farmers, fishermen, and ranchers is of utmost importance, and we ask that you prioritize engagement with the TPP so that the American people can prosper from the tremendous opportunities that these trading partners bring.

As you know, increased economic engagement with the eleven nations currently in the TPP has the potential to substantially improve the competitiveness of U.S. businesses, support millions of U.S. jobs, increase U.S. exports, increase wages, fully unleash America’s energy potential, and benefit consumers. Increasing access to a region and market that has a population of nearly 500 million can create widespread benefits to the U.S. economy. An improved TPP would therefore bolster and sustain the economic growth America has experienced over the past year facilitated by the regulatory reductions and reforms enacted by your Administration and the substantial tax cuts that you signed into law.

Further, TPP can serve as a way to strengthen ties with our allies in the region, counter the influence of the People’s Republic of China (PRC), and increase pressure on the PRC to adopt substantive and positive economic reforms. Re-engaging on TPP would also provide another platform to modernize trade with Canada and Mexico. . . .

In summary, we encourage you to work aggressively to secure reforms that would allow the United States to join the agreement. We share your commitment for free trade agreements that benefit the American people, and we stand ready to work closely with you toward achieving a TPP agreement that meets this objective.”

As predicted many times in prior blog posts, the costs of not joining the TPP are becoming clearer and clearer and the real economic pain of not joining the TPP is also becoming starkly clear.

RETALIATION BEGINS– FIRST SORGHUM GRAIN NEXT SOYBEANS??

As stated above, when the US imposes trade restrictions, US trading partners will respond with their own trade restrictions retaliating against US exports.  But Trump and the average American may simply believe that neither the EC nor China will retaliate against US exports, causing economic pain to the US.  Think again as the retaliation has already started and it will hurt.

MOFCOM SELF-INITIATED ANTIDUMPING (“AD”) AND COUNTERVAILING DUTY (“CVD”) CASES AGAINST SORGHUM GRAIN FROM THE US

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

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

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

Although the Trump Administration and many Americans may believe that the US government does not provide subsidies to its producers, as mentioned in the MOFCOM announcement, it will be investigating large US agricultural subsidies for sorghum grain, such as Crop Insurance Program, Price Loss Protection Program, Agricultural Risk Protection Program, Marketing Loan Program, Export Credit Guarantee Program, Market Access Program and Foreign Market Development Partner Program.

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

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

SOYBEANS?

On February 7th, Bloomberg reported that the Chinese government is looking at possibly self-initiating trade cases against Chinese imports of US soybeans.  In the article entitled, “China Studying Impact of Trade Measures Against U.S. Soy, Sources Say” Bloomberg stated:

“China is studying the potential impact of trade measures imposed on soybeans imported from the U.S., valued last year at $13.9 billion, according to people familiar with the matter.

Speculation is mounting over China’s response to U.S. tariffs on imported solar panels and washing machines announced last month. The Ministry of Commerce has been looking into the consequences of measures against U.S. soybeans since January . . . . That includes anti-dumping and anti-subsidy probes. . . .

China’s soybean imports have climbed to a record as expansion in large-scale livestock farming and a shortage of protein-rich feed grains boost soy-meal consumption. While the U.S. counts China as its biggest soybean market, the Asian country last year bought more of the oilseed from Brazil.”

If Section 232 Tariffs are imposed against US imports of EC Steel, the EC is planning to retaliate immediately against US exports of Harley Davidson Motorcycles from Wisconsin (Paul Ryan Republican Speaker of the House) and Jack Daniels Bourbon from Kentucky (Mitch McConnell, Republican Senate Majority).

SECTION 232 STEEL AND ALUMINUM CASES—THE REAL TRADE WAR BEGINS

President Trump must make a decision in the Section 232 National Security Cases against imports of steel and aluminum by April 11, 2018 in the Steel Case and April 19, 2018 in the Aluminum case. This article will concentrate on the Steel 232 case and mention Aluminum at the end because the Steel case is bigger, but both cases will have devastating consequences on downstream US producers and through retaliation on US exports.  Truthfully, if President Trump does what Commerce Secretary Ross is recommending and imposes very high tariffs on imports of steel and aluminum, he will ignite a trade war with many other countries, which will become red hot.  This will be a shooting trade war with retaliation aimed at US exports and this protectionism will become destructionism—killing US jobs.

Trump’s decisions in these two Section 232 cases will give us a much better idea of whether President Trump wants a trade war or not.  Both the EC, China and other countries are drawing up retaliation lists aimed at US exports of various products.

As background, on April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, Section 232 Investigation on the Effect of Imports of Steel on U.S Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.

Under the terms of the executive order, the interagency group was to present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.

Since the Secretary reported affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security” – – April 11, 2018 in the Steel Case and April 19, 2018 in the Aluminum case.

Although Commerce Secretary Wilbur Ross pledged to get the Section 232 Steel and Aluminum reports to President Trump’s desk by the end of June 2017, that did not happen as the Administration began to realize the impact a broad tariff on steel or aluminum raw material inputs would have on downstream users, which are dependent on high quality, competitively priced raw materials to produce competitive downstream products made from steel and aluminum.

On February 16, 2018, Commerce Secretary Wilbur Ross released to the public the attached Section 232 National Security reports on Steel and Aluminum, Section 232 Reports _ Department of Commerce the_effect_of_imports_of_aluminum_on_the_national_security_-_with_redactions_-_20180117 the_effect_of_imports_of_steel_on_the_national_security_-_with_redactions_-_20180111.  These Reports recommend substantial Import restraints on imports of steel and aluminum.  In the attached statement accompanying the reports, Section 232 Reports _ Department of Commerce, Secretary Ross stated:

“I am glad that we were able to provide this analysis and these recommendations to the President.  I look forward to his decision on any potential course of action.”

In response to questions of whether the US would be vulnerable to challenges in the WTO, Ross said he would not be surprised if some countries filed World Trade Organization challenges, but he was confident that the United States was on firm legal ground.  Ross went on to state:

“National security is a very broadly encompassing topic … it is not just the narrow definition of defense needs, it also covers infrastructure needs and other needs.  So we believe and our counsel believes that this is a perfectly valid interpretation of national security the way that it’s used in Section 232, which is much broader than you might think in terms of usual parlance.”

STEEL REPORT AND RECOMMENDATIONS

The Commerce Department statement accompanying the Steel Report summarizes the findings and sets out the remedies recommended by the Department:

“The Department of Commerce found that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security,” as defined by Section 232.

The reports are currently under consideration by the President, and no final decisions have been made with regard to their contents. The President may take a range of actions, or no action, based on the analysis and recommendations provided in the reports. Action could include making modifications to the courses of action proposed, such as adjusting percentages.

STEEL SUMMARY

The Commerce Department statement accompanying the Steel Report summarized the Key Findings of the Steel Report as follows:

The United States is the world’s largest importer of steel. Our imports are nearly four times our exports.

Six basic oxygen furnaces and four electric furnaces have closed since 2000 and employment has dropped by 35% since 1998.

World steelmaking capacity is 2.4 billion metric tons, up 127% from 2000, while steel demand grew at a slower rate.

The recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption. China is by far the largest producer and exporter of steel, and the largest source of excess steel capacity. Their excess capacity alone exceeds the total U.S. steel-making capacity.

On an average month, China produces nearly as much steel as the U.S. does in a year. For certain types of steel, such as for electrical transformers, only one U.S. producer remains.

As of February 15, 2018, the U.S. had 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China, and there are 25 ongoing investigations.

Recommendations of the Steel Report:

Secretary Ross has recommended to the President that he consider the following alternative remedies to address the problem of steel imports:

A global tariff of at least 24% on all steel imports from all countries, or

A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or

A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.

Each of these remedies is intended to increase domestic steel production from its present 73% of capacity to approximately an 80% operating rate, the minimum rate needed for the long-term viability of the industry. Each remedy applies measures to all countries and all steel products to prevent circumvention.

The tariffs and quotas would be in addition to any duties already in place. The report recommends that a process be put in place to allow the Secretary to grant requests from U.S. companies to exclude specific products if the U.S. lacks sufficient domestic capacity or for national security considerations.

Any exclusions granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect.”

ACTUAL SECTION 232 STEEL REPORT

In the actual Section 232 Steel report itself, the Department stated:

“CONCLUSION

The Secretary has determined that the displacement of domestic steel by excessive imports and the consequent adverse impact of those quantities of steel imports on the economic welfare of the domestic steel industry, along with the circumstance of global excess capacity in steel, are “weakening our internal economy” and therefore “threaten to impair” the national security as defined in Section 232.

The continued rising levels of imports of foreign steel threaten to impair the national security by placing the U.S. steel industry at substantial risk of displacing the basic oxygen furnace and other steelmaking capacity, and the related supply chain needed to produce steel for critical infrastructure and national defense.

In considering “the impact of foreign competition on the economic welfare of individual domestic [steel] industries” and other factors Congress expressly outlined in Section 232, the Secretary has determined that the continued decline and concentration in steel production capacity is “weakening of our internal economy and may impair national security.” See 19 U.S.C. § 1862(d).

Global excess steel capacity is a circumstance that contributes to the “weakening of our internal economy” that “threaten[s] to impair” the national security as defined in Section 232. Free markets globally are adversely affected by substantial chronic global excess steel production led by China. While U.S. steel production capacity has remained flat since 2001, other steel producing nations have increased their production capacity, with China alone able to produce as much steel as the rest of the world combined. This overhang of excess capacity means that U.S. steel producers, for the foreseeable future, will face increasing competition from imported steel as other countries export more steel to the United States to bolster their own economic objectives.

Since defense and critical infrastructure requirements alone are not sufficient to support a robust steel industry, U.S. steel producers must be financially viable and competitive in the commercial market to be available to produce the needed steel output in a timely and cost efficient manner. In fact, it is the ability to quickly shift production capacity used for commercial products to defense and critical infrastructure production that provides the United States a surge capability that is vital to national security, especially in an unexpected or extended conflict or national emergency. It is that capability which is now at serious risk; as imports continue to take business away from domestic producers, these producers are in danger of falling below minimum viable scale and are at risk of having to exit the market and substantially close down production capacity, often permanently.

Steel producers in the United States are facing widespread harm from mounting imports. Growing global steel capacity, flat or declining world demand, the openness of the U.S. steel market, and the price differential between U.S. market prices and global market prices (often caused by foreign government steel intervention) ensures that the U.S. will remain an attractive market for foreign steel absent quotas or tariffs. Excessive imports of steel, now consistently above 30 percent of domestic demand, have displaced domestic steel production, the related skilled workforce, and threaten the ability of this critical industry to maintain economic viability.

A U.S. steel industry that is not financially viable to invest in the latest technologies, facilities, and long-term research and development, nor retain skilled workers while attracting a next-generation workforce, will be unable to meet the current and projected needs of the U.S. military and critical infrastructure sectors. Moreover, the market environment for U.S. steel producers has deteriorated dramatically since the 2001 Report, when the Department concluded that imports of iron ore and semi-finished steel do not “fundamentally threaten” the ability of U.S. industry to meet national security needs.

