A Quiet Week on the Trade Front
February 12, 2018
Well, on the trade front it’s been a quiet week in Lake Woebegone as well as Washington. The latest rounds of talks on the North American Free Trade Agreement (NAFTA) and Korea-U.S. Free Trade Agreement (KORUS) are over with the next ones not yet arrived, and there has been no China announcement to roil the stock market (which clearly doesn’t need one to work itself into a tizzy). I have a feeling this is just the calm before the storm, but it does provide an opportunity to address several things that get bypassed in the heat of combat.
First, in the midst of all the NAFTA and KORUS drama, normal good news still occurs. The House of Representatives has passed the long-awaited Miscellaneous Tariff Bill, and there does not seem to be any obstacle to the Senate eventually doing the same thing. House members have also introduced a bill to extend the Generalized System of Preferences (GSP), which they hope to pass this week under suspension of the rules. Here too there are grounds for optimism the Senate will act.
Neither of these are earthshaking policy items, but they are important to specific stakeholders, and they are bricks in the foundation of a coherent U.S. trade policy. The Miscellaneous Tariff Bill will permit duty-free entry for items that are not made in the United States, thereby saving money for manufacturers here as well as consumers. The GSP program has proved to be a useful tool in helping developing countries grow and diversify their economies. It is not as effective as it could be, largely because we have excluded some items, like apparel, where developing countries are competitive.
It has not always been easy to pass either of these bills. The first has been mired for years in a spat over whether a tariff elimination was an “earmark” and therefore a “no-no” under House procedures. The second often is held up because it is seen as a vehicle for other amendments that are more controversial. That both are moving is important because it shows that not all normal trade policies have been abandoned and that a modicum of bipartisanship still exists.
Second, it is noteworthy that the International Trade Commission (ITC) recently found no threat of injury in the Boeing subsidization complaint against Bombardier. I did not follow the details of the case closely enough to give an opinion on whether that was the right decision or not, but at a time when business is concerned about a wave of protectionism swamping the economy, it was reassuring to see that there is at least one government agency determined to make fact-based decisions and buck the tide. This case was not launched by the administration—it was brought by Boeing—but there has been growing concern that the president’s tweets on trade have effectively encouraged more companies to seek protection from the government. This decision by the ITC should remind everybody that these complaints are not slam dunks and that companies should consider carefully before filing one.
Third, some of the dire threats have disappeared, at least temporarily, and occasional signs of a more conventional approach to trade policy have appeared. The president has not tweeted about withdrawing from NAFTA or KORUS for several weeks, and Ambassador Robert Lighthizer suggested he might seek to negotiate a trade agreement with an unnamed African country. These are also not earthshaking developments, and the non-tweets could be undone at any moment, but like the legislation mentioned above, they are signs of what Warren Harding called “normalcy” returning to our trade policy.
Finally, the president seemed to open the door at least a crack to rejoining the Trans-Pacific Partnership (TPP). At this point it is not clear exactly what he meant by that. One interpretation is that he has realized that pulling out of TPP torpedoed a key element of our Asia strategy and replaced it with nothing, thus effectively handing over regional economic leadership to China. A more Machiavellian thought is that he sees it as a way to slow down or even stop TPP-11, although initial reactions from some of the other parties suggest that won’t work. In the short run, I think it is best to take his statement at face value and have a discussion of how best to return to TPP and what appropriate terms might be. Of course, at some point reality will set in, and everybody, including the president, will realize that the best terms were the ones he abandoned a year ago, and any reentry will only be on terms acceptable to the other 11 parties. That doesn’t meet anybody’s definition of a good deal for us, but it will be a result of the president’s own making. If we do eventually get there, however, it will be yet another sign that our trade policy foundation is strong, and the administration is building on it rather than tearing it down.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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