The Trump administration and trade: an emerging picture

Despite President Trump making “America First” a key plank of his campaign, as with many issues that the Trump Administration is confronting, the precise contours of its trade policies remain to be seen 

This article was first published in the Orient magazine, 27th June 2017

 

By Romesh Weeramantry, Foreign Legal Consultant; Janet Whittaker, Partner; Paul Landless, Partner; and Jessica Gladstone, Partner; all Clifford Chance

 

One of the first actions taken by President Trump was to follow through on his campaign promise to withdraw from the Trans-Pacific Partnership Agreement ("TPP").  For many, this signalled the start of the United States' retreat from its traditional position as a global leader in free trade.  However, despite candidate Trump making “America First” a key plank of his campaign, as with many issues that the Trump Administration is confronting, the precise contours of its trade policies remain to be seen.  

 

There are three reasons why the Administration's agenda on Trump is still developing.  First, the authority available to the President on trade is not unlimited, so the campaign rhetoric by necessity will adjust to the practical constraints on his executive powers.  Second, there are many players with potential to influence trade policy—some of whom, including importantly the United States Trade Representative ("USTR")—are not yet in place; those who have taken up their positions come to the table with different perspectives on the pros and cons of free trade and are jockeying for sway with the President.  Third, the Administration will not only need to cater to those who wish to constrain free trade, but it will also have to confront the multitude of constituencies—including U.S. farmers and consumers—who benefit from free trade and are beginning to make their voices heard.

 

 

In this context, it is helpful to review some of the Administration's trade-related actions over its first three months. 

 

Having campaigned on a commitment to scrap the North American Free Trade Agreement ("NAFTA") and calling it "the worst trade deal ever," President Trump appears to have pulled back from his threats.  A widely-reported draft letter sent to Congress suggests that the Administration intends to keep much of the trilateral agreement in place, while seeking to make changes that would address areas of specific concern.  For example, it is reported that the United States wants to propose changes to NAFTA's rules of origin and "to level the playing field on tax treatment."  While the draft letter may provide some indication of the Administration's broad objectives, its formal position on NAFTA remains unknown.  Importantly, however, it is interesting to note that the draft letter reportedly reasserts the United States' acknowledgment that Canada, Mexico, and the United States have "shared borders" and "shared goals, shared histories and cultures, and shared challenges."

 

The Administration's focus on levelling the playing field is carried through in two trade-related executive orders signed by the President in March.  The first executive order focuses on the United States' trade deficit, requiring the Department of Commerce and the USTR to conduct a 90 day review to assess the major causes of the trade deficit in respect of foreign trading partners "with which the United States had a significant trade deficit in goods in 2016."  In particular, it directs that the "Omnibus Report on Significant Trade Deficits" identify areas where trade practices and market barriers are contributing to the United States' trade deficit in goods, and the impact of the relevant trade relationships on U.S. manufacturing, employment, and wage growth. 

 

The trade deficit in goods has also been a focus in the Administration's bilateral trade discussions to date, including, for example, with South Korea.  In April, Vice-President Pence, during a visit to Seoul, suggested that the United States would seek to renegotiate the United States-Korea Free Trade Agreement ("KORUS") to address the concern that the United States' "trade deficit with South Korea has more than doubled since KORUS came into effect."

 

The second executive order is directed at addressing the unfair trade practices of foreign importers, including through rigorous enforcement of trade remedies and through measures to make enforcement more effective.  Indeed, the Commerce Secretary, Wilbur Ross, has confirmed that enforcement is one of the Administration's trade priorities and that he plans to pursue anti-dumping and countervailing duty cases to protect U.S. industries—primarily in the manufacturing sector—harmed by imports.

 

One of the most interesting developments has been with respect to China.  Much of President Trump's criticism's of past trade policies have been targeted at China, which in 2016 had a U.S.$ 347 billion trade surplus with the United States.  However, the recent summit between Presidents Trump and Xi signalled a strong intent on both sides to minimize frictions in the bilateral relationship, including in the area of trade.  The two countries agreed to engage in a new Comprehensive Economic Dialogue and to develop a 100 day plan for talks aimed at cutting back the United States' trade in goods deficit with China; there was also some initial discussion of opening certain sectors of the Chinese economy to U.S. exports and investment.

 

Going forward, it appears that bilateral—rather than multilateral—trade relationships are likely to form the pillar of the Administration's trade negotiations.  For example, the United States has just opened a "new chapter" in its relationship with Japan through the establishment of the U.S.-Japan Economic Dialogue.  Similarly, during Prime Minister May's visit to the White House earlier this year, both countries committed to talks on a United States-United Kingdom free trade agreement. 

 

In Asia, the withdrawal of the United States from the TPP has given momentum to another significant multilateral trade agreement, the Regional Comprehensive Economic Partnership ("RCEP").  It comprises sixteen countries—the ten Association of Southeast Asian Nations ("ASEAN") and six countries with which ASEAN has existing free trade agreements, namely, Australia, China, India, Japan, New Zealand, and South Korea.  Once finalised, this trade bloc will account for almost half of the world’s population, about 25 percent of global GDP, and over a quarter of world exports.  

 

The key winners in the RCEP will be the countries that currently do not have trade agreement relationships with each other, such as China with India and Japan with Korea.  However, tariff reductions under RCEP are reported to be less comprehensive than those agreed in the TPP.  Additionally, RCEP is not expected to issues such as the environment and human and labour rights, which the TPP did include.  There have been calls, for example, by Malaysia, for RCEP to be concluded by the end of this year.  Whether this ambitious target will be achieved remains to be seen.

 


 

About Clifford Chance

 

Clifford Chance is one of the world's pre-eminent law firms with significant depth and range of resources across five continents. As a single, fully integrated, global partnership, we pride ourselves on our approachable, collegiate and team based way of working. We always strive to exceed the expectations of our clients, which include corporates from all the commercial and industrial sectors, governments, regulators, trade bodies and not for profit organisations. We provide them with the highest quality advice and legal insight, which combines the firm's global standards with in-depth local expertise. Clifford Chance brings experience of numerous international trade and public international law matters that make us well placed to help you navigate your trading environment. This includes WTO law, anti-dumping, anti-subsidy, trade barrier regulations, customs and rules of origin, export controls, economic sanctions, the effect of bilateral and plurilateral trade and investment treaties, and related disputes. For more information visit www.cliffordchance.com

COMMENT
VIEW COMMENT
 
BACK TO TOP