Lighthizer Confirmation Could End Trade Policy Disputes
Trump administration slow to find stride on key economic issues absent USTR
President Donald Trump’s trade agenda appears to be in some disarray, and is in danger of provoking a “trade war” — but not with another country. Instead, it’s occurring within his administration. The Financial Times reported last week that Gary Cohn, head of the National Economic Council, is trying to sideline Peter Navarro, director of the newly minted National Trade Council.
Cohn is apparently seizing on statements that Navarro, a Ph.D. economist, has made about trade deficits in general, and more specifically, those that the United States runs with Germany and China. Navarro has criticized Germany for “hiding behind” the Euro to undervalue its currency and called for direct talks with Germany on trade deficits and currency. These statements have been criticized by free-trade cheerleaders and people in Germany itself. Thus, a division has emerged in the Trump administration between supporters of more traditional trade policies (i.e., the status quo), such as Wall Street alum Cohn, and proponents of substantial changes in the U.S. approach to trade and currency, such as Navarro.
Lighthizer’s answers may provide substantial insight into the direction of Trump’s trade policy and help to resolve the current feud, which is taking place in a mini vacuum due to Lighthizer’s absence.
Wilbur Ross, the new commerce secretary, has been chosen to take the lead on new thinking about trade. During his confirmation hearing, Ross called China ?the most protectionist country of large countries,” but has yet to weigh in publicly on the “German dispute.” To date, he has discussed the timing of the NAFTA renegotiation but little else.
Ross’ designation as the top trade policymaker is a departure from the traditional arrangement of having the U.S. trade representative lead on trade policy. Trump’s plan has been resisted by some in Congress, especially members of the committees that have historically overseen the trade function, Senate Finance and House Ways and Means.
This week may bring some clarification on trade issues with the long-delayed confirmation hearing of Robert E. Lighthizer as U.S. trade representative. The Senate Finance Committee, where Lighthizer served as staff director and chief counsel in the 1980s, will hold the hearing on Tuesday, weather permitting. A 69-year-old lawyer, Lighthizer has a mastery of trade law and trade policy matched by few in Washington. He will have in-depth familiarity with the subject matter of senators’ questions.
Lighthizer's answers may provide substantial insight into the direction of Trump's trade policy and help to resolve the current feud, which is taking place in a mini vacuum due to Lighthizer's absence. Current issues include large U.S. trade deficits with China, Japan, Mexico, and Germany; U.S. goals in NAFTA renegotiation; potential new bilateral deals with the United Kingdom and Japan; currency exchange rates and the price of the dollar (which also involves the Treasury Department); and, foreign unfair trade practices — such as subsidies, dumping, forced technology transfer, administrative barriers, etc.
Lighthizer has written about some of these issues and testified before the Finance Committee in 2010. During that testimony, Lighthizer was particularly tough on China, outlining reasons why U.S. approval of China's entry into the World Trade Organization proved to be a mistake on America's part — essentially because China's state-controlled economy is incompatible with the more open trading system of the United States and many other WTO members.
As might be expected of a trade lawyer, Lighthizer called for strict enforcement of anti-dumping laws and countervailing duty laws to counter China's subsidies and other practices that give them an unfair advantage in overseas markets. As for the pending dispute at the WTO over whether China should now be classified as a market economy, thus making it harder for American firms to win anti-dumping cases, Lighthizer presaged the U.S. and European positions by stating that China should continue to be classified as a non-market economy.
In short, Lighthizer has proven to be a tough-minded critic of both trade cheating by other countries and the lackluster (and naive) U.S. response to such illegal trade practices. He is a champion of U.S. industries — particularly his client, the steel industry. Whether his testimony will follow this pattern, and perhaps expand on it to include the current controversies over Germany, Mexico, and trade renegotiations remains to be seen.
Further, there will be hard questions from senators from agricultural states worried that their farm exports will be harmed by a more aggressive trade policy — although certain sectors of U.S. agriculture face unfair trade practices as well. Lighthizer will also have to address the concerns of Democrat senators over labor, environmental, and human rights issues as they relate to trade — not insubstantial issues.
Finally, there will certainly be pointed questioning over the controversial investor-state dispute settlement provision in trade agreements, which have been standard since NAFTA. Such provisions are opposed by sovereignty advocates on both the Left and Right because they allow foreign companies to bypass U.S. courts and challenge domestic laws in special tribunals staffed by international trade lawyers, without the possibility of appeal.
It is important to note that Lighthizer's confirmation is being held hostage by Senate Democrats, who insist that it be attached to an unrelated but important matter — health benefits and pensions for miners that expire on May 1, if Congress doesn't act. While concern about the plight of the miners is well-merited, Lighthizer's confirmation is critical to getting trade right, which affects the livelihoods of so many working Americans, a largely Democratic constituency — at least pre-Trump.
Expect the Lighthizer confirmation hearing to be long and contentious. Trade is a front-burner issue. The consensus on free trade inside the Republican Party dissolved with Trump's presidential victory, propelled as it was by wins in the manufacturing states of Pennsylvania, Ohio, Michigan, and Wisconsin. Lighthizer presciently noted the emerging "fair trade" thinking that was part of the Tea Party movement, in a 2010 op-ed in The New York Times.
Perhaps the most important development in the young Trump presidency is the current divide on trade inside the White House. Lighthizer's trade philosophy, which we will learn much more about this week, is critical to ending the incipient trade war there. His knowledgeable presence is necessary to establish a coherent policy for the Trump administration — both to fulfill its campaign promises on deficits, jobs, and economic growth, and to ensure that foreign trading partners do not exploit White House divisions to maintain the current but unsustainable status quo.
Kevin L. Kearns is president of the U.S. Business & Industry Council, a national business organization advocating for domestic U.S. manufacturers since 1933.