EnThe First 100 Days – Plenty Done, Results Unclear
When considering the trade policies of President Donald Trump’s administration one first needs to separate the realities of President Trump vs. the rhetoric of candidate / President-elect Trump. While there have been plenty of press reports on so-called “ flip-flops” on policy, this doesn’t change the fact that there has been a lot of change or that there is a lot more to come.
As outlined in Panjiva research the administration has: pulled the U.S. out of the Trans-Pacific Partnership; completed a review of currency manipulation accusations; applied the trade preferences extension act for the first time; started a national-security review of steel imports; and initiated trade dialogues with Japan and China. It is too early, however, to assess the impact of these changes – full trade data for the first two months of the Trump Presidency will only be published on May 4. Panjiva analysis of seaborne volumes and pricing suggest the March deficit may be broadly unchanged on a year earlier after February’s fell.
Source: Panjiva
Task 1 – Light Up Lighthizer
What is it? A Senate vote is required to finalize Robert Lighthizer’s appointment to the role of U.S. Trade Representative. This has been held up until the waiver required for Mr. Lighthizer to take up the role was cleared by the Senate finance committee on April 25.
Why does it matter? The White House has indicated that a plan for implementation of the renegotiation of NAFTA cannot be completed, and by extension negotiations started, until Mr. Lighthizer has been approved. His appointment may also be particularly important for U.S. agricultural exporters, whom he has been a vocal supporter of. Panjiva’s analysis of the top 1200 U.S. food and beverage export product-country pairs shows the most significant trade item is soybeans, of which a half are normally destined for China. Canada features more prominently in agricultural exports than Mexico in most case. Wheat and maize (corn) are the second and fourth largest items, with leading customer nations being Mexico and Japan.
When will it happen? A formal vote by the Senate will likely occur during the current session that runs through May 28.
Source: Panjiva
Task 2 – Get Going With NAFTA (Or Not)
What is it? A key commitment of the Trump administration has been a review of the North American Free Trade Agreement with Canada and Mexico. Mexico has already signed on, and has launched its own pre-negotiation consultative process, but has been frustrated by slow progress from the U.S. President Trump has indicated he sees the process – which requires a 90 day consultation with Congress under Trade Promotion Authority rules – as being “ridiculous”.
Why does it matter? The timing of talks matters more than the content to a certain extent. Commerce Secretary Wilbur Ross has indicated that talks could easily take until 2018 given they might not start in substance until later this year. The Mexican government will also want to avoid the seasonal peak in its trade surplus with the U.S., which Panjiva analysis of U.S. imports less exports) vs. Mexico excluding energy shows occurs in October. More importantly though with elections in Mexico in July 2018 and the U.S. in October 2018 both parties will want to show progress well ahead of then. The added complication: Canada (which doesn’t have the seasonality issue) and Mexico want to hold trilateral talks, which could protract the whole process.
When will it happen? If the U.S. administration wants to start talks before the summer recess, the 90 day TPA window needs to be triggered by May 2. President Trump indicated on April 20 that a plan could be announced “within two weeks”, which is consistent with that timing. If that is missed, the administration has the option of starting talks anyway – or even triggering the 180 day exit process. The challenge would then be that approval of any new deal would not be eligible for a simple up-or-down vote. That could easily delay ratification beyond the U.S. mid-terms.
Source: Panjiva
Task 3 – Accept or Dispute a NAFTA Dispute
What is it? The NAFTA dispute panel has ruled against U.S. countervailing duties on Canadian exports of supercalendered paper. It cited the use of the “concurrent subsidies methodology” in relation to certain Canadian regions’ provision of subsidized energy. The U.S. has to redetermine the tariffs it has applied.
Why does it matter? Aside from the case itself, which is adjacent to the controversial softwood lumber trade case and related negotiations, it will be a test case for the ongoing inclusion of chapter 19 (dispute settlement) in the revised version of NAFTA. The U.S. has already indicated that it wants to review the dispute process. Panjiva data shows that U.S. imports of the broad category of paper products challenged in the NAFTA case from Canada halved to $760 million in the past year vs. the 12 months to March 2015.
When will it happen? The U.S. Department of Commerce has until June 27 to reach its new determinations. Notably the U.S. also has disputes outstanding that it has initiated, for example against a Canadian wallboard decision.
Source: Panjiva
Task 4 – Decide Whether to Challenge WTO Legitimacy
What is it? A World Trade Organization dispute panel has found that the U.S. must reduce its tariffs on imports of South Korean domestic washing machines. That follows a ruling that the U.S. did not use “zeroing” methodologies correctly in a case originally decided upon in 2013 that South Korea then appealed. Panjiva data shows imports from South Korea were 74.7% lower in the past 12 months than they were four years ago. More recently a new trade case has been launched against Chinese shipments, leading to increased exports from Vietnam and Thailand.
