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When the Obama administration rethought its China currency policy last month, we
seemed to have dodged a bullet. China stopped giving speeches bemoaning the
failings of the dollar, the administration bought time to select an ambassador
to Beijing, and we assumed we could all turn to other preoccupations for a
while. Not so fast. Serious trouble is still brewing in the more obscure reaches
of U.S. commercial policy, and it will be tough for the administration to head
For practical purposes, there are two parts to U.S. trade policy: a
deliberate part and a part on autopilot. The deliberate part is much better
known to non-trade economists. It involves free trade agreements, Buy America
measures, and opportunities to denounce trading partners. Then there is the part
on autopilot. This is the part that can sound like a seating chart at a large
stadium–Section 421, Section 301, Section 337. Each refers to a part of U.S.
trade law that a business or individual can invoke. In the same vein, you’ll
hear talk of anti-dumping measures and countervailing duty investigations–all
part of “administered protection.” Does all this make your head ache and remind
you why you always avoided economics and trade law? If so, the autopilot part is
having its desired effect.
Beyond their stated purposes, there are two features of these “administrative
remedies” that users find attractive. First, they are opaque. That tends to
shield them from the backlash we saw when more transparently protectionist
measures were put forward. Second, they limit policymakers’ discretion.
Industries seeking relief from imports, and their supporters in Congress, have
long complained that the executive branch tends to go soft on trade. Presidents
often have a broader perspective on trade than congressmen. They look at the
national economic impact of trade measures and at the foreign policy
To avoid this sort of second-guessing, Congress has written laws that limit
the president’s role in the process. In two looming China cases, Obama does not
have the authority to block a filing in either one. In each case, the industry
had the right to start an investigation with the International Trade Commission
(ITC). If the ITC finds that the industry has been hurt, the investigation
continues. In one case (Sec. 421), the Obama administration would have an
interagency review and a chance to stop short of trade barriers. In the other
cases (antidumping), there is no such policy review, only technical judgments at
the Department of Commerce.
This poses a foreign policy challenge. Will our trading partners understand
when the president’s hands are tied? They likely would in democracies where
there is strong separation of powers. But what about in China, the target of
these investigations? Will they misperceive this as a deliberate act?
The early signs are not good. The People’s Daily reported that China
summoned the U.S. Chargé d’Affaires, Dan Piccuta, last week and objected. Vice
Minister of Commerce Zhong Shan reportedly told the chargé:
“US industries have recently filed for trade remedy investigations into
Chinese-made oil well tubing and tire products. China is paying close attention
to the matter, as the cases involved a large sum of money and affected numerous
The story continued:
“Zhong stressed that in the current situation in which efforts are being made
around the globe to cope with the financial crisis, it is inappropriate to put
forward the two applications. If they were improperly handled, serious problems
could occur, which would not only be harmful to the settlement of bilateral
economic and trade issues between China and the US, but also generate a negative
impact on the recovery and development of the global economy.”
And just in case the State Department’s lines of communication are not fully
functioning yet, the Minister of Commerce, Chen Deming, wrote in the Wall
Street Journal Asia last week:
“Regrettably, however, trade measures by the U.S. against China are on the
rise. Recently, American industries have petitioned the U.S. government for
antidumping investigations, and for investigations under the World Trade
Organization’s ‘special safeguard provision,’ which could restrict imports of
Chinese products. This will seriously test China-U.S. economic and trade
To connect the dots, the special safeguard investigation, a.k.a. Sec. 421,
deals with imports of Chinese tires. This is the one the administration could
block, if it so chooses. The problem will be political. There is a very low
hurdle for the ITC to find injury in a 421 investigation. The ITC did so in a
number of cases during the Bush administration, all of which died after
executive branch review. Obama’s supporters in the manufacturing sector are
clearly hoping for change. In an interview with Inside U.S. Trade, Alliance for
American Manufacturing Executive Director Scott Paul said:
“Since [the Obama team] made such an emphasis [during the campaign] on trade
enforcement, it would be a real surprise to me if–should the ITC find injury on
421–the President does not accept the finding . . . Then you would have a much
stronger case that the Obama administration is not living up to its commitment
than the first currency finding or the NAFTA piece.”
Battle lines drawn. Warning shots fired.
On oil well tubing, the antidumping case, the administration will have no
such chance for review. Once launched, the investigations proceed according to a
set timetable. The ITC checks for injury, Commerce checks to see how far the
price was below “fair value,” and if everything checks out then tariffs are
applied. The administration can try to tell the Chinese it had no choice in the
matter, but will China accept “No, we can’t!” for an answer?
Philip I. Levy is a resident scholar at AEI.
Serious trouble with China is brewing in the more obscure reaches of U.S. commercial policy.
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