EU considers eliminating car tariffs to avoid trade war Presented by Semiconductor Industry Association

With Sabrina Rodriguez

EU CONSIDERS ELIMINATING CAR TARIFFS TO AVOID TRADE WAR: The European Union may offer to negotiate a plurilateral trade deal that would eliminate most tariffs on autos to persuade President Donald Trump not to start a damaging trade war. The plan, which has strong backing from Berlin, could be presented by European Commission President Jean-Claude Juncker when he visits the White House later this month, European officials said.


The potential offer would be an olive branch to Trump, who is obsessed with car imports, particularly from Europe. On Sunday, he called the EU “possibly as bad as China,” and said: “They send a Mercedes in, we can’t send our cars in.”

A Commission official said the deal would have to cover about 90 percent of global car exports to meet World Trade Organization standards, meaning at least the EU, U.S., Japan, Canada, South Korea, Mexico and potentially also China would need to participate. Any pact that covers less than 100 percent of global car exports raises the possibility of some free rider countries benefiting from the agreement without cutting their own car duties.

A WTO official said they had not yet been briefed on plans for a plurilateral car deal, but said the concept would be possible. Still unclear is whether any such agreement would cover auto parts and non-tariff barriers that stymie auto imports.

Trump often complains about the EU’s 10 percent tariff on car imports, compared to the 2.5 percent duty imposed by the United States. In May, Commerce Secretary Wilbur Ross launched a Section 232 investigation that could lead to a 20 or 25 percent U.S. tariff on autos in the name of national security, although critics accuse the administration of abusing that authority.

The tariffs U.S. auto exporters face vary by country. Auto trade between the United States, Canada and Mexico is already duty-free as long as the vehicles meet rules-of-origin requirements. China announced in May it would cut its 25 percent duty on cars to 15 percent, effective July 1. But Beijing has also targeted U.S. autos for a 25 percent retaliatory duty in response to Trump’s plan to raise duties on Chinese goods.

South Korea has already phased out its 8 percent tariff on U.S. cars as part of the KORUS free trade agreement approved by Congress in 2011. It recently also agreed to address an important non-tariff barrier by boosting the number of U.S. cars that don’t have to meet the country’s more rigorous safety standards to 50,000, up from 25,000 in the original KORUS pact.

Japan has no tariffs on car imports. As part of the Trans-Pacific Partnership, it agreed to address a number of non-tariff barriers identified by United States. But Trump walked away from the TPP pact and those commitments. Both the United States and the EU were expected to eliminate auto duties as part of the proposed Transatlantic Trade and Investment Partnership, but there has been no work on that initiative since Trump took office.

Click here to read Hans von der Burchard’s story from Brussels.

IT’S THURSDAY, JULY 5! Welcome to Morning Trade, where we hope everyone had a happy Fourth of July and enjoyed the day off! In honor of the holiday, we’re not even going to attempt to come up with our own joke and instead will borrow one off the internet: “Why did George Washington have trouble sleeping?” “Because he couldn’t lie.” Hmm, we’re going to have to think about that. Send us your news at [email protected] or [email protected].

THE KENNEDY-ERA BACKSTORY BEHIND TRUMP’S FAVORITE TRADE WEAPON: Trump has shaken up the world trading system by imposing tariffs on nearly all steel and aluminum imports for national security reasons, using Section 232 of the Trade Expansion Act of 1962 as justification. In doing so, Trump — who is now also considering doing the same for imports of cars and car parts — is embracing the obscure statute like no other president before him, including John F. Kennedy, who signed the bill.

While Trump has used Section 232 to curb imports, Kennedy appeared to have the opposite intention in mind when he signed the legislation just 13 months before his assassination in November 1963.

“This act recognizes, fully and completely, that we cannot protect our economy by stagnating behind tariff walls, but that the best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from a free flow of goods,” Kennedy said at the time. “A vital expanding economy in the free world is a strong counter to the threat of the world Communist movement. This act is, therefore, an important new weapon to advance the cause of freedom.”

