Leibowitz on Trade: Tariff Update—A Long War?

The Objectives

Having practiced trade law for over 40 years now, I have firmly held views about why trade is important and what we accomplish by international engagement. Some of the president’s advisors are doing a decent job of explaining the stakes of reaching an agreement to end, if we can, China’s record of compelling technology transfer, intellectual property theft and forced marriages between U.S. and Chinese businesses, among other alleged transgressions. (By the way, these are “alleged” not because they are not true but because their truth has not been proven conclusively. The U.S., as the accuser, has the burden of proving these allegations.)

There are so many studies that state the obvious—that tariffs are taxes paid by Americans, not Chinese, that they hurt American families, that they eliminate many more jobs from the economy than they create or save. There are others, generally supporting the tariffs, who argue that the job effects are smaller than critics claim, that the economy is doing extremely well right now, and that tariffs are the only way to get the attention of China to address its unfair practices. It seems that neither side acknowledges the other side has a point—a tough climate in which to negotiate. More about that later.

1. Continued Escalation—On Friday, May 10, the new 25 percent tariffs on $200 billion of imports from China took effect—sort of. These products are on “List Three” of the tariffs, which went into effect on Sept. 24, 2018, at 10 percent. The “sort of” refers to the delayed effective date: the new tariff rate applies to imports of Chinese goods entered into U.S. commerce on or after May 10, 2018, which were also exported on or after May 10. Based on travel times by ship from China, many entries over the next few weeks won’t be covered by the new rate. But importers, beware: the latest advice from U.S. Customs and Border Protection is to pay the 25 percent tariffs and then ask for a refund of duties once definitive guidance is issued by Customs, which could come this week.
2. Upcoming Escalation: U.S.—Tomorrow, the Office of the U.S. Trade Representatives has promised to publish a document outlining steps to impose 25 percent tariffs on all remaining imports from China not already covered by Lists One, Two and Three. Presumably, these tariffs will not be imposed immediately. There is likely to be a period of public comment; however, there appears little room for comment that will change the result. The proposed action will cover a specific list of goods (all products that are not already covered by previous Lists) and the duty rate will be 25 percent on everything. Therefore, the comments are likely to be limited to complaints about the effects of the new tariffs on thousands of American businesses and millions of consumers—more of the same.
3. Upcoming Escalation: China—The Chinese government has made clear that further retaliatory measures will be taken against U.S. exports. China will target interests that mean the most to the Trump administration and its supporters in Congress, no doubt. There is, as yet, no clear signal about the timing or extent of the retaliation. About three-quarters of U.S. exports to China have already been the subject of retaliatory tariffs, so in addition to covering other American exports, there may be other measures taken.
4. Continued Negotiations with China—On Sunday, Larry Kudlow, the president’s economic advisor, explained that the departure of the Chinese delegation on Friday did not signal the end of negotiations. However, there is no obvious point at which a deal has to be made. These negotiations could extend almost indefinitely.

Taking all these upcoming events into consideration, we appear to be in for a long twilight struggle for leverage between China and the United States. During that time, nothing much will happen—unless something external to the negotiating process intervenes. The investment in tariffs (which the president says, without factual support, are paid by the Chinese) as a tool to achieve the administration’s ends is total. No pressure has been put on China other than tariffs. They will end only with a deal that is acceptable to the president or an external intervention—a definitive WTO decision or a successful court challenge to the tariffs, or legislation, probably passed over a presidential veto, limiting the president’s authority to impose tariffs. To me, a successful court challenge is the most probable.

This morning, Larry Kudlow also acknowledged that the tariffs cause pain to American businesses and consumers, but that they were necessary to achieve the ends of the negotiations. This is a refreshing admission—but the other principal advisor on economic matters, Peter Navarro, remains unconvinced, as does President Trump. By all accounts, he supports continuing to pressure China with tariffs until they capitulate. If they don’t capitulate, the president seems content to leave the tariffs in place indefinitely.

These factors are not limited to the China tariffs, either. The existing Section 232 tariffs on steel and aluminum, and possible additional “national security” tariffs on uranium, autos and auto parts, and titanium are also looming. Those tariffs are not limited solely to pressuring China to change its ways on trade, but China is a factor in all of them. They are therefore likely to remain in place unless an external event (court decision, legislation, WTO action, economic meltdown) substantially changes the status quo. We appear to have, as of Friday, a new reality—a long, twilight struggle.

Happy Mother’s Day to all Mothers, Sons and Daughters!

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
1400 16th Street, N.W.
Suite 350
Washington, D.C. 20036

Phone: (202) 776-1142
Fax: (202) 861-2924
Cell: (202) 250-1551