Transpacific Partnership now live — minus US. Trump on protectionist drive?

Weekly trade report by L.C.

Late breaking item! As we went to press, Canada’s Prime Minister Trudean announced that Canada had accepted joining the Transpacific Partnership (TPP-11). It’s now live — without the U.S. This is a major world trade development that will put much pressure on the US, especially its crucial agriculture sector.

Yesterday President Trump imposed tariffs on imported solar panels from China and washing machines from South Korea. The Washington Post reports:

“The twin actions represent Trump’s first tariff orders and are his most consequential trade actions since the early days of his presidency when he withdrew from a Pacific trade deal and launched negotiations to overhaul the North American Free Trade Agreement….

“The Suniva-SolarWorld request for protection was opposed by much of the domestic U.S. solar industry. Tariffs make solar panels more expensive, and thus discourage their use, according to the Solar Energy Industries Association.

“The trade association said the tariffs would cause 23,000 installers, engineers and project managers to lose their jobs this year as billions of dollars in planned investment evaporates. Up to one third of the 260,000 Americans currently employed in the industry are at risk because of the tariffs over the longer term, the group said.”

China admission to WTO a mistake?

Formally, the Administration released a report that for the first time identified the US acceptance of China’s 2001 World Trade Organization (WTO) accession as a mistake. That represents a major change and a warning to China to take US threats of coming harsh actions seriously. Among the questions it raises are how this changed evaluation will change US policy (and what this might mean for the WTO), and whether the implication that the US would have been better off had China not joined the WTO is valid.

The Administration is leveling similar complaints against Russia as well. China joined the WTO in 2001, and Russia in 2012.

According to US Trade Representative (USTR) Lighthizer, “China and Russia have failed to embrace the market-oriented economic policies championed by the WTO and are not living up to certain key commitments they made when they joined the WTO.”

As this year’s report on China states, “over the past five years, despite Chinese pronouncements to the contrary, the state’s role in the economy has increased, as have the seriousness and breadth of concerns facing US and other foreign companies seeking to do business in China or attempting to compete with favored Chinese companies in their home markets.”

The impact of China’s accession on the US economy has long been debated. Several years ago, a study of the impact of the “China shock” on the US by economist David Autor and others got a lot of attention for seeming to prove that a great number of US manufacturing jobs were lost to Chinese competition. Autor himself has said he doesn’t think the conclusion means trade liberalization is bad, and other studies more recently have found that although manufacturing jobs were lost, the loss was at least made up for by increases in higher paying jobs, especially in services, also due to the increased trade with China. The New York Fed released a report recently showing significant benefits for consumers. And Alan Greenspan, in his memoir, credited the rise of China’s economy and employment of its workforce for the boost to US and global productivity starting in the 1990s. Of course, in China itself its opening to trading partners lifted huge swaths of humanity out of extreme poverty.

That said, few would disagree with the Trump Administration’s argument that China’s compliance with its commitments has been disappointing, with negative effects on its trading partners. The question is, what’s the best response?

Administration choice: WTO route or unilateral action?

Given that the US and other countries have used the WTO many times to challenge China’s practices and usually prevailed – and China usually complied with negative rulings – and given that many analysts don’t think the WTO dispute settlement process has yet been fully tested to see if it can deal effectively with other Chinese abuses (especially relating to subsidies, tech, investment, IP, and even overcapacity), there is speculation that the US regret over China’s WTO accession is primarily a signal that Washington is veering away from using the multilateral system and planning to take the path of unilateral action.

But some US trade experts and former officials have been arguing that the “WTO option” has not been tried adequately to determine if the WTO rule book can be used to better effect to rein in China’s abuses, especially regarding specific commitments made upon accession that are enforceable through WTO dispute. That idea appears to have been a motivation behind the initiative that the EU and Japan invited the US to join to try to work together through the WTO to deal with these problems.

Just this week, EU Trade Commissioner Cecilia Malmstrom told an interviewer that despite President Xi Jinping’s speech championing globalization at last year’s World Economic Forum, China’s commercial behavior didn’t improve, and in fact the hurdles to EU investment in China have grown. “We haven’t seen anything concrete [change] in our relationship,” she lamented – but didn’t suggest Brussels is looking for action outside the WTO. However, neither this trilateral initiative nor more effective use of the WTO may be able to attain the sweeping changes the US says it wants to see in China’s economy.

