Talking Trade blog
Trump acts against China
Published 25 January 2018
US President Donald Trump is finally turning his protectionist trade rhetoric into action by taking a series of steps aimed at China. Trump has repeatedly argued that the Chinese have been engaged in a sustained and consistent program of unfair trading practices aimed primarily at the United States.
Many of Trump’s early and most vocal threats have appeared hollow throughout his first year in office. He did not, as he suggested, name China a “currency manipulator” on “Day 1.” He did not raise tariffs against Chinese products.
Instead, his administration merely launched several investigative actions against China. Trump himself attributed his delayed actions to a desire to engage with Chinese leadership over North Korea.
Trump has few “fixed” viewpoints on policy, but he does have a longstanding interest in trade and trade policy. His Republican party’s overriding objective had been to push through greater tax cuts. After nearly a year of effort, despite controlling both houses of Congress and the White House, the Republicans finally got a new tax cutting regime in place in late December. Midterm elections are looming in November 2018.
Now that tax cuts have been achieved, Trump has more freedom to respond on trade.
China’s trade deficit with the United States widened in 2017 to a record level of USD$275.8 billion. This is in spite over an overall drop of 17 percent in China’s global trade figures. Given the obsessive focus of Trump and some of his advisors on merchandise trade figures, a widening trade deficit portends serious difficulties in the bilateral relationship.
January has a series of deadlines and opportunities looming that make it ideal for signaling the start of a renewed, aggressive trade agenda against China.
Twin decisions this week highlight the opening shots: on solar panels and washing machines.
Trump accepted the recommendation of the International Trade Commission (ITC) the Section 201 case: a combination of quotas and tariffs of up to 30 percent on the imports of solar cells and panels.
Of potentially wider significance, part of the ITC argument in its December 27 supplemental report, found that the surge in solar imports came about because of an “unforeseen development” given Chinese subsidies that violated China’s World Trade Organization (WTO) commitments. The import surge was because China’s government implemented a “series of industrial policies, five-year plans, and other government support programs favoring renewable energy product manufacturing, including (solar) products.”
This is an important aspect of the case for two reasons. First, if China opts to challenge any remedies at the WTO, the US will likely argue that safeguards in this circumstance are covered by Article XIX: 1(a) which basically covers “unforeseen circumstances.” Second, a similar argument could apply to any number of future cases related to China.
In the same week, the White House also slapped new import curbs on washing machines in another Section 201 case. While this is not directly applicable to China, Chinese suppliers of raw materials, parts and components could be caught by the new safeguard.
Also in January, US Commerce Secretary Wilbur Ross formally delivered the results of his department’s investigation into the national security implications of imported steel and a another Section 232 case on aluminum to the White House.
These reports have been promised for at least six months. Internal sources suggest the extensive delays have been caused by three factors: a) difficulties in making the case that steel and aluminum imports constituted “national security” emergencies as required by the 232 statute; b) challenges by both up and downstream industries about the potential consequences of remedies and c) interagency disagreements about the wisdom of acting at all or acting against China or other allies in these circumstances. The delivery of the reports, however, indicate that these issues may have been resolved.
While the White House now has 90 days, or until April, to decide what action to take in each 232 case, it is likely that an announcement on one or the other could be made soon. Trump’s WEF speech in Davos or the State of the Union represent likely opportunities. The President has “statutory authority to adjust imports” under the Trade Expansion Act of 1962.
Aluminum is not just covered by the pending 232 Case. The Commerce Department also self-initiated investigations into both dumping and countervailing duties (CVD) on common alloy aluminum sheets in November. On January 12, the International Trade Commission ruled that these products were, indeed, causing injury to domestic US competitor firms.
Preliminary CVD rates are set to be released by February 1 and the decision in the antidumping (AD) portion of the case is due on April 17.
Other AD and CVD cases are likely to be filed, either by industry or self-initiated by Commerce. Prior to the aluminum sheet case, the last self-initiated AD case was in 1985 on semiconductors from Japan. The last, previous use of a self-initiated CVD case was in 1991 on softwood lumber from Canada.
While USTR officially has a year to make a determination in the pending Section 301 investigation into Chinese intellectual property theft and forced technology transfer, this deadline is likely to be moved up significantly. USTR will probably rule that American firms have been harmed by Chinese actions and that these injuries require remedies. Damages could involve significant tariffs, calculated by considering harm caused cumulatively over the past decade.
President Trump’s State of the Union address on January 30, provides the perfect opportunity to highlight the evolving trade agenda and note recent or upcoming actions, particularly vis-à-vis China.
The newly released US national security strategy has explicitly labeled China a “revisionist” power and accused it of stealing US IP valued a “hundreds of billions of dollars.”
In a January 18 interview with Reuters, Trump promised to discuss the 301 case during his upcoming speech. He said, “We’re talking about big damages. We’re talking about numbers that you haven’t even thought about.”
After more than a year of Presidential promises of trade crackdowns met with limited action, the trade and business community may have stopped paying much attention. However, it may be time to refocus on China trade decisions coming from inside Washington over the next two weeks. Decisions on solar panels and washers appears to be just the beginning.
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