Leibowitz on Trade: How Does Impeachment Affect Trade and Tariffs?

USMCA (NAFTA 2.0) continues to have rough sledding in the House of Representatives. The Democrats’ House Working Group has raised several serious questions about the terms of the USMCA, and Democrats are not likely to relent on labor rights and enforcement issues while the White House faces increased pressure on the impeachment front. The Working Group submitted a counterproposal to USTR on these issues. Ways and Means Chairman Richard Neal (D-Mass.) has said that discussions are making progress; but there is no final agreement on moving the legislation, and progress will likely be slower with the impeachment proceedings than it would be without them.

Efforts (chiefly in the Senate) to curb the president’s authority to impose tariffs under Section 232 continue. Senator Chuck Grassley (R-Iowa) is trying to craft a compromise bill to limit tariff-setting authority. The White House opposes these efforts. It is possible that the pending impeachment moves could prompt the White House to compromise on this legislation. I hasten to add, however, that there is as yet no indication of softening by the White House. Impeachment could freeze this initiative in its tracks, or could break it loose. It could go either way.

Another question that came up deals with reports that Turkey is negotiating with the Commerce Department to settle its tariff lawsuit by replacing the current 25 percent steel tariffs with quotas. These reports are unconfirmed—as I’ve mentioned before, quotas can be better than tariffs, but they can also be worse. The reports suggest that Turkey would accept a quota agreement along the lines of Brazil and South Korea. However, those quota deals set limits as a percentage of 2015-2017 average imports. This period is not linked directly to current steel demand. Moreover, the Korean and Brazilian agreements set quotas at 70 percent of the 2015-2017 averages. That may be a sticking point. Quotas have a major downside—the levels are absolute. If the market calls for higher levels of imports, tariffs permit that and quotas do not. It’s important to pay attention to the quota levels; only then can people determine whether quotas are a step forward or backward from tariffs.

The impeachment furor can also affect trade negotiations. A Chinese delegation is scheduled to be in Washington next week for the next session of talks to resolve the tariff battle. President Trump’s leverage in those talks may weaken as he faces challenges from Capitol Hill. That could lead to a deal with China, but the president will surely face strong criticism if he is perceived to settle for a weaker deal with China. Some on Wall Street are suggesting that the impasse with the Hill will make a deal with China less likely. China will likely postpone tough decisions while they wait and see whether they will need to deal with Trump or his successor. This may mean a weak interim deal or no deal at all.

Having been through three impeachment scenarios in my memory (1974, 1998 and this one), I clearly recall the degree to which the focus on impeachment removed much of the oxygen from the room on other issues. This time around could be an exception, but history suggests the opposite. 

Lewis Leibowitz

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