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Gilbert B. Kaplan

 By Gilbert B. Kaplan
Former Deputy Assistant and Acting Assistant Secretary of the U.S. Department of Commerce

Most Americans think we are giving it away for free when it comes to trade, and in many respects they are right.

The last decade has not been a good one for the United States in the international trade arena. We have lost over five million manufacturing jobs, and total manufacturing employment in the U.S. is at a historic low of about twelve million. At the same time there are about 100 million people at work in manufacturing in China. This picture doesn’t bode well for people looking for jobs in the U.S. If we want to turn it around we have to radically change what we are doing here in the trade arena.

The simple fact is that U.S. jobs are flowing off-shore. We can create more, which President Obama and Congress are trying to do, but then they will flow off-shore too. The conditions of competition in this country do not favor keeping jobs here. President Obama’s plan to double exports is very unlikely to change this. The Chinese, the Koreans, the Taiwanese did not create an export driven economy by simply setting an export goal of doubling exports. They changed the basic terms of trade in their countries, by creating big tax benefits for exports, big subsidies to build-up industries, and closed markets to allow their industries to have a secure base with no competition from which to export. We will not double exports without a major shift in trade policy, nor will we bring jobs back home that should have never left in the first place.

What should our trade policy be? First, the President has to take action to off-set Chinese currency manipulation. The President has talked about this problem recently, and I applaud him for doing that. Now he has to solve it, and he could do that today by simply applying our anti-subsidy law (also called the countervailing duty law) to exports from China, putting on a duty to off-set this currency subsidy.

President Obama should also announce stronger action against China related to its internet censorship. U.S. companies trying to access the Chinese internet — now having the largest number of users in the world — have to somehow transverse the Chinese “great firewall.” This firewall should be brought down, and there are trade laws and negotiation mechanisms, including bringing a WTO case, that can make that happen.

In his State of the Union address, President Obama was right to say that we should conclude the long-stalled Doha Round. But the President at this point should demand a clear deadline for negotiations, and if we can’t reach it, we should set off in a new, more important direction.

What would that direction be? I would propose a three-fold agenda. First, we should focus on free, unfettered, and unencumbered access for United States’ innovation and creativity-based products anywhere in the world. Secondly, we need to switch our focus to helping U.S. manufacturing. This is where we have lost millions of United States jobs and seen entire towns shut down by unfair trade practices. And thirdly we need to equalize the tax treatment our exports get in comparison to exports from other countries. Due to a grossly unfair peculiarity in the WTO system, when foreign producers export their products, they receive a rebate of their VAT taxes. U.S. exporters do not get a rebate of the income taxes they pay, creating a disadvantage equal to as much as a 17% in every potential shipment from our shores.

President Obama should also call on the Congress to do a major overhaul of the U.S. trade laws, making them faster, more accessible, and more reliable tools for US companies and workers harmed by unfair trade. There are a series of bills that have been proposed over time, by Senator Rockefeller, Senator Snowe, Congressman Levin and others, that could make a real difference, and these changes should be put in place now. In addition there should be fast, real recompense to companies and workers harmed by unfair trade, and these payments should be financed by duties on the unfairly traded goods, so they would not increase the deficit.

We also need to deal with the problems of foreign subsidies to industry and agriculture in one of two ways. Either we need to reach agreements to eliminate these subsidies — a world-wide stand-still agreement on subsidies — or we need to give our producers and workers the same benefits. We can’t expect them to compete against foreign governments empty handed.

Enforcement of existing trade laws and agreements should be a key part of the trade policy. This is a goal the President and Commerce Secretary Gary Locke have already spoken up on forcefully. They should now create an Unfair Trade Strike Force that would work across agency and sectoral lines to take strong, quick action on unfair trade. Cases should be self-initiated and problems solved on a real time basis. We cannot wait one or two years for issues to be resolved. The Strike Force should also take action against circumvention and evasion of existing trade case orders.

In the trade and environmental area, President Obama needs to lead the way in resolving the apparent conflict between strong U.S. environmental laws and their potential trade effect on U. S. companies and workers. We cannot require U.S. manufacturers to pay millions of dollars to clean up their plants if our foreign competitors do not have the same requirements. We will simply become uncompetitive and there will be substantial “leakage” of U.S. jobs abroad. One way to deal with this is border measures, pursuant to which imports that come from plants that are not environmentally sound and that are causing global warming have to pay an extra tax at the border.

Finally, we need to take a stronger stand when it comes to our existing free trade agreements. To some extent these agreements have helped U. S. companies and workers, but there have also been significant downsides. Our trade deficit with Mexico, for example, has steadily been increasing over the last decade, and more and more factories are moving down there. It is hard to find an example of a Mexican company coming to the U. S. and adding jobs here. With employment stuck at over 10 percent and the job base migrating outside the country, it is time to revisit this issue.

