As discussed during our recent “Trump and Trade: One Year Later” webinar, 2018 will not only be a year of monitoring continued trade enforcement activities by the Trump administration, but also a year to monitor how affected countries and industries will react to such trade actions. Yesterday’s update noted WTO action by various countries regarding the recent Section 201 global safeguard decisions, and now three Canadian companies that manufacture crystalline silicon photovoltaic cells (i.e., solar cells) have filed a complaint with the U.S. Court of International Trade against the United States and the safeguard measures in the recent Section 201 solar cell cases. The Canadian plaintiffs have claimed that the import tariffs will “inflict severe and irreversible injury” on them when the U.S. International Trade Commission’s injury finding determined that imports from Canada “do not meet the prerequisites for including a NAFTA country in a global safeguard action,” and that imports from Canada do not constitute a “substantial share” of total imports or “contribute importantly to the serious injury, or threat thereof” caused by U.S. solar cell imports. The complaint specifically claims that provisions of the NAFTA Implementation Act bar the president from taking safeguard actions against a NAFTA country. The plaintiffs seek to enjoin the United States from implementing or enforcing the safeguard measures. The case is Silfab Solar Inc., et al. v. United States, et al., case number, 1:18-cv-00023, in the U.S. Court of International Trade.

As expected, the European Union, China, South Korea and Taiwan have formally requested WTO consultations with the United States over the Trump administration’s Section 201 global safeguard measures on imports of certain solar cells and washing machines. The countries requested consultations under Article 12.3 of the WTO Agreement on Safeguards, which entitles affected countries who are exporters with a “substantial interest” in the products concerned to have an “adequate” opportunity for prior consultations before application of the safeguard measure can be imposed by the United States.

While requests for consultation are not formal challenges and do not initiate the WTO’s dispute settlement procedures, such consultations are often the precursor to a further action. WTO rules allow for safeguard measures such as temporary restrictions on imports; however, they also require the country imposing such measures and import restrictions to maintain balanced trade with those countries affected. It is possible that if consultation fails to resolve concerns, these countries could eventually retaliate by imposing their own trade restrictions.

Examples of these requests are provided here: China; South Korea.

The Department of Commerce has released its 2017 year-end report on U.S. International Trade in Goods and Services, revealing a sharp increase in the overall trade deficit during President Trump’s first year in office. For 2017, the goods and services deficit increased to $566 billion, a $61.2 billion (12.1 %) increase from 2016. Exports were $2,329.3 billion in 2017, up $121.2 billion (5.5%) from 2016. Imports were $2,895.3 billion in 2017, up $182.5 billion (6.7%) from 2016.

The 2017 figures show surpluses, in billions of dollars, with South and Central America ($34.3), Hong Kong ($32.5), Netherlands ($24.5), Belgium ($14.8) and Australia ($14.6). Deficits were recorded, in billions of dollars, with China ($375.2), the European Union ($151.4), Mexico ($71.1), Japan ($68.8), Germany ($64.3), Ireland ($38.1), Italy ($31.6), Malaysia ($24.6), India ($22.9), South Korea ($22.9), Thailand ($20.4), Canada ($17.6), Taiwan ($16.7), France ($15.3), Switzerland ($14.3), Indonesia ($13.3) and OPEC ($13). Of note, the deficit with China increased $28.2 billion to $375.2 billion in 2017, and the deficit with Mexico increased $6.7 billion to $71.1 billion in 2017.

On the eve of the State of the Union, 35 Republican Senators sent a letter to President Trump reaffirming their belief in the benefits of the North American Free Trade Agreement (NAFTA). They urged the president to keep NAFTA in place but supported efforts to modernize the trade agreement. Overall, the letter extols the value of the existing agreement and is seen by many as a reminder that many Republicans and business leaders remain concerned over threats to withdraw from NAFTA.

In a lengthy State of the Union address, President Trump covered many issues and highlighted his administration’s achievements over the past year in claiming a “new American moment.” On international trade matters, Trump broke no new ground in reiterating his administration’s position that it will promote only “free, fair and reciprocal trade.” In his opening remarks on trade, the president stated that “America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation’s wealth. The era of economic surrender is over.” While not mentioning any specific trade agreements, he indicated that his administration will continue to work to “fix bad trade deals and negotiate new ones.” Trump noted increased sanctions on Cuba and Venezuela while again urging Congress to address what he views as “fundamental flaws in the terrible Iran nuclear deal.”

While he did not specifically address the numerous trade actions currently pending (i.e., Sections 201, 232 and 301 investigations), the president appeared to reference the ongoing Section 301 investigation against China regarding that country’s intellectual property and technology transfer policies and practices when he said, “We will protect American workers and American intellectual property through strong enforcement of our trade rules.” Many trade policy experts took that statement as a signal the U.S. government will be announcing and implementing remedies soon in response to the Section 301 investigation. Overall, President Trump’s comments were a reaffirmation of his administration’s now well-known positions on trade negotiations and enforcement.

In conjunction with the address, the White House released a Fact Sheet providing details on the various trade achievements from President Trump’s first year in office.

