Trade Policy and the Trump Administration

Sunday, February 26th, 2017 at 5:11 am, by Michael Kahn

During the campaign season and in the early days of the new administration, there has been considerable attention focused on changing the way the United States engages in trade across the globe. What remains unclear, however, is just how President Trump and his administration plan to address what they see as deficiencies in the status quo in American trade relations and procedures.

Operating under the broad aegis of the Tariff Act of 1930, the Federal government has established a long history of regulating trade in general and imports into the U.S. in particular.  In the case of perceived injury to domestic industry, the well-established path for seeking redress has been for the industry affected (“petitioners”) to seek redress from the Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“ITC”).  Commerce is charged with investigating any incidences of unfair trade by overseas suppliers (“respondents”) to the U.S., particularly allegations of local government subsidies and sales below the exporter’s local market price.  The ITC is charged with the task of determining whether the U.S. domestic injury has been injured by the aforementioned practices.  Under section 702 (b) and 732 (b) of the Act, to commence an investigation an “interested party” must request relief under the U.S. Countervailing and Dumping Laws.  The ITC’s publication 4540 identifies various classes of potential petitioners, principally industry participants.  Both Commerce and the ITC launch investigations, with the historic slant trending consistently in favor of the petitioner.  This natural bias is expressed in various aspects of the process, including Commerce’s ability to review any filings in advance to ensure accurate submissions, the timelines imposed on the respondents to provide often detailed and exhaustive data, and—in the case of a tie vote in the determination of injury—the tie favors the petitioner.  Yet in general, Commerce was perceived as operating impartially, evaluating testimony and establishing dumping and countervailing margins on the basis of the facts gathered in their questionnaires and industry surveys.

During his presidential campaign, Donald Trump consistently advocated a strong protectionist position, targeting various exporting countries—China in particular—as well as promising to withdraw from NAFTA and to terminate U.S. support for the Trans-Pacific Partnership (“TPP”). Once in office, the President has followed through on this commitment, immediately terminating TPP and reaffirming his commitment to supporting U.S. domestic industry and withdrawing from NAFTA.  In further targeting the stated goal of protecting domestic industry, he has named several individuals to key posts, with their influence likely to support these objectives.  With Wilbur Ross nominated as Commerce Secretary, Robert Lighthizer as U.S.Trade Representative and Dan Dimicco (the former chairman of Nucor Steel, a frequent petitioner at Commerce) as a key campaign advisor on trade, it is likely that his administration will take a more aggressive stance on trade.  Ross has had an established role in leading domestic industry in key areas, including steel and coal.  While Lighthizer has a more varied and balanced background, he as well has played a key role in negotiating voluntary restraint agreements with overseas producers of steel to stem imports of their products in the U.S.  Indeed, Ross’s testimony before Congress suggests that the investigation and enforcement of trade laws would be handled more aggressively.  His specific comment that Commerce would seriously consider “self-initiation” of trade cases is a stark departure from the long-established practice that allegations of unfair trade must originate from the affected industry.  The ability to “self-initiate” trade cases could serve to negatively affect the veneer of impartiality from Commerce’s investigations.   

The protectionist stance regarding trade staked out by the current administration portends several significant changes in trade practices that have been established over the past decades.  While it is obvious that any new administration retains the prerogative to change existing practices, it is the uncertainty and speed of potential change that is likely to be unnerving in the short term to the importing community and longer term to consumers and the economy in general.  Importers are accustomed to certain trade practices, and the risk of any new duties or risks is usually disseminated months in advance within the industry when new petitions are filed.  Such rumors also serve as advance warnings to both domestic importers and exporting countries of a perceived threat and provide an opportunity for exporters to refrain from any damaging practices and for importers to reduce or cease imports, lest they be assessed high and often crippling duties.  The current administration’s stated position to self-initiate cases removes the warning stage, potentially exposing trade participants to duties and hobbling their businesses, sometimes fatally.  Additionally, with a more aggressive trade stance, the finding of dumping and subsidies by Commerce and damage to domestic injury by the ITC could also trigger a more frequent finding of Critical Circumstances (Section 351.206 of the Act), penalizing importers retroactively for duties.  There are a wide range of areas in which a protectionist administration could affect decades of established practice, such as the case now before Commerce in which the definition of “substantial transformation” of steel and the resultant definition of country of origin may be changed.  Ultimately, imports and the current trade agreements benefit consumers, as lower priced goods become available, keeping inflation in check.  Changes in such established practices, while certainly the prerogative of the administration, need to be examined closely on a cost-benefit basis with appropriate consultation with all interested and affected parties before unilateral action is undertaken.