Overview: The Trump Trade Policy – Promises, Pitfalls, and Future Prospects?

Warren H. Maruyama November 2, 2017 President Trump’s Campaign Promises

• Trade – Our Trade Deals Have Been a Disaster  “We Have to Renegotiate our Trade Deals”  “NAFTA Has Been a Disaster.”  “TPP is a horrible deal.”  “We Don’t Beat China in Trade.”  We Can’t Beat Mexico.”  “When Have You Seen a GM Car in Tokyo?” The Trump Trade Team

• USTR Robert Lighthizer – Partner, Skadden Arps and Former Deputy USTR – Negotiated Reagan Administration’s Steel VRAs – Formerly US Steel’s Lead AD/CVD Lawyer • Commerce Secretary Wilbur Ross – Billionaire Investor - Specialist in Restructuring Bankrupt Companies - Steel, Coal, Textiles • White House Staff – Prof. Peter Navarro – Director of White House Office of Trade and Manufacturing Policy – Gary Cohn – NEC Chair / Former Goldman-Sachs COO / Leader of WH’s “Wall Street” Faction – Jared Kushner – White House Adviser (Son-in-Law)

Congress Has Delegated Broad Authority to the President

• Congress Has Plenary Authority Over Trade - Article I, Section 8 of the Constitution • But Congress Has Delegated Broad Authority to the President – Termination and Withdrawal Authority for Trade Agreements – Section 125 of Trade Act of 1974 – Designation of Currency Manipulators – 1988 Trade Act and 2015 Customs Enforcement Act – Authority to Raise U.S. Duties – Section 301(b) – Unfair Trade Practices – Section 232 – National Security – Balance-of-Payments – Section 122 – International Emergency Economic Powers Act (IEEPA) – Import Relief – Section 201, AD/CVD, Section 421 (China) • Congress Has Retained Authority to Approve Major Trade Deals • TPA Authority for Bilateral Trade Negotiations – Bipartisan Congressional Trade Priorities and Accountability Act of 2015

4 High-Stakes NAFTA Renegotiation Ahead

• Key Campaign Promise – But Termination Would Have Economic and Political Costs – U.S. Companies – Many Have Highly Integrated N. American Supply Chains – Mexico and Canada Are Big U.S. Export Markets – Big Changes to NAFTA Require Congressional Approval • President Trump Can Terminate NAFTA Under Section 125 – But U.S. Farmers, Manufacturers, and Supply Chains Take a Big Hit – U.S. Business and Agriculture Have Coalesced Around “Do No Harm” Position • Administration Proceeding Under TPA Procedures • Administration’s Focus Has Shifted to Updating NAFTA At Least for Now – Incorporate Key TPP Chapters – But Also Includes Trump Objectives on Currency, Deficits, Rules of Origin

5 NAFTA RENEGOTIATION – NEXT STEPS

• 90-Day Congressional Consultation Period • First Round of Negotiations (August 16-18) • Administration’s NAFTA Wish List 1. Rules of Origin 2. Trade Deficit Reduction 3. Eliminate Chapter 19 4. Dumping, Diversionary Dumping, and Evasion of AD/CVD Duties 5. Currency Manipulation 6. Disciplines on State-owned Enterprises. 7. Labor and Environment 8. Various TPP Chapters, e.g. Cross-Border Data Flows

• Won’t Be Easy to Come Up with Deal that: – Can Be Negotiated with Canada and Mexico – Satisfies Trump’s Anti-Trade Blue-Collar Base – Satisfies U.S. Agriculture and Business Communities – Can Pass the Congress . . .

6 US-China Trade

• China Is Largest U.S. Goods Trading Partner – $598 Billion in Two-Way Trade (2015) – Large U.S. Trade Deficit – U.S. Exports - $116 Billion and Big Export Market for U.S. Agriculture • No Shortage of Bilateral Issues: – Currency Manipulation – Indigenous Innovation – Restrictions on Foreign Internet Providers – Steel and Aluminum Over-Capacity – IPR and Cyber-Theft – AD/CVD Duties – China’s Non-Market Economy Status • Mar a Lago Summit – Presidents Trump and Xi – Relationship Dominated by Need for Chinese Cooperation on North Korea – 100-Day Plan on Trade – U.S.-China Comprehensive Economic Dialogue – CED • Section 232 and Section 301

7 Trump Administration’s Trade Policy Agenda

• Defend U.S. National Sovereignty Against WTO – WTO Panels and AB Can’t “Add to or Diminish” WTO Rights and Obligations • Strictly Enforce U.S. Trade Laws, e.g. AD/CVD, §201, and §301 • Use All Possible Sources of Leverage to Open Markets to U.S. Goods and Services and Protect U.S. IPR • WTO Rules Don’t Work for Non-Market Economies • Prepared to Go Outside WTO Rules, e.g. Section 301 • Focus on “Reciprocity” and Eliminating Trade Deficits • Will Negotiate New and Better Bilateral Trade Deals…

Hogan Lovells | 8 The Upside: “Bilateral Trade Deals”??

• “[B] ilaterals can occur much more quickly, because basically, it's just a few people in a room talking about what needs to be done.” - WH Advisor Peter Navarro • Potential Bilateral Trade Deals for President Trump? – UK? – Japan? – Others?? • But Big Unknowns … – Intense Pressure from U.S. Agriculture for Japan FTA? – Can UK Even Negotiate Until Exits EU in 2019 (or Later)? – Will Potential Bilateral Trade Partners Agree to New Trump Demands, e.g. Currency Manipulation, Deficits, Rules of Origin? – Can President Trump Mobilize Bipartisan Congressional Votes to Approve Bilateral Deals?

Hogan Lovells | 9 Presidential Actions – Int’l Trade

• Executive Orders – Circumvention of AD/CVD Orders (March 31, 2017) – Trade Deficit (March 31, 2017) – Buy American / H-1B Visas (April 18, 2017) • Presidential Memorandums – TPP Withdrawal (Jan. 23, 2017) – American Pipelines / Buy America (Jan. 24, 2017) – Section 232 – Steel and Aluminum (April 2017) – Section 301 (August 14, 2017) • Barrage of AD/CVD and Section 201 Actions Filed – Softwood Lumber – 20-25% U.S. Preliminary CVDs (April 24, 2017)

Hogan Lovells | 10 President Trump’s Trade Agenda – Preliminary Report Card

• Biggest Move Was Withdrawing from TPP • Protectionist Actions Have Been Limited – Extreme Campaign Promises (e.g. NAFTA Withdrawal, 45% Tariffs on China, 35% Tariffs for Mexico) Shelved … At Least for Now – Steady Stream of Trade Actions – But Mostly Symbolic Reviews So Far – Section 232s and 301 Could Lead to Concrete Trade Actions – Increasing Pressure from Democrats and Unions to Show More than Rhetoric • Despite Limited Policy Changes, Marketplace Has Reacted to Trump Trade Initiatives • Trump Trade Initiatives Are Likely to Continue – WH Clearly Sees Political Advantage in Positioning President Trump as Trade Skeptic • But Implementation Won’t Get Any Easier – Need to Close NAFTA Deal – Needs to Walk Fine Line on Section 232 and 301 – China Is Formidable Adversary – Doesn’t Want Trade Wars to Send Economy Over a Cliff …

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