Why does it matter? There’s an obvious clash with the requirement to change tariffs by the WTO, and a commitment in “ The President’s Trade Agenda” reported by the USTR. That suggested WTO rulings might not be considered to be binding. President Trump threatened, as candidate, to withdraw from the WTO in the past, but has not subsequently confirmed that concept. While the current administration has not brought new appeals about other countries to the WTO, cases were brought by the Obama administration on Canadian wine, Chinese grain purchases and Chinese exports of 12 raw materials that are still outstanding. The acceptance or otherwise of the WTO’s ruling on washing machines may be a litmus test for future relations.
When will it happen? The U.S. has until December 26 to adjust its tariffs, though administration rhetoric heading into December’s WTO ministerial meetings may be more meaningful.
Source: Panjiva
Task 5 – Get on the Omnibus
What is it? President Trump signed an Executive Order on March 31 calling for an “omnibus report” identifying the drivers behind the U.S. trade deficit. This is to include – for each major trading partner of the U.S. with a “significant” trade surplus in goods – an assessment of the tariff and nontariff practices of each country.
Why does it matter? The report will form the basis of the administration’s engagement with its trading partners in the coming year. Short-term action may also be taken under the auspices of self-initiated trade cases and another Executive Order on improved tariff enforcement. Panjiva analysis of U.S. imports and exports for the year shows the U.S. had a deficit of over $5 billion with 21 countries. These include seven EU states, both its NAFTA partners, China and Japan among others. Exports from the U.S. increased for 14 of the countries, and its export performance was better than imports (ie higher growth) for 11 of them.
When will it happen? The report is scheduled to be published by June 29, though public hearings on May 18 may provide some indication of the report’s direction. A related report, due by September 15, will be an assessment of the impact of free trade deals on the President’s “ Buy American” Executive Order.
Source: Panjiva
Task 6 – Deliver the 100 Day Plan With China
What is it? Meetings between President Xi and President Trump in early April were focussed on relationship building. This included a commitment to a 100 day program. The program is planned to have “way stations of accomplishments” to improve the balance in trade between the two. Subsequent to the meeting the Chinese government has highlighted a willingness to increase exports in return for a review of American intellectual property export rules.
Why does it matter? Aside from the deficit reduction potential, a short-term deal with China may help President Trump’s foreign policy objectives, as he indicated in a tweet on April 12 regarding North Korea. There are no shortage of quick-win areas – for example in U.S. access to the Chinese market for beef. Panjiva data shows that Brazil has expanded its exports to $737 million in the 12 months to February 28 after being readmitted to the market. The overall Chinese import market for beef and products reached $2.58 billion over the same period, 90.9% higher than in 2014.
When will it happen? 100 days after the Presidents’ meeting is July 16. While this is not a formal deadline, presumably the referenced “way stations” will need to yield some outcomes before then.
Source: Panjiva
Task 7 – Pour Something Concrete with Japan
What is it? Initial “Economic Dialogue” meetings between Vice President Mike Pence and Deputy PM Taro Aso led to a commitment to achieving “concrete results” in the coming months. It isn’t clear where further impetus will come from however. Japan is engaged in significant trade negotiations in Asia and Europe. Meanwhile the U.S. has not labelled Japan as a currency manipulator and might also wait for the Omnibus report before acting. One area for action may be on Foreign Direct Investment, although Japan already reinvests 83% of its trade surplus. Another would be export preferences. Panjiva analysis of the top 1,000 export lines from the U.S. to Japan and globally shows there may be opportunities in energy, autos, electronic components and jewelry. These are underrepresented in U.S. exports to Japan vs. its global shipments, with the top 10 items alone potentially adding 11.6% to U.S. shipments to Japan.
Why does it matter? While the commitment is open ended, this will show whether the President’s strategy of delegating different parts of trade policy execution to Vice President Pence, Commerce Secretary Ross and USTR-nominee Lighthizer will work. The success matters as the President wishes to pursue several bilateral deals at once.
When will it happen? A firm follow-up meeting date has yet to be set, other than for “later in the year”. This would suggest actions might not be taken until after the summer.
Source: Panjiva
Task 8 – Get to Know India
What is it? Presidential level meetings relating to trade have yet to occur between the Indian and U.S. governments. That comes despite President Trump having already met with the leaders of China and Japan. Those led to the start of ongoing trade dialogues. A phone call between President Trump and Prime Minister Modi in January focussed on security, CNBC reports.
Why does it matter? Panjiva analysis of U.S. imports and exports show that India had a $24.4 billion goods surplus vs. the U.S. in 2016. It has also seen significant trade growth, with U.S. exports climbing 25.8% and Indian exports by just 10.7%. Perhaps more importantly from a political perspective is that India is a part of the negotiations regarding the RCEP trade deal with China (among others).
When will it happen? A meeting between U.S. National Security Director McMaster and Indian Prime Minister Modi and a discussion between Treasury Secretary Mnuchin and Finance Minister Jaitley may pave the way for a meeting. Nothing is formally scheduled but it may be delayed until the G20 summit in July.