The Department’s investigation indicates that the domestic steel industry has declined to a point where further closures and consolidation of basic oxygen furnace facilities represents a “weakening of our internal economy” as defined in Section 232.  The more than 50 percent reduction in the number of basic oxygen furnace facilities – either through closures or idling of facilities due to import competition – increases the chance of further closures that place the United States at serious risk of being unable to increase production to the levels needed in past national emergencies. The displacement of domestic product by excessive imports is having the serious effect of causing the domestic industry to operate at unsustainable levels, reducing employment, diminishing research and development, inhibiting capital expenditures, and causing a loss of vital skills and know-how. The present capacity operating rates for those remaining plants continue to be below those needed for financial sustainability. These conditions have been further exacerbated by the 22 percent surge in imports thus far in 2017 compared with 2016. Imports are now consistently above 30 percent of U.S. domestic demand.

It is evident that the U.S. steel industry is being substantially impacted by the current levels of imported steel. The displacement of domestic steel by imports has the serious effect of placing the United States at risk of being unable meet national security requirements. The Secretary has determined that the “displacement of domestic [steel] products by excessive imports” of steel is having the “serious effect” of causing the “weakening of our internal economy.” See 19 U.S.C. § 1862(d). Therefore, the Secretary recommends that the President take corrective action pursuant to the authority granted by Section 232. See 19 U.S.C. § 1862(c).

RECOMMENDATION

Prior significant actions to address steel imports (quotas and/or tariffs) were taken under various statutory authorities . . . all at lower levels of import penetration than the present level, which is above 30 percent.

Due to the threat of steel imports to the national security, as defined in Section 232, the Secretary recommends that the President take immediate action by adjusting the level of imports through quotas or tariffs on steel imported into the United States, as well as direct additional actions to keep the U.S. steel industry financially viable and able to meet U.S. national security needs. The quota or tariff imposed should be sufficient, after accounting for any exclusions, to enable the U.S. steel producers to be able to operate at about an 80 percent or better of the industry’s capacity utilization rate based on available capacity in 2017. . . .

By reducing import penetration rates to approximately 21 percent, U.S. industry would be able to operate at 80 percent of their capacity utilization. Achieving this level of capacity utilization based on the projected 2017 import levels will require reducing imports from 36 million metric tons to about 23 million metric tons. If a reduction in imports can be combined with an increase in domestic steel demand, as can be reasonably expected rising economic growth rates combined with the increased military spending and infrastructure proposals that the Trump Administration has planned, then U.S. steel mills can be expected to reach a capacity utilization level of 80 percent or greater. This increase in U.S. capacity utilization will enable U.S. steel mills to increase operations significantly in the short-term and improve the financial viability of the industry over the long-term.

Recommendation to Ensure Sustainable Capacity Utilization and Financial Health

Impose a Quota or Tariff on all steel products covered in this investigation imported into the United States to remove the threatened impairment to national security. The Secretary recommends adjusting the level of imports through a quota or tariff on steel imported into the United States.

Alternative 1 – Global Quota or Tariff

1A.      Global Quota

Impose quotas on all imported steel products at a specified percent of the 2017 import level, applied on a country and steel product basis.

According to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 63 percent quota would be expected to reduce steel imports by 37 percent (13.3 million metric tons) from 2017 levels. Based on imports from January to October, import levels for 2017 are projected to reach 36.0 million metric tons. The quotas, adjusted as necessary, would result in imports equaling about 22.7 million metric tons, which will enable an 80 percent capacity utilization rate at 2017 demand levels (including exports). Application of an annual quota will reduce the impact of the surge in steel imports that has occurred since the beginning of 2017.

1B.      Global Tariff

Apply a tariff rate on all imported steel products, in addition to any antidumping or countervailing duty collections applicable to any imported steel product.

Similar to what is anticipated under a quota, according to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 24 percent tariff on all steel imports would be expected to reduce imports by 37 percent (i.e., a reduction of 13.3 million metric tons from 2017 levels of 36.0 million metric tons). This tariff rate would thus result in imports equaling about 22.7 million metric tons, which will enable an 80 percent capacity utilization rate at 2017 demand levels (including exports).

Alternative 2 –Tariffs on a Subset of Countries

Apply a tariff rate on all imported steel products from Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia and Costa Rica, in addition to any antidumping or countervailing duty collections applicable to any steel products from those countries. All other countries would be limited to 100 percent of their 2017 import level.

According to the Global Trade Analysis Project (GTAP) Model, produced by Purdue University, a 53 percent tariff on all steel imports from this subset of countries would be expected to reduce imports by 13.3 million metric tons from 2017 import levels from the targeted countries. This action would enable an increase in domestic production to achieve an 80 percent capacity utilization rate at 2017 demand levels (including exports). The countries identified are projected to account for less than 4 percent of U.S. steel exports in 2017.

Exemptions

In selecting an alternative, the President could determine that specific countries should be exempted from the proposed 63 percent quota or 24 percent tariff by granting those specific countries 100 percent of their prior imports in 2017, based on an overriding economic or security interest of the United States. The Secretary recommends that any such determination should be made at the outset and a corresponding adjustment be made to the final quota or tariff imposed on the remaining countries. This would ensure that overall imports of steel to the United States remain at or below the level needed to enable the domestic steel industry to operate as a whole at an 80 percent or greater capacity utilization rate. The limitation to 100 percent of each exempted country’s 2017 imports is necessary to prevent exempted countries from producing additional steel for export to the United States or encouraging other countries to seek to trans-ship steel to the United States through the exempted countries.

It is possible to provide exemptions from either the quota or tariff and still meet the necessary objective of increasing U.S. steel capacity utilization to a financially viable target of 80 percent. However, to do so would require a reduction in the quota or increase in the tariff applied to the remaining countries to offset the effect of the exempted import tonnage.

Exclusions

The Secretary recommends an appeal process by which affected U.S. parties could seek an exclusion from the tariff or quota imposed. The Secretary would grant exclusions based on a demonstrated: (1) lack of sufficient U.S. production capacity of comparable products; or (2) specific national security based considerations. This appeal process would include a public comment period on each exclusion request, and in general, would be completed within 90 days of a completed application being filed with the Secretary.

An exclusion may be granted for a period to be determined by the Secretary and may be terminated if the conditions that gave rise to the exclusion change. The U.S. Department of Commerce will lead the appeal process in coordination with the Department of Defense and other agencies as appropriate. Should exclusions be granted the Secretary would consider at the time whether the quota or tariff for the remaining products needs to be adjusted to increase U.S. steel capacity utilization to a financially viable target of 80 percent.”

RETALIATION??

On February 17, 2018, the Chinese government threatened retaliation if President Trump imposes import restrictions on steel imports.  On February 20, 2018, EC officials stated that they would react “swiftly and appropriately” to Section 232 tariffs placed on EC steel imports into the US.  See https://www.express.co.uk/news/world/921415/harley-davidson-jack-daniels-trade-sanctions-european-union-trade-war-us.

Two of the EC retaliation targets would be Harley Davidson motorcycles and Jack Daniels Bourbon.

WILL PRESIDENT TRUMP IMPOSE IMPORT RESTRICTIONS IN THE SECTION 232 STEEL CASE BY APRIL 11?

My firm belief is that Trump will impose import restraints and the only question is how tough they will be.  Although other commentators have suggested that President Trump might punt and bring a WTO case or more antidumping and countervailing duty cases, my belief is that President Trump wants to levy tariffs because that is what he promised his base. “Damn the torpedoes full speed ahead”.  Trump also believes that all steel imported into the US is dumped and subsidized as the Commerce Department finds dumping and subsidization in almost 100% of the cases.

On February 13th, Breitbart in an article entitled “Chinese Steel Dumping Takes Center Stage as President Trump Mulls Tariffs, Quotas” quoted President Trump in a meeting at the White House with both parties in the House and the Senate:

“Last year, I directed the Secretary of Commerce to investigate whether steel and aluminum imports are threatening to impair U.S. national security,” Trump said. “You see what’s happened with our steel and aluminum industries. They are being decimated by dumping from many countries—in particular one, but many countries.”

That “particular one” Trump was referring to is China. Trump said:

“They are dumping and destroying our industry and destroying the families of workers and we can’t let that happen. Secretary Ross submitted the result of the investigation to me last month. My administration is now reviewing the reports and considering all options. Part of the options would be tariffs coming in as they dump steel, they pay tariffs—substantial tariffs—and the United States would actually make a lot of money, and probably our steel industry and our aluminum industry would come back into our country. Right now, it’s decimated. It will make a decision and I will make a decision that reflects the best interests of the United States including the need to address over-production in China and other countries. You have countries that are so over-producing and what they’re doing is they’re dumping it on us and you look at what empty steel factories and plants and it’s a very sad thing to look at. I’ve been looking at it for two years as I went around campaigning.”

But on February 13th, International Trade 360 in an article entitled, “Lawmakers Caution Trump On Steel Trade Restrictions,” reported:

“A bipartisan group of 19 lawmakers from both chambers of Congress met with Trump at the White House, in a session that was slated to take place behind closed doors before it was abruptly opened up to media members. During the meeting, Trump made clear he is still actively considering import curbs on steel and aluminum in a pair of closely watched cases.

“I want to keep prices down, but I also want to make sure that we have a steel industry and an aluminum industry, and we do need that for national defense. If we ever have a conflict, we don’t want to be buying steel for a country we are fighting … What we are talking about is tariffs and/or quotas,” he said at the meeting. . . .

Though the statute is meant to exclusively address a security threat, the administration has repeatedly signaled that it may use the law as a cudgel against unfairly traded goods. Trump did this again during Tuesday’s meeting, saying that foreign steel and aluminum producers are “dumping and decimating our industries.”

While domestic steel and aluminum producers have repeatedly urged the administration to move forward with steep import restrictions, downstream manufacturers and other stakeholders have preached caution.

Leading that charge at Tuesday’s meeting was Sen. Roy Blunt, R-Mo., who said that the president must thread a delicate needle.

“We need to be careful here that we don’t start a reciprocal battle on tariffs,” Blunt said. “We make aluminum, and we make steel in Missouri, but we buy a lot of aluminum, and we buy a lot of steel as well.”

In one exchange, Sen. Pat Toomey (R‐Pa.) pressed Trump to move “very, very cautiously” and to only go after countries that engage in unfair trading practices. “That’s all countries,” Trump replied.

Sen. Pat Toomey, R-Pa., echoed Blunt’s concerns, urging the president to “go very, very cautiously here.”

In another, Sen. Mike Lee (R‐Utah) warned that restrictions could cost jobs in other industries, but the president dismissed his concerns. “It will create a lot of jobs,” Trump said.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, gave an even blunter assessment of the situation. He likened the Section 232 process to the use of “old- fashioned chemotherapy,” remarking that “it can often do as much damage as good.”

As other lawmakers warned that any tariff hikes or other restrictions could ultimately raise prices on consumers, Trump seemed mostly undeterred, opting instead to focus on the steel and aluminum production jobs such a move might salvage.

“You may have a higher price, but you have jobs,” he said.

“If we ever have a conflict, we don’t want to be buying steel from a country that we’re fighting because somehow that doesn’t work very well,” Trump said at the meeting. “We hopefully will not have any conflicts but … we cannot be without a steel industry. We cannot be without an aluminum industry. So what we’re talking about is tariffs and/or quotas.”

On February 19, 2018, in an editorial the Wall Street Journal warned President Trump on the Section 232 Cases:

“How to Punish American Workers

Steel and aluminum tariffs would cost more jobs than they save.

The economy is picking up steam, but President Trump could reduce the benefits of his tax cuts and regulatory rollback with protectionism. This risk became more serious after the Commerce Department on Friday recommended broad restrictions on aluminum and steel imports that would punish American businesses and consumers. . . .

