Over the summer of 2018, trade relations between the United States and many of its trading partners continued to be marked by tensions. The United States and China ratcheted up their use of tariffs against each other. The United States both received and initiated requests for consultation with various countries at the World Trade Organization (WTO) related to its earlier steel and aluminum tariffs and to tariffs imposed in response by other countries. President Trump has continued to pursue the possibility of further tariffs, including with respect to automobile and uranium imports. The United States also escalated trade tensions with Turkey through various measures, explicitly linking some of these measures to Turkey's detainment of an American pastor. Despite the broader theme of tensions, negotiations have proved productive between the United States and two of its major trading partners—the European Union and Mexico—paving a way for future settlements. With the European Union, the Trump administration has reached a tentative understanding and agreed not to impose new tariffs while the parties negotiate toward finalizing this understanding. As to Mexico, in late August 2018 the Trump administration announced that the two countries had reached agreement with respect to many issues underlying their ongoing North American Free Trade Agreement (NAFTA) negotiations.
In March 2018, the Trump administration determined that China was engaging in unfair trade practices and announced its intent to respond by imposing new tariffs under Section 301 of the Trade Act of 1974.Footnote 1 Following several months of developments, on June 15, 2018, the Trump administration released a finalized list of Chinese imports worth around $34 billion that would be subject to new tariffs of 25 percent effective July 6, as well as identifying another $16 billion worth of imports that would be subject to later tariffs.Footnote 2 China swiftly announced that it would retaliate in kind.Footnote 3 Three days later, President Trump, responding to China's proposed retaliatory tariffs, “directed the United States Trade Representative [(USTR)] to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent.”Footnote 4 These tariffs would go into effect “[a]fter the legal process is complete, … if China refuses to change its practices and also if it insists on going forward with the new tariffs that it has recently announced.”Footnote 5 China responded by reasserting that “[i]f the US … releases the tariff list, China will have to take powerful and comprehensive solutions both in quantitative and qualitative ways.”Footnote 6
On July 6, the initial tariffs on $34 billion in goods went into effect.Footnote 7 China immediately responded with its own comparable tariffs.Footnote 8 Four days later, the USTR described China's retaliation as “without any international legal basis or justification” and released an initial list identifying the additional $200 billion worth of goods that would be subject to future tariffs.Footnote 9 The USTR stated that it would follow the same “transparent and comprehensive public notice and comment process” that had been used for the previous round of tariffs.Footnote 10 On August 1, Trump directed the USTR to increase the duty level on this additional $200 billion in goods from 10 percent to 25 percent.Footnote 11 China responded by threatening to impose additional tariffs on another $60 billion worth of U.S. goods.Footnote 12 As these reciprocal threats were pending, both countries have followed through on imposing a 25 percent tariff on an additional $16 billion in imports, consistent with their earlier announcements in June.Footnote 13 In September, the United States and then China went ahead with the previously threatened tariffs on $200 billion in Chinese goods and $60 billion in U.S. goods respectively.Footnote 14 In the backdrop of these developments are the ongoing consultations between the two countries at the WTO.Footnote 15
In addition to its use of tariffs, over the summer of 2018 the United States has taken other legislative or regulatory steps aimed explicitly or implicitly at China. In June, the White House Office of Trade & Manufacturing released a report criticizing China's policies regarding technology transfer and intellectual property,Footnote 16 which are issues that the Trump administration has flagged within its broader concerns about unfair Chinese trade practices.Footnote 17 On June 27, the Trump administration endorsed a piece of congressional litigation named the Foreign Investment Risk Review Modernization Act (FIRRMA), which “will enhance [the administration's] ability to protect the United States from new and evolving threats posed by foreign investment while also sustaining the strong, open investment environment to which [the United States] is committed and which benefits [the U.S.] economy and [] people.”Footnote 18 On August 13, FIRRMA, which received bipartisan support, became law as a part of the John S. McCain National Defense Authorization Act (NDAA) for Fiscal Year 2019.Footnote 19 Also included in the NDAA was a provision prohibiting federal agencies from purchasing products made by Zhongxing Telecommunications (ZTE) Corporation, a Chinese company that has been the target of considerable U.S. ire due to its illicit dealings with North Korea.Footnote 20
In addition to rising trade tensions with China, during the summer of 2018 the Trump administration continued to face international and domestic responses to its March decision to impose tariffs on steel and aluminum imports pursuant to an investigation, brought under Section 232 of the Trade Expansion Act of 1962, that found such tariffs essential to national security.Footnote 21 Internationally, these tariffs generated numerous requests for consultation in the WTO and retaliatory tariffs from a handful of major trading partners, and they also have triggered some domestic litigation regarding their legality under U.S. law.