Source: Panjiva
Task 9 – Respond to Pacific Rim Deal Making
What is it? The Trump administration’s trade doctrine is firmly committed to a process of bilateral trade negotiations. Yet, there are a great many multilateral deals ongoing, particularly in Asia, that may limit American’s freedom to negotiate in the coming months. Negotiations are currently ongoing regarding the Regional Comprehensive Economic Partnership ( RCEP) as well EU/Japan and South Korea/Mercosur free trade agreements among others.
Why does it matter? Those deals may take precedence in the negotiation and political passage processes of the relevant countries. Furthermore, countries may not want to offer terms to the U.S. that are “better” than they are negotiating in their trade deals for fear of jeopardising them. Panjiva analysis shows that out of 25 largest trade in goods surplus countries with the U.S. only three (Russia, Switzerland and Israel) are not currently involved in trade negotiations in the Pacific rim.
When will it happen? Most of the deals are targeted for signing later in the year, so a formal response from the administration might not be needed for some time. One key waymarker though is that China will likely want to make progress on the RCEP before its October National Party Congress.
Source: Panjiva
Task 10 – Swing the BAT or Dodge the Ball
What is it? A critical part of the Trump administration’s economic policy is a “pro-growth” tax reform. Outline proposals from the Republican Party include a border-adjustable tax (BAT), the Wall Street Journal reports. This would not allow companies to deduct the cost of imported goods for tax purposes, but would not require them to pay tax on revenues earned on exports.
Why does it matter? For industries that have common business practices in terms of overseas production the most likely outcome would be a rise in consumer prices, for example as Adidas CEO Kasper Rorsted has outlined. Where there is differentiation companies may choose to withdraw from the market, with Uniqlo making such a threat, or a combination of higher prices, lower profits and less investment as Volvo, General Motors and HP Inc indicated.
When will it happen? Announcements of a full budget could come at any time, but the implementation of the BAT will be dependent on broader tax reform. Treasury Secretary Steven Mnuchin sees it as being in violation of WTO rules unless it is combined with changes in interest and depreciation deductibles tool, but that a deal could be completed by year end. House Speaker Paul Ryan has stated that a tax reform is possible “by the end of the summer”. The initial plan offered by the administration does not refer to the border-adjustable tax – the “territorial tax” refers to U.S. companies only paying tax on U.S. (rather than worldwide) earnings.
Source: Panjiva
Task 11 – Open and Shut Cases
What is it? The U.S. International Trade Commission currently has 49 anti-dumping / countervailing duty trade cases in progress, including nine petitions that have been launched since the start of the Trump administration. This is likely to increase once the Omnibus trade report is completed (see Task 5 above), and does not account for the recently announced Presidential Memorandum covering the steel and aluminum industries.
Why does it matter? This represents the nuts-and-bolts of implementing trade policy, with imports of the products concerned often dropping immediately after a case is launched. There will be a particular focus on the steel and aluminum industries. Panjiva data shows U.S. steel imports in the three months to February 28 increased 19.7% on a year earlier, led by an expansion in shipments from Russia and Brazil among others.
When will it happen? More-or-less continuously for ongoing cases. These need to go through a near one-year process from petition (or self-initiation) to reviews by the International Trade Commission, International Trade Administration and potentially the Court of International Trade under the auspices of the Commerce Department. The timetable for the steel and aluminum industries is more protracted, with the section 232 process taking up to 270 days to review (ie mid January 2018). It seems unlikely, however, that Commerce will take that long given previous comments by the President on NAFTA, and Secretary Ross’s aim to act “expeditiously”.
Source: Panjiva
Task 12 – Leave Europe Alone, It’s Not Worth the Hassle For Now
What is it? The next six months will see national elections in France, the U.K. and Germany. These come at the same time as the U.K. is starting to negotiate its exit from the EU (“ Brexit”). That will naturally lead to an inward-looking policy focus for the region. Attempts to revive trade talks, or follow a bilateral path, may prove to be a waste of time and resources for the Trump administration.
Why does it matter? The EU holds the second largest trade surplus with the U.S., and Germany is on the U.S. Treasury’s currency manipulation watchlist. President Trump’s initial meeting with Chancellor Merkel suggested that a renewal of the TTIP trade deal was not on the agenda, though recent comments from House Speaker Ryan suggest a restart is being considered. As was seen with the CETA trade deal with Canada, even if a deal is agreed in principle with the European Commission, national politics can form a significant barrier.
When will it happen? French elections will be completed by May 3, the U.K. general election is on June 8 and Germany’s on September 24. Even beyond that though there are a series of other national elections. An early test will be whether meetings between Commerce Secretary Ross and EU Commissioner Malmstrom turn into concrete actions.
Source: Panjiva
Update (4/26): Adds comment on administration’s initial tax plan
