100 Plus Days of Trade Policy: A Review of Key Administration Actions

May 16, 2017 11:30 AM

The Trump administration has issued a wide array of often technical executive actions, “self-initiated” investigations, and other steps related to trade since taking office just over a hundred days ago. Some of these actions entail accusations that US trading partners have “dumped” or exported unfairly subsidized products, and others set in motion further study of allegedly unfair or damaging trade practices of other countries. Most won’t have an immediate impact on trade, but they could set the stage for a reordering of trade policy by the White House, Commerce Department, and US Trade Representative (USTR), just as agreements, such as the North American Free Trade Agreement (NAFTA) are renegotiated.

The administration’s actions are designed to implement the president’s trade agenda released in March 2017, which proclaimed the overarching goal of expanding “trade in a way that is freer and fairer for all Americans.” A frequently cited central objective is to reduce the US trade deficit, which has hovered at $500 billion in recent years. The four enunciated priorities are:

  1. defend US national sovereignty;
  2. strictly enforce US trade laws;
  3. use leverage to encourage other countries to open their markets to US exports of goods and services, and provide adequate and effective protection and enforcement of US intellectual property rights; and
  4. negotiate new and better trade deals.

To further these priorities, several executive orders have been issued that direct new reports, assessments, and policy proposals by USTR, Commerce, Customs and Border Patrol (CBP) and other agencies over the next 3 to 6 months. Here is a review and explanation of key developments.

  • Executive order, “Regarding the Omnibus Report on Significant Trade Deficits on March 31, 2017. The order directs Commerce to “assess the major causes of the trade deficit,” focusing on the “unfair and discriminatory practices” of US trading partners, e.g., tariffs, dumping and subsidies, intellectual property theft, etc., plus four other factors.1 The Trump administration considers bilateral trade balances indicative of the success or failure of US trade policy. But as Hufbauer and Jung argue, this criteria makes “little economic sense as a guide to trade policy in the 21st century.” Because the United States persistently spends more than it produces, it must borrow or attract investment from abroad, reflecting a low savings rate, explains Hufbauer. Secretary of Commerce Wilbur Ross claims that underlying the deficit is that the “US has the lowest tariff rates and the lowest non-tariff barriers of any developed country in the world.” But as Joseph Gagnon demonstrates, trade policy, reflected in tariffs and free trade agreements, have little impact on the overall trade balance; rather, fiscal policy and currency intervention are more decisive determinants. Caroline Freund concludes: “The aggregate US trade deficit may be of concern, but it should be considered in the context of macroeconomic not trade policy.”
  • Executive order, “Establishing Enhanced Collection and Enforcement of Antidumping and Countervailing Duties and Violations of Trade and Customs Laws” on March 31, 2017. The order is intended to address some $2.3 billion in uncollected antidumping and countervailing duties, resulting from some importers failing to pay—see CBP and GAO (2016) for more details.2The executive order requires the Department of Homeland Security, in consultation with the Treasury, Commerce, and USTR, to implement a plan that imposes bonding requirements that better cover antidumping and countervailing duty liability for importers at higher risk of noncompliance. It also orders a new strategy to narrow violations of US trade and customs laws. For context, only a small percent of importers of products subject to such duties, 2.5 percent, had unpaid bills over the period 2001–14 (GAO 2016).
  • Executive order, Buy American and Hire American” on April 18, 2017. The order directs US agencies to “scrupulously monitor, enforce, and comply with Buy American laws”—mandates that public projects use domestically-produced iron, steel, and manufactured goods—and minimize waivers and exceptions.3 USTR and Commerce are also directed to evaluate whether US free trade agreements and commitments to the World Trade Organization (WTO) “weaken” or circumvent Buy American laws. But as Hufbauer and Cimino-Isaacs explain in a recent post, while politically popular, “Buy American” can be economically costly, and the United States itself has long criticized the promotion of domestic content and other discriminatory “buy-local” policies in other countries.
  • Executive order, “Addressing Trade Agreement Violations and Abuses” on April 29, 2017. This order was motivated by the alleged failure of US trade and investment agreements to “enhance our economic growth, contribute favorably to our balance of trade, and strengthen the American manufacturing base.” Within 180 days, an interagency effort led by USTR and Commerce will conduct “performance reviews” of all bilateral and multilateral trade and investment agreements—including trade relations with WTO countries with which the United States does not have a free trade agreement and runs a trade deficit. But US agencies have issued several reports assessing unfair trade practices over many years, most recently in the annual, 500-page National Trade Estimate Report on Foreign Trade Barriers, the latest released in April 2017. This report highlights problems facing US exports, foreign direct investment, and intellectual property rights. The new administration order could lead to demands for modifying the trade rules governed by the WTO. Secretary Ross has claimed that “there has never been a systematic evaluation of what has been the impact of the WTO agreements on the country as an integrated whole.” As a presidential candidate, Trump dismissed the value of US participation in the WTO, threatening to abandon it.
  • Executive order, “Establishment of Office of Trade and Manufacturing Policy” on April 29, 2017. The order establishes a new office to be run by Trump's campaign trade policy advisor, Peter Navarro, which will advise the president “on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defense industrial bases” and liaison between the White House and Commerce. Initially established as the White House National Trade Council, this new office’s scope of influence is not yet well defined, but it is directed to support implementation of “Buy American and Hire American” policies in particular.

