The CHIPS Act can be thought of as the “carrot” – designed to bolster American semiconductor manufacturing – to the “stick” of recent export controls that the United States (and the Netherlands and Japan) have implemented targeting China’s ability to both purchase and manufacture certain high-end chips used in military and AI applications. In particular, the strategic objectives of the CHIPS Act are to “(1) make the U.S. home to at least two, new large-scale clusters of leading-edge chip fabs, (2) make the U.S. home to multiple, high-volume advanced packaging facilities, (3) produce high-volume leading-edge memory chips, and (4) increase production capacity for current-generation and mature-node chips, especially for critical domestic industries” by the end of the decade.
The CHIPS Act provides “$50 billion to revitalize the U.S. semiconductor industry, including $39 billion in semiconductor incentives.” The funding provided will be distributed across several programs, each targeting a specific area of need. Eligible applicants for the first round of funding are those seeking funds to “construct, expand, or modernize commercial facilities for the production of leading-edge, current-generation, and mature-note semiconductors. This includes both front-end wafer fabrication and back-end packaging.”
The first round of funding will focus on how projects will advance U.S. economic and national security. Candidates will also “be evaluated for commercial viability, financial strength, technical feasibility and readiness, workforce development, and efforts to spur inclusive economic growth.”
Parties interested in applying must first submit a statement of interest to Commerce. Afterwards, applicants may submit a pre-application (recommended) before submitting a full application. Commerce began accepting pre-applications for leading-edge facilities on March 31, 2023, and will be accepting full applications for those facilities on a rolling basis. On May 1, 2023, Commerce will begin accepting pre-applications for current-generation, mature-node, and back-end production facilities on a rolling basis and full applications for these categories will be accepted on a rolling basis beginning June 26, 2023.
Recipients will receive funds in the form of direct funding, federal loans, and/or federal guarantees of third-party loans. For additional information on the application process, visit: CHIPS Act Fact Sheet.
The next round of funding will be announced in late spring for semiconductor materials and equipment facilities and Commerce will release one more round in the fall for research and development facilities.
]]>The 100-day report also provided recommendations ranging from investing or promoting investment in manufacturing and R&D, to deploying procurement, technical assistance, grants, and financing to support supplier diversification, to using market tools to support sustainability and workforce standards, to expanding multilateral engagement with global allies and strengthening international trade rules. For additional information and analysis on the Executive order and the administration’s 100-day report, please visit our blog here and here.
The EO also requires quadrennial reviews involving ongoing data gathering and supply chain monitoring, with the next set of reports to be released in 2025. In addition, many of the sectoral reports note the creation of new interdisciplinary task forces that will continue to grapple with supply chain policy issues. As a result, industry members should continue to remain engaged and look for opportunities to collaborate with the government.
In July 2021, President Biden issued EO 14036 on Promoting Competition in the American Economy. The EO recognized the importance of robust and diverse agriculture, information technology, telecommunications, and healthcare sectors to the long-term resilience of competition, supply chains, U.S. workers, and consumers. Through EO 14036, President Biden pledged a whole-of-government approach to defending against “the monopolization of the American economy.”
President Biden has advocated for comprehensive competitiveness legislation, including the America Creating Opportunities for Manufacturing, Pre-Eminence in Technology, and Economic Strength (COMPETES) Act (which passed in the House of Representatives) and the United States Innovation and Competition Act (USICA) (which passed in the Senate). These legislative vehicles include numerous, wide-ranging provisions aimed at promoting investment in the domestic industrial base and domestic manufacturing (including to expand supply of semiconductors through the Creating Helpful Incentives for Production of Semiconductors (CHIPS) for America Act), shoring up supply chains, and combatting unfair trade practices.
And most recently, consistent with the policy of leveraging the government’s purchasing power to strengthen the resilience of supply chains, the Federal Acquisition Regulatory (FAR) Council published a final rule amending the Federal Acquisition Regulation (FAR) to strengthen Buy American Act (BAA) requirements in accordance with President Biden’s January 25, 2021 Executive Order (E.O.) 14005, Ensuring the Future is Made in All of America by All of America’s Workers. This new rule increases the BAA’s domestic content threshold for certain end products and construction materials.
