Monday, March 30, 2020

Trump's recent trade moves show adversarial approach has only just begun

Feb 18. 2020
David J. Lynch is a staff writer on the financial desk who joined The Washington Post in November 2017 after working for the Financial Times, Bloomberg News and USA Today.
David J. Lynch is a staff writer on the financial desk who joined The Washington Post in November 2017 after working for the Financial Times, Bloomberg News and USA Today.
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By The Washington Post · David J. Lynch · NATIONAL, BUSINESS, POLITICS, US-GLOBAL-MARKETS 

TRADE-ANALYSIS: In White House ceremonies and raucous campaign rallies, President Donald Trump has celebrated a pair of "America First" trade deals he says will end the unfair treatment of American workers.

"Unlike so many who came before me, I keep my promises. We did our job," he said during the State of the Union address, referring to new trade deals with Mexico, Canada, and China. ". . . Our strategy has worked."

The new deals rewrite the trade rules that Trump says were responsible for "the catastrophe" that struck American manufacturing over the past quarter century. Yet with fresh tariffs this month on European aircraft and products such as steel nails and aluminum vehicle bumpers, it's clear that the high-profile accords have not completed the president's planned overhaul of U.S. trade relations.

In fact, they are just the start. 

Even as Trump celebrated hard-won gains in negotiations with the nation's largest trading partners, he laid the groundwork for more tariffs, more challenges to longstanding trade norms and more disruption to global commercial flows in the months ahead.

"There's a lot still to come. I think they believe they have a playbook that works," said Michael Smart, managing director at Rock Creek Global Advisors. "There's been a lot of talk about how confident Trump is following his acquittal on impeachment. If you look specifically at the trade ledger, he feels he's right on track."

In the past four weeks, the president expanded his March 2018 steel and aluminum tariffs to cover products made from those materials, an implicit acknowledgment that his original approach to curbing a flood of imported industrial metals hadn't worked.

He authorized the Commerce Department to begin imposing tariffs on U.S. trading partners that allegedly used undervalued currencies to subsidize their exports. And he considered withdrawing the U.S. from a global agreement on government procurement, alarming foreign allies.

These actions come as the president sparred with his next trade war target, the European Union, a longtime U.S. ally he says treats American businesses even worse than China, and mulled additional deals with the United Kingdom, Kenya and India. On Feb. 14, Trump fired a new shot in a long-running dispute over Europe's subsidies for aircraft maker Airbus, increasing to 15 percent an existing 10 percent tariff on European planes.

His chief trade negotiator, Robert Lighthizer, issued a 174-page report blasting the World Trade Organization's appellate body for "chronically" violating its own rules and undermining U.S. rights. Administration officials are also mulling a frontal assault on WTO limits on the tariffs that the U.S. can charge other nations.

The flurry of activity is evidence that despite two years of intense bargaining with multiple countries and whiplash-inducing tariff threats, the president still has a lengthy to-do list on trade.

"Prior to the election, it's probably a mix of stirring the pot and claiming credit," said Dean Pinkert, senior counsel at Hughes Hubbard & Reed and a former commissioner with the International Trade Commission.

Trump and his team remain determined to upend the patterns of global trade that have arisen since the fall of the Berlin Wall. In a Feb. 6 speech in London, Commerce Secretary Wilbur Ross complained that before Trump took office, globalization had "gotten out of control," citing as an example the fact that "it takes 200 suppliers in 43 countries on six continents to make an iPhone."

Rebalancing global trade so that the U.S. produces more, and countries like Germany consume more, remains the objective for a president who sees the chronic U.S. merchandise trade deficit as a sign of economic weakness.

Speaking in Oxford, England, Ross suggested new digital production technologies associated with the so-called "Fourth Industrial Revolution" could redistribute production of goods such as textiles and apparel away from developing countries to advanced economies like the United States.

Those U.S. industries have been in a long-term decline as low-wage foreign rivals gobbled up market share.

The president's renewed activism means that the business community's hopes for an end to trade-related uncertainty will be disappointed. In a seven-country survey of 1,770 executives for TMF Group, a London-based professional services firm, 39 percent said "trade wars" were their key concern this year. That was the highest figure any issue received.

