Trade correspondent L.C. reports:
President Trump is moving to wrap up trade talks with Japan and China and to get Congressional ratification of the USMCA. The trade talks are moving toward possible conclusion by the end of the year, but the USMCA is running into opposition from trade unions and Democratic legislators in the House.
President Trump hosted Prime Minister Shinzo Abe in Washington on April 26-27 for two days that included talks on trade and strategic matters as well as social interactions. If an accord can be reached by negotiators, the two leaders could endorse it at one of the President’s upcoming visits to Japan:
- in May to meet the new Emperor on May 25-28, or
- in June to attend the G20 Summit in Osaka on June 28-29.
Trump and Abe will also meet at
- the Group of Seven (G7) summit in Biarritz, France, Aug. 25-27, and
- the Asian-Pacific Economic Cooperation (APEC) summit in Santiago, Chile, November 11-17.
Cow-car trade-offs and currency provisions
The Trump Administration may be hoping initially for a limited deal that lowers Japan’s agricultural duties. Japan will resist this unless it is paired with US auto concessions.
The Japanese have no incentive to rush things. They would probably prefer not to announce any concessions before the July elections in Japan. That’s why they delayed as long as possible entering the talks and only did so under threat of President Trump imposing Section 232 (“national security”) automotive tariffs.
The President has often paired his threat of Section 232 tariffs with a demand for more production of Japanese cars in the US. But it is not clear how a trade deal between governments could force investment decisions by private companies. A US demand that Tokyo push its companies to invest in the US would be a demand for the sort of statist intervention the US decries in China, and Japan abandoned years ago.
Another point of contention already visible in the talks pertains to the US demand for inclusion of a currency provision that the Trump Administration wants to include in all trade agreements and doesn’t want to set any precedent by leaving it out. The Administration also wants it because of traditional US suspicions of Japanese intervention to devalue the yen. While such intervention hasn’t occurred in recent years, the US has kept Japan on its Treasury “Watch List” of countries with imbalanced trade with the US, and is upset about the dollar’s current high value. From Tokyo’s side, such a provision should be rejected because it could crimp the Bank of Japan’s ability to respond to changes in the economy.
The US did manage to get a currency provision in the USMCA — and even in the Trans-Pacific Partnernship (TPP), though that one was mild and without teeth.
On agricultural trade, political pressure from the US farming community ratcheted up again this week when 88 top agriculture associations and companies sent a joint letter to US Trade Representatiave (USTR) Lighthizer on April 22nd urging that a deal be made quickly with Japan. That deal, the letter explained, must include access to Japan for US farm products at least equal to that granted to the TPP-11 and EU countries. “As the fourth largest market for US agricultural products, improved access to Japan is imperative for the continued growth of the sector and the millions of American jobs it helps support.”
The letter notes that Japan recently undertook its second round of tariff cuts for its new free-trade agreement (FTA) partners, and as a result, “US exporters of wheat, beef, pork, dairy, wine, potatoes, fruits and vegetables, and other products are facing collapse of their Japanese market share as these lucrative sales are handed over to their competitors.”
US-China trade talks may be concluding
The US-China trade talks continue to move ahead with the endgame apparently approaching. Lighthizer and Treasury Secretary Mnuchin will travel to Beijing for talks starting on April 30th, and Chinese Vice Premier Liu He will return to Washington for talks starting May 8th. “The subjects of next week’s discussions will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases and enforcement,” according to a White House announcement.
President Trump boosted speculation about a near-term conclusion when he told an April 25th rally that President Xi will be coming soon to the White House. Xi’s April 26th speech to the second Belt & Road Initiative Forum in Beijing was also seen as signaling that he is prepared to offer some changes desired by Washington.
China has been using its trade clash with the US to improve its ties with other countries not enamored of US trade policy, including France, the EU broadly, Russia, and even Japan. Nonetheless, it would like to reach a deal to end the trade war, and it does appear that Xi is preparing to do so.
As reports continue to suggest that the agreement being worked out does not include a quick end to the Section 301 (unfair trade) tariffs and counter-tariffs, the US private sector is making its dismay known. An April 22nd letter to the President signed by 151 organizations representing myriad sectors under the umbrella of the Americans for Free Trade coalition urged the “full and immediate removal” of the Section 301 tariffs and counter-tariffs as part of any deal and that tariffs not be used as an enforcement mechanism.
The letter was tough. It directly challenged the President’s policy of using tariffs to wrest concessions from trading partners. “We agree that enforcement must be a part of a final deal,” but the Administration “promised that tariffs were merely a means to an end, and that all this damage would be worth it. A deal that fails to lift tariffs would represent a broken promise” and “a deal that results in perpetual tariffs would be a failure…. Using tariffs to enforce a deal that eliminates tariffs is a lose-lose proposition, and once again Americans would pay the price.”
Yet this week’s reports indicated that the deal being crafted won’t terminate the tariffs and will use the tariff threat for enforcement.
Flagrant Chinese spying continues
The US has once again arrested people with links to China for economic espionage. A federal indictment unsealed on April 23rd charges a US citizen, Xiaoqing Zheng, and a Chinese businessman, Zhaoxi Zhang, of plotting to steal trade secrets and intellectual property pertaining to General Electric’s advanced steam turbine technology in order to give it to Beijing to pass on to Chinese companies.
The arrests came just before FBI Director Christopher Wray, speaking to the Council on Foreign Relations on April 26th, blasted China for its economic espionage. “China has pioneered a societal approach to stealing innovation in any way it can from a wide array of businesses, universities and organizations” and “”They’re doing it through Chinese intelligence services… state-owned enterprises… ostensibly private companies… graduate students and researchers [and] a variety of actors all working on behalf of China…. They actually have a formal plan set out in five-year increments to achieve dominance in critical areas…. using an expanded set of non-traditional methods,” targeting other countries as well as the US. Wray said the US has “underestimated this threat in the past” but now realizes that it “needs to be taken seriously.”
As the issue of Chinese espionage gets increasing attention in the press, it is becoming harder for the Administration to conclude a trade deal that is weak on issues relating to intellectual property protection.
USMCA signing faces multiple obstacles
Prospects for implementation of the USMCA remain centered about two factors: questions about Mexico’s enforcement of labor standards – an issue on which the Democrats have yet to clarify precisely what they are demanding – and persistence of the Section 232 steel and aluminum tariffs on Mexico and Canada.
Speaker of thte House Nancy Pelosi continues to be among the Democrats who say they want the USMCA text changed and want to be assured that Mexico will enforce its labor reforms. It may be possible to satisfy her concerns short of reopening negotiations, but that has not yet happened.
The Administration is intensifying its promotion of the USMCA, which it would still like to have acted on before August. For the second week in a row, Vice President Mike Pence toured the country – Texas last week, the Midwest this week – for the purpose of encouraging Americans to tell their congressmen to vote for the agreement.
The Mexicans are also stepping up their efforts to smooth the USMCA’s path in Congress. This week they welcomed a delegation of House Democrats – including staff from Pelosi’s office – to Mexico City to discuss the agreement and answer their concerns.
Hat tip: Nicomachus
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