NAFTA

Question Time on Trade

By March 20, 2018 No Comments

Wilbur Ross, U.S. commerce secretary, right, and Robert Lighthizer, U.S. trade representative.

Wilbur Ross, U.S. commerce secretary, right, and Robert Lighthizer, U.S. trade representative.

U.S. Trade Representative Robert Lighthizer will appear before the House Committee on Ways and Means and the Senate Committee on Finance on Wednesday and Thursday, respectively (watch here and here at 10 a.m. each day). Commerce Secretary Wilbur Ross will also appear before Ways and Means at 10 a.m. on Thursday.

Members of the House and Senate are bound to have questions — as well they should, since the Constitution gives the Congress authority “to regulate Commerce with foreign Nations.”

In that spirit, here are a few trade policy questions we’ve been hearing lately:

If the United States imposes $30 billion in tariffs on imports from China, what will the impact be on U.S. businesses and consumers?

News reports indicate the United States will very shortly announce tariffs of $30 billion to $60 billion on Chinese imports. While popular rhetoric suggests that tariffs may be “slapped” on a foreign country, tariffs are of course taxes paid by the importer and, ultimately, the domestic consumer. As David Kotok, chairman and chief investment officer of Cumberland Advisors put it to CNBC, “One man’s income is another man’s expenses. No one wins a trade war.”

That’s exactly what U.S. Chamber President and CEO Tom Donohue warned last week, when news about potential tariffs against China began to surface.

“Simply put, tariffs are damaging taxes on American consumers,” he said. “Tariffs of $30 billion a year would wipe out over a third of the savings American families received from the doubling of the standard deduction in tax reform. If the tariffs reach $60 billion, which has been rumored, the impact would be even more devastating.”

“As we’re starting to see, tariffs could lead to a destructive trade war with serious consequences for U.S. economic growth and job creation. The livelihood of America’s consumers, businesses, farmers, and ranchers are at risk if the administration proceeds with this plan,” Donohue added.

How is the administration working to lessen the harm U.S. tariffs on steel and aluminum will inflict on U.S. downstream (steel-consuming) industries and the likely retaliation?

President Trump recently signed a proclamation imposing tariffs of 25% on imports of steel and 10% on imports of aluminum from all countries with the exception of Canada and Mexico. They are scheduled to be applied beginning on Friday.

Donohue has urged caution on these fronts, too, stating, “These new tariffs would directly harm American manufacturers, provoke widespread retaliation from our trading partners, and leave virtually untouched the true problem of Chinese steel and aluminum overcapacity. Alienating our strongest global allies amid high-stakes trade negotiations is not the path to long-term American leadership.”

“We won’t drive the economy to over 3 percent growth or continue to create jobs if we go down this path,” he added.

How is the administration advancing toward a modernized NAFTA and responding to congressional pleas to ‘do no harm’ in the trade talks with Canada and Mexico?

The North American Free Trade Agreement (NAFTA) is important to American workers, farmers, and businesses. Really important.

Canada and Mexico are such critical markets that they actually purchase more U.S.-made manufactured goods than the next 10 largest markets on the list. They’re also our biggest growth markets: Since 2009, U.S. exports to Mexico have grown by $123 billion and those to Canada have grown by $92 billion — far more than our exports to any other country.

While modernizing NAFTA makes a lot of sense, the administration’s approach to the negotiations has caused concern among U.S. businesses and other North American stakeholders. For example:

Enforcement: When it comes to trade agreements, most Americans like them “strong and enforceable.” Why then is USTR proposing to make compliance with dispute settlement rulings purely voluntary? This could very well lead to a situation where governments are free to ignore their commitments with impunity.

Sunset Clause: USTR has proposed a five-year sunset clause for NAFTA 2.0 under which the agreement would automatically expire unless all three parties agree it should continue. This will create uncertainty and undermine the business confidence needed to foster investment in job-creating enterprises.

Auto Rules of Origin: The U.S. auto industry is extraordinarily united in its opposition to the Administration’s proposal to hike NAFTA’s rules of origin for autos, which are already the highest in any FTA in the world, and add a domestic content rule. By raising costs for U.S. manufacturing, it would likely drive production and jobs offshore. It has no supporters in industry because it has no identifiable beneficiaries in the United States.

Investor Protections: USTR has proposed to weaken NAFTA’s investor protections — which echo the U.S. Constitution’s protections against arbitrary government actions and taking of property without compensation — by eliminating the international arbitration procedures that enforce these protections (known as Investor-State Dispute Settlement). Gutting these basic rule-of-law protections — when the United States has never lost a case — would also undermine congressional support for NAFTA 2.0.

Government Procurement: USTR is proposing to cut back dramatically the reach of the government procurement rules in NAFTA, a proposal that promises no benefit, considerable harm, and has no identifiable U.S. beneficiaries. In reality, it is exceedingly rare for Canadian and Mexican firms to even bid on U.S. procurements — let alone win them — while U.S. businesses do very well in procurements in those two countries.

Happily for the U.S. business and agriculture community, congressional trade leaders get it. As Ways and Means Trade Subcommittee Chairman Dave Reichert recently said:

Our trade agreements have greatly benefited communities across the country, but we can and should update our agreements and make improvements. I’ve made clear that the best way to improve our trade agreements is to require ambitious and fully enforceable commitments from our trading partners. In addition, we must create certainty and confidence in the relationship so that foreign customers want to buy from our companies and benefit our constituents.

We imagine these questions and more will come up during this week’s hearings. And for a U.S. business community that thrives on certainty, the more good answers that arise from the discussions, the better.