We are 100 days into the Trump Administration and the question is not what did President Trump promise and what did he do, the question is how should business prepare for the future? Let’s begin with a “State of the Union” so we can evaluate our next steps. On some policy issues President Trump did follow the lead of the last Administration. The Trump Administration has implemented regulatory changes to continue its predecessors’ decade-long efforts to streamline regulatory requirements for exporters and importers. One such project will modernize and streamline procedures and paperwork that must be filed with government agencies and eliminate redundant requirements for exporters and importers. His willingness to stay the course on this practical initiative as well as on more controversial issues like relations with Cuba, Iran, and China, suggests that President Trump may develop into a more cautious chief executive.
On other fronts, the Trump Administration is behind in moving trade policy forward. As of this writing we do not yet have Robert Lighthizer confirmed as U.S. Trade Representative. Meanwhile, Commerce Secretary Ross and the White House advisors have been very busy. However, to date many senior policy positions still remain open. Seasoned negotiators and policy makers are leaving government. While there are 188 ambassador spots, President Trump terminated all politically appointed ambassadors and has nominated only six.
While the Trump Administration did take the United States out of the 12 nation Trans-Pacific Partnership (“TPP”), which the United States Trade Representatives negotiated for the last ten years, it has not taken any measureable steps on the North American Free Trade Agreement (“NAFTA”). In order to actually make changes to the NAFTA, the Administration must formally notify Congress 90 days before it begins negotiating. And, it must provide specific plans with Chapters and verse regarding proposed changes. Such a detailed NAFTA review is likely not ready since we do not have a USTR in place. All of the recent hoopla regarding Canada and softwood lumber and dairy products are not part of NAFTA, those issues were excluded from NAFTA.
President Trump has indicated that he wants to address trade issues on a bilateral or trilateral basis. My assumption would be that he believes he can get the better deal for American companies with such negotiations. However, when the USTR negotiated the TPP it was able to leverage the deal. If country A wanted something in return for agreeing to a particular provision, there were 11 other countries that could make it happen. In other words the U.S. was able to win concessions by giving Country A something from Country B, while giving up nothing. This type of negotiation is not possible in bilateral or trilateral negotiations.
Meanwhile, the Commerce Department recently determined that new countervailing duties on Canadian softwood lumber are warranted because of Canadian government subsidies. The new duties, although fitting with the Administration’s promise to enforce our trade laws, were in the queue long before President Trump took office. The decision sounds good for the U.S. as we are enforcing our trade laws and the U.S. injured parties will actually be paid from the duties our government collects from the Canadians. However, it isn’t the Canadians who actually will be paying those duties. The softwood lumber duties will be passed on to the U.S. importers of the Canadian lumber and the downstream customers – the home builders and the home buyers. Maybe it is better to add these topics into the NAFTA for predictability for businesses going forward.
So how can companies doing business in the United States move forward without a clear vision of the next few years of U.S. trade policy? Be a boy scout and be prepared. What I mean is stay the course but formulate alternatives if you need them.
Consider where your products and component parts come from. What if duties increase for those items. Can you buy them in the U.S.? Do you have other sources? How quickly can you get what you need and how much inventory do you keep?
Are you foreign-owned? Consider your product’s country of origin. Is it substantially transformed in the U.S.? Where is the technology and engineering coming from? Could you manufacture in the U.S. and take advantage of Trump’s potential tax plan if it comes to fruition?
Are you going to need foreign workers? How are you going to get them if the immigration rules change?
Do you export? Ensure you are screening your customers and complying with the Treasury Department’s sanctions requirements. The Administration promises more enforcement regarding U.S. and foreign parties violating U. S. export and Office of Foreign Assets Control sanction requirements. Understand U.S. jurisdiction over your products and services, including the potential for U.S. control over the exports of any foreign subsidiaries.
The new Administration also promises an uptick in other types of trade enforcement, and it might surprise some to find out that the U.S. has jurisdiction over products and technology with U.S. content all over the world. The Commerce Department controls and licenses the shipments of U.S. commercial products globally and the State Department governs not only U.S. military goods and technology but also the actions of U.S. entities providing defense services and facilitating the manufacture, sale and export of foreign defense products worldwide. So be sure you know the rules that apply to you.