Donald Trump’s rhetoric on trade policy has been, to say the least, over the top. The economic nationalism in his inauguration speech was particularly alarming. But there is a great deal of uncertainty about the extent to which his actual policies will reflect this rhetoric. As an example, look at what Trump said yesterday about requiring domestic materials (mainly iron and steel) in the construction of pipelines, and compare that to what he actually did.
First, here’s what he said as he signed a Presidential memorandum on “Construction of American Pipelines”:
This is construction of pipelines in this country. We are – and I am – very insistent that if we’re going to build pipelines in the United States, the pipes should be made in the United States. So, unless there’s difficulty with that because companies are gonna have to sort of gear up; much pipeline is bought from other countries. From now on, we’re gonna start making pipeline in the United States. We build it in the United States; we build the pipelines; we wanna build the pipe. Gonna put a lot of workers, a lot of steel workers, back to work. Okay. We will build our own pipeline. We will build our own pipes. That’s what it has to deal with. Like we used to, in the old days.
That sounds very strident and forceful: We will use American steel for American pipelines!
What he actually did, however, is much more nuanced. Here is an excerpt from the memorandum he signed:
MEMORANDUM FOR THE SECRETARY OF COMMERCE
SUBJECT: Construction of American Pipelines
The Secretary of Commerce, in consultation with all relevant executive departments and agencies, shall develop a plan under which all new pipelines, as well as retrofitted, repaired, or expanded pipelines, inside the borders of the United States, including portions of pipelines, use materials and equipment produced in the United States, to the maximum extent possible and to the extent permitted by law. The Secretary shall submit the plan to the President within 180 days of the date of this memorandum.
So instead of there being an immediate requirement to use domestic iron and steel in pipelines, which is kind of how it sounded when Trump made the announcement, there will be an interagency consultations process to “develop a plan” within 180 days. And under this plan, domestic iron and steel is to be used “to the maximum extent possible and to the extent permitted by law.” The “to the extent permitted by law” qualification is particularly relevant, as it could be interpreted to mean that the requirement would not apply if it violated international trade obligations, such as the non‐discrimination rules in the World Trade Organization (WTO). That is, the requirement which is actually applied after the plan is developed might exempt all countries who are members of the WTO. If such an exemption were used, the impact of the requirement would be negligible, since most counries are WTO members. (On a trade specialty blog I run, I explained why this kind of domestic content requirement would almost certainly violate trade obligations).
The difference between the rhetoric and the possible reality here means that we still don’t have a very good idea of what U.S. trade policy under Trump is going to look like. At some moments, it seems like we are headed into uncharted protectionist territory; at others, it seems more like a continuation of existing policies, with minor modifications. All we can do at this point is wait for concrete policy proposals and evaluate them as they come out. Hopefully the reality will not match the rhetoric.
Earlier today, demonstrating his preference for action over reason, President Trump signed an executive order to officially withdraw the United States from the Trans-Pacific Partnership agreement. On the one hand, it’s refreshing to witness the rare act of a politician fulfilling a campaign pledge. On the other hand, there is nothing else good about it. Trump detonated a bomb; six years of negotiations went boom; now what?
To a president who seems intent on turning the country inward, raising the barricades, demanding self-sufficiency, and eschewing the outside world, the TPP was an obvious target. But what’s especially disconcerting is that the president didn’t need to go this far to keep TPP out of play. The agreement couldn’t possibly take effect without congressional passage of implementing legislation, and his signature affixed. He could have just kept TPP on the back-burner in the event that its utility, relevance, or imperative to U.S. economic and geostrategic objectives became evident, as his term progressed. Because it will.
My colleagues and I did a thorough, chapter-by-chapter assessment of the TPP and concluded that, on net, implementation would advance our economic freedoms. But there is also a geostrategic rationale for the TPP that compels beyond the text of the agreement. I presented that case in a few different articles, but here's an excerpt from the most recent oped, in The Hill:
If patriotism is the last refuge of scoundrels, where will President Trump turn when his “America First” policies lay waste to the very people he professes to be helping?
