Trade Cases

Leibowitz on Trade: The Trade Impact of COVID-19

Written by Lewis Leibowitz

Trade attorney and Steel Market Update contributor Lewis Leibowitz offers the following update on events in Washington:

Does anyone else feel like riding a roller coaster for the next six months? We have been on one for about seven weeks now and there is no end in sight. The time has arrived to consider what the coronavirus pandemic (COVID-19) means to us—our friends, our families, our lifestyles and our economy. The response has spanned all aspects of our daily existence—going to work, going out to eat, to see a show, a movie, a ball game, interacting with our fellow human beings.

How long will it last, how bad will it get, how will it affect our economy, international relations, political life? The roller coaster in part is a realization that we don’t really know the answers to these questions.

The impact of all these measures on the economy and trade will be serious. Lately, a number of proposals have surfaced to help the economy deal with all the dislocations. As all businesspeople know, the damage is not limited to sports, Broadway, restaurants and schools. Businesses are also profoundly affected.

Will removing the tariffs on steel, aluminum and goods from China help American business or hurt it? The debate has already been engaged, in the wake of the House-passed stimulus package that was revealed Saturday and is expected to be voted on by the Senate this week.

Many in Congress are urging the Trump administration to suspend or abandon tariffs and other restrictions on steel, aluminum and China. Manufacturers that use steel, aluminum and many other products affected by the China-specific tariffs are experiencing higher costs that will lead to reduced production. They are vulnerable to the effects of a downturn in part because of these tariffs. Businesses and their supporters in Congress point out that China, while excluded for years from the U.S. market by antidumping and countervailing duty actions, will not enter steel and aluminum markets, but U.S. manufacturers of products made from imported components and raw materials will be better able to weather the coming storm.

Predictably, domestic steel producers and “China hawks” in the White House concentrate more on the opportunity tariff suspensions will create for China and foreign steel and aluminum producers. They express concern that China, having been brought to the bargaining table by the tariffs, will see the relaxation of pressure as an opportunity to expand their market power.

Still, Treasury Secretary Stephen Mnuchin has acknowledged that, while “general tariff relief” is not in the offing, there could be exceptions to the tariffs in the form of broader product exclusions. The current House-passed legislation does not address these concerns, but generally speaking no one thinks that action is limited to the current bill. In a recent meeting with U.S. Trade Representative Robert Lighthizer, several members of Congress expressed support for suspending tariffs. Ambassador Lighthizer’s reaction reportedly was not favorable.

What should we expect from this discussion? That is hard to predict—it is a reprise of a debate that, in my experience, has been going on for several decades. Those who support tariffs and other trade restrictions decry “disastrous” trade agreements for slashing manufacturing jobs. However, the evidence for this is very sparse.

Clearly, consuming industries that want the tariffs lifted see an opportunity to advance their agenda. As the 2020 election nears, a sustained downturn due to COVID-19 mitigation efforts would put more pressure on the administration to stimulate production.

On the “pro-trade” side of the ledger, supporters of tariff relief note that during the last 30 years, other changes (automation in manufacturing, changing consumer tastes, materials technology) have made a greater difference than foreign competition to domestic manufacturing.

Those who do not want the tariffs to be rolled back claim that manufacturing is suffering already, with production cuts announced. Thomas Conway, USW president, claimed that rolling back tariffs that protect U.S. steel and aluminum producers would “bring about more closures.”

The advent of the coronavirus will not convince those locked in this debate that they were wrong. But the action plan for the virus does introduce a significant new issue into the debate—keeping the economy working while we change the way we live.

What’s next?

Based on the views of the advocates, whose positions are not unexpected and not wavering, the coronavirus crisis is not changing their minds. With any international crisis, the role of government will increase. Businesses and individuals will look to their federal and state governments for help as their financial and psychological core assumptions are challenged.

We will see more changes and more government responses to this crisis and, although this may sound unrealistic, frank admissions when actions do not pan out, and claims for credit when they succeed. Advocates for more open trade will continually offer tariff relief a step forward to keep the economy going and opponents will describe tariff relief as a step backward in the trade war with China and to support domestic steel and aluminum producers.

We must all work to help the most innovative nation on this earth to come up with ideas that will help us endure through what appears to be a very trying time; and, when it’s over, prosper as never before.

The Law Office of Lewis E. Leibowitz
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Phone: (202) 776-1142
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Lewis Leibowitz, SMU Contributor

Lewis Leibowitz

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