Brocker.Org: Here’s what the trade investigations Trump is doing are all about

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U.S.
President Donald Trump holds up a directive ordering an
investigation into the impact of foreign steel on the American
economy after signing it in the Oval Office of the White House in
Washington, U.S., April 20, 2017.

Reuters

Over the last week, the Trump administration has made a flurry of
announcements about trade.

Among the statements, Commerce Secretary Wilbur Ross told CNBC
that this administration would be more about “enforcement” of
trade deals.

And now we’re experiencing exactly what that means — that the
government will “self-initiate” (a trade wonk term) trade
enforcement cases against our trading partners. Often those cases
are started by companies or industry groups.

It also means that the government will open trade investigations
into specific industries or goods from other countries.

So far the Trump administration has opened trade investigations
into three commodities: steel, softwood lumber, and aluminum. In
true Trump fashion, the way some of those are being done is
not particularly normal.

You see, when it comes to how the government conducts trade
investigations, classifications matter. Self-initiated trade
probes fall under four categories:

  1. Anti-dumping: Is a country or company illegally exporting
    more of a good than they’re supposed to?
  2. Countervailing duty: Is a trading partner government
    illegally giving an industry in their country a subsidy that
    gives it an advantage over competitors?
  3. Safeguard: Is there a sudden spike in the production of a
    good we should be worried about?
  4. National security: Is the importation of a good a threat to
    national security?

The investigation and adjudication of these matters falls
under the 

International Trade Commission (ITC)
— which consists of three Democrats and three Republicans — and
the Commerce Department.

Most trade investigations, including the lumber case, fall
into the first two of those categories. But the national security
justification, which the administration is using for the steel
and aluminum cases, is much less common and can have
dangerous consequences.

Pick your poison

The softwood lumber case against Canada is a countervailing
duty case. Canadian timber lands are state owned, which
ultimately makes for cheaper lumber for timber companies, and so
the US government is claiming Canada is giving its industry
an unfair advantage. 

The US has tried this argument against Canada
before the World Trade Organization a couple of times in the past
and lost. Carl
Grenier
, a former executive vice-president
(1999-2006) of the Free Trade
Lumber Council and current
professor at the University of Leval in Canada has sat through
these negotiations before representing the Canadian lumber
industry. He believes that these investigations only serve to
raise the price of lumber, and that “only thing they [the
timber industry] want is more money.”

“That’s why they keep coming back even though we’ve beaten
them every time,” he told Business Insider. “I
t never
seems to die.”

Countervailing duty cases are supposed to take 315 days according
to WTO regulations, but the last time we looked into lumber,
under President George H.W. Bush, it took four years.

And there are some people in the US who have a problem with the
commerce department’s move, like the National Association of
Homebuilders. After Ross announced the investigation they put out
a memo talking about the impact of a counterveiling duty probe on
housing construction.

“If the 20 percent lumber duty remains in effect throughout
2017, NAHB estimates this will result in the loss of nearly $500
million in wages and salaries for U.S. workers, $350 million in
taxes and other revenue for the governments in the U.S. and more
than 8,200 full-time U.S. jobs,” according to Granger
MacDonald, chairman of the National Association of Home Builders.
Lumber prices have already jumped 22 percent since the
beginning of the year, largely in anticipation of new tariffs,
adding nearly $3,600 to the price of a new single-family
home.”

So there’s that.


Donald Trump, WIlbur Ross
U.S.
President Donald Trump speaks before signing a directive ordering
an investigation into the impact of foreign steel on the American
economy in the Oval Office of the White House in Washington,
U.S.

Reuters

The ‘nuclear option’

The steel and aluminum cases are different. They
are 
being done in the name of national
security, under
an article
of the Trade Expansion Act of 1962.
Here’s how that works:

“The [Commerce] Secretary’s report to the President,
prepared within 270 days of initiation, focuses on whether the
importation of the article in question is in such quantities or
under such circumstances as to threaten to impair the national
security. The President can concur or not with the Secretary’s
recommendations, and take action to ‘adjust the imports of an
article and its derivatives’ or other non-trade related actions
as deemed necessary.”

Ross told CNBC that the Trump administration decided to probe
aluminum as a matter of national security because “we’re down to
two smelters in the whole country. Importers are now 55% of the
total aluminum market here and many critical things such as the
very high purity aluminum that we need for aerospace, we only
have one producer. That’s not a good formula.”

(Of course, one could argue that really expensive aluminum
is also “not a good formula,” but we’ll just leave that right
where it is.)

Trump’s reasoning in signing the memorandum to have Ross
investigate steel followed much
of the same reasoning.

Now, the fact that the Trump administration is
investigating this as a national security threat has wide ranging
implications. 

Most self-initiated investigations are about anti-dumping or
countervailing duties. All that stuff is handled by bureaucrats.
Plus, the World Trade Organization has pretty clear guidelines
for how to proceed with those investigations.

National security on the other hand — that’s where the White
House can get involved, and where officials can get creative,
according to Chad P. Bown, a senior fellow at The Peterson
Institute for International Economics.

Because there are no clearly accepted guidelines, the
justification for use of the national security exception is also
difficult to refute,” he
wrote in a recent piece.
“It can, therefore, be easily
abused. New import restrictions arising under that area of US law
really are akin to the ‘nuclear option’—their use really puts the
entire system of international trade law at risk. “

Now why is this the nuclear option? Because these probes
are initiated by the government, they give other countries a
reason to retaliate in a way they would not be able to
against private trade groups. Further, Brown wrote that usually
the government is not as good as defending its case as industry
groups and companies are.

“This weakens a 70-year-old US commitment to promote the
international rule of law and encourages others to engage in
tit-for-tat retaliation.
China did this repeatedly
between 2009 and 2011, harming US
exports and workers in sectors as diverse as poultry, autos, and
steel,” he said.

Once that kind of activity is set in motion, it takes a lot of
careful diplomacy to end it, and so far this administration
hasn’t shown that it can be careful about much of anything.

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