But the evidence in Commerce’s reports belies this conclusion. And the wide-ranging economic damage from restricting imports would overwhelm the narrow benefits to U.S. steel and aluminum makers.

Start with national security, which Commerce construes broadly to include “economic welfare.” There’s little risk that the U.S. couldn’t procure sufficient steel and aluminum for defense even during a war. Defense consumes 3% of U.S.-made steel and about one-fifth of high-purity aluminum. U.S. steel mills last year operated at 72% of capacity while aluminum smelters ran at 39%. Both have ample slack to raise production for defense and commercial demands. . . .

Commerce nonetheless complains that China has driven down steel and aluminum prices by flooding the global market. Yet Commerce has already imposed 164 anti-dumping and countervailing duties on steel imports including more than two dozen on China. The department has also slapped tariffs on Chinese aluminum. Despite these tariffs, Commerce says rising imports “continue to weaken the U.S. steel industry’s financial health.”

Perhaps Mr. Ross missed the domestic manufacturers’ rosy earnings reports last month. Nucor ’s earnings soared by two-thirds in 2017 to $1.3 billion amid a 35% spike in the price of scrap metal. Steel Dynamics reported record sales, income and shipments last year. Even U.S. Steel posted a $387 million profit after a $440 million loss in 2016. Tariffs have padded profits amid growing U.S. demand.

As for aluminum, 18 smelters have shut down over the last decade amid rising electricity and declining aluminum prices. But production of secondary aluminum from scrap metal has been increasing, resulting in a 3% increase in employment across the industry between 2013 and 2016.

As a remedy for this non-problem, Commerce is proposing a global tariff of 24% on all steel imports; a 53% tariff on a dozen countries including China, Turkey and South Korea; or a global quota equaling 63% of existing imports. For aluminum, Commerce wants a global tariff of 7.7%; a 23.6% tariff on imports from China, Hong Kong, Russia, Venezuela, and Vietnam; or a global quota equal to 86.7% of imports.

Each option would raise prices for U.S. industries such as construction, transportation and mining. About 16 times more workers are employed today in U.S. steel-consuming industries than the 140,000 American steelworkers. Economists Joseph Francois and Laura Baughman found that more U.S. workers lost jobs (200,000) due to George W. Bush’s 2002 steel tariffs than were employed by the entire steel industry (187,500) at the time. Job losses hit Ohio (10,553 jobs lost), Michigan (9,829) and Pennsylvania (8,400).

About a quarter of a car’s cost is tied to steel, which is also a key component of domestically-produced wood chipper knives used in lumber, sawmills and landscaping. The oil-and-gas industry uses steel in drilling equipment, pipelines, production facilities, terminals and refineries. Aluminum inputs make up nearly half of the cost of a beer can.

Raising the cost of steel and aluminum inputs would impel many manufacturers to move production abroad to stay competitive globally. Does Mr. Trump want more cars made in Mexico? Mr. Ross has suggested letting businesses petition the government to exclude certain steel and aluminum products from the quotas or tariffs. But this review would be politicized and cause production delays.

Oh, and don’t forget that other countries could retaliate with trade barriers that hurt American exporters.

Commerce’s recommendations aren’t needed since the steel and aluminum industries are benefiting tremendously from Mr. Trump’s economic agenda. Tax reform is making it less expensive to retool mills, increased defense spending will also lift demand, and the Environmental Protection Agency’s withdrawal of the Obama Clean Power Plan contains electric prices. Why would Mr. Trump undercut his achievements with trade barriers that harm American workers and consumers?”

RETALIATION TARGETS ARE BEING PLANNED

EUROPEAN UNION

Axel Eggert, director general of the EUROFER steel lobby, warned the U.S. not to “pull the trigger on a new trade war,” adding: “The EU has an arsenal of trade remedies and safeguards available to defend its interests. These can be ready to launch in very short order in response to an economic threat, and EU industry will demand their immediate application.”

Gerd Götz, director general of the European Aluminum association, said that none of Ross’ proposed measures would address the root of the problem, which is Chinese overproduction, but instead do “great harm to Europe” ‐ to which the EU would then have to react by imposing trade restrictions, too.  Gotz stated: “We call on the EU to be ready to protect our strategic sectors.”

US GROUPS RAISE RETALIATION CONCERNS

“Business Roundtable also stated that it is concerned that acting on the Commerce Department’s recommendations to use Section 232 to restrict steel and aluminum imports will result in foreign retaliation against U.S. exporters and harm the U.S. economy.

The American Automotive Policy Council, which represents Ford, General Motors and Chrysler‐Fiat, asked Trump to fashion a solution that won’t “diminish the global competitiveness of America’s automotive industry” by leading American carmakers to pay higher prices for steel and aluminum. This would place the U.S. automotive industry, which supports more than 7 million American jobs, at a competitive disadvantage.”

The American Institute for International Steel, which represents foreign steel producers, made the same point and urged Trump to reject Ross’ recommendations, rather than “risk the nation’s well‐being in order to benefit a few politically favored companies.”

AIIS Chairman John Foster stated:

“The national security foundation for the recommended tariffs and quotas is simply an unfortunate attempt to circumvent normally applicable WTO rules.  If the United States chooses to abandon long‐standing principles of free trade that we have helped establish, and that have contributed so much to our national prosperity, Pandora’s box will be opened, and other countries will be sure to assert ‘national security’ reasons for protecting many other politically sensitive products from export competition.

The retaliatory measures that will follow will drive up manufacturing costs, inflate prices, shrink high‐value U.S. exports, and push the United States and the world toward recession.”

On February 21st, in Investors Business Daily in a op-ed piece entitled “Seriously, Steel Industry Protection Is The Wrong Way To Go“, Vernonique de Rugy and Christine A. McDaniel stated:

Their justification is that Chinese and other foreign steel producers benefit from unfair subsidies in their own countries. As a result of foreign competition, domestic steel’s market share is down to 70%. Numbers like this would make any other business owner’s head spin, but these executives think they deserve more. . . .

But for years this industry has avoided competition. As a result, they have not taken the tough steps needed to lean up and succeed on their own. With decades of special protections, billions in subsidies, and bloated executive compensation packages, it is no wonder U.S. producers are not competitive in this market with a low-wage country like China.

Thanks to his statements like last summer’s “Tariffs. I want tariffs,” these well- organized domestic steel executives see an opportunity with a president overly sympathetic to their pleas.

In an ideal world, no government would bankroll domestic companies. The urge to protect our own people against aggressive foreign subsidies is understandable, but not all protections actually help our country.

In particular, import taxes are known to be a net negative for the overall U.S. economy, and with intermediate inputs like steel the costs are more severe. Data from the Bureau of Labor Statistics show that 5.4 million workers are directly employed by steel-using sectors. The American Iron and Steel Institute reports that the steel industry directly employs 140,000 people in the United States. . . .

The steel industry’s historic unwillingness to compete and the government’s continued handouts are why they are in such poor shape today. It is why they are at the doorstep of the White House yet again asking the president, along with every American consumer, for help.

It doesn’t have to be this way.

ALUMINUM

The full Section 232 Commerce report on aluminum is attached, the_effect_of_imports_of_aluminum_on_the_national_security_-_with_redactions_-_20180117.  The attached Commerce Department Summary statement on the Aluminum report, Section 232 Reports _ Department of Commerce, states as follows:

Key Findings of the Aluminum Report:

Aluminum imports have risen to 90% of total demand for primary aluminum, up from 66% in 2012. From 2013 to 2016 aluminum industry employment fell by 58%, 6 smelters shut down, and only two of the remaining 5 smelters are operating at capacity, even though demand has grown considerably.

At today’s reduced military spending, military consumption of aluminum is a small percentage of total consumption and therefore is insufficient by itself to preserve the viability of the smelters. For example, there is only one remaining U.S. producer of the high-quality aluminum alloy needed for military aerospace. Infrastructure, which is necessary for our economic security, is a major use of aluminum.

The Commerce Department has recently brought trade cases to try to address the dumping of aluminum. As of February 15, 2018, the U.S. had two antidumping and countervailing duty orders in place on aluminum, both against China, and there are four ongoing investigations against China.

Recommendations of the Aluminum Report:

Secretary Ross has recommended to President Trump three alternative remedies for dealing with the excessive imports of aluminum. These would cover both aluminum ingots and a wide variety of aluminum products.

A tariff of at least 7.7% on all aluminum exports from all countries, or

A tariff of 23.6% on all products from China, Hong Kong, Russia, Venezuela and Vietnam. All the other countries would be subject to quotas equal to 100% of their 2017 exports to the United States, or

A quota on all imports from all countries equal to a maximum of 86.7% of their 2017 exports to the United States.

Each of the three proposals is intended to raise production of aluminum from the present 48% average capacity to 80%, a level that would provide the industry with long-term viability. Each remedy applies measures to all countries and all steel products to prevent circumvention.

The tariffs and quotas would be in addition to any duties already in place. The report recommends that a process be put in place to allow the Secretary to grant requests from U.S. companies to exclude specific products if the U.S. lacks sufficient domestic capacity or for national security considerations.

Any exclusions granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect.

SECTION 201 ESCAPE CLAUSE SOLAR CELLS/WASHING MACHINE DECISIONS

On January 22, 2018 the United States Trade Representative’s office (“USTR”) announced affirmative Section 201 decisions in the Solar Cells and Washing Machines cases and issued tariffs.

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

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

SOLAR CELLS

In the Solar Cells case, the remedy is:

Safeguard Tariffs on Imported Solar Cells and Modules
Year 1 Year 2 Year 3 Year 4
Tariff increase 30% 25% 20% 15%
  • First 2.5 gigawatt of imported cells are excluded from the additional tariff

But in talking to one small solar cell importer, at the most during the year they import a total of 1 megawatt.  This tells me that the new tariffs first will not be retroactive and second probably will kick in after several months each year, when total imports reach the 2.5 Gigawatt level.  According to the Presidential Proclamation, however, the 30% tariff wasapplied to imports starting February 7, 2018.

The 201 tariffs are applicable to imports from almost all countries, including China, Malaysia, Germany, Canada and Mexico, except for the countries excluded in the Annex attached to the Presidential Proclamation.  In future years, when total imports of solar cells and modules reach the 2.5 gigawatt level, the new tariff kicks in.  So, for example, if total imports of solar cells and modules into the US reach the 2.5 gigawatt level on May 15, 2019, imports after that will be hit with a tariff.

WASHING MACHINES

The Washing Machines Remedy is set forth below.  This is similar to the Solar Cells Remedy in the sense that the first 1.2 million washers will have a lower tariff and the higher tariff will not kick in until after total imports reach the 1.2 million unit level.

Also 50,000 units of covered parts are excluded from the tariff.

Tariff-Rate Quotas on Washers
Year 1 Year 2 Year 3
First 1.2 million units of imported

finished washers

20% 18% 16%
All subsequent imports of finished

washers

50% 45% 40%
Tariff of covered parts 50% 45% 40%
Covered parts excluded from tariff 50,000 units 70,000 units 90,000 units

So the point of both remedies is import quickly into the US market.  The first imports into the country in the Solar Cells case will have no tariff and in the Washing Machines case will have a lower tariff.

