Trade issues have been given a higher profile over the last year, a trend that has continued during the early months of the Trump Administration. Special duty assessments called anti-dumping and countervailing duties have been relatively immune to political influence, since by default they are initiated by domestic producers alleging economic harm due to unfair business practices by foreign suppliers. If the government finds merit in the claim, special duties are assessed on the harmful imported product to help “level the playing field” for the domestic producer.
Recently the federal government has self-initiated a few special duty investigations through an often-overlooked provision in the relevant law. These so-called Section 232 investigations allege economic damage to industries deemed vital to our national security. Two entire industries, steel and aluminum, are under such investigations. The President is considering opening investigations for the semiconductor and shipbuilding industries as well. The consequences of an affirmative finding could be additional special duties or quotas controlling the amount of allowed imports.
A border adjustment tax on imports is being considered by Republican congressional leaders as part of a yet-to-be-written tax reform bill. The objective of the tax is to remove incentives for companies to move jobs overseas for tax benefits by making it more expensive for those companies to ship their products back to the U.S. market. Retailers in particular opposed the plan because it would have made a broad range of consumer products dramatically more expensive, and large manufacturers were also alarmed by the prospect of paying more for foreign origin parts used in the production of autos and machinery.
The President’s administration will set in motion the necessary paperwork to re-negotiate NAFTA. A renegotiated treaty has the potential to benefit all parties if agreements can be reached, and there is some recognition on all sides that the 23-year-old trade deal should be modernized to catch up with contemporary realities, in particular the growth of e-commerce. The process is guaranteed to be painful. However, the President’s threat of withdrawal from NAFTA should focus the attention of all parties to a suitable modification.
Whether a trade issue is as broad as NAFTA, or as narrowly focused as an anti-dumping or countervailing duty case, there are winners and losers, and it can be difficult to predict all of the economic ramifications. A higher tariff or additional duty assessment that protects one industry can raise procurement costs in another. A trade action that benefits one state or part of the country can result in job losses elsewhere. Much is at stake, and trade decisions made by the new administration over the coming year will have far-reaching consequences for the U.S., as well as for the rest of the world.