The 850,000-member United Steelworkers union recently requested more trade protection against Chinese competition from President Obama. They filed a petition with the U.S. Trade Representative (USTR) claiming that extensive subsidies and trade restrictions on the part of China have helped the country become the global leader in renewable energy and green technology–an industry considered crucial to energy security and future economic growth by both countries. USTR has 45 days to decide whether or not to accept the complaint and pursue a case against China at the World Trade Organization (WTO).
The issue is very time-sensitive given the November midterm elections–USTR’s deadline expires a few days before the elections. If the Obama administration decides to pursue the case, Sino-U.S. relations could plummet even further. In a period of recession and high unemployment rates, a trade deficit with China is an extremely sensitive issue for voters, especially those from states where factories have been shut down due to Chinese competition. However, by rejecting the complaint, President Obama will also infuriate key Democratic constituents. Several Democrats have praised the efforts of the steel union, raising political pressure on the White House. It seems to be a lose-lose situation for Obama.
The United States has imposed duties on Chinese products on several occasions. Usually, under claims that the products were either heavily subsidized or unfairly priced and then “dumped” on the U.S. market. A recent example was the prohibitive tariff imposed on Chinese tires last year. Many trade policy experts have extensively analyzed the results of this decision: high domestic tire prices and Chinese retaliation in key trade areas for the United States, such as chickens and automobiles.
President Obama makes it very clear that the U.S. 2010 Trade Policy Agenda is to enhance growth, job creation and innovation, through the intensification of engagement with major emerging markets, with a special focus on China, India, Brazil and Russia. This decision made exactly one year ago did not bring the United States even remotely closer to any of these goals. No new U.S. jobs were created, and domestic production did not increase after the decision on tires was enforced. To make matters worse, relations with China, a key trading partner, were further hindered.
Maybe this new case is different. After all, the steel union is not tackling one product, but in fact a whole industry that has been protected by an intricate system of government support – let’s ignore the fact that the United States does exactly the same to several domestic industries. But the bottom line for the U.S. is that it has to adopt broader trade policies and evaluate when and how to pursue cases such as this one.
U.S. trade law has one big flaw: Section 301 of the Trade Act of 1974 or also known as “Super 301.” It authorizes the government to impose unilateral sanctions against foreign countries that “maintain acts, policies and practices that violate, or deny U.S. rights or benefits under, trade agreements, or are unjustifiable, unreasonable or discriminatory and burden or restrict U.S. commerce.” Who determines whether a policy is discriminatory or unreasonable? Not the WTO or an impartial organization, but USTR itself. USTR has rigorous methodologies to determine these instances, but it just does not seem right. In fact, Section 301 has been challenged by foreign countries in several occasions for being contrary to WTO agreement.
Cases under Section 301 can be initiated by USTR or petitioned by a firm or industry groups, like the case of the U.S. steelworkers. In some ways, this measure causes U.S. trade policy to be outsourced to powerful lobby groups, who are constantly seeking greater protection. History has presented several abuses of this tool, both by the government as well as business groups. Ronald Reagan, for example, used it to negotiate – or force – countries to reduce trade barriers.
President Obama has to determine how he will achieve his goal of doubling exports in the next five years. Trade is a great tool to reach that objective. However, accepting another petition against China could hamper bilateral relations and sacrifice cooperation in other areas vital for the United States, such as market access and regional security in Asia.
This is a great opportunity for the Obama administration to signal to the rest of the world that the country is focusing on the benefits of trade instead of trade enforcement. Denying this Section 301 petition sends this signal. Here’s another thought: while you’re at it, why not pressure Congress to approve pending free-trade agreements with Colombia, South Korea and Panama? That would send an even stronger signal that this Administration is willing to cooperate in the global trading arena.
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