As the Administration works toward institutionalizing domestic competitiveness and supply chain resilience, policy recommendations will translate into programs, guidance, and directives. This may create opportunities or areas of risk for U.S. companies, particularly domestic manufacturers, as the key agencies navigate the complexities of implementing proposals and distributing funds. We are available to help you understand and evaluate how your company’s business strategy and planning may interact with these broad-reaching, cross-government policies.
]]>The IIJA contains approximately $550 billion in new infrastructure spending over current spending levels and covers roads and bridges, public transit, rail, safety and research programs that are typically included in five-year surface transportation reauthorizations. Additionally, the five-year bill makes major investments in drinking and wastewater infrastructure; ports and airports; broadband; grid security; and clean energy programs (e.g., electric vehicle infrastructure and carbon capture). The bill also includes major domestic procurement ("Buy America") requirements for infrastructure materials.
In summary, the BABA would bar the award of federal financial assistance for infrastructure unless all of the iron, steel and manufactured products and construction materials used in the project are produced in the United States.[1]
Waivers traditionally available under existing Buy America laws are authorized under the BABA where (1) applying the Buy America requirement would be inconsistent with the public interest; (2) where the iron, steel, manufactured products and construction material is not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality; and (3) where inclusion of the domestic products or construction materials will increase the cost of the overall project by more than 25 percent. In addition, Congress directs that the BABA be applied in a manner consistent with U.S. trade agreement obligations related to government procurement.
Robust Origin Standards
The BABA imposes robust origin standards for the products and construction materials acquired for federally-assisted infrastructure projects. The bill defines “produced in the United States” to mean, “in the case of iron or steel products, that all manufacturing processes, from the initial melting stage through the application of coatings, occurred in the United States.” Similar origin standards for iron and steel are currently imposed by regulation and agency guidance to federal-aid subject to existing Buy America laws, including those applicable to certain federal-aid transportation infrastructure programs as well as federal-aid clean and drinking water infrastructure programs.
The BABA will impose Buy America requirements on nonferrous construction materials – a break in precedent from existing Buy America laws applicable only to iron and steel. It identifies common construction materials as nonferrous metals, plastic and polymer-based products, glass (including optic fiber), lumber, and drywall. The BABA directs the imposition of similarly significant “all manufacturing processes” origin standards for non-ferrous construction materials. The OMB is required by the BABA to issue standards that define “all manufacturing processes” for construction materials.
Relative to the origin standard for manufactured products, the BABA is more explicit. Manufactured products will be deemed produced in the United States if: (1) the product was manufactured in the United States; and (2) the cost of the product’s components mined, produced or manufactured in the United States exceeds 55 percent of the total cost of the product’s components. This origin standard is consistent with the recently revised origin standard for domestic end products and construction materials under the federal BAA, but not reflective of changes to the BAA’s origin standard imposed by another section of the IIJA.
Rapid Timeline for Implementation
The BABA imposes a rapid timeline for implementation.
Upon enactment: The Office of Management and Budget (OMB) is directed to issue guidance to Federal agencies to assist in identifying programs that have “deficient” Buy America coverage and to issue guidance to assist Federal agencies in applying new domestic content preferences.
The BABA deems as deficient those programs that are not currently subject to Buy America requirements at all, are subject to limited Buy America requirements, the scope of which does not include iron, steel, manufactured products and construction materials, or are subject to Buy America requirements that have been waived by generally-applicable and longstanding waivers. For example the Buy America requirement imposed by 23 U.S.C. § 313 is limited in application by the Agency’s implementation policy to iron and steel only. The Federal Highway Administration has estimated that the ferrous inputs account for less than 5 percent of the cost of a federally-aided highway project.
Within 60 Days of Enactment: Federal agencies will be required to submit to the OMB and appropriate congressional committees a report that identifies each Federal financial assistance program for infrastructure administered by the agency, identify the Buy America-type requirements applied thereto, if any, and assess the applicability of any existing domestic content procurement preference, including its purpose, scope, applicability and any exceptions or waivers of the requirement. The agency report must identify the deficient programs not subject to domestic procurement preferences required by the BABA.
