President Trump signed two trade-related executive orders on March 31, one directing the Commerce Department and the U.S. Trade Representative to examine the causes of trade deficits with China and other major trading partners and one calling on the Department of Homeland Security to step up efforts to prevent the under-collection of anti-dumping and countervailing duties on unfairly traded foreign products.
In a press briefing last week, Commerce Secretary Wilbur Ross said his department would complete a comprehensive analysis of why the U.S. is trading at a deficit with certain partners in 90 days.
“What’s driving it is the U.S. has the lowest tariff rates and the lowest non-tariff barriers of any developed country in the world,” Ross said, appearing to have already predetermined the study’s conclusions. “Many countries talk about free trade, but they are far more protectionist than we are.”
Ross said the “first systematic analysis” regarding the subject – which will include both goods and services – will assess whether a bilateral trade deficit is caused by any of seven reasons: cheating or other inappropriate behavior; free trade agreements that have not produced their forecasted benefits; a lack of enforcement by the U.S.; policy decisions made by previous U.S. administrations; currency misalignment in relation to the U.S. dollar; constraints put in place by the World Trade Organization on U.S. behavior, particularly in the area of tax policy (although it should be noted that this was actually omitted from the final version of the executive order); systemic overcapacity in one or more industries; and asymmetrical trade barriers.
The study will look at the countries primarily responsible for the U.S. trade deficit, Ross said. These will include China, Japan, Germany, Mexico, Ireland, Vietnam, Italy, South Korea, Malaysia, India, Thailand, France, Switzerland, Taiwan, Indonesia and Canada.
Trade deficits have drawn the ire of Trump and some key advisers including National Trade Council Director Peter Navarro. The administration’s view on trade deficits, however, is controversial among many economists who contend that trade deficits are not necessarily a barometer of economic performance or indicative of an unsuccessful bilateral trade relationship.
According to Ross, no administration has ever followed up on the forecasts made about the benefits of trade agreements to see if they prove true. The study, he said, also will lay the groundwork for future policy decisions.
“This will form the basis of decision-making by the administration,” Ross said. “That will be decision-making based on hard facts – not theories; will be pinpointed to take care of the actual causes and therefore will be very heavily based on an empirical [framework]. It will demonstrate the administration intention not to issue, not to do anything casual, not to do anything abruptly, but to take a very measured and analytical approach.”
Regarding the second executive order targeting the collection of antidumping and countervailing duties by Customs and Border Protection, it claims that since 2001, about $2.3 billion worth of duties have not been collected because of a lack of adequate bonding requirements at the border and faulty risk assessments leading to importers subject to AD/CVD without assets located in the United States not paying their bills.
The order instructs the Department of Homeland Security in conjunction with the U.S. Treasury and Commerce Department to design and implement a strategy within 90 days for combating violations of U.S. trade and customs law, including any “enhanced” measures and “priority enforcement” necessary to curtail the flow of counterfeited and pirated goods into the United States.