It continues to be an up-and-down roller coaster ride for trade.
A U.S. trade delegation returned from China and met with President Trump on June 5 on a reported offer from China to purchase up to $70 billion in American agricultural and energy products, as well as some manufactured goods, over the next year. The U.S. delegation was led by Secretary of Commerce Wilbur Ross, Under Secretary of Agriculture for Trade and Foreign Agricultural Affairs Ted McKinney, and Gregg Doud, chief agricultural negotiator at the Office of the U.S. Trade Representative. There were no reports on the outcome of the discussions with Trump.
Then on June 7, Commerce Secretary Ross announced a $1.4 billion settlement with China’s ZTE Corp., under which it will be required to pay $1 billion more in fines and place an additional $400 million in potential penalty money in escrow as part of an enforcement case brought by the Commerce Department’s independent Bureau of Industry and Security (BIS) for violating U.S. export control laws and sanctions against Iran and North Korea. Specifically, the Chinese firm was charged with a multi-year conspiracy to supply, build and operate telecommunications networks in Iran using U.S.-origin equipment, as well as committing “hundreds of U.S. sanctions violations involving the shipment of telecommunications equipment to North Korea.”
The new fine is in addition to the $892 million in penalties ZTE paid under a March 2017 settlement agreement for similar infractions. ZTE also will be required to retain a team of special compliance coordinators selected by and answerable to BIS for the next 10 years. ZTE also is required to replace its Board of Directors and senior leadership team. Meanwhile, the Commerce Department’s BIS retains the so-called “denial order” that can be reactivated to prevent U.S. companies from doing business with ZTE in the event of future infractions.
Despite these developments, the Trump administration signaled it is proceeding to prepare a final list of up to $50 billion in Chinese goods that would be subject to U.S. tariffs, which administration officials said would be issued during the week of June 11. The U.S. Treasury Department also reportedly is in the process of developing plans to limit Chinese investment in the United States.
Meanwhile, Brazil on June 7 reported that its exports of soybeans to China in May reached a monthly record of 9.76 million metric tons, nearly 80 percent of that country’s total export volume for the month. The figure eclipses the previous record by more than 1.4 million metric tons, which was set in April 2017.
Soybean stocks in China hit a record high of 8.18 million metric tons, according to China’s National Grain and Oil Information Centre, which it said is equivalent to a month’s worth of consumption.
NAFTA: The administration on June 5 signaled that it is considering pursuing bilateral trade negotiations with Mexico and Canada, after subjecting both countries (and the European Union) to President Trump’s 25 percent tariffs on steel and 10 percent on aluminum and following the failure to reach an agreement thus far to modernize the North American Free Trade Agreement (NAFTA). During an appearance on Fox News, National Economic Council Director Larry Kudlow said Trump does not plan to withdraw from NAFTA, but that “he (Trump) will try a different approach.” While he said he could not project the timing, Kudlow said based on a conversation between Trump and his trade advisers on June 4, “I think he would like to start that approach rather quickly.” Continued intransigence by Canada, in particular, has been viewed repeatedly by U.S. trade negotiators as an impediment to reaching a successful NAFTA outcome. But Mexico, Canada and U.S. business interests have questioned a bilateral approach given the integrated nature of the three countries’ investments and supply chains.
Meanwhile, Canada, Mexico and the EU announced commensurate tariffs on U.S. products. Mexico said it would impose tariffs on about $3 billion worth of U.S. pork, dairy, whiskey, cheese and other goods, in addition to U.S. steel and aluminum imports. Canada announced countermeasures effective on July 1 on up to $12.8 billion in imports of U.S. steel, aluminum and other products, as well as a 10 percent “surtax” on U.S. agricultural exports, including soy sauce, whisky, unfrozen orange juice, maple sugar and jellies and jams. Canada, Mexico and the EU also filed separate requests for consultations with the United States at the World Trade Organization, alleging that the U.S. imposition of tariffs on steel and aluminum on national security grounds were specious.
Senators Introduce Bipartisan Legislation to Require Congressional Approval of Tariffs Imposed on National Security Grounds: Senate Foreign Relations Committee Chairman Bob Corker, R-Tenn., and a bipartisan group of 12 other senators on June 6 introduced legislation that would require congressional approval of tariffs imposed by the president on national security grounds. The bill would require the president to submit to Congress any proposal to adjust imports in the interest of national security under Section 232 of the Trade Expansion Act of 1962, which would trigger a 60-day period for Congress to enact legislation approving the tariffs. The legislation would apply to all tariffs imposed under Section 232 during the past two years and for the future – which would encompass President Trump’s imposition of tariffs on steel and aluminum, as well as those that may be imposed under a recently announced Commerce Department investigation on U.S. imports of automobiles and auto parts.
“While we all agree on the need to ensure the international trade system is fair for American workers, companies and consumers, unfortunately the administration is abusing the Section 232 authority delegated to the president by Congress,” Corker said in introducing the bill. “Making claims regarding national security to justify what is inherently an economic question not only harms the very people we all want to help and impairs relations with our allies, but also could invite our competitors to retaliate. If the president truly believes invoking Section 232 is necessary to protect the United States from a genuine threat, he should make the case to Congress and to the American people, and do the hard work necessary to secure congressional approval.”
A cosponsor of the bill, Sen. Heidi Heitkamp, D-N.D., added: “For North Dakota farmers, ranchers and manufacturers, exporting is critical, but the administration’s wrongheaded trade policies are putting their livelihoods in jeopardy….Right now, the president is implementing tariffs on our allies, like Canada, Mexico and the EU – countries that don’t pose national security threats but which are critical trading partners….Huge economic policy decisions like tariffs shouldn’t be taken lightly, and Congress should serve as a needed check to make sure we aren’t losing out in the end.”
Other cosponsors of the bill are Sens. Pat Twomey, R-Pa., Mark Warner, D-Va., Lamar Alexander, R-Tenn., Brian Schatz, D-Hawaii, Ron Johnson, R-Wis., Chris Van Hollen, D-Md., Jeanne Shaheen, D-N.H., Mike Lee, R-Utah, Jeff Flake, R-Ariz., Johnny Isakson, R-Ga., and Ben Sasse, R-Neb.
The legislation faces an uphill climb and uncertain future in securing congressional approval, and an almost-certain presidential veto requiring an override vote if it is approved.