Digging Out of Trade Deficits

Trump Signing Executive Orders to Start Getting Tougher with Trade Partners

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Commerce Secretary Wilbur Ross listed off countries that have the largest trade surpluses with the U.S. China accounted for roughly 43% of the country's trade deficit last year. (DTN chart by Chris Clayton)

WASHINGTON (DTN) -- Sticking to campaign promises to lower the trade deficit and get tougher with countries that violate trade rules, President Donald Trump will sign a pair of executive orders Friday focusing on trade.

One of the executive orders involves the Commerce Department compiling a detailed, product-by-product examination regarding why the U.S. has large trade deficits with some countries. The second order tightens import rules to ensure the U.S. collects a missing gap of roughly $2.8 billion in duties slapped against trade partners to ensure those funds are being collected on imports.

The White House briefed reporters about the details of the executive orders Thursday evening.

"These actions are designed to let the world know that this is another step in the president fulfilling his campaign promise to do several things," said Secretary of Commerce Wilbur Ross.

One, Ross said, is the president wants stricter enforcement of trade rules than in the past. Second, the president wants to use the Commerce Department be more proactive on trade actions. "Commerce has always had the power to initiate trade actions, but very rarely used them," Ross said.

Ross will lead an "omnibus order" that calls for a large-scale investigation "to try to identify every form of trade abuse and every non-reciprocal practice that now contributes to the U.S. trade deficit," Ross said.

"What's driving this is the U.S. has the lowest tariff rates and the lowest non-tariff barriers of any developed country," Ross said. "So while many countries talk about free trade, they are actually far more protectionist than we are. And that reflects itself both in terms of the barriers they erect on their borders and their behavior in terms of our borders."

Breaking down trade country by country and product by product "will form the basis for decision making by the administration" after the investigation is done, Ross said. Those decisions, then, "will be based on hard facts and not theories," Ross added.

Within 90 days, the Commerce Department will come back to Trump with explanations highlighting the problems with the two-way flow of goods and services. Ross said the U.S. has never made such an analysis to follow up with trading partners and assess how the trade relationship has worked out or why a deficit developed.

"So the kinds of things that will be key questions for the investigation is the extent with which our bilateral deficit with countries is the result of cheating or other inappropriate behavior," Ross said.

Second, the investigation will look into whether the deficits with countries are because of specific free-trade agreements that did not produce positive results they were expected to generate for U.S. businesses and workers, Ross said.

The investigation will also look into possible lax enforcement by the World Trade Organization on other countries relative to the U.S. The Commerce Department will also look into whether the trade deficits are caused by currency manipulation or misalignment to the U.S. dollar.

"In many cases, needless to say, there will be multiple of these reasons helping to account for some of the deficits," Ross said.

The countries involved will be those that have the largest overall trade surpluses with the U.S. Nearly all of the countries involved are major trading partners for agriculture, but also are some with major barriers on U.S. agricultural goods.

Those countries, including China with a $347 billion trade deficit, combined for an $803 billion trade deficit with the U.S. last year.

Just because the country is on the list and has a trade surplus with the U.S., that doesn't mean it is an "evildoer," Ross added. In some cases, it may become obvious that the U.S. imports a product such as oil from that country -- such as Canada -- or U.S. businesses heavily import a product or other natural resource not produced in the country. In other cases, Ross said, it may be that the other country can simply build a product cheaper or easier that the U.S.

"Undoubtedly, there will be some countries we will conclude there is no action that shall be taken," he said.

The second executive order, spearheaded by Peter Navarro, director of the White House National Trade Council, will deal with "a long-festering problem" by tightening enforcement and collection of anti-dumping and countervailing duties levied by the U.S. against trade partners. Navarro said there are currently roughly $2.8 billion in uncollected duties by U.S. officials after it was determined a trading partner was violating trade rules. Navarro said federal agencies will now take more enforcement actions when goods come into the country to collect those duties.

"We have been collecting these duties," Navarro said. "We just haven't been doing it very well."

Further, the administration will also tighten import inspections for copyright and patent infringement to stop the import of pirated and counterfeit goods from coming into the country, Navarro said.

The executive orders come as the Wall Street Journal is reporting that the Trump administration is floating a plan around Congress to start renegotiating the North American Free Trade Agreement with Canada and Mexico. The Wall Street Journal reported the draft document shows the White House "is serious about opening the door to "Buy American" provisions and negotiating greater flexibility to impose or reinstate tariffs on Mexican and Canadian goods."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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Chris Clayton