A spotty record: Before Trump’s own Commerce Department recommended imposing tariffs on steel and aluminum — a finding that the Defense Department warned could damage U.S. relations with its allies — the provision had only twice been used to impose penalties, to ban oil imports from Iran in 1979 and Libya in 1982. More often, including five times during President Lyndon Johnson’s five years in office, investigations were launched but led to no action taken to curb imports. Doug Palmer has more on the history of Section 232 here.

MEXICO’S RETALIATION IS HERE: The second stage of Mexico’s two-part retaliation on almost $3 billion worth of U.S. goods in response to Trump’s tariffs on Mexican steel and aluminum exports goes into effect today. Mexico first announced its retaliation list last month, immediately eliminating preferential tariffs established under NAFTA on a number of products, including pork and potatoes.

Breakdown of the list: Much of Mexico’s retaliation list targets U.S. agricultural goods, such as apples, orange juice and various cheeses. That adds up to almost $2.5 billion worth of U.S. farm goods, according to the American Farm Bureau Federation. Mexico is also retaliating against a number of U.S. steel products. Most of the U.S. products will face tariffs between 15 and 25 percent.

Mexico strategically selected products that “don’t have an important impact on national consumption, that it doesn’t have an important impact on the topic of inflation, and that you have alternative sources,” Mexican Economy Minister Ildefonso Guajardo said when Mexico first announced its retaliation.

Guajardo specified then that products were selected “that have implications in some districts where there’s important congressmen and senators ... because, finally, the effect will fall on voters and citizens that live in the districts of people who have a voice and vote in the American Congress.”

China will follow suit with its own counter-tariffs on Friday. On Friday, the Trump administration will slap 25 percent duties on about $34 billion worth of Chinese goods as response to its concerns over Beijing’s intellectual property theft and forced technology transfers. China is expected to immediately retaliate with its own 25 percent duty on about $34 billion worth of U.S. goods, such as soybeans and cars.

More to come: USTR will hold a public hearing on July 24 on another $16 billion worth of Chinese goods that it plans to hit with a 25 percent penalty. However, there’s still no word on when USTR will publish the list of yet another $200 billion worth of Chinese goods that could be hit with 10 percent duties, in line with Trump’s warning on June 18. USTR also has not announced a public comment period or hearing date for that potential round of trade actions against China.

ZTE GETS ANOTHER CHANCE FROM TRUMP: The Trump administration has offered another lifeline, at least temporarily, to Chinese telecom giant ZTE, allowing the company to continue limited operations in the U.S. through August 1. The authorization, which the Commerce Department’s Bureau of Industry and Security made official in a document earlier this week, allows ZTE to conduct business involving contracts and devices offered before Commerce’s seven-year ban went into effect in April.

Commerce imposed that ban to punish the company for illegal sales to North Korea and Iran, but Trump intervened after the company said it would effectively put it out of business. Trump sought to assuage Chinese government concerns with a deal in June letting ZTE operate stateside if it pays a $1 billion fine, changes its management and embeds a compliance team.

What’s next: But Trump is currently at odds with Congress over the company’s future, and the House and Senate are divided over just how harshly they should act. The Senate in June voted 85-10 to approve a defense bill reinstating tough penalties on ZTE, while the House version imposes lesser restrictions. The House and Senate will meet this month to reconcile their two versions of the legislation. More here.

TRUMP, LÓPEZ OBRADOR TO FACE OFF OVER NAFTA: Mexican President-elect Andrés Manuel López Obrador may still be months away from officially taking over as the leader of Mexico, but policy fights over NAFTA and immigration in particular are already shaping up between him and Trump. The firebrand former mayor of Mexico City, who has previously been a critic of free trade, has repeatedly said he wants to wrap up talks to renegotiate the 24-year-old deal — but it’s unclear whether López Obrador and his team will be able to accept strict demands that the U.S. has handed down, which his predecessors have already declared as unworkable.

“No Mexican government, regardless of the leader, would accept some of the [U.S.’] proposals,” said Luis de la Calle, a Mexican former trade negotiator.

