The weekly trade report with L.C.
Last Friday, March 27th, the Wall Street Journal quoted a senior administration official to the effect that “The Trump administration is preparing to suspend collection of import tariffs for three months to give U.S. companies financial relief amid the coronavirus pandemic.” Asked about this at a press conference the same day, President Trump strongly denied the report, calling it “fake news.” So tariff relief — whether imposed on China or the rest of the US’s trading partners — is clearly off the agenda for now, despite its likely benefits for consumers and many manufacturers.
Two days earlier, on March 25th, twelve Republican members of the Senate Finance Committee sent a letter to President Trump presenting five recommendations for trade action on the COVID-19 crisis. “One area where you have immediate tools at your disposal to decrease the economic harm from COVID-29 is trade policy,” they wrote. “We want to highlight several options that merit serious consideration.” The recommendations were weighted strongly toward trade liberalization. The letter was signed by all the Republicans on the committee with the exception of Senators Burr, Daines, and Portman.
Senate Republican recommendations
The five recommendations were to:
1) “[C]oordinate with other countries to address import and export restrictions imposed in response to COVID-19 to ensure that they are limited…. [W]e urge you to pause any consideration of reported “Buy American” requirements for medical goods…. We simply cannot risk paralyzing an utterly critical supply chain.”
2) “[C]onsider tariff relief on medical devices, pharmaceutic products, and any other health an safety products” and undertake a review to see if more Section 301 tariffs on such supplies should be lifted.
3) [P]rovide a temporary deferral of duty collection for businesses to opt-in to…. to improve the liquidity of our businesses during this time of economic disruption.”
4) Extend tariff relief “through the exclusion process for Section 301” and consider automatically extending tariff relief for another year.
5) “[I]nclude suspending implementation of any measures… that would create uncertainty or undue difficulty… and asking our global trading partners to do the same…. [W]e urge you to consider a total moratorium on new tariffs or tariff increases for the time being.”
Letter was one of many
This appeal was just one of many urging tariff relief, both to help the US economy and to facilitate access to needed medical supplies. But trade hawks within the administration opposed the idea, especially the idea of lifting the Section 301 tariffs on China. So do some US steel-producers, who don’t want to lose the protection of the Section 232 tariffs.
Nevertheless, the past week saw the USTR approving more tariff exemptions for Chinese medical-related items.
Customs reverses itself
A different decision on granting tariff relief that was already announced was reversed this week. Last week, US Customs & Border Protection (CBP) said that in light of the pandemic, it had begun considering requests from importers for a delay of payments of Sections 232 and 301 duties, giving some temporary relief. CBP can at its own discretion delay collecting tariffs in certain circumstances, and it had told companies they should submit requests for such relief. But some US industries who benefit from those tariffs objected, and this week CBP said it is no longer going to consider such requests.
Some companies are now pushing Congress to pass legislation requiring that CBP give a 90-day reprieve in collection of these duties. They got support in the Senate Republicans’ letter noted above, and a group of Democratic senators led by Diane Feinstein (D-CA) is also calling for a 90-day duty payment delay.
Trade maintenance or export restraints?
Abroad, on March 25th, ministers of seven countries – Australia, Brunei, Canada, Chile, Myanmar, New Zealand, and Singapore – issued a joint statement “affirming commitment to ensuring supply chain connectivity amidst the COVID-19 situation.” The US, Japan, China, and the EU were not among the signers, and the G20 and G7 countries didn’t commit to anything so sweeping.
Swiss-based Global Trade Alert reported that about 54 countries have already responded to the health crisis by slapping on export restraints. Washington has not done so, but has not condemned those that have. In fact, in a March 20th letter to the editor of the Wall Street Journal, Lighthizer endorsed the use of export restraints, saying of countries like Germany and South Korea that have limited the export of products needed to combat the virus, “At times like this, nations inevitably will put the interests of their own citizens first. Indeed, if there is one lesson to be drawn from this crisis, it is that dependence on other countries as the source of key medical products has created a strategic vulnerability for the US.”