Within 180 Days of Enactment: Federal agencies must begin applying Buy America preferences meeting the scope of products required by the BABA. By this time, OMB must issue standards satisfying the “all manufacturing processes” origin standard required by the BABA for “construction materials.”
Specifically, the “Make it in America” section of the BABA provides statutory authority for the establishment of the new Made in America Office within the OMB. It also includes language aimed at reducing the use of waivers and strengthened application of the BAA, which as noted above, applies to direct procurement by Federal agencies.
The BABA directs the Made in America Office to promulgate guidance to Federal agencies aimed at standardizing and simplifying how agencies comply with the BAA. The guidance is to include the criteria agencies utilize to grant “public interest” and “non-availability” waivers of the BAA, providing some framework to what has traditionally been very murky process. In the context of non-availability waivers the BABA identifies appropriate considerations contracting officers should base waiver determinations upon, including anticipated project delays as well as lack of substitutable articles, materials and supplies.
Similarly, the BABA directs agencies to avoid issuing public interest waivers that would result in decreased employment in the United States both among the entities that produce the product or construction material or that would result in a contract award that would decrease domestic employment. It will also require for the first time that Federal agencies consider whether the cost advantage of a foreign product is the result of unfair trade practices such as dumping or subsidization.
Notably, the “Make it in America” section of the BABA includes a sense of Congress that BAA’s domestic component content standard should be amended by the Federal Acquisition Regulatory Council (FAR Council) upward from 55 percent currently to 75 percent. This sense of Congress is consistent with both the directives of EO 14005 and proposed changes to the Federal Acquisition Regulations (FAR) included in a notice of proposed rulemaking (NPRM) issued by the FAR Council in July of 2021. The July NPRM proposed graduated increases to the BAA’s component content standard from 55 percent currently to 75% over five years with a fallback mechanism at prior lower percentage standards in the event of no qualifying offers meeting the higher component content standards. The sense of Congress in the BABA also endorsed a fallback mechanism in the event of no qualifying offers. The BABA directs the FAR Council to amend the Part 25 of the FAR to provide a definition for an “end product manufactured in the United States,” which the FAR Council is poised to do with the current rulemaking.
Notably, the IIJA directs an assessment of the impacts of all United States free trade agreements, the World Trade Organization’s Government Procurement Agreement and federal permitting processes on the operation of Buy American laws. The required report is to be made public. While the assessment does not direct a change in policy, it could spur the Administration to reconsider how it interprets limitations on the scope of parties’ obligations embodied in these agreement texts as well as its construction and reliance on delineated reservations to its market access obligations under these agreements.
Notably, the Director of the Made in America Office at OMB issued late last month a memorandum for senior federal procurement officials that provides specific guidance to Federal executive branch agencies on the use of a digital waiver portal to submit proposed waivers to the Made in America Office and posted on a new dedicated website MadeInAmerica.gov.
Manufacturers of nonferrous products used in public works infrastructure projects are likely unfamiliar with the Buy America requirements applicable to certain federal-aid infrastructure programs. Federal agencies subject to existing Buy America laws applicable to iron and steel have, over the last nearly 40 years, adopted consistent standards construing “all manufacturing processes” that require the initial melting stage of steelmaking to occur in the United States. Manufacturers of nonferrous construction materials should take note of this precedent and consider what a comparably inclusive origin standard would look like for their industry sector.
Manufacturers should also assess how the BABA’s waiver transparency requirements and supplier scouting programs may be leveraged to identify gaps in domestic sourcing and inform capital investment planning.
[1] The BABA defines infrastructure as: roads, highways, and bridges; public transportation; dams, ports, harbors, and other maritime facilities; intercity passenger and freight railroads; freight and intermodal facilities; airports; water systems, including drinking water and wastewater systems; electrical transmission facilities and systems; utilities; broadband infrastructure; and buildings and real property.
