Global Economy / USTR remains protectionism’s 1st defender

The Yomiuri Shimbun

By Takanori Yamamoto / Yomiuri Shimbun CorrespondentWASHINGTON — The protectionist policies advanced by U.S. President Donald Trump’s administration are markedly anomalous in comparison to past policies. The Office of the U.S. Trade Representative (USTR) stands at the forefront. With a small staff directly controlled by Trump, it is characterized by swift action, while at the same time directly reflecting the president’s will.

Close to the White House

The USTR headquarters is located in a stately 170-year-old building about one block west of the White House. It is roughly 100 meters from the Oval Office where the president works. This speaks of its closeness to the president. Former U.S. Trade Representative Michael Froman, who was in charge of negotiations for the Trans-Pacific Partnership free trade deal under former President Barack Obama’s administration, has said he and Obama “might speak or meet several times a day.”

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  • The Yomiuri Shimbun

  • The Yomiuri Shimbun

The staff is comparatively small, around 200 people. The office stands in contrast to massive bureaucratic institutions such as the Treasury Department, with about 100,000 employees, or the Commerce Department, with about 46,000.

The USTR leadership has many members who were drawn from law firms working to influence lawmakers on policymaking. That is to say, they are lobbying experts.

Robert Lighthizer, who assumed office as the 18th representative in May 2017, had also been involved in international trade law at a large, prestigious law firm for more than 30 years, and had been widely known as a talented attorney in the steel industry. He also served as deputy trade representative under President Ronald Reagan’s administration in the 1980s. “Even the U.S. Congress had to recognize his influence,” says a source in the Japanese government.

Smooth operators

The USTR was founded in 1962 (see chart 1). It began from the appointment of a Special Representative for Trade Negotiations by President John F. Kennedy. The office was elevated to an executive agency by the U.S. Trade Act of 1974, becoming the current Office of the U.S. Trade Representative in 1980. Directly under the control of the president, the representative is ranked as a “Cabinet-level” post and is responsible for all trade negotiations.

Under the U.S. Constitution, the president has the authority to conclude trade agreements, but it also grants Congress the power to regulate trade. The law firms that serve as the talent pool for the USTR not only advocate for industry interests, but they also provide ideas in negotiations, taking on the role of being smooth facilitators in relations between the administration and lawmakers. In the USTR, there is little sense of the bureaucratic interests that one would find in Japanese government agencies.

Evolving role 

The role of the USTR has evolved with changes in U.S. trade strategy.

After World War II, the free trade system was built upon the General Agreement on Tariffs and Trade (GATT). The USTR’s rise to prominence came during the period of Japan-U.S. trade friction in the 1980s and ’90s. The U.S. economy boasted overwhelming power in the postwar period, but reeled at the rise of nations such as Japan. Exports from Japan soared and the U.S. trade deficit grew (see chart 2). Accusations of Japan stealing away American jobs swirled.

The strategy of this era was to force concessions through bilateral negotiations. In the ‘Super 301’ provisions (see below) of the U.S. Omnibus Trade and Competitiveness Act amended in 1988, the USTR threatened unilateral measures while pressing harsh demands on Japan in fields such as supercomputers, semiconductors and automobiles.

The World Trade Organization (WTO), the evolutionary successor to GATT, was established in 1995, and the United States returned to an emphasis on multilateral frameworks. With the end of the Cold War, the United States led multilateralism as the premier power in the capitalist camp. The United States promoted globalization, which would liberalize trade, finance and capital markets, through international organizations such as the International Monetary Fund (IMF), the World Bank, and the WTO.

Regressive strategy

However, since the latter half of the 2000s, WTO liberalization negotiations have stalled due to a conflict of interests between advanced economies and emerging and developing nations. The United States was dealt a severe blow by the financial crisis in the fall of 2008 and was challenged by a newly ascendant China.

China joined the WTO in 2001, but there were growing complaints in the United States that China was achieving rapid economic growth without complying with the rules. The Obama administration, seeing the limitations of the WTO, promoted the strategy of compelling China to obey the rules by using the TPP, which is a mega-FTA, as a net encircling China.

The Trump administration is now regressing to a strategy like that of the 1980s that emphasizes bilateral negotiations.

However, the principles of free trade are overshadowed under this strategy. Trade strategy then tends toward businesslike thinking in which it is no more than a tool to pursue national interests. This mind-set comes across clearly in a piece Lighthizer contributed to The New York Times in March 2008. “Conservative statesmen ... sometimes supported protectionism ... [T]hey always understood that trade policy was merely a tool for building a strong and independent country.”

In the 1990s, former U.S. Trade Representative Mickey Kantor held heated negotiations over the Japan-U.S. Framework for a New Economic Partnership with Ryutaro Hashimoto, international trade and industry minister under the Tomiichi Murayama administration.

In Kantor’s eyes as well, “[the] Trump administration’s overall policy in trade is inconsistent, lacking leadership, failing to enunciate policy, and has caused great consternation around the world.”

Kantor, who said that even when administrations changed, postwar U.S. presidents had continued to emphasize trade based on rules, lamented the disparate nature, saying, “[The] Trump admin is [the] first administration since [the] end of World War II that has not had [the] same policy.”

Reciprocity needed

New Japan-U.S. trade talks will commence this month at the earliest (see chart 3). “I think it took a while ... to be ratified but soon after, [Lighthizer] began to flesh out his trade strategy and obviously knows how Washington operates very well,” said Mireya Solis, a Brookings Institution senior fellow. The Japanese government warns that Lighthizer will employ a tough negotiating strategy.

While national interests clashed during the Japan-U.S. trade friction of the 1980s and ’90s, this did not mean that the spirit of reciprocity, by which both countries could benefit, was entirely lost.

On July 25, Trump deferred the tariffs on auto imports that had been under consideration and opted to go forward with market liberalization talks with the European Union. Under the EU’s persistent demands for a spirit of reciprocity, he has adopted a more conciliatory stance for the time being.

Japan must also be tenacious with Lighthizer in insisting that there will be no deal without reciprocity.

■ ‘Super 301’ provisions

These U.S. provisions allow the imposition of unilateral sanctions when a trading partner is determined to have undertaken unfair trade practices. They were incorporated into the 1988 Omnibus Trade and Competitiveness Act, and were measures for a limited time from 1989-90. They are thought to have been written with Japan in mind. The United States brandished these provisions while demanding that Japan take remedial action on satellites, supercomputers and the like. U.S. President Bill Clinton’s administration of the 1990s also restored the provisions to exert greater pressure on Japan to liberalize markets. Currently, retaliatory tariffs are being imposed on China under Section 301 of the act, but the hurdles for triggering the Super 301 provisions are lower. Internationally, both the provisions and Section 301 have been harshly criticized as violating WTO rules.Speech

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