This all sets the stage for the President to unveil his chosen unilateral actions in his January 30th State of the Union address.

Section 232 action by US uranium producers — and Uranium One scandal

Domestic uranium producers filed a Section 232 [national security] petition on January 16th, asking the Commerce Secretary to investigate whether uranium imports produced by state-owned enterprises in (mainly) China, Kazakhstan, Russia, and Uzbekistan threaten US national security.

The petitioners are seeking restrictions on imports of natural uranium and uranium in various forms and mixtures. The remedies they are requesting are an import quota that assures domestic producers at least 25% of the market (they now account for less than 6%) and a Buy American requirement for government utilities and agencies that use uranium. The petition argues, “Unless steps are taken now to foster a healthy domestic uranium mining industry, the defense stockpiles currently held by the Department of Energy will be depleted, and it is unlikely that domestic producers will have sufficient capabilities to meet our defense needs in the future.”

The petition states: “The US uranium industry needs immediate relief from imports that have grown dramatically and captured almost 80% of annual US uranium demand…. Our country cannot afford to depend on foreign sources – particularly Russia, and those in its sphere of influence, and China – for the element that provides the backbone of our nuclear deterrent, powers the ships and submarines of America’s nuclear Navy, and supplies 20% of the nation’s electricity.”

There is also a question of Obama administration and especially Clinton family “pay for play” money-taking in return for turning over a sizable fraction of US uranium output to Russia in 2010 (the Uranium One scandal).

Meanwhile, Canada…

A crucial meeting of the Transpacific Partnership (TPP-11 aka CPTPP) countries is coming up. The Japanese and Australians are taking the lead in pushing to have the agreement concluded at a meeting in Chile in March so that it can enter into force in 2019, once it is ratified by six parties. But even as that understanding was reached, Canada emerged as an obstructionist force, with Prime Minister Justin Trudeau missing the leaders’ meeting and Ottawa generally showing reluctance to moving quickly.

It is assumed that Ottawa wants the process to be slowed down so that it can first see what happens to the NAFTA renegotiation. There are indications that the Mexicans may similarly wish to finalize the CPTPP only after the NAFTA outcome is clear, the concern being that the Pacific deal could create difficulties for the NAFTA talks. Of course, if the CPTPP is concluded soon, that could put positive pressure on the NAFTA talks. Certainly the pressure from the US private sector for a NAFTA success will intensify as businesses face the prospect of being rendered non-competitive around the Pacific rim. Yet Ottawa and Mexico City fear it is more likely that a concluded CPTPP would complicate their talks with Washington. On the other hand, Canadian officials have indicated that the TPP-11 is included in Ottawa’s Plan B – how it intends to move forward in the event of a NAFTA collapse, so it would not want to be dropped from the negotiations before the NAFTA outcome is clear.

Ottawa’s obstinacy in the negotiations has raised alarm within its own agricultural community. Farm exports are crucial to the country’s economy. The Canadian Agri-Food Trade Alliance released a statement on January 19th saying that being left out of the CPTPP could affect the “livelihoods of nearly a million Canadians.” Preferential access to the Japanese market is of special concern, and the statement continued, “The EU, Australia and Chile have already secured deals with Japan, which imports about $4 billion in Canadian agri-food products annually.” Other exporters are also worried about being left out of the CPTPP, though the auto sector has been more resistant to the TPP (worried that foreign investment in the sector would be hit). But the alliance statement argued, “Food and beverage processing is the largest employer in the manufacturing sector in Canada,” with “close to a quarter of a million jobs, more than the automotive and aerospace sectors combined.” The Canadian Meat Council also warned that “Falling behind in Asia would threaten pork production and processing in Canada. A trade agreement with Japan matters.”

These concerns echo those voiced by the US agricultural sector when President Trump withdrew from the TPP. It should become clear next week if they carry more weight in Ottawa than they did in Washington.

Click here to go to previous Founders Broadsheet (“What to do about Pakistan”)