Friday, April 14, 2017

International Trade and National Security, Hand in Hand in Asia

On Wednesday, President Trump told The Wall Street Journal that he did not plan to name China as a currency manipulator. This makes sense as a matter of economics, at least in the near view: Although China did for years artificially depress its currency to make its exports more attractive, it hasn’t done so since 2014. Naming China as a currency manipulator now seems to be, as my grandfather would have said, “a day late and a dollar short.”

Turning His Back on Campaign Promises

Trump’s statement this week was a stark reversal from his campaign pledges. In November, Trump said in The Wall Street Journal that he would name China as a currency manipulator on the first day of his presidency. That hasn’t happened. Instead, in talks with Chinese President Xi Jinping this week, the Trump Administration committed to a 100-day timeline for comprehensive new trade talks. Secretary of Commerce Wilbur Ross admitted in a White House press briefing that such a schedule “may be ambitious” given the scope of the issues, but called it “a sea change in the pace of discussions” between the U.S. and China and “a very very important symbolization of the growing rapport between the two countries.”

This reversal probably won’t do much to win President Trump favor in my state of West Virginia or in other states heavily dependent on manufacturing that supported him in the election. Recent studies show that as many as 2.4 million jobs were lost in the United States because of China’s past policy of currency manipulation that enabled cheap Chinese imports to undercut their domestic competitors. Moreover, the U.S. economy has failed so far to transition those workers to more competitive industries, as economists had predicted would happen. Instead, high unemployment remains in those regions.

The Legal Basis for Naming Currency Manipulators

Naming China as a currency manipulator wouldn’t necessarily have had any immediate legal ramifications, but it couldn’t have helped that “rapport” that Secretary Ross is talking up. Trump was referring to a provision of the Omnibus Trade and Competitiveness Act of 1988, Section 3304, which requires each Administration to make an annual report to Congress on “whether countries manipulate the rate of exchange between their currencies and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” No penalties attach to being named a currency manipulator under the law, however. The President is merely instructed to engage in negotiations with the country if they have “material global account surpluses” and a “significant bilateral trade surpluses with the United States.” Notably, there is an exception for cases “where such negotiations would have a serious detrimental impact on vital national economic and security interests.”

The Department of the Treasury now pairs this analysis with the requirements of another statute, Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, which does include penalties for countries that manipulate their currencies. The 2015 Act requires the President to undertake “enhanced bilateral engagement” and take possible remedial actions against any country that has a “significant bilateral trade surplus with the United States,” a “material current account surplus” and has “engaged in persistent one-sided intervention in the foreign exchange market.” Again, however, the 2015 Act contains a waiver for such actions if they would hurt U.S. economic or national security interests.

China, North Korea, and Keeping Trade in Perspective

This week, U.S. economic and national security interests in Asia are promenading hand in hand through a minefield of North Korean weapons and intentions. In a White House press call today, senior administration officials discussed the Vice President’s upcoming trip to South Korea, Japan, Indonesia, and Australia. The trip, they said, would be focused on creating a “framework” for further discussions, but the three key themes (presented in this order) would be to emphasize U.S. commitment to its security alliances in the region in the face of the threat from North Korea; to demonstrate continued U.S. economic participation in the region despite the Trump Administration backing away from the Trans Pacific Partnership; and to work with countries and regional organizations such as ASEAN to defeat ISIS, denuclearize North Korea, and uphold “the rules-based order.”

It’s no secret that China is best situated to exert pressure on North Korea to reduce the nuclear threat. The Trump Administration has settled on a policy of “maximum pressure and engagement” in North Korea, with the help of China. As North Korea continues missile tests, the U.S. can scarcely afford a trade war with China.

Trump’s statement Wednesday that he will not name China as a currency manipulator is an inevitable recognition that trade policies are not pursued in a vacuum. Fast trade talks of the type hailed by Secretary Ross may produce movement on China’s currency policy, but the U.S. is in no position to take a hard line on this issue in light of the need for China’s cooperation on serious national security concerns. The Vice President’s trip to the Pacific offers a good opportunity for the Trump Administration to establish cooperative relationships throughout the region – albeit not based on a multilateral trade accord like the TPP – that could be beneficial for U.S. economic interests and critical for U.S. national security interests.

http://lawprofessors.typepad.com/inttradelaw/2017/04/trade-and-security-hand-in-hand-in-asia.html

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