Leibowitz on Trade: More or Fewer Tariffs in 2019?

So, what changes are likely in 2019 on the trade front? More tariffs or fewer tariffs?

We could see more Section 232 tariffs in the auto and uranium sectors, with Commerce reports due under the law early in the New Year. The Korean legislature approved the new U.S.-Korea free trade agreement 12 days ago, and it’s clear that South Korea expects to be exempt from any U.S. tariffs or quotas that may come under Section 232. The U.S. Congress arguably does not need to approve the U.S.-Korea agreement signed last September, because all the concessions appear to be on the Korean side.

U.S.-Japan trade talks will commence in 2019. The Office of the U.S. Trade Representative released negotiating objectives in December. The objectives were not specific to any industry or sector. USTR emphasized improved market access into Japan; Japan will clearly want to eliminate as many uncertainties as possible. Japan is another country that will expect an exemption from auto and auto parts tariffs or quotas as a result of the Section 232 investigation. The European Union will also want to lock in a concession from President Trump last summer that seemed to exempt European auto imports from Section 232 restrictions.

All in all, if all these expectations play out as “expected,” there will be, as another of my professors used to say, “more hole than doughnut” in any auto sector trade restrictions under Section 232. But the “expected” has often not been the outcome. The first quarter could be interesting indeed in autos.

As for “fewer” tariffs, two areas to watch are court proceedings challenging Section 232 and the tariffs on Turkey. The Court of International Trade will likely rule on the constitutionality of Section 232 during the first half of 2019. If the three-judge panel rules against constitutionality, an appeal to the U.S. Supreme Court is expected, with a decision possible in 2019, but more probably in 2020. Turkey is the only country that currently is subject to 50 percent tariffs on steel exports. A recent tweet from President Trump noted that he and Turkish President Erdogan discussed “heavily expanded trade” in a conversation two weeks ago. I have seen no elaboration of what “heavily expanded trade” might mean as of now, but next week we may see some more details.

Negotiations to end the tariffs on steel and aluminum from Canada and Mexico will continue in 2019. U.S. ratification of the new USMCA is by no means assured. Perhaps the administration will try to link an exemption for Canada and Mexico to congressional ratification of the new agreement. That could improve prospects for congressional approval that, according to most observers, appear doubtful.

I hope you have a happy New Year and that all your trade dreams come true!

Lewis Leibowitz

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