White House – Congressional differences over tariff relief
The global protectionist trend has alarmed many who fear such policies will further hinder needed international cooperation in the face of the emergency. This all feeds into the debate taking place in Washington and within the White House over globalization and autarky. It pits President Trump’s most hawkish advisers, led by Peter Navarro and Lighthizer, whose unilateralist ideas resonate with the president, against members of Congress of both parties and much of the business community, who fear that protectionism will worsen the crisis.
The crisis itself has strengthened some of the hawks’ arguments, in particular that the US has been too dependent on China and foreign sources for some critical supplies. But it has also strengthened the arguments of their opponents, who say that the US made its own position worse by slapping tariffs on vital medical supplies. This was done against the warnings of businesses that pointed out this would leave us vulnerable in a health emergency. They further argue that international cooperation and rejection of trade-limiting policies are the best practices for dealing effectively with the pandemic.
China, Taiwan
But the US-China Phase One Trade Agreement is apparently marching ahead amid the pandemic crisis, even as bilateral relations run hot and cold.
Meanwhile, President Trump signed into law on March 27th the Taiwan Allies International Protection and Enhancement Initiative Act (TAIPEI). It passed the Senate unanimously last October and the House unanimously on March 4th. Predictably, it was decried by Beijing as interference in its internal affairs. The act calls on the Administration to consider reducing its engagement with countries that are not supportive of Taiwan and to advocate for Taiwan to be able to join or be an official observer in international bodies. The legislation doesn’t have strong teeth, so China is unlikely to do anything more than denounce it.
Negative effect of US-China deal on EU
Separately this week, an annual report on US-EU trade and investment released by the American Chamber of Commerce to the EU found that the US-China Phase One trade deal will result in an $11 billion drop in demand for European – especially German and French – products. The “Trans-Atlantic Economy 2020” report, done by Johns Hopkins researchers, attributes the hit to trade diversion of China’s imports toward US suppliers. The Chamber also notes that the EU will continue to suffer fallout from the US-China trade war that has been going on despite the trade agreement and increasingly from the negative trade attention the US is turning to Europe now that the China and USMCA deals are concluded.
Senators request oil dumping probe
Seeking to protect the domestic petroleum industry from the Saudi-Russian oil price war – which some think is really targeted against the US shale oil industry – nine Republican senators led by Sen. Jim Inhofe (R-OK) wrote to Commerce Secretary Wilbur Ross requesting that his department initiate a Section 232 investigation on the national security impact of crude oil imports. Inhofe says he told Ross, “We want you to make a determination that dumping is taking place, and we know it is.”
Not everyone agrees that action under Section 232 would be beneficial. PIIE’s Gary Hufbauer released a paper on March 27th in which he argued that “Hasty reactions like those being proposed will not have their intended effect, but will damage American companies and harm consumers. Tariffs – as they always do regardless of which industry affected – would raise costs for US refineries that rely on some oil imports. The increased costs would add uncertainty for global supply chains and lead to higher gas prices for Americans…. Americans and the economy are under a tremendous strain in these unprecedented times. Let’s not make things worse by launching a new trade war.”
Reduced role for WTO
WTO Director-General Roberto Azevedo sent a message to member countries on March 24th showing concern over the rise of trade restrictions in response to the COVID-19 outbreak. He didn’t oppose the measures but stressed the importance of transparency. The most serious trade concern at this time centers about export restrictions, given the competition among countries to obtain needed medical supplies.
Azevedo also warned, in a video statement, of a “very steep decline” in global trade, expected to fall by about 25% this year. He urged member countries to keep their markets open as much as possible in the face of the COVID-19 challenge. “No country is self-sufficient,” he noted, “no matter how powerful or advanced it may be. Trade allows for the efficient production and supply of basic goods and services, medical supplies and equipment, food and energy … Keeping trade and investment flowing will be critical to keep shelves plentiful and prices affordable.”
L.C. reports on trade matters for business as well as Founders Broadsheet.
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