The ideas conjured by “Buy American” may appeal to many of President Trump’s supporters, but the phrase is merely a euphemism for doling political spoils, featherbedding, and protectionism. The president may score points with union bosses, import-competing producers, and some workers, but at great expense to taxpayers, workers and businesses more broadly.
Cordoning off the estimated $1.7 trillion U.S. government procurement market to U.S. suppliers would mean higher price tags, fewer projects funded, and fewer people hired. In today’s globalized economy, where supply chains are transnational and direct investment crosses borders, finding products that meet the U.S.-made definition is no easy task, as many consist of components made in multiple countries. And by precluding foreign suppliers from bidding, any short-term increases in U.S. economic activity and jobs likely would be offset by lost export sales – and the jobs that go with them – on account of copycat protectionism abroad.
Former Reagan administration deputy U.S. trade representative and longtime trade-remedies attorney, Robert Lighthizer, is President-elect Trump’s choice for United States Trade Representative. Considered in conjunction with the appointments of Peter Navarro to head the newly-created National Trade Council at the White House (my take) and Wilbur Ross at the Commerce Department (my take), Lighthizer’s selection seems to confirm fears that U.S. trade policy is descending into darkness. At the very least, it is reasonable to assume that for the foreseeable future trade policy will be overwhelmingly enforcement-oriented, while trade agreements and other forms of liberalization will be relegated to the doghouse.
For many years, Lighthizer has represented U.S. steel companies, America’s most trade-litigious industry, filing dozens of antidumping and countervailing duty petitions to keep foreign steel out of the United States. Some of the cases in which he was involved were brought before WTO dispute settlement, where the panels and Appellate Body ruled that the United States was administering its antidumping law in ways that violated U.S. commitments under the WTO Antidumping Agreement.
Perhaps, as a result of those experiences, Lighthizer has been a strident critic of the WTO’s dispute settlement body, which he accuses of overreach and usurpation of U.S. sovereignty. (Here is a debate from 10 years ago between Lighthizer and me on the merits of the WTO.) The fact is that there may be somewhat of a pro-complainant "bias" at the WTO because governments don’t bring cases to dispute settlement unless they are reasonably certain of victory. There is a selection bias. When the United States is the complainant, it wins most of the issues in most of the cases. When the United States is the defendant, it loses most of the issues in most of the cases. It just so happens that the United States has had to defend its indefensible antidumping regime many times at the WTO, and in most cases it has lost. Antidumping litigation is Lighthizer’s bread and butter.
In yesterday’s Investor’s Business Daily, Club for Growth President David McIntosh and I had a short piece on the perilous implications of President-elect Trump’s threats to unilaterally withdraw the United States from our trade agreements or impose punitive and wide-ranging tariffs on imports. The economic effects of Trump’s promises have been explored at length (see, e.g., this new one on NAFTA and Texas), but most trade law experts are just now digesting the legal issues. What we’re finding is, to use the technical term, a big mess that could have unforeseen economic and constitutional implications in the Age of Trump. As we note:
For almost a century, American trade policy has been formed and implemented by a successful "gentlemen's agreement" between Congress and the president. Congress delegated to the president some of its Article I, Section 8 powers to "regulate Commerce with foreign nations" so that the president may efficiently execute our domestic trade laws. The president negotiates and signs FTAs with foreign countries, while Congress retains the ultimate constitutional authority over international trade, for example by approving or rejecting agreements or by amending US trade laws.
As a result of this compromise, the United States has entered into 14 Free Trade Agreements with 20 different countries and imposed targeted unilateral trade relief measures — all without significant conflict between Congress and the President.
The question now is whether Mr. Trump, as president, could and should single-handedly implement his trade agenda on Jan. 20, 2017 without any congressional action.
The IBD op-ed scratches the surface of these legal issues, but below are more details on just a few of the many ambiguities lurking in U.S. trade law—ambiguities that, if not properly clarified, could be exploited by a protectionist U.S. president against the original intent of the Congress that delegated their constitutional authority over trade policy under the (incorrect!) assumption that the president would always be the U.S. government’s biggest proponent of free trade.Read the rest of this post »
“Well we're living here in Allentown
And they're closing all the factories down
Out in Bethlehem they're killing time
Filling out forms
Standing in line
Well our fathers fought the Second World War
Spent their weekends on the Jersey Shore
Met our mothers in the USO
Asked them to dance
Danced with them slow
And we're living here in Allentown.”