A second priority is taking action against US imports of goods sold at unfairly low prices, referred to as “dumped” or subsidized by foreign governments, for example imposing new preliminary duties against Canadian softwood lumber imports. The United States has long invoked its statutory authority to impose antidumping and countervailing duties under previous administrations. Some 392 active orders are in place as of April 2017. China is by far the largest target of these sanctions, accounting for 40 percent of all cases. Steel and iron products account for more than 50 percent of the cases involved. But as Chad Bown explains, typically trade cases are initiated by firms, workers, or trade associations, with some exceptions, and not by the US government. The administration, however, has pledged to ramp up “self-initiating trade cases, which speeds up the process of taking corrective action while allowing the Department of Commerce to shield American businesses from retaliation.” In the case of steel and aluminum, the Trump administration is utilizing more far reaching, and less commonly used, statutes of trade law.

  • Section 232 investigations involving steel and aluminum imports. Section 232 of the Trade Expansion Act of 1962 permits an investigation by the Department of Commerce into whether imports “threaten to impair” US national security (see Hufbauer 2016 for the legal details). The administration announced investigations for steel and aluminum as “critical elements of our manufacturing and defense industrial bases,” with instructions to Commerce to expedite such cases. The national security exception has been rarely used, however. In addition, it is subject to little or no WTO scrutiny and thus harder to legally challenge, giving significant leeway to politicize import restrictions. As Chad Bown writes, “unlike many of Trump’s formal trade policy announcements, these moves could have an almost immediate impact. They will probably lead to more trade barriers and barriers that are poorly vetted…. New import restrictions arising under that area of US law really are akin to the ‘nuclear option’—their use really puts the entire system of international trade law at risk.”

Finally, the Trump administration plans to revamp US trade deals, pledging to negotiate bilateral trade agreements “to promote American industry, protect American workers, and raise American wages.” In the first 100 days, the focus has been on the Trans-Pacific Partnership (TPP) and NAFTA. A revised Korea-US deal and new deals with Japan and even the United Kingdom have been suggested by the administration. Such an approach could face major hurdles given Japan’s preferences for moving forward with the TPP and the United Kingdom’s pending Brexit negotiations with the rest of Europe.

  • Withdrawal from the TPP. Consistent with campaign promises, on January 23, President Trump instructed the USTR to withdraw the United States from the TPP megaregional trade deal, which was signed in February 2016 but not ratified by the US Congress. Withdrawing from the TPP means foregoing economic benefits and undermines US credibility as a negotiating partner, but importantly also cedes US leadership in a particularly dynamic region in the world economy. TPP partners are now discussing moving forward without the United States, shutting the United States out of new market access in the Pacific Rim. As Jeffrey J. Schott argues, “a regional deal like the TPP is far more likely to yield gains for all participants than the administration’s favored bilateral approach.”
  • Draft notice to renegotiate NAFTA. President Trump has promised to renegotiate NAFTA, which he called “the single worst trade deal” and “one of the worst things that ever happened to the manufacturing industry.” Pursuant to trade promotion authority requirements, a draft notice was circulated to Congress in March 2017, signaling US priorities in the new negotiation. As Jeffrey J. Schott explains, most of the US objectives are consistent with past practice, but a few goals—e.g., “to level the playing field on tax treatment” or restrict NAFTA rules of origin to require more content come from US factories—could derail the trade talks and will require modification. Reports in late April of a draft executive order to withdraw the United States from NAFTA entirely would likely have derailed new talks, and the draft order was quickly rescinded after appeals from Canada and Mexico. The president must give 90-days’ notice before NAFTA talks can begin, which is expected soon after USTR Robert Lighthizer’s confirmation, possibly later in May.
  • 100-day action plan with China. As the single largest source of the US trade deficit and pointed target of US trade disputes, China has been under intense scrutiny from the Trump administration. A comprehensive US-China trade deal may be a distant reality, but managing bilateral frictions and improving the economic relationship remains crucial. To this end, President Trump and Chinese President Xi Jinping announced at the Mar-a-Lago Summit in April 2017 a “100-day action plan”—foremost, to work towards “rebalancing trade.” On May 12, both sides issued a progress report, highlighting among others, Chinese commitments to import US beef, increase market access for US credit rating and electronic payment services, and accelerate “science-based evaluations” of pending US biotech product (e.g., genetically modified organisms) applications. The agreement aims to resolve specific trade disputes to a limited extent; more importantly it signals the intent to work together to “avert a trade war.” As follow up, the first meeting of the US-China Comprehensive Economic Dialogue will be held in summer of 2017.

Notes

1. The other factors include whether trading partners unfairly discriminate against the United States, the effects of the trade deficit on US manufacturing and defense industries, the effects on employment and wage growth, and whether imports and trade practices impair US national security.

2. This happens because the final antidumping or countervailing duty assessed by Commerce can be higher than its initial estimate, often leaving a balance due years later—but some companies have since gone out of business or were dissolved to avoid paying additional duties.

3. The other half of the order relates to “Hire American” and mandates stricter enforcement of US immigration laws and visa programs.

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