Trade: A Bit More Than Tough Talk

Enforcement Presure on China May Hold Hill at Bay

Posted March 2, 2012 at 9:40am

Beyond all the deep partisan divisions on economic policy, there’s one thing that lawmakers of just about all ideological stripes seem to agree on: the need to more aggressively enforce U.S. trade laws. It’s a proven applause line, especially at a time when so many Americans feel under siege from China and other rising foreign competitors and particularly because it doesn’t actually require lawmakers to take a tough vote.

As a result, President Barack Obama is talking tough on trade and ramping up administration efforts — through the Commerce Department, the U.S. trade representative’s office and other agencies — to use laws already on the books to impose tariffs on foreign companies accused of dumping their goods on U.S. soil and challenging foreign governments giving their companies help that violates international trade laws.

“I will go anywhere in the world to open new markets for American products. And I will not stand by when our competitors don’t play by the rules,” Obama pledged in this year’s State of the Union address. “It’s not right when another country lets our movies, music and software be pirated. It’s not fair when foreign manufacturers have a leg up on ours only because they’re heavily subsidized.”

Whether deploying U.S. trade lawyers more aggressively will have substantive effects in the end, for either American workers or their employers, is far less clear. Indeed, some free traders see “trade enforcement” as a code word for protectionism.

Yet it can have distinct political benefits. It’s also a way of preventing Congress from taking more aggressive action against China and other foreign competitors — and providing election-year political cover to those lawmakers who are concerned about foreign competition but wary of starting a trade war with actual legislation. “We’ve got an economy in stress, and we ought to implement our policies rigorously in accordance with our national obligations,” Ken Lieberthal, head of the Brookings Institution’s John L. Thornton China Center, said at a recent roundtable. “But, secondly, it also is a way to make less likely more severe and less helpful measures from being taken in a politically tough year.”

Lawmakers in both parties — particularly those in Rust Belt states — regularly complained that President George W. Bush’s administration failed to adequately enforce U.S. trade laws against dumping and surges in foreign imports, even as it worked to open markets in Asia and Latin America. That perception helped diminish Congressional support for a free-trade agenda, particularly as public opinion on free trade turned decidedly lukewarm in the wake of high-profile plant closures, outsourcing to Asia and lingering labor resentment over the signature trade liberalization deal of the 1990s, the North American Free Trade Agreement, which bonded the commerce of Mexico, Canada and the United States more tightly.

Obama came to the White House decidedly skeptical toward recent trade policy and quickly directed his trade team to focus on reviewing Bush-era trade deals with South Korea, Colombia and Panama that had stalled and on ramping up trade remedy cases. He eventually won alterations to the three pacts and won their Congressional blessing last year, and he has also had his team pursue a variety of cases against foreign competitors — with twice as many against China already as during his predecessor’s entire tenure, as he likes to note. U.S. Trade Representative Ron Kirk hears regularly from lawmakers of both parties about trade cases.

Challenging the World Trade Organization

The administration’s actions have included pursuing trade remedies — countervailing duties and tariffs — when it concludes that foreign imports are being dumped or are hurting U.S. industries. It is also challenging more and more actions by the World Trade Organization.

“We have our trade remedy laws to deal with imports. However, as you pointed out and as others have pointed out to us, trade remedies laws kick in only after there’s injury. That’s why it’s incumbent upon us to address the types of trade-distorted policies inside of China like subsidies that give rise to unfairly traded imports,” Demetrios Marantis, Kirk’s deputy, told the House Ways and Means Committee last fall.

In December, the U.S. International Trade Commission made a preliminary ruling that China’s subsidization of its solar industry is hurting U.S. solar firms. Similarly, four American wind energy firms are awaiting a Commerce Department ruling on whether Chinese and Vietnamese wind tower imports can be hit with tariffs.

Most recently, the World Trade Organization ruled that the Chinese government’s export controls on raw materials violate international trade regulations, a victory for Kirk’s office.

Seeing that progress, U.S. unions and auto parts manufacturers are now asking the administration to target Chinese auto parts markers. “The administration has been very aggressive in enforcing our trade laws when given the opportunity,” Leo Gerard, president of the United Steelworkers, said this winter. “If we don’t stand up to China’s illegal practices now, when will we do it?”

