The weekly trade report with L.C
President Trump is defying Congress in refusing to release, as required by law, a report on whether tariffs on auto imports can be justified for national security reasons. He’s also reportedly taking steps to dismantle the post-WWII trading order by ending the Most Favored Nation (MFN) provision that is central to the WTO.
The report was due a month ago
Congress is putting increasing pressure on the president to release the Commerce Department’s report on its Section 232 investigation of the national security implications of automotive imports. The Section 232 statute requires that this report be made public. Additionally, Congress included a provision in the spending package signed last December that required it to be released by January 19th, 2020. But the Commerce Department announced last month that it will defy both laws and withhold the report. That has angered legislators on both sides of the aisle.
The president and the Commerce Department are also reportedly considering scrapping the Most Favored Nation provision that has been a principal driver of world trade and economic prosperity since World War II.
Congressional push-back against Administration lawlessness?
On February 11th, Senate Finance Committee Chairman Chuck Grassley (R-IA) told reporters that “I intend to pursue it” and will be working with committee ranking Democrat Sen. Ron Wyden (D-OR) on how to proceed against Commerce. Grassley has been pushing for release of the report since it was presented to the president, but Commerce has rebuffed his requests. Now, though, Grassley notes that “it’s quite a different thing when 535 members of Congress have said this report ought to be released.” Not only did Congress pass the spending legislation including this provision – the president himself signed it.
On the House side, nine members of the New Democrat Coalition (of pro-trade centrist Democrats) sent a letter to President Trump on February 13th calling for the immediate release of the report. Denial in doing so, they point out, violates two laws. They also call for the president to abandon his threat to impose automotive tariffs based on the unpublished report. “Your willful disregard for these laws threatens American workers as well as the balance of power that is so essential to our Constitution,” the letter said. Moreover, “Your abuse of the Section 232 tariff process jeopardizes our national security by alienating our allies and threatening the economic security of American workers.”
The reason the report is being withheld from the public is assumed to be because it recommends automotive tariffs without being able to justify them credibly on national security grounds. This implies further that the president intends to continue using the threat of auto tariffs in negotiations with the EU and Japan.
Scrapping Most Favored Nation clause under consideration?
According to Bloomberg News, the White House is considering changing current US duties to bring them up to levels mirroring what other countries charge for the same product. This would make the duties reciprocal, product-by-product, country-by-country – rather than based on negotiated bound Most Favored Nation levels. Such a step would undermine the World Trade Organization’s MFN principle and be an aggressive attack on the current world trading system.
Bloomberg, which cited Administration sources, has often carried stories on trade policy developments that scoop other outlets and turn out to be correct. But Bloomberg notes that its sources don’t believe a final decision has yet been made. The report could thus either reflect a leak from officials who dislike the idea, or it could be a trial balloon leaked by officials who want to test the response before moving ahead.
Bloomberg points out that “While the US president cannot unilaterally change America’s bound WTO tariff rates, he does have the authority to trigger a modification of US duties under a provision in the GATT.” The average US MFN bound rate is currently 3.4%. That’s only a bit less than most developed countries. There are items on which US MFN duties are much higher (e.g., 37% on some footwear), to say nothing of the huge number of imports now carrying additional tariffs imposed under Sections 201, 232, 301 as well as Sections 731 and 701.
Hurting the small guy
The idea of reciprocal tariffs has been put forward by the Trump Administration previously. The president has found the idea attractive for years. It is not popular elsewhere, however. The private sector, with the possible exception of a few companies that might benefit from hiked tariffs, would have to navigate a world in which US tariffs are different for each foreign supplying country. This would add enormous complexity to supply chain decisions and seriously hurt small companies in their competition with large multinationals.
The idea has also come under blistering criticism from outside analysts. National Foreign Trade Council President Rufus Yerxa told Bloomberg that the reported plan is “completely unworkable…. It would undermine predictability for US businesses and make us a global pariah.”
A blistering Twitter response
After the Bloomberg article came out, trade analysts took to Twitter to warn of a threat to the post-war trading system. Asia Society VP Wendy Cutler: “Unraveling the heart of WTO commitments by raising tariffs after taking down the AB [Appellate Body] is an assault on the global trading system.” PIIE’s Chad Bown: “Giving up MFN could have PROFOUND impacts for the ability to negotiate (and sustain) **ANY** trade deals.” Prof. Douglas Irwin (author of Clashing Over Commerce): “YIKES…. the Tariff Man cometh…. Going down this path could unravel the postwar world trade system.” Cato’s Inu Manak: “If this is the next chapter in the trade war, then it’s clear that the goal is not reciprocity, but rather, bringing down the entire system.” Bloomberg‘s Geneva correspondent Bryce Baschuk said, “Take away MFN, and suddenly the entirety of benefits that the WTO provides begins to unravel.” And the Chamber of Commerce’s John Murphy warned of the undermining of the WTO: “This could be a real case of ‘you’re gonna miss me when I’m gone’.”
The Bloomberg article noted that “A renegotiation could help the White House increase its pressure on various [partners] with whom the US does not have an existing FTA [Free Trade Agreement], like the EU, the UK, India and Brazil.” But although Administration officials have spoken about pushing for reciprocal tariffs to force trading partners to lower theirs, when the EU offered to cut its 10% auto tariff to zero if the US would eliminate its 25% truck tariff, the president refused.
The threats have produced inferior trade deals
Moreover, the argument that the US has to hike tariffs to get others to agree to trade deals doesn’t hold up. Other countries (and the US previously) have been able to forge comprehensive FTAs in which trading partners zero out tariffs. This has been accomplished without the threat of a US tariff hike. Those deals reached after President Trump raised or threatened tariff hikes – China, Japan, and the USMCA – are much weaker and less ambitious than traditional agreements.
Contemplation of overturning MFN comes after the White House undertook or is reportedly considering other actions that would damage the WTO. These include:
- blocking the appointment of Appellate Body judges,
- exiting the Government Procurement Agreement,
- treating currency undervaluation as a countervailable subsidy,
- concluding limited trade deals that include discriminatory managed trade elements and voluntary export restraints,
- promulgating arbitrary export controls on Information & Communications Technology and Services,
- and using Section 232 in a way that is viewed as unconstitutional and an abuse of the WTO national security exception (compounded by slapping tariffs on derivative products in contravention of the statute’s procedures).
Republicans can thank their lucky stars that to date the president defying Congress and WTO hasn’t become a partisan issue.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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