Trade Experts Predict Few Deals by Aug. 1
Georgetown Law professor Jennifer Hillman, a former International Trade Commissioner and a former general counsel in the office of the U.S. Trade Representative, predicted that the Supreme Court may make a decision on the legality of reciprocal tariffs and other tariffs imposed via the International Emergency Economic Powers Act, or IEEPA. Hillman, who was speaking on a July 8 webinar about tariffs hosted by the Council on Foreign Relations, has been helping challengers to those tariffs, and she said there's "a very good chance that the legal challenges will at least temporarily derail the tariffs imposed under the [law]."
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It's these IEEPA threats of 20%-40% tariffs on most goods that have brought some countries to the table to address long-standing trade irritants the U.S. has, particularly non-tariff barriers.
Only two of those negotiations have reached an agreement in principle, with the U.K. and Vietnam. For Vietnam, the U.S. said its tariffs would be 20%, but transshipped goods would face 40% tariffs.
When asked what the administration means by that, given that transshipment means the true country of origin tariffs apply, Hillman said that, unfortunately, "we really don’t know what they mean or what they’re getting at."
She said if the administration means that Vietnamese goods that have been substantially transformed, but contain Chinese components will face the 40% tariff, that would require a lengthy negotiation with Vietnam to establish rules of origin for various sorts of products.
That kind of agreement "is not easy to negotiate," she said.
CFR Fellow Inu Manak said that because the Biden administration chose to keep all the restrictions imposed under Section 232 and the tariffs that started the first China trade war, there is no counterweight to protectionism. She said the Democrats decided to preserve the tariffs (and change some into tariff rate quotas) to signal to the working class that they were on their side, and that those voters "in the end, voted them out anyway."
Manak said that 51% of imports are intermediate goods, and small and medium-sized businesses that need those materials and components are going to suffer if the tariffs stay for years.
The U.S. will become a less attractive place to invest, she predicted.
Hillman said that if the world becomes split into a pro-U.S. trading bloc and a China-integrated trading bloc, economists expect there will be a 7% reduction in global GDP.
"Many, many countries share our concerns on what China is doing," in terms of counterfeiting, industrial espionage and manufacturing over capacity, "driving down prices for everybody in the world." But by imposing global tariffs, the U.S. is pushing countries toward China.
Panelist Francisco Sanchez, a partner at Holland & Knight, agreed. He said the threatened 25% to 36% tariffs on Japan, South Korea, Thailand, Malaysia, Indonesia and Cambodia make it more difficult to build a coalition to confront Chinese economic practices.
"We should be strengthening those ties and not increasing tension," he said.
He also said the U.S. position in trade negotiations in recent months is one that demands concessions without offering any roll-back of tariffs.
"The no carrots, a lot of sticks approach doesn’t work well when your counterparty has its own set of tools to fight back with," he said, and gave the example of China deciding to restrain exports of rare earth magnets needed by U.S. manufacturers.
"It isn’t as if China doesn’t hold any cards, they hold quite a few," he said.
Trump said July 8 that higher tariffs will be imposed on Aug. 1, with no more extensions. But Sanchez said he doesn't expect many more trade frameworks to be rolled out before then.
"USTR is a rather small agency. They don’t have the resources they need to do a lot of deals," he said.
He said he has been wrong in his predictions before, but he doesn't expect Trump to go through with a 25% tariff on Japan and on South Korea if those countries don't reach an agreement this month, because they are such substantial exporters, and stock market traders might send the indexes tumbling if the tariffs really came to pass.
He said the letters this week with those rates are "more about leverage than locking into that tariff rate."