Robert Lighthizer vs. China’s unfair trade practices

“To attack a problem as large as our trade deficit with China, U.S. officials must be prepared to consider very aggressive positions at the W.T.O.” -- Robert Lighthizer 

By KEITH BRADSHER

A container port in Qingdao, China, in December. China consistently sells $4 worth of goods to the United States for each $1 of imports. 

SHANGHAI — As a top trade official, he limited the Japanese cars and steel coming into the United States. 

He halted talks with China on a deal that would encourage investment between the two countries. 

And he tried to give American exporters an edge with special tax breaks.
When it comes to problems troubling working-class Americans and manufacturers, Robert Lighthizer, President Donald J. Trump’s nominee for trade representative, has historically blamed the United States’ trading partners, advocating aggressive retaliation for widespread abuses of free-trade rules.
It is a philosophy that he developed in the 1980s as a deputy United States trade representative and fine-tuned in the decades-long career that followed as the main trade lawyer for the American steel industry. 

Now he appears ready to train that focus sharply on China.
“It seems clear that the U.S. manufacturing crisis is related to our trade with China,” Mr. Lighthizer said in testimony to a congressional commission in 2010.
Over the years, Mr. Lighthizer has consistently taken the position that foreign countries are subsidizing their exporters while quietly but systematically blocking imports to protect jobs in their own countries. 

His answer is to pursue a long list of trade measures limiting America’s imports — even if those actions may be barely permissible, if at all, under World Trade Organization rules.
“To attack a problem as large as our trade deficit with China, U.S. officials must be prepared, at a minimum, to consider very aggressive positions at the W.T.O.,” he said.
The choice of Mr. Lighthizer leaves China in a difficult spot. 

He is part of a group of Trump trade appointees with close links to exactly the kinds of metal-bashing old-economy industries in which China faces the greatest overcapacity, and the toughest choices about how to close factories and lay off workers. 

Restrictions on exports to the United States will make those choices even harder for China.
Wilbur Ross, the billionaire investor who is Mr. Trump’s choice to become commerce secretary, made large chunks of his fortune in steel and auto parts, two huge industries that in China are ramping up exports. 

Peter Navarro, the head of the new White House office overseeing trade and industrial policy, is a brilliant critic of globalization who said that American purchases of imported goods at Walmart are helping China pay for nuclear-tipped missiles aimed at the United States.
The timing is bad for China.
The Chinese economy is slowing despite vast amounts of fiscal and monetary stimulus. Big manufacturers in most industries are struggling with overcapacity, pushing them to sell goods overseas at cut-rate, even money-losing prices, just to cover their operating costs. 

Mr. Lighthizer has argued for years that the United States should keep out goods made with government subsidies or sold below the full cost of making them.

DOCUMENT

What Trump’s Nominee for Trade Representative Has Said About China and the W.T.O.

We annotated testimony that Robert Lighthizer gave to Congress in 2010 about China, the W.T.O. and trade with the United States.

“Trump naming him makes me worry the U.S. will carry out more rigid measures on trade and investment,” said Wei Jianguo, a former vice minister of commerce.
Exports are important for China. 

It consistently sells $4 worth of goods to the United States for each $1 of imports. 

That mismatch has produced a bilateral trade surplus for China equal to about 3 percent of the country’s entire economy, creating tens of millions of jobs.
The benefits to China from that surplus have been increasing rapidly in the past few years. 

Many exporters have stopped importing components and switched to increasingly capable local suppliers for everything from high-quality steel to advanced computer chips. 

Multinationals have moved entire supply chains to China, and transferred the technology to run them.
Many Democrats and many economists have also become increasingly disenchanted with the effect on American workers and the American economy. 

The Obama administration filed a long series of trade cases at the W.T.O. against China, although they involved fairly narrow policies and limited categories of goods. 

It has been preparing more, filing the latest trade case on Thursday over Chinese subsidies to aluminum producers.
If Mr. Trump goes even further in that direction, Mr. Lighthizer will bring a long background in such actions.
When he was in the Reagan administration, Mr. Lighthizer was the deputy United States trade representative overseeing industrial policy in old-economy industries like cars and steel. 

Since then, Mr. Lighthizer has mainly been filing anti-subsidy and anti-dumping trade cases against imports on behalf of the American steel industry.
“He’s the best negotiator I’ve ever worked with on policies involving trade or tax policy,” said Timothy Regan, Mr. Lighthizer’s chief of staff in the Reagan administration and now the senior vice president of global government affairs at Corning.
Mr. Lighthizer led successful efforts in the 1980s to force Japan to accept curbs on exports of cars and steel to the United States. 