JANUARY 25 PRESIDENTIAL PROCLAMATION AND EXCLUSION NOTICE IN FEDERAL REGISTER

On January 25th, the Solar Cells Presidential Proclamation with Annexes and exclusions was published in the attached Federal Register notice, FEDERAL REGISTER NOTICE PRESIDENTIAL PROCLAMATION SOLAR CELLS.  According to the Annex I (f), the 30% tariff was applied to imports starting February 7, 2018.

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

On February 14, 2018, the United States Trade Representative’s office (“USTR”) published the attached Federal Register notice, USTR EXCLUSION FED REG NOTICE, and allows companies to petition for exclusion by March 16.  The Federal Register also sets forth a number of exclusions, which were already set forth in the Proclamation.

EXCLUSIONS IN ANNEXES

Some of those exclusions are:

“Presidential Proclamation 9693 of January 23, 2018 (83 FR 3541) excluded certain particular products:

10 to 60 watt, inclusive, rectangular solar panels, where the panels have the following characteristics: (A) Length of 250 mm or more but not over 482 mm or width of 400 mm or more but not over 635 mm, and (B) surface area of 1000 cm2 or more but not over 3,061 cm2), provided that no such panel with those characteristics shall contain an internal battery or external computer peripheral ports at the time of entry;

1 watt solar panels incorporated into nightlights that use rechargeable batteries and have the following dimensions: 58 mm or more but not over 64 mm by 126 mm or more but not over 140 mm;

2 watt solar panels incorporated into daylight dimmers, that may use rechargeable batteries, such panels with the following dimensions: 75 mm or more but not over 82 mm by 139 mm or more but not over 143 mm;

Off-grid and portable CSPV panels, whether in a foldable case or in rigid form containing a glass cover, where the panels have the following characteristics: (a) A total power output of 100 watts or less per panel; (b) a maximum surface area of 8,000 cm2 per panel; (c) does not include a built-in inverter; and where the panels have glass covers, such panels must be in individual retail packaging (in this context, retail packaging typically includes graphics, the product name, its description and/or features, and foam for transport);

3.19 watt or less solar panels, each with length of 75 mm or more but not over 266 mm and width of 46 mm or more but not over 127 mm, with surface area of 338 cm2 or less, with one black wire and one red wire (each of type 22 AWG or 24 AWG) not more than 206 mm in length when measured from panel edge, provided that no such panel shall contain an internal battery or external computer peripheral ports;

27.1 watt or less solar panels, each with surface area less than 3,000 cm2 and coated across the entire surface with a polyurethane doming resin, the foregoing joined to a battery charging and maintaining unit, such unit which is an acrylonitrile butadiene styrene (‘‘ABS’’) box that incorporates a light emitting diode (‘‘LED’’) by coated wires that include a connector to permit the incorporation of an extension cable.”

Emphasis added.

One exclusion that many companies are looking at is “off-grid and portable CSPV panels”, but there are a number of conditions quoted above that must be met to exclude the products in question.

Also the February 14th notice set up a number of criteria that must be met to get any additional exclusion from the Order.

COUNTRIES REQUEST TRADE COMPENSATION AT THE WORLD TRADE ORGANIZATION (“WTO”) FOR SECTION 201 TARIFFS

Article 8.1 of the WTO Agreement on Safeguards, which includes Section 201 tariffs, requires countries proposing to impose a safeguard measure, like Trump’s restrictions on solar and washing machine imports, to compensate other WTO member countries for trade losses. That could be in the form of reduced duties on products of interest to those countries.

The EU, China, Taiwan and Korea have formally asked the U.S. to discuss compensation for trade losses due to President Donald Trump’s safeguard measures on solar cells.

If no agreement is reached on compensation within 30 days of their requests, the EU, China, Taiwan and South Korea can begin proceedings to impose retaliatory tariffs on the U.S. However, the parties would first need to prove to a WTO dispute settlement panel that the U.S. applied the restrictions in a way that violated the safeguards agreement.

In the past, the US has lost a number of Section 201 cases at the WTO for imposing tariffs in a manner that violated the safeguards agreement.

In addition, several Canadian solar manufacturers on Wednesday filed a case at the Court of International Trade in New York City challenging the Trump administration’s imposition of tariffs. The companies say the tariff violates NAFTA and they say the majority of the International Trade Commission found that Canadian solar manufacturers did not constitute a sufficient quantity of U.S. solar imports as to cause injury. They call on the court to enjoin the tariffs and then ask for an expedited resolution of the case.

SOLAR CELLS AND SOLAR PRODUCTS ANTIDUMPING/COUNTERVAILING DUTY CASES

POSSIBLE EXCLUSIONS??

The Commerce Department in the attached preliminary determination in late December, REVOCATION OF SOLAR CELLS ORDER, proposed to exclude certain small solar cells from the Antidumping and Countervailing Duty orders.  Specifically, the proposed exclusion is:

“Excluded from the scope of these orders are panels with surface area from 3,450 mm2 to 33,782 mm2 with one black wire and one red wire (each of type 22 AWG or 24 AWG not more than 206 mm in length when measured from panel extrusion), and not exceeding 2.9 volts, 1.1 amps, and 3.19 watts. No panel shall contain an internal battery or external computer peripheral ports.”

So exclusions are also happening from the AD and CVD orders.

2016-2017 SOLAR CELLS FROM CHINA ANTIDUMPING/COUNTERVAILING DUTY REVIEW INVESTIGATIONS

On February 23, 2018, Commerce published its attached Federal Register notice initiating the 2016-2017 Solar Cells Review Investigation, CHINA SOLAR CELLS REVIEW INITIATION NOTICE.  In that review, Quantity and Value Questionnaire responses are due at Commerce by March 6, 2018.

NEW SECTION 232 CASE AGAINST URANIUM IMPORTS

On January 16th, Ur-Energy USA Inc. and Energy Fuels Resources Inc. filed a section 232 petition at Commerce claiming that imports of uranium from state-owned and state-subsidized companies in Russia, Kazakhstan and Uzbekistan now fulfill 40 percent of U.S. demand, compared to the less than 5 percent satisfied by U.S. production. The Denver-based companies claim that imports from China will grow in the coming years. The companies also argue the volume of imports from Russia will only grow after a decades-old agreement that restricted imports from that country in exchange for suspending anti-dumping duties expires in 2020.  The Petition states:

“The U.S. uranium industry needs immediate relief from imports that have grown dramatically and captured almost 80% of annual U.S. uranium demand. Our country cannot afford to depend on foreign sources — particularly Russia, and those in its sphere of influence, and China — for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America’s nuclear Navy, and supplies 20% of the nation’s electricity.”

ITC STUNNER—BOEING LOSES INJURY CASE IN BOMBADIER CIVIL AIRCRAFT CASE AT INTERNATIONAL TRADE COMMISSION (“ITC”)

In the attached decision, ITC-Public-Opinion-Aircraft, on February 13, 2018, in a stunning reversal, the ITC reached a negative, no injury, determination in the Civil Aircraft from Canada/Bombardier antidumping and countervailing duty cases.  In those cases, the Commerce Department had determined that the Canadian government had given subsidies of over 200% to Bombardier and because Bombardier refused to participate at the Commerce Department in the antidumping case, very high dumping margins.

But for the Commerce Department to issue antidumping and countervailing duty orders and for Boeing to win the Antidumping (“AD”) and Countervailing Duty (“CVD”) cases, it had to win the injury case at the ITC.  The ITC found no competition between the Canadian imports and Boeing’s planes and reached a negative, no injury, determination.  When Boeing lost the case at the ITC, it truly lost the case.  The case was terminated and over with.

Prior to the ITC determination, I had predicted that there was a 95% chance that ITC would reach an affirmative, injury determination.  What was the basis for my prediction and why did I get it wrong?  The ITC reaches injury/affirmative determinations in about 2/3 of the cases or about 66%.  But in big ticket cases, like Steel, Lumber and other cases, the ITC goes affirmative in a vast majority of them.  Also in this case, Bombardier had refused to participate in the AD case at Commerce.  That is not looked on kindly by the ITC Commissioners.

But the February 13th decision by the ITC was a true shocker and a real Boeing loss.  One Commissioner, Williamson, is very pro domestic industry.  In many cases where the ITC reaches a negative, no injury, determination, Commissioner Williamson will vote with the domestic industry.  But the ITC decision was a 4-0 unanimous no injury determination.  Why and what does this decision stand for?

First, pursuant to the Statute, the ITC is made up of 6 Commissioners, no more than 3 Commissioners from the same political party.  Right now, however, there are only 4 Commissioners on the ITC and none were appointed by President Trump.  3 Commissioners were appointed by President Obama and Commissioner Williamson originally was appointed by President George W. Bush.

The ITC is a very independent agency, possibly the most independent agency in the US Government because under the Constitution Congress controls trade, not the President.  So Congress wanted its own trade agency and it set up the ITC.  The ITC’s budget goes directly to Congress and does not go through the Administration’s Office of Management and Budget, and the ITC in contrast to every other government agency has the right to represent itself in Court.

The point being is that the ITC is very insulated from trade politics and President Trump has no direct control over the agency.  But more importantly, the ITC’s decision in the Boeing case was a legal determination.  When you read the ITC’s determination, it becomes very clear that the ITC found that imports of 100 to 150 seat aircraft from Canada did not compete with Boeing’s aircraft because Boeing produces bigger airplanes.  Because there were so very few sales in the case, the Commission could zero in on those few sales to Delta.  Based on those sales, the ITC simply could not find enough economic competition between the Canadian imports and Boeing’s planes to justify an affirmative injury determination.

As the Commission stated in certain relevant pages of its determination:

“Nevertheless, the record also shows that the higher standard seating capacity of the [Boeing] 737-700 and 737 MAX 7 limits competition between those models and the [BOMBARDIER] CS100 for some purchasers. Boeing has emphasized that airlines have a strong economic incentive to minimize empty seats by using LCA that are no larger than necessary on particular flights because using an LCA with more seats than required would result in unfilled seats, higher costs per seat, and lower profits. Respondents agree. In a standard two-class configuration, the seat count differential between the CS100 and the 737 MAX 7 is 30 seats, which is greater than the 24 seat differential between the 737 MAX 7 and the 737-800 that Boeing characterizes as significant “for airlines that try to fill every seat on every flight they operate.” Given this, there can be limited competition between the CS100 and the 737-700 and MAX 7 for sales to a purchaser seeking 100- to 150-seat LCA with a seat count toward the low end of the subject range.

The record shows that differences in seat count precluded competition between subject imports and the domestic like product for the only firm order for C Series LCA by a U.S. purchaser. . . .

In sum, we find that there is a likelihood of substantially increased subject import volume and market share based on Bombardier’s single sale for importation of subject planes during the period of investigation. Given that Boeing’s 100- to 150-seat LCA did not meet the purchaser’s requirements for this sale, however, and Boeing did not offer any new aircraft for this sale, we do not find that Bombardier secured this sale at Boeing’s expense. There is also insufficient evidence for us to conclude that Bombardier is likely to secure additional sales for importation of subject 100- to 150-seat LCA in the imminent future, or that any purchases of subject imports in the imminent future would likely be at the domestic industry’s expense. . . .

Based on the preceding considerations, we conclude that subject imports are not likely to have a significant adverse impact on the domestic industry in the imminent future. It is likely that any subject imports that enter in the imminent future would be the result of Bombardier’s single U.S. sale during the period of investigation for which Boeing was not directly competitive. Bombardier has not made any additional sales in the United States. There is insufficient evidence for us to conclude that additional orders for 100- to 150-seat LCA are imminent, that Bombardier would secure these orders, or that any orders secured by Bombardier would come at Boeing’s expense. We are mindful of the statutory requirement that a threat determination may not be made on the basis of mere conjecture or supposition, and thus do not find threat of material injury by reason of subject imports.

