Trade correspondent L.C.’s weekly report:
The Trump Administration is moving aggressively to reach limited trade agreements with India and Japan before the 2020 US elections – but not with China. On September 22th President Trump attended a 50,000 person rally in Houston (dubbed “Howdy, Modi!”) that Indian-Americans held for India’s Prime Minister Modi. This was an occasion for the two leaders to play up the close ties between their countries and each other. More serious conversation is expected when the two meet this coming week in New York, where Modi will be attending the UN General Assembly. It is assumed that they will jointly announce an agreement. There is also discussion of the president visiting New Delhi in November.
In the case of US-Japan negotiations, the most pressing issue for Tokyo is whether the deal will include a commitment from President Trump not to impose Section 232 tariffs on automotive imports from Japan. On the US side, dairy farmers are concerned that the agreement will result in inferior market access for US dairy compared to countries in the EU and the Trans-Pacific Partnership (TPP-11).
But during a September 20th White House press conference held with visiting Australian Prime Minister Scott Morrison, President Trump ruled out China’s proposal for a limited trade deal on an interim basis. It would have centered around Chinese purchases of US goods and some tariff relief by both sides. An October meeting of US Trade Representative (USTR) Robert Lighthizer and Treasury Secretary Steven Mnuchin with China’s Liu He and other high-level Chinese officials is still anticipated.
US-Indian talks
President Trump and Prime Minister Narendra Modi are working hard to reset US-India relations that previously deteriorated. Modi would like the Trump Administration to reinstate India’s benefits under the US Generalized System of Preferences (GSP) program. Those intended benefits for developing countries were withdrawn from India in June. Although they provided duty-free treatment to only a small subset of India’s exports to the US, the affected products were important for many Indian businesses, especially small businesses. They were also important — and sometimes crucial — for some US small businesses. They too have been lobbying for the restoration of India’s GSP status.
That would be an easy request for the President Trump to fulfill. In return, Prime Minister Modi would be expected to agree to some long-standing US complaints, among which are India’s
- Price controls on medical devices,
- Restricted market access for some US agricultural products including dairy, almonds, pork, some fruit, and ethanol, and
- Tariffs on some manufactured goods, including a 20% duty on information and communications technology devices.
Market openings in these areas would likely be beneficial for India’s own competitiveness and development over the long term. One potential difficulty, however, is that any tariff cuts done as part of a limited deal and not extended to other countries on a Most Favored Nation (MFN) basis could run into problems at the WTO.
Modi is also seeking more US investment in India, and he will be meeting with US business executives during his New York visit. His “Make-In-India” plan is based on increasing foreign investment to boost domestic manufacturing. While this goes against President Trump’s policy of trying to discourage US companies from investing abroad, Trump hasn’t been complaining about companies off-shoring to India as much as he has to locations like Mexico.
Will the US slap billions of $ on EU imports?
US-EU trade relations are also at an important juncture. An arbitrator has reportedly ruled that the US has WTO authorization to impose up to $10 billion in tariffs on EU exports as a result of successful US litigation against European government subsidies to Airbus. But the EU is expected to be authorized to impose comparable tariffs on US exports as a result of the EU’s successful WTO case against US subsidies for Boeing! Clearly a settlement between the two equally guilty counter-parties is in order – but so far this has not been forthcoming.
Come what may, the US president has made it clear that he wants to wield his tariff billy club against the EU. Earlier this year USTR Lighthizer produced a $21 billion list of US imports from Europe from which a final hit list could be chosen. It contained many Airbus parts as well as entire Airbus aircraft. Many US businesses are alarmed that imports they need are on the list and have been lobbying to have them excluded. The US and European aerospace industries are closely linked, Airbus has an assembly plant in Alabama, Airbus planes use many US-made components, and US airlines often buy Airbus planes.
The other major argument for finding a negotiated solution is that other countries — China especially, but also Russia and Brazil == are subsidizing competitor aerospace industries. These are beginning to encroach on Airbus and Boeing sales. A US-EU agreement, especially one that reins in subsidies, could put other countries on notice that they will be challenged at the WTO if they don’t abide by the limits.
No USMCA red carpet from Green Democrats
Meanwhile, at home, House Democrats are threatening a new obstacle to congressional passage of the US-Mexico-Canada (USMCA) trade agreement. Last week, USTR Lighthizer submitted his compromise proposals to the House Democratic USMCA Working Group. The proposals were leaked, however, and if the leaks are accurate, the Democrats have introduced a stunning new demand. On September 18th, 110 House Democrats – 47% of their caucus – sent a joint letter to President Trump stating that the Lighthizer proposals
would undercut our climate goals by helping corporations shift climate pollution across borders, increase fossil fuel dependency, and challenge climate policies. [T]he renegotiated NAFTA deal should include binding climate standards and be paired with a decision… to remain in the Paris Climate Agreement…. Though climate is not the only issue that must be addressed in a renegotiated NAFTA, it is a major issue that must be addressed.
The signers included representatives from all parts of the Democratic caucus, including leaders of the centrist New Democrat Coalition, the Progressive Caucus, and eighteen committee chairmen. But if President Trump can conclude trade deals, albeit limited ones, with India, Japan, and other countries, intransigeance by Democrats over USMCA passage may not sit well with an electorate that up to now has been regarding President Trump as the trade disrupter.
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