The high levels of unemployment we have in this country are caused not just by the recession, but also by the unfair terms of trade that our manufacturers and workers are subjected to. We will not solve one problem without dealing with the other. The American job base cannot fight bare-handed against foreign governments arming their industries with enormous structural advantages. The program above will create jobs in the United States, and consistent with one of the President’s other goals, with the exception of personnel costs in the trade agencies, it is free.

Leo W. Gerard

 By Leo W. Gerard
USW International President

A screwy thing happened after the United Steelworkers and eight domestic steel producers won their trade case late in December against Chinese manufacturers of the steel pipe used for oil and gas drilling.  

Instead of describing it as an important victory for U.S. industry and workers, one in which they proved to the U.S. International Trade Commission (ITC) that China violated international trade rules, the media characterized it as Americans unnecessarily picking a fight with the Chinese.

What else is new? It’s exactly what happened in September when the United Steelworkers won tariffs in a trade case regarding imported Chinese tires.

What’s particularly disturbing about this stance from the media is that it occurs only when a trade case involves manufactured goods. The media strongly supports protections for copyrighted material – movies, music etc.  The media have made clear they oppose Chinese piracy of intellectual property – you know, like the written and filmed products that media members produce. 

But their reaction is completely different when the Chinese violate international rules regarding manufactured goods. Then, the media blame the victims — the U.S. industries and workers – the same way defense attorneys accuse rape victims. 

Here, for example, is the Washington Post  contending that the ITC decision to impose duties of between 10.4 and 15.8 percent on Chinese pipe heightened trade hostilities between the U.S. and China:

“The current tensions began in September, when the United States imposed a staggering 35 percent import fee on tires from China.” 

The Dow Jones Newswire in a story by Henry J. Pulizzi also charged the U.S. with provoking the Chinese by imposing duties, beginning with a reference to the steel pipe decision:

“The ruling adds more tension to the U.S.-China trade relationship. Ties between Washington and Beijing are already frayed by the Obama administration’s imposition of duties on Chinese tire imports and China’s criticism of U.S. moves as protectionist.”

These reporters act like the decisions themselves initiated animosity between the U.S. and China over trade.  That completely disregards how the process starts – with China violating international trade rules it had agreed to obey in ways that cause U.S. businesses to collapse, factories to close, thousands of U.S. paper workers, tire workers, steelworkers and others to lose their jobs, and their communities to suffer.

We could sit back and just take it and allow U.S. industries to die, one after another, while China keeps its citizens employed by providing subsidies and supports forbidden under international law to its industries and then selling the goods in the U.S. at prices below production costs.

But that doesn’t sit well with most Americans. They believe their country should enforce trade rules. That is what U.S. industry and unions are demanding. That is what occurred in the tire and steel cases. That is what the United Steelworkers and paper manufacturers are seeking in a trade case to be heard later this year. 

Demanding adherence to the rules isn’t protectionism. And the media need to stop saying it is. Here’s how Dan DiMicco, chief executive officer of Nucor, the nation’s second largest steelmaker, explained it, “It is not protectionism when countries are held accountable for the agreements and obligations they freely entered into to have access to the USA and world’s markets.”

In addition to falsely making this a protectionist fight, the media wrongly contend the tariffs were political. Dow Jones, for example, tried to make the unanimous ITC decision in the steel case political, writing: 

“The ITC is an independent federal agency tasked with investigating the impact of alleged ‘dumping’ of foreign products on U.S. industries. While its six commissioners are split evenly between Republicans and Democrats, the decision fits with the Obama administration’s push to address U.S. manufacturers’ concerns about Chinese competition.” 

Dow Jones implies here that somehow Obama managed to strong-arm all three Republican ITC members to vote his way in this case. None of the stories suggesting politics were involved in the tariff decisions note that Republican Sen. Richard Shelby of Alabama and nine Republican Congressmen joined dozens of Democrats in signing letters to the ITC supporting the duties. 

Nobel Prize-winning economist Paul Krugman has written that failure to enforce trade laws and compel China to stop manipulating its currency could cost the U.S. 1.4 million jobs over the next couple of years. He describes China’s behavior as mercantilist – supporting industry for export of goods to maintain high employment and trade surpluses.

He quoted economist Paul Samuelson:

“With employment less than full. . . all the debunked mercantilist arguments” – that is, claims that nations who subsidize their exports effectively steal jobs from other countries – “turn out to be valid.”

That is what China is doing to the U.S. – stealing jobs.

The U.S. doesn’t have to let it happen. America can enforce international trade laws. It works. Shortly after President Obama imposed the tire tariffs, Cooper Tire & Rubber Co. announced plans to add capacity to its Findlay, Ohio plant and hire up to 100 workers. Other U.S. tire plants began recalling laid off workers.