]]>The Harmonized System is an international nomenclature that classifies products using six-digit codes. Signatories to the Harmonized System Convention, including the United States, agree to classify imported goods using the same six-digit codes in an effort to facilitate trade between countries. Signatories are permitted to further define products beyond six-digits, as the United States does using eight- and ten-digit codes. However, all signatory countries classify merchandise using the same six-digit codes. As a result, while the USITC employs a separate process that allows interested parties to advocate for more specific 10-digit statistical breakouts for classification of merchandise entering the United States, any changes above the 10-digit level, which would impact all signatory countries, must begin with advocacy through the WCO.
There are several potential benefits for having more specific classifications of products. Specific tariff classifications can allow companies and industries to better track trade flows helping to combat trade fraud and facilitate trade enforcement. For companies and industries that sell products globally, a single clear tariff classification can also have substantial trade facilitation benefits.
The WCO’s modifications to the Harmonized System are the culmination of a multi-year process (that repeats every five years) and accommodates products of new or emerging commercial significance. In particular, the changes that will take effect in January 2022, include new codes for flat panel display modules, smart phones, 3D printers, and unmanned aircraft. Overall, the USITC implementation of the WCO’s modifications will impact the classifications of more than 350 products relevant to a wide-range of industries.
The modifications will not have a tariff impact per se, but importers and customs brokers should nevertheless be aware of the changes to ensure they continue to identify the appropriate classification for all imports.
If you have any questions regarding the appropriate classification for a particular article of commerce, or require assistance in achieving more specific or harmonized classifications for your products, don’t hesitate to contact Kelley Drye’s international trade team for assistance.
]]>The First Sale Rule
The first sale rule permits importers to declare a lower customs value—and by extension, to lower the customs duty liability—for certain types of qualifying importations. To be eligible, an importation must involve a multi-tiered transaction (i.e., there must be three or more parties involved in the sequence of sales leading to the importer). Under U.S. law, the earliest sale in such a sequence of transactions may be declared as the customs value provided that the goods are clearly destined for the United States at the time of such sale and the first sale value otherwise satisfies the requirements applicable to any transaction value (i.e., it must be a bona fide sale that has been conducted at arm’s length).
First sale is thus commonly described as having “three elements”: the first sale in a multi-tiered transaction may be used as a customs value provided (1) it is a bona fide sale, (2) the goods are clearly destined for the United States at the time of the transaction, and (3) the value is an arm’s length price.
Meyer v. United States
The CIT’s decision in Meyer hinges on additional language from the seminal 30-year-old case that established first sale as a viable basis for customs valuation—language that has frequently been quoted, but seldom, if ever, scrutinized for meaning. The CIT interpreted that language to impose an overlooked requirement, namely that any legitimate first sale must be (4) absent any distortive non-market influences. While the first three requirements for the use of first sale are frequently assessed and litigated, the fourth requirement, the CIT notes, “has generally been neglected.”
In Meyer, the plaintiff failed to establish that it was entitled to use the “first sale” transaction value because it failed to produce sufficient evidence to satisfy both the (well-established) arm’s length and (newly in focus) distortive non-market influence requirements. The importer’s failure to produce sufficient information on these elements was decisive.
Significantly, the CIT also expressed doubt that the first sale rule was ever intended to be applied to transactions involving non-market economy participants and inputs, inviting the U.S. Court of Appeals for the Federal Circuit to provide further clarification.
Heightened Risk to First Sale Programs
While Meyer is not directly binding on other importers or fact patterns, and does not invalidate the use of first sale in all cases, the opinion does increase the risk associated with using first sale with suppliers in non-market economies (e.g., China and Vietnam). While it remains to be seen whether the importer in Meyer will appeal the final decision of the CIT, the Meyer decision creates a clear path for U.S. Customs and Border Protection to begin dismantling the use of first sale in transactions involving non-market economies, should it choose to do so.
Companies Should Reevaluate First Sale Programs
Any company currently relying on first sale to lower customs duty liability should evaluate its program to consider the ramifications of the Meyer decision, and to assess the overall health of the first sale program. Regardless of whether the Meyer decision is appealed, exercising reasonable care—and reducing the risk of customs penalties—requires importers to take account of court decisions relevant to customs value.