Both were bold moves, particularly given that President Reagan at times espoused free trade. 

But when the W.T.O. was created the next decade, member nations agreed, with a few exceptions, to renounce imposing such export limits on other countries.
The auto industry could be ripe for action again. 

China is an enormous exporter of auto parts to the United States. 

Under Obama, trade tensions over automotive trade have already risen, and the Obama administration has won two W.T.O. cases. 

The cases forced China to abandon certain anti-dumping and anti-subsidy taxes on American autos and to dismantle a few, fairly narrow subsidies.

Barges in China with ore to be used in the manufacturing of steel. Robert Lighthizer, the Trump administration’s choice for trade representative, had a decades-long career as the main trade lawyer for the American steel industry. 

“He was squarely in the trade talks with Japan,” said He Weiwen, a former commerce ministry official who is now a senior fellow at the Center for China and Globalization, an influential Beijing research group, “so maybe Donald Trump wants him to do something similar on China.”
The intersection of tax and trade is a specialty of Mr. Lighthizer, who was an architect of a Reagan administration initiative to cut corporate taxes for exporters. 

He was previously chief of staff at the Senate Finance Committee, overseeing tax policy.
In the Reagan administration, he pushed the limits of what is permissible under international trade rules. 

His plan allowed many American exporters to reduce their taxes by setting up overseas companies to manage their foreign sales. 

But the W.T.O. eventually torpedoed the effort after a challenge by the European Union in the late 1990s.
Republicans now appear to be taking a similar — albeit more ambitious — tack. 

They are exploring how to raise corporate taxes for importers and use the extra revenue to reduce taxes for all other companies.
China, as the biggest exporter to the United States, would face a major blow. 

But it would also affect American retailers, electronics companies and other multinationals that depend on supplies from anywhere overseas.
A big obstacle for Republicans is whether the W.T.O. would declare such a tax to be a trade barrier. China and Europe effectively penalize imports by imposing a type of national sales tax, an approach the W.T.O. has approved. 

It is a steep 17 percent in China.
But House Republicans, leery of imposing any new national taxes, want to change existing corporate tax laws instead. 

W.T.O. rules discourage, although they do not necessarily prohibit, modifying corporate taxes in ways that penalize imports.
The W.T.O. review process, though, is lengthy. 

So Mr. Lighthizer and Congress could well go ahead with the tax plan, lightening the tax burden for American manufacturers as well as inflicting plenty of damage on China and the global supply chain.
And the W.T.O.’s response — if it found the plan invalid — would not have much heft. 

Mostly, the global trade group could authorize Beijing to impose trade restrictions on the United States’ much smaller exports to China.
That prospect does not scare Mr. Lighthizer very much, as he made clear in his 2010 testimony.
“W.T.O. commitments are not religious obligations,” Mr. Lighthizer said, and violations “are not subject to coercion by some W.T.O. police force.”

Sina Delenda Est

As Trump prepares for office, concerns about China’s unfair trade and investment practices intensify
By Simon Denyer

A Chinese laboorer works at an unauthorized steel factory, foreground, on Nov. 4, 2016, in Inner Mongolia, China. 

BEIJING — Around the world, concerns are mounting about China’s unfair trade and investment practices. 

How Donald Trump responds could have a far-reaching impact on the global economy and financial markets.
Trump has threatened to declare China a currency manipulator, but experts say he has little legal or economic basis to take such a step. 

He has also threatened to impose a tariff of up to 45 percent on Chinese imports if Beijing doesn’t “behave,” a move that could lead to a trade war and damage the economies of both nations.
Yet he is not alone in sounding the alarm about unfair competition and a playing field sharply tilted in China’s favor. 