American manufacturers, workers and communities are the victims of unfairly traded Chinese exports. They’re fed up with the media blaming them when all they’re asking for is justice.

Gilbert B. Kaplan

 By Gilbert B. Kaplan
Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce

If you were going to start a trade war against the United States, it is unlikely that your first salvo would be on chicken parts, or as the Chinese rather charmingly first announced, on dorkings. A dorking is a five toed chicken that flourishes in Surrey, England. The normal chicken has four toes. If you have not heard of dorkings before, you are not the only one.

But this is where the Chinese government focused their retaliation earlier this week, in response to President Obama’s decision to impose duties on Chinese tires. To step back, on September 11, President Obama took one of the best and strongest decisions that has been made on trade issues in this town for a long time, imposing duties ranging up to 35% on surging imports of tires from China. In so doing, he overturned eight years of precedent established by his predecessor who had declined to enforce a trade statute called Section 421. Section 421 is a trade statute China agreed to as a condition to becoming a member of the WTO; and it is designed to deal with low cost imports from China that surged into the U. S. after they joined.

It is a trade remedy that makes good sense. As a benefit to China when they joined the WTO, U.S. duties on goods coming in from China were lowered permanently across the board, generally to a zero rate. But China agreed, in turn, that up until 2013 we could impose short term duties to off-set import surges that might result from this change, when the surges harmed our industries and workers during the break-in phase. Since that time, industry after industry in the U. S. has faced these import surges, but it was not until now that the U. S. acted.

The reaction from the Wall Street Journal, George Will, David Rockefeller writing in the New York Times, and many other supporters of the status quo was to declare the beginning of war and the end of trade as we know it. And to bemoan the beginning of protectionism. And finally, to invoke the memory of the Smoot-Hawley tariff and usher in the beginning of the second great depression.

There will be no trade war. For the Chinese to declare a trade war on the United States in retaliation for the U. S. actions would be roughly like Wal-Mart declaring a trade war on the American consumer or Walt Disney declaring a trade war on America’s children. The United States is the best friend economically China has. It is basically China’s free lunch. We have thrown open our enormous market–still the largest in the world by far–to Chinese imports and run a sustained trade deficit with China of over $100 billion a year since they joined the WTO. Our deficit with China is now over $250 billion per year. We lowered out tariffs to zero and admitted China to the WTO because we believe in free trade, but this was not something the United States had to do. We could have blocked their entry. So the prospect of China wanting to strike back on something beyond dorkings that would really hurt our economy is nil. Though they have threatened action on auto parts as well, this has not yet materialized and even the value of our auto part imports into China is small.

Nor can President Obama’s action be called protectionist. China agreed in its Accession Protocol with the rest of the WTO members and the United States that such short term safeguard measures could be applied against them. Just as their enormous trade access to our market is a result of the WTO agreement, so is the short term adjustment action President Obama took. The duties will only remain in effect for three years. This is exactly the kind of case this remedy was designed for. Passenger tire imports from China did indeed surge during the period of review, 2004-2008, increasing by well over 200%, and causing over 9,000 U. S. job losses through this year, and the closing or idling of many U. S. production plants. And to say that the application of this 421 remedy has been overzealous by the United States borders on the absurd. Only six other cases have even been filed under the statute. Of these, the International Trade Commission, a bi-partisan independent agency, has found injury in four others, but in none of those has the President ever imposed a remedy. This is the first in eight years.

And as to the dire warnings of the onset of the next great depression, the economic evidence all goes in exactly the opposite direction. We have lost millions of manufacturing jobs since 2001 in this country. If we do not take action to brace up the manufacturing sector and allow more reasonable adjustments to globalization, it will be this failure that will prolong and deepen the recession we are already in. Yesterday’s job numbers, showing a continuing increase in the unemployment rate to 9.8%, the highest level since 1983, demonstrate that.

The fundamental point is that many people in this country, including those represented by the commentators mentioned above and those wailing about the horrors of the tire tariffs are making an enormous amount of money by moving jobs to China, building factories there financed by Chinese government largess in the form of subsidies, and avoiding the environmental, health care, and corporate tax costs they would have to pay here. So they stand up against even the most measured trade actions, meant to help the American worker and manufacturer.

No, there will be no trade war. It’s just too hard to imagine the war cry, “Let the Dorking Wars Begin!”

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 Mr. Kaplan is the Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce and he is currently a partner in the international trade firm of King & Spalding in Washington, D. C. He filed the first successful anti-subsidy case by any U. S. industry against China, which led to large anti-subsidy duties on imports of Chinese pipe into the United States in 2008. Mr. Kaplan can be contacted at gkaplan@kslaw.com.

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This piece was first published on The Huffington Post