– Billy Joel, “Allentown,” 1982
Nearly 35 years after the release of Billy Joel's wistful lament about the decline of iconic Bethlehem Steel and the selfless virtues of America’s “Greatest Generation” along with it – the U.S. steel industry may be getting the last laugh. Yesterday, former Nucor Steel CEO Dan DiMicco and longtime Washington trade attorney Robert Lighthizer, who has devoted much of his professional career to building walls between foreign steel and the U.S. companies that want to buy it, were appointed heads of President-elect Trump's "Landing Team" at the Office of the United States Trade Representative.
To those who have been holding out hope that Trump’s anti-trade campaign bluster would moderate before it could be converted to policy, the selection of DiMicco and Lighthizer is pretty devastating news. Neither has met a tariff he didn’t like or a trade agreement he did. To the non-political staff at USTR, the DiMicco/Lighthizer duo must feel like a real poke in the eye. After all, the mission of the agency is “to work toward opening markets throughout the world to create new opportunities and higher living standards.” The staff is generally committed to trade liberalism and good will among nations and their sensibilities are informed by foreign service backgrounds. DiMicco and Lighthizer bring an enforcement and prosecution ethos to the USTR, which will send a lot of the existing staff to the exits, while ensuring that the agency’s budget is devoted primarily to bringing complaints against our trade partners, rather than negotiating new and better deals.
Of course, Trump mistakenly cites the U.S. trade deficit as evidence that the United States is losing at trade. We are losing, he bellows, because our trade agreements are disastrous. And, they are disastrous, he reasons, because U.S. negotiators always get outsmarted by their crafty foreign counterparts. What better way not to get outsmarted than to appoint people who would take a wrecking ball to existing agreements instead of crafting new ones?
For reasons unsupported by facts, DiMicco abhors the North American Free Trade Agreement and wants it shredded. He also wants the United States to withdraw from the Trans-Pacific Partnership – which, yesterday, became one of Trump’s Day One priorities. Trump has been outspoken about his intentions to declare China a currency manipulator and to respond with punitive unilateral measures. To the extent that Trump’s actions are constrained by U.S. treaty commitments under the World Trade Organization, Lighthizer has a long history of challenging the veracity of the WTO dispute settlement system, which he claims embodies an anti-American bias. He has long advocated for closer scrutiny and, if warranted, U.S. withdrawal from the WTO.
I said there was no way Trump would last through the early primaries. I belittled the prospect of Trump even attending the convention, much less accepting the Republican nomination. And I was cavalier in my certainty that Trump would be making a concession speech early Tuesday night. In other words, by Washington’s standards, I have established credibility on the subject.
So you should feel reassured that I am less bearish about the direction of President Trump’s trade policy than I probably should be given candidate Trump’s bellicose campaign rhetoric.
The trade policies Trump outlined in broad strokes on the campaign trail would – to put it mildly – devastate the economy. For example, Trump has said he would:
- impose duties on 35 percent on imports from Mexico and 45 percent on imports from China;
- impose special taxes on U.S. companies that incorporate foreign components or labor into their production or assembly operations;
- tear up the North American Free Trade Agreement – or at least renegotiate what he calls “the worst trade deal ever negotiated,” and abandon the Trans-Pacific Partnership, which he calls a “rape of our country”;
- declare China a currency manipulator and impose countervailing duties to mitigate the export price advantages that practice allegedly bestows;
- use tax policy, protectionism, and the threat of more protectionism to compel China, Mexico, and all of the other countries with whom the United States runs bilateral trade deficits to buy more from U.S. producers and sell less to U.S. consumers in order to achieve a state of balanced trade;
- tax manufacturing companies that lay off workers.
The list of angry, knee-jerk, foolish ideas goes on and on. If you take candidate Trump at his word, U.S. trade policy is going to be an unmitigated disaster.Read the rest of this post »