Trump, trade and aerospace: What in the world is going on?

Trump, trade, and aerospace: What in the world is going on?

Is there an overall strategy to the different actions taken by the Trump administration affecting international trade? What does it mean for aerospace? Adrienne Braumiller, Braumiller Law Group PLLC, takes a look at the story so far and will share further analysis at the Farnborough International Airshow next month.

Trump, trade and aerospace: What in the world is going on?

When he was a business executive, Donald Trump wrote (or had ghost-written for him) The Art of the Deal, sharing his experiences and skills in business negotiations. It begs the question, is that book now a blueprint for US trade policy and international trade agreements?

Lately, international news has many stories about actions taken by the Trump administration affecting international trade. There are special duties on aluminum and steel, special duties on Chinese products, renegotiation or withdrawal from NAFTA, withdrawal from the Iran sanctions programme, and proposed new export controls on technology. What does it all mean? Where is this going?

As a matter of background, remember that during the presidential campaign, then-candidate Donald Trump spoke out repeatedly about what he deemed poor trade deals and foreign actions that threatened US jobs. He was a champion for US blue-collar workers who either lost their jobs and benefits, or felt they were endangered by imports and competition. Those workers helped him win the Electoral College and the Presidency.

Duties

First, let’s look at the proposed aluminum and steel duties of 10% on aluminum and 25% on steel. The rationale behind the duties is Section 232 of the Trade Expansion Act of 1962 which gave the US Government the authority to determine the effect of imports on national security. The temporary suspension of the duties on Canadian, Mexican and European aluminum and steel has been lifted, while the duties on steel from Korea have been suspended permanently in exchange for quotas.

Section 301 of the Trade Act of 1974 gives the President the authority to act against practices that violate trade agreements or are unjustified, unreasonable or discriminatory.  The Trump administration used this law as the authority to impose special duties on a wide range of Chinese products in retaliation for alleged theft of US technology. The Chinese, in return, have threatened special duties on many US products. The US special duties were confirmed by the White House on May 29  that it is, proceeding with its Section 301 actions targeted at China.

The US will impose a 25% tariff on $50 billion of goods imported from China containing industrially significant technology, while the list of covered imports is to be announced by June 15. Will the duties be suspended in exchange for cooperation on North Korea, or increased market access for US products, or increased Chinese protection of US intellectual property rights? Don’t rule out any of these.

NAFTA

There are other trade actions pending in the Trump administration. A continuing issue since the presidential campaign has been the NAFTA treaty between the US, Canada and Mexico. The US wants to increase US content requirements – especially for automobiles and parts. Canada and Mexico have been holding firm in resisting this proposal. The Trump administration is now tying aluminum and steel duties to NAFTA renegotiations, but Canada and Mexico say the duties are unrelated to the NAFTA treaty and have not been receptive.

The US withdrew from the international Iran sanctions agreement, saying that it was a “bad deal”. As a result, Boeing – and possibly Airbus – will lose sales to Iran, and other opportunities may also be lost. Iran immediately said it would restart its nuclear programme.

Other countries that are party to the agreement said they would continue with the sanctions agreement, but their position may be undermined by US actions.

WTO ruling

That’s not all the actions affecting trade. The World Trade Organization (WTO) recently ruled that European Union subsidies of Airbus harmed Boeing sales of wide-body aircraft. The Trump administration hailed this ruling. However, at the same time the WTO reversed an earlier ruling that EU subsidies harmed sales of the Boeing 737 – Boeing’s best-selling aircraft.

Bipartisan sponsors have introduced the Export Control Act of 2018 in Congress. This Act would expand US controls on exports and transfers of US products, software and technology. This includes expansion of the concept of “deemed exports” to companies located in the US but owned by non-US persons or entities. It would also establish controls on emerging technologies that are currently not listed on the Wassenaar dual-use list or the US Commerce Control List. The 2018 Act has a very good chance of reaching the floor of Congress and being passed into law this year.

The Trump administration (or Mr Trump himself) has taken some contradictory actions involving trade. The proposed free trade agreement between the US and EU (TTIP) has stalled and is probably dead for the time being. However, in view of Brexit, the administration has floated the idea of the trade agreement between the US and UK.

The Trump administration also withdrew from the Trans-Pacific Partnership, but the other participating countries have continued to implement it.  President Trump has now tweeted that maybe the US should be a participant in the TPP after all.

ZTE

Another recent tweet that caused concern involves the Chinese telecommunications company ZTE. ZTE was subject to one of the largest export control penalties in history. US persons and companies were prohibited from doing any business involving ZTE. Many of the penalties were suspended in exchange for ZTE promises to reform its controls. The promises fell through and – in a very strongly worded document – the US Secretary of Commerce recently re-imposed the sanctions. Shortly thereafter President Trump tweeted that ZTE was losing too many jobs in China and he was directing the Department of Commerce to take action. This left everyone scratching their heads. Is the President over-riding US Government policies via Twitter? What is the status of ZTE? For now, nobody knows for sure.

The Art of the Deal?

Is all this part of The Art of the Deal? Is there an overall strategy to the different actions taken by the Trump administration affecting international trade?

Find out when Adrienne Braumiller, Founder & Partner of Braumiller Law Group speaks at the upcoming FINN Sessions at Farnborough Airshow.

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