Will the Protectionist US Powder Keg Be Lit in 2018?
The United States has initiated policies and started processes that threaten a very protectionist 2018.
During 2017, the Trump Administration laid down many ominous protectionist markers. Will some prove to be no more than negotiating pawns, or will the Trump Administration stand its ground and follow through on some or many? And, are there more initiatives to come? Many face opposition domestically, including from Republicans. US trade partners see grounds for retaliation.
The insanely aggressive US positions put forward in the NAFTA renegotiation top the list of protectionist positions from a Canadian perspective.
Then, there are the separate ongoing countervail and dumping complaints filed by US industry against a Bombardier aircraft and Canadian softwood lumber imports.
The Trump administration also self-initiated cases in April 2017 against world-wide steel and aluminium imports. The test is whether domestic supplies can meet national security requirements. This rarely used trade law provision was hatched 55 years ago during the Cold War. The Commerce Department must report by January 2018.
Two major so-called Section 201 safeguard decisions will reach President Trump’s desk in early 2018. These are the first cases initiated since 2001. By January 12, the President must rule on whether to proceed with any policy action on imports of solar panels. Then, he has a February 3 deadline for washing machine imports. A wide range of options for action are available, typically tariffs, quotas, or voluntary export restraints. In both cases, the US International Trade Commission (USITC) has determined that there has been injury to the US industry.
At the World Trade Organization (WTO), the US Trade Representative, Robert Lighthizer, has been playing games and threatening the future functioning of the respected and necessary WTO dispute settlement process by refusing to endorse needed new members to serve on dispute settlement panels. In his remarks at the December 2017 WTO ministerial meeting, Lighthizer questioned whether the longstanding WTO litigation structure makes sense. He provocatively said, “Too often members seem to believe they can gain concessions through lawsuits that they could never get at the negotiating table.”
A much less widely reported Trump Administration directive led to the launch in December of an initiative by the US Interior Secretary, Ryan Zinke, to address US dependence on foreign supplies of critical minerals, judged critical to national security, such as those used in smartphones, computers and military equipment. Within 60 days, a list is to be published of non-fuel minerals vulnerable to supply chain disruptions and necessary for manufacturing. This will lead to strategies to lessen US dependence on foreign suppliers.
The US Tax Reform – now signed into law – also has provisions that the US has been warned offend its WTO obligations. Among other things, the legislation has a provision that taxes a US company’s exports of “intangibles” at around a lower 13% rate against a 21% general rate. “Intangibles” include patents, trademarks and know-how. The European Commission alleges that this appears to be an export subsidy that will give US firms an advantage in international markets, including in Europe. Observers compare the new preferential rate to a previous US incentive offered from 1986 to 2006 via a special Foreign Sales Corporation which led to a lengthy high profile trade spat between the European Union and the US – and ultimately to a WTO judgement in 2000 against the US.
Of overarching concern, beyond these threatening actions and processes, has been continued Presidential protectionist rhetoric and pointed Twitter threats directed at US and foreign companies designed to pressure them to think only of the US in making their investment, procurement and hiring decisions. What company with an interest in the US market would announce a new plant in Mexico or move production out of the US?
The list is long. Ominously, it is a product of “Make America Great” political promises which President Trump will want to point to honouring.