As required by Section 241 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) (see our Trump and Trade Update dated 10/30/17), the Treasury Department has submitted to Congress a detailed and classified report identifying senior Russian political figures, Russian oligarchs and Russian parastatal entities (companies in which Russian state ownership is at least 25 percent and that had revenues of $2 billion or more). While the list of parastatal entities remains classified, Treasury has released an unclassified report on the list of senior Russian political figures and oligarchs. This unclassified list includes virtually every senior member of Vladimir Putin’s inner circle and nearly 100 Russian billionaires; the classified list reportedly details the relationships these individuals have with President Putin and any information on their involvement in corrupt activities. This report is not a sanctions list; the inclusion of individuals or entities in any portion of the report does not impose sanctions on those individuals or entities, nor does it create any other restrictions, prohibitions or limitations on dealings with such persons by either U.S. or foreign persons. However, many of those listed are already sanctioned for their alleged involvement in the illegal annexation of the Crimea region of Ukraine, malicious cyber incursions into the United States, and interference in the 2016 U.S. presidential election. The Treasury Department stated that it will rely on all available sources of information, including the classified version of this report, when making determinations about additional sanctions in the future. Putin responded to the release of the list by calling it “nonsense” that would “reduce our bilateral relationship to zero.”

In a related move, the State Department announced that the president would postpone any sanctions on persons or entities engaging in any significant transactions involving the Russian defense or intelligence sectors pursuant to Section 231 of CAATSA. Under CAATSA, President Trump is required to impose at least five sanctions on persons or entities that may be engaging in such transactions; however, he is allowed to postpone these sanctions. A spokesperson for the State Department indicated that no actions would be taken at this time as the law was already “serving as a deterrent.”

While the sixth round of negotiations among trade officials from Canada, Mexico and the United States proceeded in Montreal last week on the North American Free Trade Agreement (NAFTA), the nonpartisan Business Roundtable released an economic analysis concluding that termination of NAFTA would have a significant net negative impact on the U.S. economy and employment. The analysis, prepared by Trade Partnership Worldwide, LLC, quantifies the harmful impacts of NAFTA withdrawal by examining how the re-imposition of “most-favored-nation” tariffs on U.S. trade with Mexico and Canada would affect the U.S. economy. The analysis also shows that withdrawing from NAFTA would:

  • Result in the net loss of 1.8 million U.S. jobs within the first year.
  • Reduce U.S. exports to Canada and Mexico by 17.4 percent each and lower U.S. companies’ global exports by 2.5 percent.
  • Diminish U.S. households’ purchasing power by almost $654 per household due to higher prices and lower wages caused by increased tariffs.
  • Shift economic activity away from North America and toward U.S. competitors, including China, which would experience a GDP increase of 0.2 percent and a net employment increase of 2 million jobs.

Overall, the analysis concludes that termination would re-impose high tariff costs on U.S. exports and imports, which would reduce the competitiveness of U.S. businesses both domestically and abroad. U.S. exports would drop, both to Canada and Mexico and globally, as U.S. output becomes more expensive, making U.S. businesses less competitive in these markets.

In remarks to attendees at the World Economic Forum in Davos, Switzerland, President Trump proclaimed that “the world is witnessing the resurgence of a strong and prosperous America” that has dramatically cut taxes and eliminated burdensome regulations, and is reforming bureaucracy and ensuring its laws are enforced fairly. While acknowledging his “America First” stance, the president stated that this does not mean “America alone.” Instead, he indicated that “when the United States grows, so does the world. American prosperity has created countless jobs all around the globe, and the drive for excellence, creativity, and innovation in the U.S. has led to important discoveries that help people everywhere live more prosperous and far healthier lives.”

Regarding international trade, the president stated that his administration will continue to work to reform the system “so that it promotes broadly shared prosperity and rewards to those who play by the rules. We cannot have free and open trade if some countries exploit the system at the expense of others. We support free trade, but it needs to be fair and it needs to be reciprocal. Because, in the end, unfair trade undermines us all.” He stressed that the United States “will no longer turn a blind eye to unfair economic practices, including massive intellectual property theft, industrial subsidies, and pervasive state-led economic planning. These and other predatory behaviors are distorting the global markets and harming businesses and workers, not just in the U.S., but around the globe.” He concluded his remarks on trade by reiterating that the United States “will enforce our trade laws and restore integrity to our trading system. Only by insisting on fair and reciprocal trade can we create a system that works not just for the U.S. but for all nations.”

On January 19, the Department of Commerce submitted its Section 232 report to the White House on the national security implications of aluminum imports one business day ahead of its statutory deadline. The president now has 90 days from that date, January 19, to determine whether he agrees with the Commerce Department’s findings or will use his “statutory authority to adjust imports,” according to the Trade Expansion Act of 1962, to devise his own remedy. Commerce’s report was confidential, and Commerce stated that it will publish a summary of the report only after the president announces his decision.

The domestic aluminum industry is in support of any action specifically addressing Chinese overcapacity, said Aluminum Association President and CEO Heidi Brock this past Sunday, January 21. According to an industry source at the recent 2018 Aluminum Symposium, such an action must be carefully measured to ensure that it does not result in increased costs for U.S. consumers and does not create a situation where a key source of supply, like Canada, is affected. China has questioned whether a Section 232 investigation is consistent with U.S. WTO obligations, arguing that the WTO’s legal framework does not permit members to impose trade restrictions through an “abusive invocation” of national security.

Toshimitsu Motegi, the Japanese government official in charge of Trans-Pacific Partnership (TPP) negotiations, announced today that the 11 countries still participating in the negotiations had agreed on a newly revised TPP, which will now be called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This resolution followed last-minute objections from Canada at a TPP summit in Vietnam last November. Motegi said that the 11 nations plan to sign the agreement on March 8 in Chile. President Donald Trump withdrew the United States from the original TPP deal on his third day in office.

One of Canada’s issues concerned an exemption to protect Canadian cultural products from the effects of free trade. Motegi said that the parties agreed to exchange a side letter with Canada over the issue after the pact goes into effect. It is also reported that Canada secured real gains in labor and environmental standards and the removal of text related to intellectual property.

Motegi called the agreement “epoch-making for Japan as well as for the future of the Asia-Pacific region,” and expressed hope that the United States will rejoin the deal eventually.