Like his U.S. counterpart, López Obrador has also suggested that he might be willing to walk away from NAFTA. Some former Mexican officials have argued that certain U.S. demands — such as a sunset clause that would allow the deal to automatically terminate if all three countries don’t agree to renew it every five years — make it difficult for negotiators to reach an agreement.

"I'm going to set out for the deal to be maintained, but if that's not possible, it won't be terrible for Mexicans. Our country has many natural resources, many riches," López Obrador said during the third Mexican presidential debate last month.

Shifted priorities: Regardless of U.S. demands, the dynamics of the negotiations could change once López Obrador and Mexico’s new Congress take office. López Obrador has previously expressed support for including higher wages for Mexican auto workers in the deal’s automotive rules of origin. Beyond that, a new NAFTA will have to be ratified by Mexico’s new Congress, which is majority left-leaning like López Obrador. López Obrador’s Morena party has previously been critical of free trade — with many voting against the updated Trans-Pacific Partnership, so it remains to be seen what their priorities will be for a NAFTA 2.0.

Sabrina has more from Mexico City here.

THE NEW ZEALANDER WHIPPING THE WHITE HOUSE POLICY SHOP INTO SHAPE: At the center of White House policy blowups on issues ranging from trade and tariffs to immigration is one man trying to control the chaos. Chris Liddell, a former chief financial officer at General Motors and Microsoft, has taken the lead as deputy chief of staff in organizing meetings among top policy officials and in trying to formalize a process for getting ideas to Trump’s desk.

But his efforts have drawn criticism that he lacks the policy experience and influence with the president to push back against bad ideas and stop Trump from his tendency to move forward with seemingly rash decisions.

On trade in particular, Liddell has worked to arrange weekly meetings in his office with top trade officials including U.S. Trade Representative Robert Lighthizer and White House trade adviser Peter Navarro. But he has shied away from taking a stand on various issues, something that his supporters praise but that his critics — particularly those in the free-trade camp — says is sorely needed.

From POLITICO’s Andrew Restuccia and Nancy Cook: “During the internal debate over whether to hit China with additional tariffs earlier this year, Liddell was largely silent during an Oval Office meeting with the president, according to two people briefed on the matter. When Trump went around the room to get his advisers' opinions, many aides gave a detailed explanation of their position. Liddell simply told the president to hang tough and not back down, angering some aides associated with the free-trade wing of the administration, who felt like he was inserting himself in a high-stakes debate without understanding the issues and was just saying what the president wanted to hear.” Read the full story here.

TRADE REMEDY CORNER: A MID-YEAR CHECK-IN: A steady stream of trade remedy cases continues to keep both the Commerce Department and the International Trade Commission busy in 2018. In the first six months of the year, the ITC gave the green light to 10 separate sets of anti-dumping or countervailing duty investigations, one more than in first half of 2017.

The constant series of votes may make it seem like the trade panel is busier than ever. In reality, the 18 sets of investigations approved by the ITC in 2017 was only slightly more than the 17 approved in 2016, the last year of the Obama administration.

On a related note, past Commerce secretaries have shied away from issuing statements in conjunction with department’s anti-dumping and countervailing duty decisions to avoid the appearance of political interference with the probes. Commerce Secretary Wilbur Ross frequently disregarded that tradition during the first year of the Trump administration, but his statements highlighting trade remedy actions have become rarer in recent months.

Rubber bands and sodium gluconate: For example, Commerce Department decisions in two relatively small cases on Tuesday did not prompt a Ross statement. In one, the department announced preliminary anti-dumping duties of 213.5 percent on imports of sodium gluconate, gluconic acid, and derivative products from China valued at $6.5 million last year.

In the other case, Commerce set preliminary countervailing duties of 125.77 percent on imports of rubbers band from China valued at $4.9 million in 2017. However, in the same probe, department officials determined subsidies provided by the government of Thailand to local rubber band producers were too small to warrant any duties being imposed.

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