Even where all parties in a multi-tiered transaction are unaffiliated, and thus presumptively at arm’s length, companies may now have to establish the absence of any distortive non-market influences in order to maintain first sale programs. In light of the Meyer decision, companies should take affirmative steps to demonstrate the lack of non-market economy influence throughout these programs.
We are happy to help review your first sale program and to advise on strategies for preserving this important duty saving mechanism. Please contact us with any questions.
]]>Most of the U.S. government’s trade-oriented agencies have either shut down or had their operations severly restricted. Below is a status report.
First the good news: If you stop by your local post office, you can still mail those holiday returns because the USPS is not a government agency. In addition:
Court of Appeals for the Federal Circuit (“CAFC”): The CAFC announced that it will remain “open for business and will be fully staffed,” including holding the arguments scheduled during the January 2019 court sitting; see http://www.cafc.uscourts.gov/announcements
Court of International Trade (“CIT”): The CIT website has not posted a notice that its operations will be affected by the shutdown.
United States Trade Representative (“USTR”): According to a December 28th news release, USTR personnel “continue to conduct all operations, including trade negotiations and enforcement.”
And now the bad news:
U.S. Department of Commerce (“International Trade Administration” and “Bureau of Industry and Security”): As summarized above, the Department of Commerce was shuttered as part of the government shutdown. CNBC reports that furloughs will affect vast swathes of Department of Commerce staff, approximately 40,000 people or 86 percent. Both the ITA and BIS’ websites are “not being updated.”
International Trade Commission (“ITC”): The ITC has ceased regular operations; noting the “disruption” of “significant activties” including: Investigative activities, including proceedings under sections 332, 337, and 201, and Title VII of the Tariff Act of 1930, maintenance of the Harmonized Tariff Schedule of the U.S., technical assistance to the U.S. Trade Representative and Congress, as well as all other government functions other than those directly supporting active litigation to which the USITC or the United States is a party. See https://www.usitc.gov/sites/default/files/documents/usitc_fy_2018_shutdown_plan_final.pdf
For security reasons, EDIS has been brought offline. The HTS Search Tool and Dataweb will continue to be available, but no staff assistance will be provided for these applications.
Customs and Border Protection (“CBP”): Homeland Security, the department that oversees CBP, Immigration and Customs Enforcement, the TSA, Coast Guard and the Secret Service is affected. But since most employees are considered “essential,” they are working without pay until a funding bill is passed. It’s reported that as many as 54,000 CBP employees are working without paychecks. On a conference call with interested parties, CBP indicated that the ports will be “staffed as normal” to ensure that the “flow of trade {is} as close to normal as possible.” Due to the lapse in federal funding, however, the CBP website will not be actively managed, transactions submitted through the website might not be processed, and CBP will not respond to inquiries until after the shutdown.
Federal Maritime Commission (“FMC”): The Federal Maritime Commission is closed as part of the partial federal government shutdown due to a lapse in appropriations. The Commission will resume normal operations when appropriations legislation is enacted and the federal government reopens, according to a recent annoucement.
U.S. Department of State – Directorate of Defense Trade Controls (DDTC): Per its website, operations at DDTC are “significantly curtailed, including requests for licenses, advisory opinions, and retransfers, except for those that provide direct support to the military, humanitarian aid, or other similar emergencies. All D-Trade electronic submissions will be rejected by the system and returned to the applicant. Requests that are currently in process at the DDTC as of December 21, 2018, will remain in that status. Further review actions, however, will be delayed until after restoration of funding.” Industry applicants believing they have a case (either “In-Review” or new submission required) involving direct support to the military, humanitarian aid, or other similar emergencies, should email the DDTC Response Team ([email protected]). The email subject line MUST read “Request for Emergency License,” and the message must include the license number (if already pending with DDTC), the applicant’s name and registration code, the end-use/end-user, justification for needing an emergency license, and a point of contact. The Directorate will contact the requestor with guidance on how to proceed if the request will be honored.
]]>KORUS first went into effect in 2012, but many in the U.S. business community had concerns about Korea’s implementation of key market access provisions. In April 2017, the United States and Korea began renegotiating the terms of KORUS, and the parties signed a revised version of the agreement in September 2018. In seeking an updated deal, President Trump expressed disappointment in the U.S. goods trade deficit with Korea, measuring $23.1 billion in 2017, notwithstanding the United States’ growing surplus in services trade with that country.
