Leibowitz: A Dizzying Week on Trade

Top that off with the sad news of the death of a giant for gender equality Supreme Court Justice Ruth Bader Ginsburg, and the political hurricane developing over her replacement, throwing the presidential election race (and Senate races) into a new level of frenzy.

I believe all these events can be connected into the struggle between the forces of disruption and the forces of reconciliation. It’s clear that President Trump thinks of himself as a force for disruption of the status quo. There are millions who believe that disruption is what the country needs and millions more who despise it. That’s why the election appears to be so close (and getting closer).

Concentrating, as is my function in this weekly discussion, on international trade, we can see how much China’s behavior and the U.S. response, is driving the discussion. First, the “avalanche” of lawsuits. I call it an avalanche based on one simple fact: the normal number of complaints filed in the CIT per year is 275 (taking the average of the last five years). The caseload this year was on track to reach something over 200 until Sept. 10, when the first action challenging the List Three China tariffs was filed.

In the last five days (including this weekend, nearly 2,500 suits were filed, all (or nearly all) of them raised the same issue—did the U.S. Trade Representative violate the law by imposing tariffs on imports from China more than one year after making the determination on which those tariffs were based.

It sounds very technical and procedural, but the same arguments have been made (successfully so far) against President Trump’s tariffs on steel under Section 232. The theme is consistent: Congress is empowered to set tariffs by the Constitution. When it delegates that authority to the president, it can (and does) set conditions on that delegation. If the conditions are violated, the authority is not conferred. China has misbehaved—there is broad consensus on that score at least in this country. However, both we and the international trading system have rules of the road. We must follow them or accept the consequences of not following them.

The WTO decision was not a surprise: the U.S. arguably violated several WTO agreements by imposing unilaterally high tariffs on Chinese imports without arguing its case to the WTO. The ruling will have very little practical effect because the U.S. has neutered the WTO Appellate Body, which means that the retaliatory tariffs and other trade restrictions China could impose have already been imposed, again unilaterally. China again has confounded the international order and the U.S. has confounded it right back. The only way we can make the WTO more effective, apparently, is to make it less effective. So far, that strategy has not worked. Maybe something else might work better.

In another nod to the domestic steel industry, a favorite of the president and USTR Robert Lighthizer, the U.S. Export-Import Bank guaranteed loans to U.S. Steel Corp. The details are a bit murky, but ExIm bank loan guarantees are supposed to improve U.S. export performance. There seems to be some uncertainty as to the relevance of these working capital loan guarantees and guarantees of overdue accounts receivable from U.S. Steel to its suppliers. The U.S. will probably be on the hook for these overdue loans. Why U.S. Steel deserves this protection from creditors more than other companies or industries is perhaps clear to some, but it is unclear to others.

The president retreated on the 10 percent tariffs on raw aluminum imports from Canada, just hours before Canada was set to apply $3 billion of retaliatory tariffs to exports of products from the United States to Canada, further souring the bilateral relationship. This retreat was probably prudent, because a protracted trade war between the two countries would have damaged the prospects for a functioning trade agreement (USMCA) that only went into effect on July 1.

The actions on TikTok and WeChat would have banned the sale of these two apps from American app stores (such as Apple’s App Store and Google’s Google Play) beginning this week. A late deal from Oracle and Walmart was received by the president over the weekend, causing the Commerce Department to delay the TikTok decision until Sept. 27. And the ban on WeChat was temporarily barred by a federal judge on Saturday. The administration contends that the data collected by these apps could be transmitted to the Chinese government and military, potentially endangering national security. The bans may yet happen, but lots of teenagers hope they don’t.

The political ramifications of all these developments are obvious. When U.S. courts and the WTO hamstring the president’s desires to take aim at China, it is easy to accuse them (and the Democrats) of being soft on China. The charges of softness are problematic because Democrats are not exactly thrilled about China. For more than 20 years, both parties have attempted to bring China into the global systems of trade and investment to give that large and powerful country an incentive to modify its behavior to accepted international norms. That has not been successful. Before giving up, however, it may not be a lost cause. The strategic retreat on Canada can be seen as a signal that the administration sees the need to repair frayed relations with its most trusted allies in the hope that collective action to rein in China is the best way to achieve progress without bloodshed. 

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