U.S. Trade Policy: One Heck of a Week for U.S. Economic Diplomacy

Discombobulate, (Oxford Dictionary): Verb: Confuse or disconcert. Synonyms: astonish, dumbfound, stagger, startle, stun, stupefy, daze.

I am steadily drawn back to these descriptors as I try to parse U.S. trade policy. Frankly, I was confused during the campaign. I hit disconcerted shortly after the election. I quickly passed astonished. I am well into dumbfounded and, almost happily, seem to be reaching dazed.

President Trump dumped the Trans-Pacific Partnership (TPP), abandoned the Trans-Atlantic Trade and Investment Partnership negotiations (TTIP), let the Trade in Services (TiSA) negotiations whither, ended the US-China Strategic and Economic Dialogue, along with the associated US-China Joint Commission on Commerce and Trade. He re-opened the U.S. Korea Trade Agreement and the NAFTA. All this, according to Bloomsberg, is part of the costly “exercise in grandstanding, intended to impress his supporters.”

The pace is accelerating. In the past week, the Administration claimed to have called off a trade war with China, cast doubt over the framework of talks with Beijing, and threatened new tariffs on car and truck imports to protect America’s national security. Yesterday he re-asserted his threat to impose a raft of new tariffs, export controls and investment restrictions on China.

“In other words,” Bloomberg notes, “it’s been just another week for the volatile trade policy of President Donald Trump. The coming days aren’t looking much calmer.”

Specifically, Commerce Secretary Wilbur Ross is scheduled to visit China June 2-4 for more talks with Vice Premier Liu He, with a long list of topics from narrowing the trade gap to the fate of China’s telecommunications giant ZTE Corp. These talks might ease tensions with Beijing, or they might ramp it up. Hard to know.

It seems to depend on who is speaking and how they perceive on that day, the mad scramble to deliver on election promises by challenging trade practices—fair and unfair—using weapons often negotiated away long ago.

Pulling claims of national security from his back pocket, Trump threatened substantial tariffs on steel and aluminum and immediately used it as a negotiating bludgeon with our largest trading partners and closest allies. The current exclusion for the EU and NAFTA partners expires Friday. On a roll, Trump launched another probe into the national security problem of auto imports, which ironically has been opposed by the auto producers.

Meanwhile, Speaker Paul Ryan has made it clear that the deadline for getting a NAFTA agreement submitted in time to clear the current Congress has nearly passed. Unfortunately, “the NAFTA countries,” Robert Lighthizer, Trump’s USTR states, “are nowhere near close to a deal,” Republican Senator John Barasso (WY) then proposed a “skinny” version (that is, a new NAFTA deal that would not need Congressional approval because it changed no laws). That idea has been strongly opposed, by Republicans.

The Commerce Department imposed record sanctions on Chinese telecomm giant ZTE. Trump promptly shocked Washington when he tweeted that he was working to give ZTE “a way to get back into business, fast.” “President Xi of China, and I, are working together” as “too many jobs in China lost.

The Republican led Senate Banking Committee approved 23-2 an amendment that would prevent President Trump from reversing the sanctions levied against ZTE. The House Appropriations Committee likewise approved an amendment to a Commerce Department funding bill that would preserve the U.S. sanctions.

The problem got more complicated when it became known that the Chinese government is contributing a $500 million loan to a subsidiary of the state-owned construction firm Metallurgical Corporation of China, which signed a deal with Indonesia’s MNC Land company to build an ambitious theme park outside Jakarta. The project includes Trump-branded and managed hotels, residences and a golf course. Not to mention that Ivanka Trump coincidentally just got 13 trademarks approved in China.

As the trade war with China was being put on hold, the EU is preparing to hit roughly $3.34 billion worth of U.S. goods with a 25 percent tariff and an additional $4.22 billion worth of U.S. goods with tariffs ranging from 10 to 50 percent.