The renegotiated KORUS increases Korean market access for a number of American exports. Perhaps the most significant provisions of the new agreement relate to new rules for American automobile exports to Korea, including a doubling of the cap on the number of automobile exports and acceptance of U.S. emissions standards. Other key changes address Korea’s burdensome customs verification procedures and its pharmaceutical pricing and reimbursement policy. The revamped automobile trade terms, however, were expected to present the biggest political hurdle to passage of the updated agreement in the Korean parliament given the importance of that country’s domestic automobile industry. With that challenge now overcome, and with no congressional approval requirement in the United States, the revised agreement will go into effect in both countries.
]]>Under the Trade Promotion Authority (“TPA”) law, known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, the ITC must prepare a report that assesses the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors, as well as the interests of U.S. consumers. This report, which will be made public, is due to the President and Congress no more than 105 days after the President signs the agreement. The TPA requires the President to wait 90 days from the date of the notification before signing the USMCA. President Trump notified Congress of his intent to enter into the new trade agreement on August 31, 2018. Therefore, the earliest the President may sign the agreement is November 30, 2018.
Congress is expected to wait until the ITC report is issued before voting on the new agreement. In fact, Senate majority leader Mitch McConnell recently told Bloomberg in an interview that the vote on USMCA will be a “next-year issue.”
If Congress does not pass the TPA, the President has threatened to withdraw from NAFTA. Although the ITC is not required to analyze the impact of withdrawing from NAFTA, there is at least one study prepared by Trade Partnership Worldwide that estimates that withdrawing from NAFTA could cost 1.8 million jobs in the first year.
The ITC will hold a public hearing at 9:30 a.m. on Thursday, November 15, 2018. Parties wishing to participate at the hearing must file a request to appear by October 29, 2018. Written submissions for the record are due by December 20, 2018.
]]>The changes to KORUS focus on the auto sector, customs procedures, and pharmaceutical reimbursement. With respect to autos, the largest change is a 20-year extended phase-out period for the current 25% U.S. tariff on imports of light trucks from Korea. That tariff will now expire in 2041, instead of 2021, which, according to the U.S. International Trade Commission, will delay the anticipated increase of 59,000 Korean truck imports. Korea has also agreed to increasing the quota of U.S.-origin autos that meet U.S. safety standards (but not Korean safety standard) from 25,000 to 50,000 per manufacturer, per year. Korea further agreed to recognizing U.S. standards for auto parts exports necessary to service U.S. vehicles in Korea and a harmonized testing system for emissions standards. With respect to improving customs procedures, Korea will address onerous and costly customs verification procedures for U.S. exports, which have been particularly taxing for U.S. agricultural exports. Finally, Korea has promised to address its pricing and reimbursement policy for pharmaceuticals to align with existing KORUS commitments and ensure fair treatment for U.S. exports.
For Korea, successful renegotiation has earned it a break from the United States’ Section 232 tariffs on steel imports. Instead of being subjected to a 25% tariff, steel imports from Korea are subject to an absolute quota based on 70% of the average annual import volume of such products during the 2015-2017 period. Korea had initially been exempt from the tariffs pending further KORUS discussions. The final quota-based exclusion was announced on April 30, 2018, and on August 29, 2018, President Trump announced a review process for individuals to request tariff exclusions for imports beyond the quota.
While the White House is touting the updated agreement as a major do-over, the changes are understood to be fairly moderate. Notably, the new pact does not include any provisions on currency manipulation and does not allow for increased U.S. rice exports, which was a U.S. priority during the original talks 12 years ago. The changes being made will, however, improve predictability without major disruption to existing trade flows between the two countries.
]]>This is the third such report issued since President Trump took office. Like the prior Trump Administration foreign exchange policy reports (April 2017 and October 2017), the latest report also concluded that China’s bilateral trade surplus, material current account surprise, and intervention in the foreign exchange market, together, do not require “enhanced analysis” and “enhanced bilateral engagement” under the Trade Facilitation and Trade Enforcement Act of 2015 (the “2015 Act”).
