Leibowitz on Trade: Not Much Good News

It is hard to believe that three months ago the economy was, by all accounts, in the best shape in the last 50 years. Unemployment was almost microscopic; the stock markets were soaring; President Trump was riding high after securing acquittal from impeachment; and Bernie Sanders was fighting toe to toe with Joe Biden for the Democratic presidential nomination.

I do not need to tell readers that much has changed since then.

In the past week, the grim threshold of 100,000 COVID-19 deaths was reached—bad enough. Then things got worse—the death of George Floyd on Monday at the hands of Minneapolis police officers has touched off angry demonstrations and violence reminiscent of the 1960s.

The tech giants are sparring with the president over their responsibility and their freedom to question his tweets and other social media posts, prompting an Executive Order.

The Chinese People’s Congress passed a law that subordinates Hong Kong’s status, prompting Secretary of State Mike Pompeo to declare that Hong Kong is no longer autonomous from China. This could and probably will affect the ability of goods and people from Hong Kong to engage in commerce with the United States. Some are questioning whether the “Phase One” trade deal can survive the chill in U.S.-China relations. The G-7 meeting scheduled for June has been postponed indefinitely.

Major U.S. industries, including travel and restaurants, are facing major and, for some, life-threatening changes. Social distancing is not compatible with downtown bars and bustling airports.

In Washington, the trade war between the U.S. and China got major headlines this week. Secretary of State Mike Pompeo announced at a congressional hearing on May 27 that the United States no longer regards Hong Kong as “autonomous” from China, triggering the possibility of revoking the treatment of Hong Kong as a separate trade “entity” from China. Until now, Hong Kong has been exempt from the China tariffs under Section 301 of the Trade Act of 1974. That looks to be coming to an end. China is a significant trade, financial and manufacturing entity in its own right. The Special Economic Region has run pretty consistent trade deficits with the United States since it was handed over from the United Kingdom to China in 1997. An executive order, yet to be published, will detail the changes to Hong Kong’s trade relations with the United States as a result of the finding of non-autonomy. Possibilities include subjecting Hong Kong exports to the United States to Section 301 tariffs applicable to goods of Chinese origin, antidumping and countervailing duties on Chinese goods and Section 201 duties on large residential washing machines and solar cells and modules.

On the other hand, goods from Hong Kong that are subject to Section 301 tariffs on China and Section 232 steel and aluminum tariffs could be eligible for product exclusions. That detail has not been mentioned by the administration.

With the battle lines being drawn for the 2020 elections looking stronger than ever, relations between the parties have sunk to a low ebb as well.

In the Senate, efforts at bipartisan legislation to ease the pandemic’s catastrophic effects on much of the economy have hit multiple snags. Efforts at compromise legislation to reform Section 232 of the Trade Expansion Act of 1962, the source of the steel and aluminum tariffs, as well as threatened tariffs on imports of autos and auto parts, are going nowhere. This is according to Sen. Chuck Grassley, the chairman of the Senate Finance Committee, which has jurisdiction over trade matters. Reform could still come, but something significant would have to happen to bring it together before the election—perhaps a court decision?

I, like many of you, am ready for some good news. We have some already—the economy is starting to open up a bit, after two months of lockdown. But the reopening is going to be slow and careful, not a V-shaped curve but a slow rise off the mat. While some are acting as though they are immune, most are being careful.

It’s a small point, but the rule of law had a decent week in the international trade arena. The administration absorbed a setback in a court decision continuing an injunction against revoking a product exclusion in the solar panels Section 201 regime. The case has some interesting twists, which permit a glimpse into the inner workings of exclusion processes.

A certain type of solar panels (bifacial, with cells on both sides) were excluded from Section 201 tariffs by a decision of the U.S. Trade Representative in June of 2019, along with several other products that were dealt with in exclusion proceedings around that time. In October 2019, a mere four months after the exclusion decision, without further public proceedings, USTR reversed the exclusion, claiming that it would hurt the domestic industry (which does not make bifacial solar panels).

The plaintiff, Invenergy Renewables, filed suit and obtained a preliminary injunction against implementation of the reversal, meaning that the exclusion remains in effect. USTR attempted to moot this case by revoking the October reversal and seeking public comment on the issue. Public comment ensued, and in April 2020 USTR again ruled that the exclusion for bifacial solar panels should be withdrawn. The injunction in the Court of International Trade stood in the way of implementing the withdrawal.

Last week, the court ruled that the injunction would continue and that the April withdrawal would not be permitted to take effect. The request for public comment and the subsequent withdrawal did not make the case moot, because the government had not shown that its procedures were fair and untainted by the earlier decision in October 2019. Trade Representative Robert Lighthizer criticized the decision; but it stands.

I wrote last week about a Commerce request for comments on the product exclusion procedures for steel and aluminum. Perhaps the two issues are related in the minds of the administration. But I, among others, see a connection. Exclusions under all three major Trump administration programs (Section 301-China; Section 232-steel and aluminum and derivatives; and Section 201-washing machines and solar panels) have important differences but also important similarities. All, for example, are almost entirely discretionary—decisions are largely unexplained and can cause great damage to both producers and purchases. The courts will continue to evaluate the fairness and rationality of exclusion decisions.

Today, a bit of good news is that we still have laws, and courts are willing under those laws to hold accountable the officials who make decisions that affect people every day.

Hoping for better news next week.

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