  1. Conclusion

For the reasons stated above, we determine that an industry in the United States is not threatened with material injury by reason of imports of 100- to 150-seat LCA from Canada that are sold in the United States at less than fair value and that are subsidized by the GOC.”

Emphasis added.

TWO IMPORTANT POINTS ABOUT THE ITC DETERMINATOIN AND BOEING’S LOSS

The importance of the Boeing negative determination is to make two very important points.  First AD and CVD cases are not nearly as political as you would think.  They are legal determinations, and the ITC can reach a negative no injury determination and turn the entire case off.

The second point is that many respondents in trade cases, especially in China, India and elsewhere, do not understand how important the ITC is in AD and CVD proceedings.  Many respondents simply give up at the ITC.  Bombardier, however, fought the Boeing case during the entire proceeding and mobilized companies and governments to speak out at the ITC about the case in favor of the respondents.  This evened out the playing ground and made it easier for the ITC to reach a negative injury determination if it was inclined to do so.  Bombardier also made sure that there was enough evidence on the ITC’s administrative record to make sure the ITC had the evidence to reach a negative determination.

Although fighting an ITC case takes time, resources and a lot of money to hire lawyers and consultants, Bombardier’s win at the ITC is a total victory.  The case has ended and Boeing lost the case.

BOEING’S WTO FIGHT WITH AIRBUS COULD PROVIDE MORE TRADE RETALIATION

On February 11, 2018 the Seattle Times in an article entitledBoeing’s biggest trade fight could spark a U.S. confrontation with Europe” went on to state about the next big trade fight by Boeing against Airbus and the EC:

“Boeing’s lawyers, still smarting from the shock of losing their U.S. trade- court case against Bombardier’s C Series jets, are now awaiting an imminent ruling in a bigger trade fight over government subsidies.

In a case against Airbus that’s slogged on for nearly 15 years and has seemed endless, Boeing now insists it’s within sight of a final victory.

And though the dispute long predates President Donald Trump, his administration’s hard-nosed “America First” posture on trade disputes – ready to impose tariffs rather than negotiating settlements – adds a new edge of rancor and risk.

The U.S. filed suit against Airbus at the World Trade Organization (WTO) in 2004, and since then the gears of that court have ground slowly without any perceivable impact.

Yet Boeing’s top lawyer, Michael Luttig, said in an interview that the law is about to catch up with Airbus and the European Union (EU).

“Boeing committed itself some 15 years ago … and it has never blinked since,” said Luttig. “Today, we are months away from the imposition of tariffs.”

Airbus is staring back, also refusing to blink

A senior Airbus executive and trade lawyer, who asked not to be named because of the continuing legal proceedings, compared Luttig’s threat of tariffs to “a nuclear strike” and pointed to the parallel EU case before the WTO that accuses Boeing of taking subsidies.

“The EU would be well-prepared to respond in kind and with much greater force,” said the Airbus legal executive. “The EU will survive that first nuclear strike and will retaliate with megatons to the U.S.’s kilotons.”

In a speech in London last month, Airbus CEO Tom Enders said that under Trump, the U.S. is “no longer fighting for opening markets but to close the U.S. market to foreign competitors.”

Citing the CSeries case, he accused Boeing of “ruthlessly surfing on this ‘America-First’ wave.”

The risk that a multinational trade war could erupt with some of the nation’s closest allies looks suddenly higher.

A WTO endgame

In September 2016, after multiple procedural steps and appeals, the last ruling in the United States’ WTO case against Airbus found that the European jet maker had fallen far short of remedying the harm to Boeing from illegal subsidies.

The EU immediately appealed. What’s ahead this year, by late spring, is the final decision on that appeal.

Boeing’s lawyers expect the court to largely uphold the 2016 decision

And Boeing says, that’s it. It’s the end of the appeals.

If Airbus loses, said Bob Novick, Boeing’s outside counsel on the WTO dispute since 2003 and former general counsel to the U.S. Trade Representative, the U.S. would then immediately request authorization to impose retaliatory sanctions.  Boeing anticipates that the WTO will set the level of sanctions at $10 billion to $15 billion.

The U.S. government could then slap punitive tariffs up to that amount on whatever EU goods it selects for maximum political impact.

Boeing’s tough talk may be partly a negotiating ploy. Still, if the WTO hands this loaded weapon to the U.S. government, it’s unlikely the Trump administration’s trade hawks will be shy about using it.

Jeff Bialos, a partner in the international law firm Eversheds Sutherland and a former Commerce Department official handling major trade litigation, said that typically at such an endpoint in a trade dispute, the two governments would negotiate some agreed settlement.

“The issue is, will the Trump administration, with its views on trade . have the ability to negotiate solutions?” Bialos said. “The jury is out. We are going into uncharted waters.”

Bill Perry, a Seattle-based international trade lawyer with Harris Bricken and a former U.S. Commerce Department attorney, thinks Trump will take “a very hard line.”

He pointed to the administration’s imposition last month of tariffs on imported solar panels, to punish China for selling finished panels in the U.S. below their cost, and on washing machines, targeting Korean manufacturers.

“Could this be the first row of bricks in a protectionist wall Trump intends to put up?” Perry asked.

At the very least, the stage looks set for brinkmanship, if not an open trade war.

A duel with pistols drawn

Boeing lawyers expect the imminent threat of tariffs to focus minds in the EU and perhaps to precipitate settlement talks in which they would then have the upper hand.

The top Airbus executive warned that Boeing is on the hook for its own illegal subsidies in the parallel WTO case filed by the EU – and so whatever the U.S. does, the EU can and will match.

“Boeing can try for sanctions. And if they do, we will too,” he said.

In the EU case against Boeing, the last ruling in June found that Boeing had failed to remedy the harm to Airbus from just one set of subsidies: the tax reduction that was part of Washington state’s aerospace incentives.

Boeing has appealed that ruling.

An awkward detail for the EU is that its case against Boeing was filed as a countersuit some nine months after the U.S. filed against Airbus, and so it lags the U.S. case by roughly that amount of time.

The decision on Boeing’s appeal won’t come out until late this year or even next year.  In the meantime, the U.S. may act.  The Airbus executive dismissed the delay between the cases – “a few months” – as insignificant. He compared it to a pistol duel, where one person gets to fire first, but knows that the other will survive and will get a chance to fire back.

The EU will have plenty of ammunition, he contended. When the time comes to add up the compensation needed, he said the EU will count every airplane Boeing sells, including future sales. “Every sale of a 787 is a subsidized sale and every one will count against Boeing when judgment day comes,” the Airbus executive said.

Trade war consequences

If Boeing’s 15-year pursuit of Airbus at the WTO has been tenacious, the legal attack it launched on Bombardier last April was even more fiercely aggressive. And even though it failed, pushing the case had consequences for Boeing.

Geoffrey Geertz, a researcher on the politics of trade at the Washington, D.C.-based Brookings Institution, pointed out that in the Delta jet sale won by Bombardier’s CSeries that was central to the case, “there wasn’t much at stake” for Boeing because it wasn’t offering its own jets against the smaller aircraft.

Yet pursuing the case alienated both the Canadian and British governments, putting at risk large defense contracts, including a contract to supply Canada with F/A-18 jet fighters valued at more than $5 billion.  It also antagonized major commercial-airplane customer Delta. In a subsequent sales campaign in December that mattered much more to Boeing, Delta chose to go with Airbus when it bought100 larger planes.

“Boeing might be rethinking whether that was a miscalculation,” Geertz said.

An open trade war with major economic partners could be even more damaging, not only for Boeing but for the U.S.  That’s a belief central to traditional, pre-Trump Republican Party policy.

President Ronald Reagan in 1986 dismissed congressional demands for import tariffs as “flimflammery” and warned against the dangers of protectionism.

“The truth is these trade restrictions badly hurt economic growth,” Reagan said.

The unpredictable consequences of tariffs are evident in the case of REC Silicon, which produces polysilicon, a raw material used in making solar panels, at a $1.7 billion manufacturing plant in Moses Lake.

The Chinese solar-panel industry once imported polysilicon largely from the U.S.

But after an earlier round of the solar-panel trade fight, China in 2014 retaliated by imposing tariffs on U.S. polysilicon that forced REC to cut 500 jobs.

A letter sent to Trump by REC employees in early January said that “now the remaining jobs are at risk” and urged Trump to announce “a comprehensive settlement” with China.  Instead, Trump applied new tariffs. The risk is a tit or-tat response.

Last month, in retaliation for the Commerce Department’s initiation in December of a trade case against imports of aluminum sheet from China, the Chinese government started its own case against U.S. exports of sorghum grain to China.

“It signals the possible start of a trade war with China,” said trade lawyer Perry in a newsletter to clients this month. “There is a price to pay for U.S. tariffs and trade actions.”

Fight or settle?

No company is more dependent on free trade than Boeing, which sells both its commercial jets and its defense products worldwide.

Yet Boeing sees itself at a huge disadvantage against Airbus because of the types of subsidies the European jet maker has available.

Yes, Boeing gets tax breaks and so pays less tax on the income from the planes it rolls out each year. But it has to take all the risk and shoulder the multibillion-dollar cost when it develops a new airplane.

Airbus gets upfront government loans amounting to billions of dollars to defray the cost in advance – with no repayment necessary if the new airplane project fails.

Luttig insists that “there is no such thing as free trade unless all of the global industry participants abide by the rules.”

“Free trade is, by definition, trade in accordance with the rules of fair trade,” he added.

Airbus says it wants a different endgame to the WTO case: a negotiated settlement that would reset the rules.

The Airbus legal executive said a multinational deal could lay out agreed limits to government support in the aircraft industry for the long-term future.

“We sit down with all participants in this game, including the Chinese, the Russians, the Japanese, the Canadians, the Brazilians and maybe more, and have a good discussion globally,” he said.

Such an agreement might then constrain China’s behavior as its aviation champion COMAC develops future airplanes to compete against Boeing.

Brookings researcher Geertz said pursuing such a settlement makes sense because “the long-term game for Airbus and Boeing is figuring out what they are going to do about COMAC.”

In an interview at Boeing’s Chicago headquarters before the loss in the Bombardier case, Chief Executive Dennis Muilenburg steadfastly eyed his shorter-term target.

“Airbus, as has been determined through the WTO proceedings, has an unresolved more than $23 billion illegal subsidy that still needs to be addressed,” Muilenburg said. “We have to stand on a principle of global fair competition.”

Boeing’s case against Airbus may be stronger than the one against Bombardier.

Still, with one trade-court decision gone awry, Boeing’s leadership must now weigh anew the risks of a trade war against the likelihood that a legal victory could enforce a fair competitive landscape for the future.

BUT TRUMP’S ECONOMIC POLICIES TO DATE HAVE CREATED OTHER RAYS OF LIGHT—A ROARING ECONOMY WITH MANUFACTURING COMING BACK TO THE US—CUTTING TAXES AND REGULATIONS WORKS

As stated in the last blog post, probably the most important development from the trade point of view in the last few months, however, is the passage of the tax bill.  Trump’s economic policies along with the Tax Bill are leading to record economic growth and record unemployment.