At the WTO, many countries filed requests for consultations over the spring and summer of 2018, all alleging violations of the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Safeguards.Footnote 22 The United States has continued to respond to such complaints by asserting that
the tariffs imposed pursuant to Section 232 are not safeguard measures but rather tariffs on imports of steel and aluminum articles that threaten to impair the national security of the United States. The United States did not take action pursuant Section 201 of the Trade Act of 1974, which is the law under which the United States imposes safeguard measures. Therefore, there is no basis to consult pursuant to the Agreement on Safeguards with respect to tariffs imposed under Section 232.Footnote 23
On July 16, the United States filed its own WTO requests for consultations, disputing the ability of other countries to impose retaliatory tariffs in reaction to the steel and aluminum tariffs and alleging violations of measures contained in the GATT 1994. Thus far, these disputes have targeted five WTO members—Canada, China, the European Union (EU), Mexico, and Turkey,Footnote 24 each of which had imposed retaliatory tariffs.Footnote 25 In all five requests, the United States has claimed that there has been a violation of the most-favored-nation obligation contained in
Article I:1 of the GATT 1994, because [the tariffs] fail[] to extend to products of the United States an advantage, favor, privilege or immunity granted by [WTO Member] with respect to customs duties and charges of any kind imposed on or in connection with the importation of products originating in the territory of other Members.Footnote 26
With the exception of the request with Mexico, all requests also allege a violation of “Article II:1(a) and (b) of the GATT 1994, because [the tariffs] accord[] less favorable treatment to products originating in the United States than that provided for in [WTO Member's] schedule of concessions.”Footnote 27 All U.S. requests noted that the tariffs “appear[] to nullify or impair the benefits accruing to the United States directly or indirectly under the GATT 1994.”Footnote 28
The Section 232 tariffs have also continued to generate domestic legal challenge.Footnote 29 On June 27, the American Institute for International Steel (AIIS) brought suit in the U.S. Court of International Trade challenging the legality of Section 232.Footnote 30 The core argument advanced by AIIS is that Section 232 “is unconstitutional as an improper delegation of legislative power to the President, in violation of Article I, section 1 of the Constitution and the doctrine of separation of powers and the system of checks and balances that the Constitution protects.”Footnote 31 This is a challenging argument under existing precedent, as the U.S. Supreme Court has not been receptive to such non-delegation arguments since the 1930s.Footnote 32
In addition to using Section 232 to impose tariffs on steel and aluminum, the Trump administration has also initiated several other Section 232 investigations that may eventually lead to other tariffs.Footnote 33 Following its announcement in May 2018 that it was starting a Section 232 investigation into automobiles and automobile parts,Footnote 34 the U.S. Department of Commerce held an initial hearing on this matter in July.Footnote 35 Separately, on July 18, the Commerce Department announced that it was beginning a Section 232 investigation “into whether the present quantity and circumstances of uranium ore and product imports into the United States threaten to impair national security.”Footnote 36 It remains to be seen how long these investigations will take or whether they will ultimately lead to tariffs. As a comparative data point, the Trump administration's steel and aluminum investigation ran from April 2017 to February 2018, resulting in the imposition of its first tariffs in March 2018.Footnote 37
