Leibowitz on Trade: High Cost of Government Shutdown

A new complaint against the United States was filed on Thursday, Jan. 17, by three U.S. importers of Turkish steel to contest the doubling of tariffs on Turkish steel into the United States. The plaintiffs are Medtrade, Transpacific Steel and A.G. Royce Metal Marketing. The complaint contends that the doubling of tariffs on imports of Turkish steel violated Section 232, and two provisions of the U.S. Constitution, the Equal Protection clause and the Due Process clause. The Section 232 violation asserts that the doubling of tariffs on Turkish steel did not make the necessary connection between the Turkish imports and any threat to impair U.S. national security. The plaintiffs also allege that the increased tariffs on Turkish steel did not comply with the statutory requirements for findings by the U.S. Commerce Department. The due process claim contends that the president did not give any notice or opportunity to comment on the doubling of tariffs. The equal protection claim stems from the difference of treatment between Turkish imports and imports from all other nations.

The government normally has 60 days to respond to new complaints. If the government shutdown drags on, this could be extended. As events warrant, I’ll comment further on this development. 

The Government Shutdown and International Trade

The partial government shutdown, now entering its 30th day, amounts to a near-total shutdown for international trade matters. Last week, the Office of the U.S. Trade Representative joined the International Trade Commission and the Commerce Department in essentially closing up shop for the duration of the shutdown.

Government employees are not the only story, especially in the international trade area. About 10,000 companies, employing several million workers, provide goods and services to the federal government; their contracts are suspended and their employees who service those contracts are also out of work. Unlike federal workers, they have little or no prospect of receiving back pay after the shutdown ends. Trade-related agencies, including USTR, Commerce and the ITC, employ an unknown number of workers through government contractors. These workers are not included in the 800,000 figure you have heard about.

The Washington Post, which should know the numbers as well as anyone, reported last week that there is no credible estimate of the number of contract workers that have been laid off. Estimates range into the millions of workers—perhaps 3 to 4 million workers. Many are low-wage contract workers such as building cleaners, cafeteria staff, etc. However, many other contract workers handle very sensitive work: analysis of classified documents (remember Edward Snowden?), and evaluating product exclusion requests for the Commerce Department (steel and aluminum tariffs) and USTR (Section 301 tariffs on China). The Post estimates that $200 million per week is lost to government contractors, almost certainly without hope of reimbursement, due to the shutdown. This estimate may be low—there are no reliable figures on the degree to which government relies on contract workers.

The “hidden layer” of government workers is the result of growth in the responsibility of government, which needs the staffing but is not permitted to make permanent hires. The figures on civil service employment show that federal jobs have been relatively steady for the last 25 years. There were about 3 million federal employees in January 1993, and 2.8 million in November 2018.  But there are no figures for the number of contract workers performing federal government work.

Contract workers, generally operating out of the public eye, are normally busy drafting regulations, reviewing public comments in rulemaking proceedings, working as contract attorneys and paralegals in administrative and court matters, performing economic analysis in support of trade negotiations and the like. These functions, performed by contract workers, can impact the profitability and perhaps the survival of private sector manufacturing companies around the country. Contractors include part-time lawyers, economists, accountants and other professionals. And, while government employees are required to review the work of the contractors, it remains a mystery precisely how the contractors and government workers interact in real-world situations. Congressional oversight of these functions has been nearly non-existent.

One thing we know—during the shutdown, the contract workers will not be supervised by government agencies. Most contract workers will not be working, although individual contractors may be continuing to service their government agencies, while not being paid by those agencies. Workers could be paid by their employers, who are private companies, but the companies themselves may not be paid during the shutdown and money will run out soon. These companies almost certainly will not receive back pay from the government either, if previous shutdowns are any guide. The longer the shutdown lasts, the more of these workers will quit and get a job that actually pays them. Their expertise could be hard to replace. The fallout from this shutdown, a massive backlog of work, will be felt for months and years after the government goes back to work.

Lewis Leibowitz

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