On February 1, 2018, in an article entitled “300 firms giving tax cut bonus, Costco dismisses Pelosi’s ‘crumbs’ attack,” the Washington Examiner stated:

“The number of companies offering employees higher wages, expanded insurance and retirement benefits and cash bonuses up to $3,000 has surged to 300 as more see benefits from the new GOP tax cuts.

The payouts, praised by President Trump, are going to some 3 million employees.

Again on Thursday at a Massachusetts town hall, House Minority Leader Nancy Pelosi called the bonuses “crumbs.”

Not only are companies crediting Trump in their announcements, one major employer, Costco, disputed Democratic sneers that the bonuses are “crumbs” and hide bigger profits.

During a shareholders meeting this week, Costco chief Craig Jelinek said the attack by Pelosi was not “thoughtful.”

According to the National Center for Public Policy Research, the comments came in response to a question from their counsel Justin Danhof. What’s more, said Danhof, Jelinek said that critics were just “throwing stuff out there.”

The Costco executive noted that the wholesaler pays higher than average wages and added that the tax cuts may benefit customers.

The growing list of companies paying so-called “Trump bonuses” is at 300, according to list keeper Americans for Tax Reform and ATR Vice President John Kartch.

ATR President Grover Norquist said, “Every two weeks from February to November Americans will be reminded that one party cut their taxes and raised their pay. And the other tried to stop it.”

According to the Americans For Tax Reform, the actual number today February 23, 2018 is over 400 companies and includes the following companies:

“Plexus Corp., Solara Company, Kraft Heinz Company, CUNA Mutual Group, CarMax Inc., Valley Bank, Quake Manufacturing, Wirco Inc., Blue Cross and Blue Shield of North Carolina, Prospector Hotel and Gambling Hall, Fontainebleau, Mission Produce, Mastercard Inc., Civista Bank, Gulf Power Company, Fidelity Bank, Dyersville Die Cast, Unum, Sheely’s Furniture and Appliance, Henry Schein, Inc., R+L Carriers, The Gateway Tavern, OneMain Holdings, Inc., The Stowaway, Duck Inn Pub, Sail Loft, Speedwell Tavern, Pilgrim Bank, Xante Corporation, J.M. Smucker Company, Iowa-American Water Co., Somerset Savings Bank, Amboy Bank, Citizens Bank of West Virginia, Dot Foods, Sound Financial Bancorp Inc., Pitney Bowes, Shred-X, LiDestri Food and Drink, U.S. Special Delivery, Huntington Ingalls Industries, Middlefield Banc Corp., Cintas Corporation, PepsiCo., Protective Life Corporation, St. John’s Properties Inc., Insperity, U-Haul, Leak Sealers, Mill Steel Company, Payne Trucking.”

Some of the other additional companies on the list are:

“1A Auto, Inc. (Westford, Massachusetts), 1st Source Corporation (South Bend, Indiana), 1st Summit Bank (Johnstown, Pennsylvania), AaLadin Industries, Inc. (Elk Point, South Dakota), AAON (Tulsa, Oklahoma), AbbVie, Inc. (North Chicago, Illinois), Adams Community Bank (Adams, Massachusetts), Advance Financial (Nashville, Tennessee), Advanced Sciences and Technologies, LLC (Berlin, New Jersey), Aflac (Columbus, Georgia), Ally Financial Inc. (Charlotte, North Carolina), Altria Group Inc. (Richmond, Virginia), Amarillo National Bank (Amarillo, Texas), Amboy Bank (Old Bridge, New Jersey), American Airlines (Ft. Worth, Texas), American Express (New York, New York), American Family Insurance (Madison, Wisconsin), Apple (Cupertino, California), AT&T (Dallas, Texas), AutoNation, Bank of America (Charlotte, North Carolina), BB&T (Winston-Salem, North Carolina), Best Buy (Richfield, Minnesota), Boeing Company (Chicago, Illinois), Cabot Oil & Gas Corporation (Houston, Texas), Capital One (McLean, Virginia), CarMax Inc. (Richmond, Virginia), The Charles Schwab Corporation (San Francisco, California), Charter Communications, Inc. (Stamford, Connecticut), Chipotle Mexican Grill (Denver, Colorado), Cigna Corporation (Bloomfield, Connecticut), Comcast (Philadelphia, Pennsylvania), Exxon Mobil, FedEx (Memphis, Tennessee), Fiat Chrysler (Auburn Hills, Michigan),  Home Depot (Atlanta, Georgia), Honeywell (Morris Plains, New Jersey), Hostess Brands, Inc. (Kansas City, Missouri), Humana (Louisville, Kentucky), Smucker Company (Orrville, Ohio), JPMorgan Chase & Co. (New York, New York), JetBlue (New York, New York), Kraft Heinz Company (Pittsburgh, Pennsylvania and Chicago, Illinois), Lowes (Mooresville, North Carolina), Mastercard Inc. (Purchase, New York),  Merck (Kenilworth, New Jersey), MetLife Inc. (New York, New York), Nationwide Insurance (Columbus, Ohio), Pfizer Inc. (New York, New York).”

The point is that the entire list of companies providing bonuses, increases in 401Ks and other contributions to both employees and customers because of the tax bill is mind numbing.  The entire list can be found at Americans for Tax Reform at https://www.atr.org/list.     

One can disagree with President Trump, but the fact is he is putting money back into the average American’s pocket.

The good news keeps on coming.  On February 13th Bloomberg reported:

“Optimism among small companies in the U.S. rose more than forecast in January, fueled by a record number of owners who said now was a good time to expand, according to a National Federation of Independent Business survey released Tuesday.

Six of the 10 components that make up the small-business optimism index increased in January, producing one of the strongest readings in the 45-year history of the survey. The figures show sustained, sturdy business sentiment since the November 2016 election. A measure of plans to boost capital spending in coming months increased by 2 points to 29 percent, consistent with other data indicating robust outlays for equipment. One in five small companies said they plan to boost hiring, unchanged from the prior month, as finding qualified workers remains problematic and underscores a tight job market.The new tax law “produced the most recent boost to small-business optimism,” NFIB’s William Dunkelberg and Holly Wade said in a report. “And federal government-related cost pressures continue to abate, offering a more supportive business climate for small firms. Consumer spending remains supportive, and business spending and housing remain strong.”

The bottom line is that many average Americans are being affected positively by the Trump tax bill.  This may explain why on February 23rd the Rasmussen Reports stated that Trump’s popularity had shot to 50%.  The tax bill is a gift that will keep on giving to Trump and the Republican party.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS

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

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.

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

On January 18th, it was reported that President Trump was considering a big “fine” as punishment for China’s alleged theft of intellectual property.  In an interview, Trump stated,

“We have a very big intellectual property potential fine going, which is going to come out soon.”

Although Trump did not define what he means by “fine,” Section 301 allows the US to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies.

Trump further stated:

“We’re talking about big damages. We’re talking about numbers that you haven’t even thought about.”

Trump said he will be discussing this action in his State of the Union address on January 30th.  Trump also recently stated that he hopes there will not be a trade war with China. “I don’t think so, I hope not. But if there is, there is.”

NAFTA NEGOTIATIONS CONTINUE AND PROBABLY WILL NOT BE TERMINATED

NAFTA negotiations continue and there is hope that the agreement will not be terminated.  But no one can say for certain at this time.

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

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

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

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

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

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

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

But TAA for Companies has been cut to the bone.  On August 22, 2017, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.

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

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

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

NEW RECENT TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

CAST IRON SOIL PIPE

On January 23, 2018, Cast Iron Soil Pipe Institute filed antidumping and countervailing duty case against Certain Cast Iron Soil Pipe from China.

RUBBER BANDS

On January 30, 2018, Alliance Rubber Co. filed antidumping and countervailing duty cases against Certain Rubber Bands from Thailand, China, and Sri Lanka.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law and ongoing Chinese trade cases. Team’s newsletter-EN Vol.2018.04 Team’s newsletter-EN Vol.2018.05 Team’s newsletter-EN Vol.2018.06 Team’s newsletter-EN Vol.2018.07

SECTION 337 AND IP CASES

FUEL PUMP ASSEMBILES

On January 31, 2018, Carter Fuel Systems, LLC filed a section 337 case against imports of Fuel Pump Assemblies Having Vapor Separators.  The named respondent in the case is:

Wenzhou Jushang (JS), Performance Parts Co. Ltd., China.

JUMP ROPE SYSTEMS PRODUCTS

On February 13, 2018, Jump Rope Systems LLC filed a section 337 case against imports of Jump Rope Systems Products.  The named respondent in the case is:

Suzhou Everise Fitness Co., Ltd., China.

If anyone has any questions about these cases or about the Trump Trade Crisis, Taxes and Trade, Section 201 Solar Case, Section 232 case on Steel, Aluminum or Uranium or US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

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

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

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

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

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

JANUARY 23, 2018 UPDATE

Dear Friends,

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

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

Best regards,

Bill Perry

IT BEGINS? SECTION 201 SOLAR CELLS/WASHING MACHINE DECISIONS

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

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

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

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

SOLAR CELLS

In the Solar Cells case, the remedy is:

Safeguard Tariffs on Imported Solar Cells and Modules
Year 1 Year 2 Year 3 Year 4
Tariff increase 30% 25% 20% 15%
  • First 2.5 gigawatt of imported cells are excluded from the additional

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

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

WASHING MACHINES

The Washing Machines Remedy is set forth below.  This is similar to the Solar Cells Remedy in the sense that the first 1.2 million washers will have a lower tariff and the higher tariff will not kick in until after total imports reach the 1.2 million unit level.

Also 50,000 units of covered parts are excluded from the tariff.

Tariff-Rate Quotas on Washers
Year 1 Year 2 Year 3
First 1.2 million units of imported

finished washers

20% 18% 16%
All subsequent imports of finished

washers

50% 45% 40%
Tariff of covered parts 50% 45% 40%
Covered parts excluded from tariff 50,000 units 70,000 units 90,000 units

So the point of both remedies is import quickly into the US market.  The first imports into the country in the Solar Cells case will have no tariff and in the Washing Machines case will have a lower tariff.

VITAMIN C ANTITRUST CASE RISES FROM THE ASHES

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

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

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

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

Best regards,

Bill Perry

US CHINA TRADE WAR JANUARY 20, 2017 BLOG POST

Dear Friends,

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

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

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

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

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

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

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

Best regards,

Bill Perry

WILL TRADE UPSET THE TRUMP ECONOMIC JUGGERNAUT IN JANUARY 2018?

TO DATE TRUMP HAS NOT IGNITED A TRADE WAR

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

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

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

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

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

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

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

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

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

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

SLAMMING TRADE AND STOPPING IMPORTS COULD STOP THE ECONOMIC BOOM

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Emphasis added.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Business people tell me that a new approach to regulation is a big factor. During President Obama’s final year in office the Federal Register, which contains new and proposed rules and regulations, ran to 95,894 pages, according to a Competitive Enterprise Institute report. This was the highest level in its history and 19% higher than the previous year’s 80,260 pages. The American Action Forum estimates the last administration burdened the economy with 549 million hours of compliance, averaging nearly five hours of paperwork for every full-time employee.

Behind these numbers are countless business owners who have told me they set aside cash for compliance, legal fees and other costs of regulation. That money could have been used to fund projects that strengthened their businesses. President Trump has charted a new course, prioritizing the removal of red tape and rolling back regulations through executive orders. The Federal Register page count is down 32% this year. Mr. Trump says red tape becomes “beautiful” when it is eliminated, and people who manage businesses certainly agree.     . . .