While Trump adjusted the steel and aluminum tariffs downward for several countries in the spring and early summer of 2018,Footnote 38 the month of August brought a notable upward adjustment with respect to Turkey. Earlier in the summer, Turkey had announced the imposition of retaliatory tariffs to the original steel and aluminum tariffs,Footnote 39 and relations between the two countries have further been complicated by Turkey's ongoing detention of an American pastor, Andrew Brunson.Footnote 40 On July 26, Trump tweeted that the United States would impose “large sanctions” on Turkey “for their long time detainment of Pastor Andrew Brunson, a great Christian, family man and wonderful human being” and called for Brunson's immediate release.Footnote 41 On August 1, the Trump administration imposed sanctions on two Turkish officials,Footnote 42 leading Turkish President Recep Tayyip Erdogan to order “his government to ‘freeze the assets’ in Turkey of the American counterparts of the targeted Turkish officials, describing them as ‘the U.S. justice and interior ministers.’”Footnote 43 Then, on August 10, Trump issued a proclamation adjusting the Section 232 steel tariffs on Turkey from 25 percent to 50 percent.Footnote 44 This proclamation did not expressly reference Brunson, and explained the decision by saying that “Turkey is among the major exporters of steel to the United States for domestic consumption” and “[t]he Secretary [of Commerce] has advised me that this adjustment will be a significant step toward ensuring the viability of the domestic steel industry.”Footnote 45 Erdogan has responded by increasing Turkey's retaliatory tariffs and urging a boycott of U.S. technology products.Footnote 46
Despite escalating trade tensions on many fronts, over the summer of 2018 the United States reached a preliminary understanding with one major trading partner—the European Union—that there would be a “new phase in the relationship … of strong trade relations in which both of us will win.”Footnote 47 On July 25, Trump met with President Jean-Claude Juncker of the European Commission. Following the meeting, the two held a joint press conference where they announced the understanding which they had reached. As Juncker described their meeting:
We have identified a number of areas on which to work together. Work towards zero tariffs on industrial goods, that was my main intention: to propose to come down to zero tariffs on industrial goods.
We've decided to strengthen our cooperation on energy. The EU will build more terminals to import liquefied natural gas from the U.S. This is also a message for others.
We agreed to establish a dialogue on standards. As far as agriculture is concerned, the European Union can import more soybeans from the U.S., and it will be done. And we also agreed to work together on the reform of the WTO. This, of course, is on the understanding that as long as we are negotiating, unless one party would stop the negotiations, we will hold off further tariffs, and we will reassess existing tariffs on steel and aluminum.Footnote 48
Trump explained that in order to build on this understanding, they would “set up immediately an Executive Working Group of very intelligent people on both sides.”Footnote 49 He noted that “[w]hile we are working on this, we will not go against the spirit of this agreement, unless either party terminates the negotiation. So we're starting the negotiation right now, but we know very much where it's going.”Footnote 50 In a speech later that day, Juncker indicated that going into the meeting he had been particularly concerned about the prospect of future automobile tariffs and characterized as “major progress” the U.S. commitment not to impose new tariffs during the course of negotiations.Footnote 51
The final major development in U.S. trade relations in the summer of 2018 was that the “United States and Mexico have reached a preliminary agreement in principle, subject to finalization and implementation, to update the 24-year-old NAFTA with modern provisions representing a 21st century, high-standard agreement.”Footnote 52 On August 27, 2018, Trump announced this agreement, remarking that “[w]e're going to call it the United States-Mexico Trade Agreement, and we'll get rid of the name NAFTA.”Footnote 53 The agreement's terms have been described as including robust protections for intellectual property, various provisions aimed at dealing with the digital economy, an increase from $50 to $100 of the cutoff by which shipments can avoid duties and certain entry procedures, some changes with respect to investor-state dispute settlement, and increased labor and environmental protections.Footnote 54 As of late August, some major issues remain unsettled—most notably involving Canada's participation in the agreement.Footnote 55 Further details of this agreement and subsequent developments related to it will be covered in a later issue of AJIL.