Also in retaliation, Japan filed its intent to withdraw WTO concessions equal to the amount of trade affected by Section 232 tariffs imposed by the U.S. on steel and aluminum imports. India has formally requested WTO dispute settlement consultations with the United States over U.S. Section 232 tariffs on steel and aluminum.

As we stir up a trade war with our most important allies, the White House, pressured by China’s threats to reduce US agricultural imports, suspended plans to impose the new tariffs on Chinese goods. The trade war with China at least was put on hold, despite the President’s confidence that ”trade wars are good and easy to win.

The President’s Trade Representative quickly challenged the move with a strong statement that tariffs are still a very important tool “to protect our technology.”

Democrats of course are shouting their opposition, as the administration allows “China to buy their way out instead of making real reform.” Even industry supporters are lamenting that the art of war has vanquished the art of the deal.

Republican Senator (NE) Ben Sasse complained that he has yet to see any “substantive facts” behind a U.S.-China deal and agrees that the U.S. is losing the trade negotiation with China. He states:

“Frankly, I’ve read lots of stories over the last three or four days about the trade deal and the particulars of how the U.S. won. I have yet to find a story that actually has any substantive facts underneath it to explain what the deal is.… It looks to me like we are losing the trade negotiation with China but the administration has done a masterful job of spinning a lot of reporters to say the administration says they just won a China trade negotiation.”

Republican Senator Rob Portman (OH), a former USTR, says the U.S.-China talks were “moving in the right direction,” but concedes “we’ve got a lot of balls in the air right now, too many I think. You need to focus on one issue at a time.”

Sasse disagrees about the right direction, arguing that the “single best thing” the U.S. could do to combat “bad behavior” in China was to not only rejoin the Trans-Pacific Partnership, but to lead the bloc because “…the single best thing we could do to push back against Chinese bad behavior — because there’s a lot of it — would be leading TPP.”

Sasse reported that Trump directed U.S. Trade Representative Robert Lighthizer and National Economic Council Director Larry Kudlow to “negotiate U.S. entry” into TPP. The White House later disputed it; President Trump reiterated his opposition to TPP. Sasse responded:

“So, going from being a pro-free trade party to being apparently an anti-free trade party is not because anybody thinks that’s the right, constructive play for the future … but because it’s the right way to capture a whole bunch of angst in the short-term. So, I can’t speak to the Republican party on trade because I think much more broadly it’s hard to articulate any clear Republican vision.”

It is indeed exhausting. The problem with “transactional” trade policy is that it is simple-minded. As a result, it leads to fundamental internal conflict—in this instance, internal to the formerly free-trade Republican Party. The reasons for conflict are, in turn, simple: too many inexperienced cooks with too many disproved recipes stirring an undefined concoction in a surreal pot whose dimensions are still being molded, largely against best evidence. For example, a recent report by NY based Conference Board found that non-Chinese companies make up 43 percent of China’s exports. Foreign-invested entities (FIEs) in China commands 79 percent of ICT exports from China to the U.S.; even higher in the more sophisticated ICT sub-sectors — including computers, electronic components, and electronic devices. Many of these are American firms. They conclude that the proposed Section 301 tariffs will hurt non-Chinese companies operating in Beijing more than the domestic Chinese ones the policy ostensibly targets. But no matter.

The complex global network of value chains and production networks that have arisen over the past seven decades under the leadership of the old Republican Party is now being challenged by the new Republican Party. It occurs at a head-spinning pace against best economic evidence and with no easily discernible long-term strategy.

Robert A. Rogowsky is Professor and Program Co-chair of the Masters in International Trade & Economic Diplomacy at the Middlebury Institute of International Studies in Monterey, CA and Adjunct Professor of Trade & Diplomacy at Georgetown University’s Masters School of Foreign Service.
These essays are the opinions strictly of the author. They do not necessarily reflect the views of the Institute or any officials of the Institute.

 

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