Much has changed this year. Companies from Broadcom to Boeing have announced they’ll move overseas jobs back to the U.S. American companies hold nearly $3 trillion overseas and may soon be able to bring that money home without punitive taxation. Businesses have begun to open up the purse strings, which is why things like commercial airline activity are rising substantially as executives seek new opportunities. Companies are looking to invest in growth. . . .

After reaching Dow 24000, where can markets and the economy go from here? I’m not going to make predictions, but it stands to reason that the economy is better off when federal policy doesn’t discourage people who have a demonstrated ability to work, earn, spend and invest.”

On January 7, 2018, Charles Gasparino, another business reporter for Fox News, stated in the New York Post, “On the economy, Trump Has Been Crazy Like a Fox”:

“With the Dow crossing 25,000, it’s worth pointing out the pitfalls that could reverse some of those gains — and how to avoid them.

One thing we don’t have to worry about is the economic sanity of President Trump.

In fact, it’s safe to say that the current president, for all his temperamental flaws and petty insecurities, makes his tightly wound predecessor, Barack Obama, look like a raving madman when it comes to showing sense on economic growth. Armchair psychiatrists are having a field day diagnosing the president’s mental state from afar, especially after his increasingly bizarre tweeting, but the market says otherwise.

Consider: The United States had one of the highest corporate tax rates in the world — so high that companies (and jobs) were fleeing to places like Ireland. That’s why it was perfectly sane to lower the corporate tax rate from 35 percent to 21 percent as Trump just did, and presto: Corporations are announcing plans to hire more workers, and the economy, which was expected to slow after seven years of weak growth, is heating up. The markets are predicting that growth with their surge.

Likewise, regulations have been strangling businesses for years while making it difficult for banks to lend to consumers and small business. Trump went out and hired perfectly sane regulators who basically pulled the federal government’s boot off the neck of the business community.

It was described to me as a de facto tax cut by one business owner that gives him leeway to hire more people. A major win for the working class.

And since so many of my fellow journalists are at it, let me do a little psychoanalysis of what an economically insane person might do as president.

An insane president would threaten a significant tax increase immediately upon taking office following a financial crisis, and then eventually impose one on individuals and small businesses still in recovery.

He’d impose job-crushing regulations on these same businesses as unemployment rose. He’d put a cumbersome mandate on businesses that upends the entire health care system just as the economy was finally turning a corner.

A really insane president would blow nearly $1 trillion on a stimulus plan with little planning and direction, wasting much of the money on boondoggles (see: Solyndra) and then laugh at the lack of “shovel ready” jobs created. He’d then try to spread his delusion to the masses, telling them to ignore historically low wage growth, anemic economic growth and the massive amount of people who dropped out of the work force because the stock market rallied, thanks in large part to the Fed printing money instead of his own fiscal policies.

Is Barack Obama crazy? No, but his post-2008 economic policies were. Are all Trump’s tweets sane? No, but smart investors with lots of skin in the game think his policies are perfectly rational, and that’s why the markets are soaring along with the prospect of economic growth.

Can Trump just sit back and act like a clown for the rest of his presidency as the economy and markets lift all boats? No again. Relying on the markets or the economy to disguise abhorrent presidential behavior is a fool’s game. Corrections always occur, and will occur if corporate earnings don’t match the investor enthusiasm built into Dow’s recent rise.

An unexpected burst of inflation that would force the Fed to raise interest rates could hurt both stocks and GDP. Trump might indulge his inner populist and engage in a trade war with China, or repeal NAFTA, both of which would undoubtedly hurt economic growth and stocks.

For all the good things about the business side of the tax reform bill, other parts are more complicated: Small businesses got a sliver of the tax breaks given to corporations; same goes for working-class people who don’t pay much in federal income taxes in the first place. But people who do pay a lot may get crushed when tax season rolls around. Individuals in high-tax states (like New York) could get hammered because the plan barely lowers the top rate and plugs so many deductions.

To pay for their higher taxes, these people could curb their personal spending, meaning less economic growth and possibly lower stock prices.

But none of these hiccups suggest a madman is at the helm of the US economy, which is something to consider the next time you hear Donald Trump is crazy.”

After sending out my newsletter, Harry C. Moser, President of the Reshoring Initiative contacted me and stated:

“Nice piece. I attach our data showing that reshoring and FDI job announcements in 2017 were up over 200% from 2016 to about 240,000, confirming your thesis. “

See his attached powerpoint.  Reshoring & FDI trends 4 slides

WILL 2018 BE THE YEAR OF THE US CHINA TRADE WAR?

As indicated above, the real concern is whether this January and 2018 will be the year a trade war start with China followed by a NAFTA crackup.

In November 2017 I was in Beijing during the Trump visit.  Xi Jinping and Chinese government officials know how important Trump is to their own economy and they gave Trump a “state visit plus”.  Chinese television stated that no US President was given such a welcome since President Nixon.  To see pictures and a video of Trump’s visit to China from Chinese television, which was broadcast all over China, see https://www.dropbox.com/sh/sx2x6qpy7cf77a1/AAAFty0_SwObgVvT-tXbVknVa?dl=0.

During and after the China visit, the US press stated that President Xi played Trump, but the Chinese media at the same time was saying that Trump played President Xi.

But pundits are predicting that 2018 is the year of the US China trade war.  I suspect that although President Trump will issue tariffs in the Section 201 Solar Products and Washing Machines cases, there will be no real trade war so long as the Chinese government opens up its own economy to foreign investment and imports.  Lighthizer is favoring changing Investment guidelines under CFIUS to ban all Chinese investment in areas where China bans US investment.  Essentially reciprocity.

Opening up Chinese barriers to US trade and investment is a strategy every Administration has followed with China be it Bill Clinton, George W. Bush or Barak Obama.  Trump, Wilbur Ross and USTR Lighthizer will keep up extreme pressure on China to open its markets to US exports and investment.  If China refuses, there could well be a trade war.  But such a trade war would be for the right reason.

But if Trump puts up protectionist high tariffs on Solar Cells, Washing Machines, steel, aluminum products, and China imports, that will be when the damage to the economy will happen.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS

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

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.

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

On January 18th, it was reported that President Trump was considering a big “fine” as punishment for China’s alleged theft of intellectual property.  In an interview, Trump stated,

“We have a very big intellectual property potential fine going, which is going to come out soon.”

Although Trump did not define what he means by “fine,” Section 301 allows the US to impose retaliatory tariffs on Chinese goods or other trade sanctions until China changes its policies.

Trump further stated:

“We’re talking about big damages. We’re talking about numbers that you haven’t even thought about.”

Trump said he will be discussing this action in his State of the Union address on January 30th.  Trump also recently stated that he hopes there will not be a trade war with China. “I don’t think so, I hope not. But if there is, there is.”

NAFTA PROBABLY WILL NOT BE TERMINATED. IF IT IS, REPUBLICANS, INCLUDING TRUMP, CAN KISS THE ELECTIONS GOODBYE

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.  On January 28th, there will be a major NAFTA negotiation round in Montreal.

But because of the warnings of the impact of a termination on the US economy and his own constituents, President Trump probably will not terminate NAFTA.  Negotiations will be slow, but the three countries eventually will come to a deal.  On January 17, 2018, Politico reported that Senator Chuck Grassley of Iowa, who if very concerned about the impact of a withdrawal from NAFTA on agriculture, is now feeling more optimistic:

“Sen. Chuck Grassley said he took “some comfort” in Trump’s recent remarks at the American Farm Bureau Federation’s convention in which the president refrained from directly threatening to withdraw from NAFTA. . . .

Grassley also warned that if negotiations aren’t completed by a self-imposed March deadline and that deadline is not extended, “then there is no hope of agreement” because of the upcoming Mexican presidential election and the 2018 midterm elections in the U.S. Upon hearing that Trump said he would be “a little bit flexible” with regards to a NAFTA decision based on Mexico’s July election, Grassley said that “ought to give some comfort to the people that he is fairly reasonable on a timetable.”

On January 17th in an article in the Wall Street Journal entitled “Killing Nafta Would Ruin American Farmers”, Karl Rove, a well-known Republican strategist, predicted that if President Trump withdraws from NAFTA, that would hurt farmers and they would not vote Republican in the midterms or for Trump at reelection time:

“In a Wall Street Journal interview last week, President Trump said if he were to “terminate” the North American Free Trade Agreement, it “would be frankly a positive for our country.”

This bluster could be a negotiating ploy before the next trilateral Nafta talks, set for Jan. 28 in Montreal. If not, Mr. Trump should stop threatening. Withdrawing from Nafta would immediately kill American jobs, while handing Democrats the midterm elections on a silver platter. . . .

Nafta is especially important to American farmers and ranchers. U.S. agricultural exports to Mexico and Canada were $8.9 billion in 1993, before the agreement kicked in. Today, they are $39 billion, accounting for 30% of America’s farm exports.

These exports are critical in many states with key elections this year. In North Dakota, which Mr. Trump won by 36 points, Republicans want to flip the Senate seat held by Democrat Heidi Heitkamp. But the state’s commerce commissioner, Jay Schuler, says North Dakota exports 84% of its crops—worth $3.5 billion—to Mexico and Canada. Withdrawing from Nafta would subject those products to high foreign tariffs in force before the deal took effect, leaving farm families very unhappy.

Republicans also hope to flip Senate seats in Missouri and Indiana, both of which Mr. Trump carried by 19 points. The GOP is fighting to keep governorships in Iowa and Kansas, which the president won by 9 points and 21 points, respectively.

These campaigns will be much more difficult if farm economies are ruined by Nafta termination. Missouri is a major producer of corn, soybeans, beef and turkey; Indiana of corn and soybeans; Iowa of corn, soybeans and pork; and Kansas of wheat, corn and beef. Much of this is exported to Mexico. If the U.S. pulled out of Nafta, Mexican tariffs would snap back to 75% on American chickens, high-fructose corn syrup and potatoes, 45% on turkey, and 25% on beef. . . .

Then there are the car-making states. In the almost quarter-century since Nafta went into effect, the U.S. auto industry has built a hemispheric supply chain to help it compete with European and Asian auto makers.

Indiana, Michigan, Ohio and Tennessee each have important Senate races, and all but Indiana have governor’s contests, too. In each of those states, at least 9% of the workforce is tied to autos, and in Michigan the figure is 20%. Their exports of cars and auto parts range from $5.9 billion in Tennessee to $26 billion in Michigan.

If Mr. Trump made good on his Nafta threat, he would disrupt the auto industry’s supply chain, making American-made cars more expensive at home and less competitive abroad. Does he really want to blow up these states’ economies—along with those of roughly a dozen other states with auto production (including Missouri, Pennsylvania and West Virginia)?

I haven’t even gotten to the crucial elections in border states like Texas and Arizona, which are important way stations for trade with Mexico and whose economies would face major difficulties if Nafta disappears.

In discussing Nafta, Mr. Trump keeps getting his numbers wrong. Last week he declared that the U.S. has a $71 billion trade deficit with Mexico and “we lose $17 billion with Canada.” Actually, after counting sales of goods and services, the trade deficit with Mexico in 2016 was just $55.6 billion. With Canada, the U.S. ran a $12.5 billion surplus.