And there are plenty of options on the table if he wants to show he is tougher than his predecessor.
The American Chamber of Commerce in China, which usually is very measured in any criticism of China, complained this month about a rise in Chinese protectionism and “economic hegemony,” with doors closing to foreign investment, regulations biased against foreign companies, and new national security-related laws breeding “distrust and paranoia.”
The United States “needs to raise its game with the Chinese to drive for a sense of urgency” in dealing with these issues, it said.
But it is not just the treatment of foreign companies in China, and their lack of access to the Chinese market, that has raised tensions.
Chinese companies are also engaged in a state-sponsored buying spree of foreign companies, diplomats and experts say, in sectors identified by the government as key to an industrial modernization strategy known as Made in China 2025.
China has been using the state’s vast financial resources to buy up key foreign innovation and technology, often in sectors where the Chinese economy is largely closed to inward investment.
So as U.S. investment into China slowly declines, Chinese investment into the United States has surged, overtaking money going the other way for the first time in 2015, according to a new report by the Rhodium Group, an economic research consulting firm.
It is a similar story in Europe. 

Trade tensions between China and Germany have ratcheted up this year.
Ambassador Michael Clauss talks of an “unprecedented wave” of complaints by German companies about the problems of doing business here, and a “definite rise in protectionism” — at the same time as China pours billions of dollars into buying German firms, including several of its most innovative high-tech companies.
That has raised deep concerns in Berlin about national security and Germany’s ability to innovate in the future.
“This is not just an American problem,” Clauss said. 

“China has to realize these concerns are real.”
In Washington this month, the U.S.-China Economic and Security Review Commission recommended changing U.S. law to bar state-owned Chinese companies from buying American businesses.
“We don’t want the U.S. government owning large chunks of the U.S. economy, so why do we want the Chinese Communist Party owning large chunks of the U.S. economy?” asked Dennis Shea, the Republican chairman of the bipartisan commission.
So what are Trump’s options?
To judge China a currency manipulator under U.S. law, the Treasury Department would have to determine that it runs a “significant” bilateral trade surplus with the United States, a “material” current account surplus, and is “engaged in persistent one-sided intervention in the foreign exchange market.”
Although China has by far the largest trade surplus with the United States of any country — $356 billion in 2015 — its current account surplus is under 3 percent of gross domestic product, and it has actually been intervening to prop up its currency, not depress its value.
In other words, it met only one of the three criteria last year, the Treasury Department reported. 

“It would be difficult for the new administration to direct the Treasury to say China is a currency manipulator,” said Eric Shimp, a policy adviser at Alston & Bird in Washington, and a former U.S. diplomat and trade negotiator.
Still, Shimp said, a Trump administration could initiate a broader investigation into China’s trade practices and the state subsidies Chinese exporters enjoy.
Across-the-board punitive tariffs are unlikely, not least because they would invite likely Chinese retaliation that could bring down entire industries, experts said. 

But specific measures are possible in specific industries.
In Washington last week, Chinese Vice Premier Wang Yang said that problems in the trade relationship could damage the global economic recovery and that cooperation was “the only right choice.”
Chinese media have warned of canceled orders for Boeing aircraft, depressed iPhone sales and halted corn and soybean imports if a trade war erupted.
Nevertheless, Trump will be looking closely at the steel industry, especially with Dan DiMicco, former chief executive of the steel company Nucor, leading his transition team at the U.S. Trade Representative’s office.
The Obama administration has already imposed heavy anti-dumping and anti-subsidy duties on some types of Chinese steel, but Shimp said broader tariffs on all steel and aluminum imports might be considered under U.S. “global safeguard” rules — if a Trump administration decides that rising imports have caused “serious” economic injury.
“The harm to global industry from China’s excess capacity in steel and aluminum are well known,” said Claire Reade, senior counsel at Arnold & Porter in Washington and former assistant U.S. trade representative for China. 

“If Trump took action to curb this injury, China would not find itself holding the moral high ground in international public opinion. This might temper any reaction.”
Similarly, a blanket ban on investment by Chinese state-owned companies appears unlikely, experts say. 

The Rhodium Group said Chinese firms employ more than 100,000 people in the United States, and experts say there is still an appetite for investment that rescues indebted companies, builds infrastructure and creates jobs.
But experts expect greater scrutiny of who is behind the deals and where the money is coming from.
Trump prides himself on being the consummate dealmaker, and whether his dire warnings were a negotiating tactic remains in question.
“You’ve thrown out the bomb on tariffs, now let’s use that as leverage,” said Christopher Balding, an associate professor at the HSBC Business School in Shenzhen, China.
But there are risks. 

For one, it is far from certain that China will agree to the sort of demands Trump might make: strengthening big state-owned companies is central to its current economic strategy.
The temptation for Trump to show his supporters that he is standing up to China, and Beijing’s desire to stand strong, means that some kind of action-reaction sequence is entirely possible.