US Gears Up for Fight to ‘Reset’ Global Tariffs and More

Date: Friday, June 19, 2020
Source: Sourcing Journal

Though health wars and racial uproar have made things appear quiet on the trade war front, the Trump administration has plans to push for changes that could see global trade continue to be strained.

In testimony to the House Ways and Means Committee Wednesday, U.S. trade representative Robert E. Lighthizer said the U.S. will seek a “broader reset” of tariffs at the World Trade Organization (WTO). Namely, the U.S. will be working to raise its WTO tariff ceilings to bring what President Trump has long considered the country’s unfair trade treatment into better balance. It would mean increasing the U.S. bound tariff rate, or the maximum tariff rate the WTO allows the U.S. to charge its trading partners for a variety of products.

“Currently, outdated tariff determinations are locked in place that no longer reflect Members’ policy choices and economic conditions. As a result, many countries with large and developed economies maintain very high bound tariff rates, far above those levied by the United States,” Lighthizer said in testimony. “The United States must ensure that tariffs reflect current economic realities to protect our exporters and workers.”

The current U.S. average bound rate is 3.4 percent, which is low compared to other WTO member nations. China’s was 9.8 percent in 2018, though it has since dipped as it reduced global tariffs while increasing tariffs on imports from the U.S. In looking at how the trade war has impacted tariff rates, a Congressional Research Service report said punitive tariffs sent the U.S. average trade-weighted tariffs on goods from China up by 14.4 percent—more than four times the average bound rate.

For scope on where the U.S. rate ranks, the average tariff rate for India is 51 percent, and Brazil, 31 percent.

What some in the Trump administration have alluded to is eliminating the WTO system altogether so the U.S. can set the tariff rate it charges its trading partners at the same rate it pays them for their products.

The reset push Lighthizer has promised could serve to further undermine the WTO, whose relevance has been called into question in recent years as protectionist policies rise in popularity and as calls to modernize its rules and rulings go unheeded. It could also help the U.S. put pressure on countries and trading blocs it doesn’t already have a free-trade agreement with, like India or the European Union.

Beyond the WTO battle, the U.S. made clear Wednesday that it will continue to go hard on trade until it can make trade with America fair again. The European Union will be one among those on the hit list.

“The United States also seeks to rebalance our trade relationship with the European Union,” Lighthizer said. “For many years, U.S. businesses have been at a disadvantage in doing business in the EU. Both tariff and non-tariff barriers in the EU have led to increasing and unsustainable trade deficits with the EU–reaching $179 billion in 2019. With recent changes in EU leadership, the United States is hopeful for more progress in the coming year.”

The de minimis thresholds for American imports could face new challenges, too. The threshold, which currently stands at $800, means any merchandise below that value imported by one person on one day will not be subject to duties. One option the Trump administration intends to examine is tightening that threshold, Lighthizer said.

“At $800, the U.S. de minimis threshold far exceeds that of our major trade partners,” he said. “For example, the EU threshold is only $150, while China’s stands at a mere $7. This results in massive numbers of shipments to the U.S. receiving duty-free treatment and virtually no screening.”

The overall aim for trade, according to Lighthizer, is “to end the disastrous trade deals of the past,” adding that Trump “has delivered—and will continue to deliver—on that promise.”

 

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