Does Mr. Trump ignore the U.S. advantage in services—everything from insurance to banking to logistics—because it undermines his anti-Nafta case? Or, despite coming from the service industry himself, does he think service jobs are less worthy than manufacturing ones? Try defending that proposition to employees at Travelers (a big insurance player in Canada) or FedEx and UPS (which provide logistics and shipping there) or Wal-Mart (Mexico’s largest retailer) or MetLife (which insures 78% of Mexican government employees) or Citibank (which owns Mexico’s second-biggest bank).

Any trade agreement that is two decades old needs updating. Nafta is no exception, especially given the growth of e-commerce and the digital economy. But bad policy is bad politics. Killing Nafta would damage Republicans in agricultural, auto and border states and help elect more Democrats in 2018, strengthening the party’s impeachment efforts. Mr. President, it isn’t worth it.”

THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—NO TRADE DEALS TO DATE OR ON THE HORIZON—MAYBE TIME TO RENEGOTIATE THE TPP??

As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and may kill the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.  Even though NAFTA may ultimately be renegotiated, the real problem is that with Trump’s policy of weaponizing trade agreements, no other country will enter into a trade agreement with the US.  As Robert Zoellick, the former USTR under Bush, states above:

“No country wants to do a bilateral deal with Mr. Trump now because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade. That’s why Mr. Trump will use his indictment of China’s intellectual-property practices to justify more protectionism, not solve the problems.”

As stated above, that is a huge problem for US farmers because almost 50% of farm products produced in the US are exported.

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believed the US did not get enough and many Senators and Congressmen wanted a a better deal.

On January 21, Tokyo will be hosting TPP talks for the other 11 countries that have decided to go forward with the TPP.  Maybe President Trump should consider a renegotiation of the TPP.  If the other 11 countries refuse to renegotiate the deal with the US, nothing lost, but the other 11 countries might be very interested if the US indicated possibly joining the TPP but under very strict conditions.  The appeal of the US market is huge to the other countries and that would give President Trump and USTR Lighthizer the chance to show off their negotiating skills.  Moreover, that would be one way for the US and Trump’s constituents, especially in the Agriculture area, to get a trade agreement they can benefit from with a number of other countries.  Nothing ventured, nothing gained

SECTION 201 SOLAR CELLS CASE

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

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

The ITC reached an affirmative injury determination in the case on September 22, 2017, and then proposed a remedy to the President.

The Commission issued its report to the President on November 13, 2017.  The United States Trade Representative (“USTR”) has held remedy hearings. and President Trump must issue his remedy determination on January 26th.  Many Solar Cells users along with newspaper editorials have urged the President to do nothing because of the bad impact on downstream solar companies, but many commentators expect the President to  issue tariffs against solar cell imports.

President Trump also faces a February 4th deadline to impose trade relief in response to the ITC 201 Affirmative decision on Washing Machines.

SECTION 232 STEEL AND ALUMINUM CASES PICK UP—SECTION 232 STEEL REPORT GOES TO THE PRESIDENT

As mentioned in the last newsletter, the Section 232 Steel and Aluminum cases appeared to stall, but the cases picked up steam again.  On January 11, 2018, the Commerce Department sent the final Section 232 Steel Report to the President.  On that day Commerce announced:

“Today Secretary of Commerce Wilbur Ross formally submitted to President Donald J. Trump the results of the Department’s investigation into the effect of steel mill product imports on U.S. national security. After this submission, by law, the President has 90 days to decide on any potential action based on the findings of the investigation.”

Commerce will release a public report after the President makes his decision in 90 days.

Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products.  Such a remedy would probably result in the loss of 100s of thousands of US job.

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

NEW SECTION 232 CASE AGAINST URANIUM IMPORTS

On January 16th, Ur-Energy USA Inc. and Energy Fuels Resources Inc. filed a section 232 petition at Commerce claiming that imports of uranium from state-owned and state-subsidized companies in Russia, Kazakhstan and Uzbekistan now fulfill 40 percent of U.S. demand, compared to the less than 5 percent satisfied by U.S. production. The Denver-based companies claim that imports from China will grow in the coming years. The companies also argue the volume of imports from Russia will only grow after a decades-old agreement that restricted imports from that country in exchange for suspending anti-dumping duties expires in 2020.  The Petition states:

“The U.S. uranium industry needs immediate relief from imports that have grown dramatically and captured almost 80% of annual U.S. uranium demand. Our country cannot afford to depend on foreign sources — particularly Russia, and those in its sphere of influence, and China — for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America’s nuclear Navy, and supplies 20% of the nation’s electricity.”

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

Recently, a number of reporters have contacted me about the Civil Aircraft from Canada, Bombardier-Boeing, case because the US International Trade Commission (“ITC”) will vote on the injury case on January 26th.  I have told the reporters that there is a 95% chance that the ITC goes affirmative and that Antidumping and Countervailing Duty orders are issued.

As stated in prior newsletters, I have no sympathy for Bombardier because the Quebec Government directly invested $1 billion into Bombardier’s production process, which resulted in a very high CVD rate. The entire purpose of the US CVD law and CVD laws along with WTO Subsidy Agreement and the WTO Civil Aircraft Agreement is that private companies should not have to compete in commercial markets against the Government and that is just what has happened at Bombardier.

Also Bombardier refused to participate and cooperate in the Commerce Department’s antidumping case, which was a fatal error, resulting in a very high Antidumping Rate based on All Facts Available.  Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation.  The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response.  The EC would take the same position.

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia.

On January 16th, the Australian Government jumped into the case, challenging the Canadian government’s handling of wine sales, accusing Ottawa of practices that appear to discriminate against imported wine.  Australia says that the Canadian government and four provinces – British Columbia, Ontario, Quebec and Nova Scotia – use taxes, duties and a range of distribution, licensing and sales measures that unfairly affect imported wine. It argues that such practices are in violation of the 1994 General Agreement on Tariffs and Trade.  Australian Trade Minister Steven Ciobo stated:

“While it would have been preferable to resolve this issue bilaterally, it is appropriate to commence dispute proceedings given the lack of progress.”

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

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

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

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

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

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

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

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

But TAA for Companies has been cut to the bone.  On August 22, 2017, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers for the TAA for Firms/Companies program.

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

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

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

NEW RECENT TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

ALUMINUM SHEET-FIRST SELF-INITIATED COMMERCE CASE IN MANY YEARS

On November 28, 2017, the Department of Commerce (Commerce) announced the self-initiation of antidumping duty (AD) and countervailing duty (CVD) investigations of imports of common alloy aluminum sheet from the People’s Republic of China (China).  This is the first time Commerce has self-initiated an antidumping and countervailing duty case in probably over 10 years.

SODIUM GLUCONATE, GLUCONIC ACID, AND DERIVIATIVE PRODUCTS

On November 30, 2017, PMP Fermentation Products, Inc. filed AD and CVD cases against imports of Sodium Gluconate, Gluconic Acid, and Derivative Products from China and France.

PLASTIC DECORATIVE RIBBON

On December 27, 2017, Berwick Offray, LLC filed AD and CVD cases against imports of Plastic Decorative Ribbon from China.

LARGE DIAMETER WELDED PIPE

On January 17, 2018, American Line Pipe Producers Association filed AD and CVD cases against imports of Large Diameter Welded Pipe from China, Canada, Greece, India, Korea and Turkey.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US

BUTAN-1 FROM US, TAIWAN AND MALAYSIA

On December 29, 2017, China’s Ministry of Commerce initiated an antidumping investigation against Imports of Butan-1-ol from US, Taiwan and Malaysia.  The four US companies targeted by the case are:

1)  Eastman Chemical Company

2)  The Dow Chemical Company

3)  BASF Corporation

4)  OXEA Corporation

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2018.01 Team’s newsletter-EN Vol.2018.02 Team’s newsletter-EN Vol.2018.03.

SECTION 337 AND IP CASES

NO NEW RECENT 337 CASES AGAINST CHINA

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

Best regards,

Bill Perry

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 20, 2017

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Billionaires at the Barricades at 313 (footnotes omitted).

According to Ingraham, Clinton promised that NAFTA would:

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

They received pink slips instead.

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

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

Billionaires at the Barricades at 385 to 389.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But Ms. Ingraham also states that:

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

Id. at 1163-1164.

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

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

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

My fellow Americans:

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

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

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

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

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

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

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

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

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

Emphasis added.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COSTS OF PULLNG OUT OF NAFTA AND TPP

CANADA

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

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

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

MEXICO

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

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

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

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

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

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

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

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

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

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

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

JAPAN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

AGRICULTURE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S. ANTI-TRADE STANCE AIDS EU

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

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

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

US CHAMBER OF COMMERCE

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

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

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

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

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

NAFTA NEGOTIATIONS HAVE STALLED

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

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

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

US Robert Lighthizer responded:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are four of them:

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

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

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

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

Let’s look briefly at each of these.

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

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

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

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

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

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

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

Yeah, right.”

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

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

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

US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL

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

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

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

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

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

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

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

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 201 SOLAR CELLS CASE

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

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

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

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

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

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

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

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

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

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

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

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

SEIA argued in its brief:

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

TRUMP AND CHINA

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

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

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

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

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

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

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

There are many fights to come.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

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

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

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

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

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

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

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

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

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

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

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

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

CHINA NME STATUS

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

In the announcement, the EU stated:

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

EU Trade Commissioner Cecilia Malmström further stated:

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

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

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

According to the US complaint:

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

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

According to the complaint:

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

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

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

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

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

SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

PTFE RESIN

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

FORGED STEEL FITTINGS

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

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN

HYDRIOC ACID FROM THE US and JAPAN

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

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

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

CHINA AD/CVD NEWSLETTERS

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

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

REUSABLE DIAPERS

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

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

AMORPHOUS METALS

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

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

LED LIGHTING

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

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

REUSABLE RAZORS
On September 27, 2017, The Gillette Company LLC filed a section 337 case against imports of Certain Shaving Cartridges, Components Thereof and Products Containing Same.  The named respondents in the case are:

Edgewell Personal Care Company, Chesterfield, Missouri; Edgewell Personal Care Brands, LLC, Shelton, Connecticut; Edgewell Personal Care, LLC, Shelton, Connecticut; Schick Manufacturing, Inc., Shelton, Connecticut; and Schick (Guangzhou) Co., Limited, China.

BEVERAGE CONTAINERS

On September 28, 2017, YETI Coolers, LLC filed a section 337 case against imports of Insulated Beverage Containers, Components, Labels, and Packaging Materials.  The named respondents are:

Alibaba (China) Technology Co., Ltd., Hong Kong; Alibaba Group Holding Limited, c/o Alibaba Group Services Limited, Hong Kong; Alibaba.com Hong Kong Limited, Hong Kong; Alibaba.com Singapore E-Commerce Private Limited, Hong Kong; Bonanza.com, Inc., Seattle, Washington; ContextLogic, Inc. d/b/a Wish, San Francisco, California; Dunhuang Group, China; Hangzhou Alibaba Advertising Co., Ltd., Hong Kong; Huizhou Dashu Trading Co., Ltd., China; Huagong Trading Co., Ltd., China; Tan Er Pa Technology Co., Ltd., Hong Kong; Shenzhen Great Electronic Technology Co., Ltd., China; and SZ Flowerfairy Technology Ltd., China.

If you have any questions about these cases or about the Trump Trade Crisis, NAFTA, FTAs, , including the impact on agriculture, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

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