President unconcerned about WTO fate, 20-25% foreign car tariffs

Trade correspondent L.C. writes: A report that President Trump is planning to exit the WTO stirred much excitement over the weekend. The least of the problems of the alleged planning document, the Fair And Reciprocal Trade act, would have been its acronym. Though it was denied that President Trump actually plans to leave the WTO soon, recent US actions and abstentions are making it clear that his Administration is unconcerned about the institution’s future. Meanwhile, congressmen and US car manufacturers are mobilizing to head off Trump-threatened 20-25% tariffs on foreign cars and parts. These would have a far more serious impact on the US and world economy than the Administration’s earlier steel and aluminum tariffs.

Although President Trump wants to leave the WTO, he is encountering tremendous resistance all around him. Most of his own aides oppose the idea and, no doubt, they are explaining what the reaction would be from Congress, the private sector, and abroad. That pushback is similar to what he is already experiencing regarding his plan to hike automotive tariffs under Section 232. But that resistance does not yet seem to have dampened his enthusiasm for the auto tariffs or convinced him it would not be politically beneficial for him.

The process for WTO withdrawal and Congress’s role is murky. No one doubts the US could notify for withdrawal at any time, but it is not at all clear that the President can do this unilaterally, without Congress. No country has ever withdrawn. Just about every country wants to be in. Right now 164 countries belong, and over 20 more are in current negotiations to join.

The EU reaction

A leaked European Commission document warns that the global trade war is about to get worse between the US and its trading partners “as more unilateral measures are threatened and imposed, leading… to countermeasures or to mercantilist deals.” In response, the EU is cooperating with China on trade reform. European Commission Vice President Jyrki Katainen explained: “We have to reform the WTO in order to make multilateralism better functioning in the future. This unites the EU and China [at] the moment.”

The EU also has a trilateral working group with the US and Japan aimed at WTO reform. But because that effort is expected to target China, it is not clear how the two working groups will be related. The trilateral effort received a further blow when President Trump,  upon being asked by Fox News on July 1^st if EU cooperation against China would be needed, said “The EU is possibly as bad as China, just smaller. It’s terrible what they do to us.”

Separately this week, China, as part of its effort to move closer to the EU in opposition to the US, told the French this week that it will be buying more European agricultural products and perhaps even more Airbus planes, in a shift away from the US.

Trump backs off on Chinese restrictions

In a surprise move, President Trump did not impose new restrictions on Chinese investment in the US in response to the Section 301 report that found China to be engaging in abusive trade practices. Instead, he endorsed the Foreign Investment Risk Review Modernization Act (FIRRMA) making its way through Congress, which would strengthen and enhance the authority of the Committee on Foreign Investment in the US to scrutinize and block foreign purchases of US assets.

During the Fox interview, the President said “I like the [Chinese] President. President for life…. I didn’t like pinpointing China. I don’t think it’s fair. They are not the only one…. they’re probably a bigger violator, but it is other countries, too. I wanted to go worldwide…. So you mean China can’t do it but other countries can?”

Senate Minority Leader Chuck Schumer (D-NY) criticized his decision not only for being weak on China but for betraying chaotic policy formulation within the Administration, as it was clear there had been clashes among Trump advisers up to the time of the announcement.

Resistance grows to President’s threat of new auto tariffs

The Commerce Department accepted public comments until June 29th for its Section 232 investigation into the alleged national security threat posed by automotive imports. The response was overwhelming – well over 2000 comments received – and it was negative. There was no section of US business, including the automotive sector, that called for tariffs, with most warning of terrible economic consequences, and non-automotive sectors fearing foreign retaliation.

Nonetheless, most observers expect Commerce to find a threat and recommend tariffs, since this is clearly what President Trump wants and expects.

The situation is shaping up to be more significant, with even more far-reaching implications, than the President’s previous trade steps:

The amount of trade involved dwarfs that involved in the steel and aluminum Section 232 cases. US automotive imports (vehicles and parts) were worth around $360 billion last year, compared to $29 billion for steel imports and $18 billion for aluminum. If such tariffs are imposed, foreign countries will retaliate with counter-tariffs hitting that amount in US exports.

Second, the US imports cars only from allied trading partners, whereas in the metals case there were at least some imports from more adversarial countries like China, Russia, Turkey, and Brazil.

Third, for some countries, led by Germany but also Japan and South Korea, vehicles are a vital export, which was less true of steel and aluminum.

Fourth, the US automotive sector almost entirely opposes the tariffs.

Fifth, cars are a universal consumer product. People might not be able to readily identify the impact of a rise in the price of steel but they will immediately understand the significance of a major hike in the price of a vehicle.

And sixth, it will be even more difficult for Commerce to show a national security threat from automotive imports than it was for steel and aluminum. It will be hard to argue that the US has to protect the sector in order to build up its supply of skilled workers and robust production facilities in case it needs them in wartime. The US automotive industry is thriving, its capacity utilization is high, passenger vehicles are not military equipment, and 98% of US auto imports come from national security allies.

Domestic and foreign auto associations have warned that hundreds of thousands of US jobs will be put at risk – as will US development of autonomous vehicles and electric cars. This will leave the US behind foreign competition in these key areas of innovation and future manufacturing.

The President, however, insists that what really will happen is that foreign car companies will be making more of their cars “in America.”

Constitutionality of Section 232 tariffs challenged

A lawsuit targeting the Section 232 steel tariffs was filed on June 27th at the US Court of International Trade. It seeks a declaratory judgment that Section 232 is unconstitutional, which would lead to revocation of the steel and aluminum tariffs and constrain future use of Section 232. The plaintiffs are the American Institute for International Steel, which represents users of imported steel and steel importers and traders, and two of its member companies, Sim-Tex LP (of Texas) and Kurt Orban Partners LLC (of California).

The case has strong arguments to make; on the other hand, the executive branch is generally given wide latitude in actions based on national security grounds. Challenges to Congress’s delegation of its authority to the executive aren’t usually successful. But the lead attorney in the case argues that “The absence of meaningful checks — the open-ended discretion that Section 232 gives the president — means that we have a violation of the doctrine of separation of powers and the absence of any checks and balances that our Constitution insists be protected.” The case charges that it is the Congress, not the President, that acted unconstitutionally when it improperly delegated wide powers – “unfettered discretion” – to the President and also made no provision for judicial review of his decisions.

Click here to go to the previous Founders Broadsheet post (“Trump escalates trade threats against China but priorities unclear”)