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New Trade Deficit Report to Influence Administration Trade Policy

Wednesday, April 05, 2017
Sandler, Travis & Rosenberg Trade Report

A new report on significant U.S. trade deficits with other countries will be prepared within the next three months in accordance with a recent executive order from President Trump. This report will inform the further development of the Trump administration’s trade policy, which is likely to be heavily focused on enforcement and “leveling the playing field,” as well as its approach to potential trade negotiations, including a renegotiation of NAFTA expected to get underway later this spring.

The EO suggests that the size of the U.S. trade deficit, which exceeded $500 billion in 2016, illustrates that “for many years, the United States has not obtained the full scope of benefits anticipated under a number of international trade agreements or from participating in the World Trade Organization.” The EO appears to attribute the deficit to “unfair and discriminatory trade practices by our trading partners” that can “deny Americans the benefits that would otherwise accrue from free and fair trade, unduly restrict the commerce of the United States, and put the commerce of the United States at a disadvantage compared to that of foreign countries.” To address these challenges, the EO states, policy makers and trade negotiators must have access to “current and comprehensive information regarding unfair trade practices and the causes of United States trade deficits.”

The EO therefore directs the Department of Commerce and the Office of the U.S. Representative, in consultation with other federal agencies with relevant expertise, to submit within 90 days a report that identifies those foreign trading partners with which the U.S. had a significant goods trade deficit in 2016. According to press reports, these countries include China, Japan, Germany, Mexico, Canada, Ireland, Vietnam, Korea, Italy, Malaysia, India, France, Taiwan, and Indonesia. For each such country this report will:

- assess the major causes of the trade deficit, including, as applicable, differential tariffs, non-tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, forced technology transfer, denial of worker rights and labor standards, and any other form of discrimination against U.S. commerce or other contributing factors (e.g., currency misalignment (not manipulation));

- assess whether the trading partner is, directly or indirectly, imposing unequal burdens on, or unfairly discriminating in fact against, U.S. commerce by law, regulation, or practice and thereby placing U.S. commerce at an unfair disadvantage;

- assess the effects of the trade relationship on the production capacity and strength of the U.S. manufacturing and defense industrial bases;

- assess the effects of the trade relationship on employment and wage growth in the U.S.; and

- identify imports and trade practices that may be impairing U.S. national security.

Trump said this report will help pave the way for action to end “trade abuses,” and Commerce Secretary Wilbur Ross said some such actions could take place before the report is completed. However, Ross added that the commissioning of this report shows that the administration intends to “take a very measured and analytical approach” in identifying problems and determining whether solutions are needed. He also conceded that in some cases “we’ll conclude that there is no real action that should be taken;” e.g., if an individual deficit is due not to abusive practices but to the fact that the partner country is “better at making the product or can do it far cheaper than we can.”

House Ways and Means Trade Subcommittee Ranking Member Bill Pascrell, D-N.J., criticized the EO, saying “we don’t need another study on trade barriers, we need a meaningful legislative agenda.” He noted that Democrats are “finalizing a package of trade enforcement proposals to address fundamental and structural problems [that] will result in fairer trade and fair treatment for American workers.”

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