The concern is focused on China more than any other country, given the hugely imbalanced trading relationship between the United States and its second-largest trading partner.

Trade laws were at the top of many lawmakers’ minds as Chinese Vice President Xi Jinping, who is widely expected to become president in the coming year, visited Washington, D.C., and met with Obama, Vice President Joseph Biden and Congressional leaders in February.

“As you know, it is only through vigilant enforcement that we will see any progress on long-standing trade issues that have hurt workers and companies in Pennsylvania,” Sen. Bob Casey (D-Pa.) wrote the president as Xi arrived.

In a February paper, Ed Gerwin and Ryan McConaghy of the centrist Democratic think tank Third Way argue that even more can be done when it comes to trade regulations and China. “Right now, America’s approach to trade isn’t working with China,” they wrote. “The United States must counter China’s multifaceted trade restrictions head-on with an equally broad and sophisticated strategy of our own — one that combines results-focused dialogue, aggressive enforcement, stricter rules and strong allies to assure that we get all that America bargained for when China joined the WTO.”

The importance of the trade remedy system in the current political and economic environment was underscored when a federal appeals court ruled in December, in a case involving Chinese-made tires, that the Commerce Department does not have the authority to assess countervailing duties, which are intended to offset the benefits of illegal subsidies, on products from “non-market economies.”

That label applies to China and a few other highly regulated economies, such as Vietnam. The administration is now asking Congress to pass legislation ensuring the Commerce Department can levy countervailing duties. The top House Republican tax writer, Dave Camp (Mich.), quickly agreed to work on targeted legislation, and Ohio’s two ideologically opposite Senators — Democrat Sherrod Brown and Republican Rob Portman — pressed their Senate leaders to act. Brown is an opponent of recent trade policy; Portman served as U.S. trade representative under Bush. But on this issue, they’re in agreement. “We stand ready to work with you to defend our government’s authority to defend workers and manufacturers from unfair trade,” the duo said.

But aside from this unusual case, enforcement lies in the hands of the executive branch. Indeed, in the middle of February, the administration unveiled a new Interagency Trade Enforcement Center aimed at better coordinating trade enforcement efforts across the federal government, another move that does not require Congressional action.

Political Advantages Vs. Actual Advantages

Still, in a globalized economy where consumers and suppliers have lots of choices, whether clamping down on foreign competitors’ trade practices actually ends up helping U.S. companies is a subject of debate.

For instance, in his State of the Union address, Obama argued that a 2009 decision to levy tariffs on Chinese tire imports helped save U.S. jobs. “Over a thousand Americans are working today because we stopped a surge in Chinese tires,” he said.

Business groups disputed that claim, saying that while the tariffs have penalized Chinese companies, they didn’t help U.S. ones. “All evidence suggests that the beneficiaries have been other low-end tire producers in Asia and Mexico,” said John Frisbie, president of the U.S.-China Business Council.

But there are political advantages. The administration has made little secret of its view that rebuilding fractured public and Congressional support for free-trade deals will require a more aggressive approach to pursuing trade enforcement cases.

For one, it’s a way of building support for separate, market-opening measures such as normalizing trade with Russia, which the White House is pushing Congress to do this year, and joining a Pacific Rim trade pact currently being negotiated that is coveted by major U.S. corporations.

Moreover, it can reduce some of the political pressure on lawmakers to take more aggressive action, like legislation targeting China’s currency practices — an idea that the business community abhors, given its potential for starting a trade war with Beijing. The Senate passed currency legislation last fall, but it’s gone nowhere in the House, where Republican leaders stand opposed.

Focusing on trade remedies can help alleviate some of that pressure. “The WTO case and trade remedies currently being pursued serve a useful political function in letting a little air out of the balloon and demonstrating the will to act,” said Jeffrey Bader, who served as the National Security Council point man on China from 2009 to 2011.

Bader is skeptical, however, about whether trade regulations will change the long-term equation when it comes to China. “They won’t have great impact in addressing the underlying imbalances, which will require a sustained approach,” he said.