"You can no longer assume a relatively benign global trade regime. You have to factor in tariffs," said Mark Weil, TMF's global chief executive. "They can be changed extremely quickly. That's just the new reality."

Trade issues are expected to be at the center of the president's re-election effort and this month's State of the Union address previewed his central themes.

"Unfair trade is perhaps the single biggest reason that I decided to run for president," Trump told a joint session of Congress.

Trump's handling of trade negotiations represents a sharp break with the bipartisan consensus of the last several decades. He prefers negotiating with U.S. trading partners one at a time rather than in larger groups. To gain leverage in those talks, he has wielded tariffs to a greater degree than any president since the 1930s.

The president, who frames his policies as designed to benefit workers rather than "the financial elite," was rewarded with labor union support for his NAFTA replacement, the U.S.-Mexico-Canada Agreement.

Trump's supporters feel vindicated and not just by his achievements at the negotiating table. The U.S. economy is in its 11th consecutive year of growth, its longest such run, and the unemployment rate is near a half-century low.

"He had a theory we would get more leverage by using tariffs. He implemented the theory and he was right," said Stephen Vaughn, former general counsel of the office of U.S. trade representative. "He said we could do this and it wouldn't have a dramatically harmful effect on the U.S. economy and he was right about that."

Ross, in last week's speech, said the president's tariff threats were responsible for the China and USMCA agreements as well as smaller deals with Japan and South Korea. Yet, rather than serve as just a temporary negotiating tool, the vast majority of the tariffs Trump imposed on Chinese products remain in place.

Ross also called the $887 billion deficit between the value of American exports and the larger total of goods imported into the U.S. in 2018 "unsustainable." (He spoke before the government released updated figures showing the gap had narrowed slightly in 2019 to $852 billion.)

The U.S. runs such trade deficits with 97 countries, though only five -- China, the E.U., Mexico, Japan and Vietnam -- account for 92 percent of the total, he said.

Still, the president's future trade initiatives may confront even tougher obstacles. His Jan. 24 decision to extend tariffs to downstream products made of steel and aluminum already has drawn a legal challenge from an American importer facing an unexpected multi-million dollar import tab.

In a Feb. 4 complaint to the U.S. Court of International Trade, PrimeSource Building Products of Irving, Texas, argued that the president's extension of his steel and aluminum tariffs was "unlawful and unconstitutional"and should be blocked.

Trump's action came 638 days after his authority to do so expired, according to the company's complaint. The distributor of building materials said Commerce also had violated the law by failing to give notice of the new tariffs or to hold a public hearing on the matter.

Chief Judge Timothy Stanceu last week barred U.S. Customs officials from imposing the new duties on PrimeSource after the company and the government agreed to a temporary cease-fire while the legal challenge proceeds.

A crowded calendar means the president also is unlikely to make progress on major new agreements. Implementing the "phase one" China deal, including promised Chinese purchases of U.S. products, will preoccupy U.S. and Chinese negotiators for months. That will slow progress toward a second, more ambitious deal, which the president has acknowledged might be delayed until after the election.

"The China thing is probably on hold until after the election, so long as the Chinese follow through on the agriculture purchase commitments. That's important for Trump politically," said Warren Maruyama, a partner at Hogan Lovells and a former USTR general counsel.

Likewise, initial talks with the European Union have advanced at a glacial pace and most analysts anticipate only a partial deal, if that, before November. The president has complained about European barriers to U.S. automobile and farm goods.

"Europe has been treating us very badly," Trump told almost three dozen governors at the White House on Feb. 10. "...They have barriers that are incredible."

With less than nine months until Election Day, Trump likely will refrain from imposing significant tariffs that could damage the economy, several analysts said. That means his oft-repeated threats to impose tariffs on imported European automobiles are unlikely to be carried out.

But even as Trump touts his trade record, some analysts said he is vulnerable.

"The criticism will center on the unpredictability of the Trump trade policy," said Miriam Sapiro, vice chair of Sard Verbinnen & Co. and a former deputy U.S. trade representative. "It makes it very hard for U.S. businesses to make investments when it's not clear which sector, or country or region the president may choose to punish next."

 

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