Trade Cases

Leibowitz: Happy Holidays—Can’t Wait Until 2021

Written by Lewis Leibowitz


Trade attorney and Steel Market Update contributor Lewis Leibowitz offers the following update on events in Washington:

At the end of 2020, rather than looking back I’d like to look forward. Anyone care to join me?

We can anticipate some major changes in government and the economy. The Biden-Harris administration takes over in exactly one month. I’ve seen a lot of speculation about what might happen, and who might occupy certain positions in the administration (and who might not make it through Senate confirmation). Rather than join that fray, I’ll talk about a couple of trade and economically grounded issues—tariffs and China.

I note that these are, in my mind, separate issues. The China tariffs are a major expense for business and take up a lot of oxygen. But recent events make clear that tariffs on Chinese imports are at the most a fairly minor sideshow in the broader tensions between China and the United States.

Tariffs

There are so many now that we need to take stock of what we have. I include in this category not only the tariffs on Chinese imports. Nor do I limit it to the Section 232 tariffs (and for a few countries quotas) on steel and aluminum (and possibly, but less likely, contemplated tariffs on autos, transformers and components made from electrical steel, vanadium), “safeguard” tariffs on residential washing machines and solar panels and cells. Also included are retaliatory tariffs on the European Union stemming from the age-old disputes on commercial aircraft (Boeing vs. Airbus) and hormone-treated beef, and current investigations on Vietnam’s currency, timber and taxes on digital services. Many of these issues will come to a head in 2021 and, if President Trump had been re-elected, American businesses and consumers would surely have faced additional tariffs and trade restrictions.

I also include in the tariff picture non-tariff trade barriers that can and do impose a drag on the economy: antidumping and countervailing duties, tariffs and quotas on textiles, sugar and other products (such as ethanol for motor fuel) and such economic burdens as the Jones Act (one of America’s “sacred cow” trade programs that has not been evaluated in decades).

This is a long list of problems—I confidently predict that not all of them will be solved in 2021 or even in the next four years. Indeed, some of them will not reach the top of President Biden’s inbox for review. But I hope we’ll be able to discuss all of them in a civil and constructive manner in 2021. None of them is perfect for our lives in the third decade of the 21st Century.

The steel and aluminum Section 232 tariffs were in the news last week, as the Commerce Department made some interesting reforms in the product exclusion process.

China

While trade mavens focus on the China tariffs and their consequences, there are many other aspects to the relationship that seem to me more important. Strategic competition, development of emerging markets, potential flash points of conflict (like the South China Sea, Taiwan and Hong Kong), and even issues of U.S. spending and debt. China has current foreign exchange reserves of more than $3 trillion, by far the largest in the world. Much of these reserves are held in U.S. government debt. China’s willingness to lend money to the United States is one reason we do not have to make hard decisions balancing taxing and spending at the federal level. That leverage is a constant reminder of how precarious our future might be.

A major revision of China tariff policy is probably at least a year away. There may be tweaks to the China tariffs in exchange for concessions by China. But until the new Biden-Harris team has a chance to gauge the situation, taking pressure off China by eliminating tariffs in the short run is not likely. That said, the new team will be looking for other ways to change the behavior of China.

Clearly the tariffs have not been enough. They clearly have equally hurt U.S. business interests, especially in manufacturing and agriculture. Steel, on which I spend a lot of time, is a key example of this: the National Security tariffs were initially sold as a way to isolate China in the steel and aluminum sectors. But China exports very little of either to the United States directly. In order to isolate China, we need help from other countries; and we have not encouraged cooperation because of the tariffs we impose on our friends, as well as ourselves. This needs to be re-evaluated as a priority. As I’ve written before, addressing the challenge of China requires strategic buy-in from other countries. U.S. actions against historic allies have discouraged them from cooperating with us in dealing with China. In addition, U.S. businesses that rely on steel imports are less competitive because of tariffs on friendly countries that have supplied needed steel for decades. And U.S. steel-using manufacturers employ many times the workers that the steel producers do.

The inauguration of Joe Biden, a former chairman of the Senate Foreign Relations Committee, should see an early effort to improve ties between the U.S. and our historic allies, such as Canada, Japan, Korea and the EU.

Just last week, the Trump administration adopted a new rule changing steel and aluminum tariffs. One reform, long overdue, is to grant “blanket” exclusions that anyone can use without filing exclusion requests. The initial list includes about 100 products. This list could be expanded.

The new reforms also deal with quantities to be excluded in individual exclusion requests. Now, the requester must certify that the requested quantity is a reasonable estimate of the amount that will be needed. Domestic producers also can claim the ability to deliver no later than a foreign competitor, rather than meeting a rather arbitrary eight-week deadline. But this means that the domestic producer must actually deliver. The consequences of failing to meet their commitments is not clear in the new regulations, which went into effect on Dec. 14.

There are many other international trade issues that we could discuss, and I hope to do so in the coming year. For now, please have a peaceful, healthy and loving Holiday Season. With the approved vaccines coming to a clinic near you, there is renewed hope for a better 2021. May you all share in that.

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Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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