The latest report, however, continues to place China on Treasury’s foreign exchange “Monitoring List” under the 2015 Act. The report lists China alongside Japan, Korea, Germany, Switzerland, and India as “major trading partners that merit close attention to their currency practices and macroeconomic policies.” According to the report, “China has an extremely large and persistent bilateral trade surplus with the United States, by far the largest among any of the United States’ major trading partners.” Treasury continues to be concerned with “the increasingly non-market direction of China’s economic development,” which “poses growing risks to its major trading partners and the long-term global growth outlook.” In particular, Treasury will continue to monitor China’s adherence to “its G-20 commitments to refrain from engaging in competitive devaluation” and the implementation of “greater transparency of China’s exchange rate and reserve management operations and goals.”
Since Treasury’s first report in 1988, China has been named a currency manipulator only briefly between 1992 and 1994. Subsequent reports have regularly concluded that China’s currency is undervalued, but that it has not met the technical requirements of the 1988 Act to be designated a currency manipulator.
Alleged currency manipulation, particularly with respect to China, has long been part of the trade policy debate as a trading partner’s artificially low currency can boost export sales and, thus, create or widen the United States’ trade deficit with that country. Notably, the 2015 Trade Promotion Authority bill passed by Congress (at the height of the United States’ negotiations with the 11 Trans-Pacific Partnership countries and the European Union) included principal trade agreement negotiating objectives around avoiding currency manipulation and dealing with unfair currency practices. During the 2016 campaign, President Trump had pledged to label China a currency manipulator as part of his larger plan to combat unfair trade practices.
]]>This development is the latest in a series of steps taken by the Trump administration to curtail Chinese investment in the U.S. The recently proposed Foreign Investment Review Modernization Act (“FIRRMA”) would expand the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to include investments in “critical technology” and “critical infrastructure”, and would also make it easier for regulatory agencies to review investments made by state-owned enterprises. This legislative proposal is largely viewed as focused on regulating Chinese investment. The Trump administration already exercised existing CFIUS-related authority to block the acquisition of Lattice Semiconductor Corp. by Canyon Bridge Capital Partners, a Chinese firm.
]]>Experts, however, are cautiously optimistic about the news and what it could mean for 2018. Last year, significant uncertainties about critical aspects of the global economy made it difficult to predict the track of trade growth. The WTO cited unpredictability with respect to government action on monetary, fiscal, and trade policy, and whether trade would be restricted in favor of attempts to address domestic wage stagnation and unemployment. Moreover, the process of establishing global value chains – spreading production processes around the world – is stabilizing. That process had been a key driver in boosting global trade flows out of economic crisis, but is naturally beginning to slow.
In the United States, political and economic analysts struggled early in 2017 to estimate the impact of President Trump’s decision to withdraw from the Trans-Pacific Partnership (TPP) negotiations and to renegotiate NAFTA. On one hand, those trade policy “shocks” have been countered by trade-promoting policies in other regions, including the recently finalized Comprehensive and Progressive Agreement for Trans-Pacific Partnership among the 11 remaining parties to the original TPP. Trade among the NAFTA countries continues to dominate regional trade arrangements in the world, second only to intra-European Union trade flows. And President Trump has started this year with strong messaging on the importance of international trade – downplaying the fear of trade wars and signaling an interest in rejoining the TPP. On the other hand, the world is watching as President Trump considers whether to impose what may be broad trade restrictions on imports of steel and aluminum products under Section 232 of the Trade Expansion Act of 1962.
Notwithstanding these developments, the better-than-expected growth in 2017 have given economists a reason to expect a high rate of growth to continue at least through 2018, spurred by strong investment spending, growing demand in the EU, and new trade agreements. The WTO had forecasted global trade expansion for 2017 of only 2.4%, with the actual results being far better. For 2018, the WTO predicts trade growth to “pick up slightly.” Although much depends on the impact of political decision-making, the trend suggests that trade flows will continue to be strong this year.
]]>Insights from the data include:
To access the series, click here.
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