Trump Mulling Temporary Tariff Exemptions

The Washington Post
Wednesday, March 07, 2018

Washington — President Donald Trump is considering a plan to offer Canada and Mexico a temporary exemption from new tariffs on steel and aluminum imports, reversing his original insistence that the measures apply to U.S. allies as well as nations like China, four administration officials familiar with the matter said.

The idea under serious consideration on Wednesday evening would give Canada and Mexico a 30-day exemption from the tariffs, according to the administration officials who were not authorized to speak on internal deliberations. The exemptions could be extended based on progress in renegotiating the North American Free Trade Agreement.

However, the negotiations remained fluid, the four officials warned.

The plan, which could be announced today or Friday, comes as the White House signaled a new flexibility after a six-day drama that has roiled relations with the country’s closest allies, triggered the resignation of National Economic Council chief Gary Cohn and spooked investors. Republicans in Congress have been urging the president to narrow his proposed global tariffs to avoid boomeranging on U.S. businesses and consumers.

“We expect that the president will sign something by the end of the week and there are potential carve-outs for Mexico and Canada based on national security, and possibly other countries, as well, based on that process,” White House press secretary Sarah Huckabee Sanders told reporters, adding that any exemptions would be determined on “a case-by-case and country-by-country” basis.

The White House shift came after Defense Secretary Jim Mattis and Secretary of State Rex Tillerson made a last-minute appeal for flexibility, saying that overly broad tariffs would damage key security ties with U.S. allies.

On Capitol Hill, Republican lawmakers accelerated their efforts to pull the president back from a potentially costly trade war that he has insisted would be “easy to win.”

Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, released a letter signed by 107 House Republicans, urging the president “to tailor” the tariffs to address market distortions caused by Chinese surplus production depressing global metals prices.

“We urge you to reconsider the idea of broad tariffs to avoid unintended negative consequences to the U.S. economy and its workers,” the letter read. “ ... Because tariffs are taxes that make U.S. businesses less competitive and U.S. consumers poorer, any tariffs that are imposed should be designed to address specific distortions caused by unfair trade practices in a targeted way while minimizing negative consequences on American businesses and consumers.”

The party’s extraordinary internal split was underscored when the Republican Study Committee, representing more than half of House Republicans, released a statement defending free trade and labeling tariffs “a tax on American consumers and businesses.”

Rep. Mark Meadows, R-N.C., the chairman of the Freedom Caucus and one of Trump’s most trusted allies in Congress has spoken with the president multiple times over the past week in opposition to the tariffs, said three people briefed on his efforts who were not authorized to speak publicly.

“I’ve never seen anything like this. ‘Chaos’ doesn’t really do it justice,” said Claude Barfield, a resident scholar at the right-leaning American Enterprise Institute.

Government lawyers have struggled in recent days to reconcile Trump’s public comments with the legal provisions they have been told to enforce.

For example, Trump is trying to use the tariff threats to force Canada and Mexico to offer unrelated concessions in NAFTA. By publicly acknowledging this, he has potentially spoiled the legal standing of the tariffs, a senior administration official said, making it harder for them to design the prohibitions.

Earlier this week, Trump suggested that he would exclude Canada and Mexico from the new levies only if they made concessions in negotiations aimed at reaching a new NAFTA deal. Officials from both countries rejected the demand, with Canadian Prime Minister Justin Trudeau calling the new tariffs “absolutely unacceptable.”

Major business groups that are normally allied with the Republican Party joined the anti-tariffs chorus.

“These new tariffs would directly harm American manufacturers, provoke widespread retaliation from our trading partners, and leave virtually untouched the true problem of Chinese steel and aluminum overcapacity,” said Tom Donohue, president of the U.S. Chamber of Commerce. “Alienating our strongest global allies amid high-stakes trade negotiations is not the path to long-term American leadership.”

The Grocery Manufacturers Association warned that the import taxes would disrupt global supply chains and raise costs for consumers while the Beer Institute chimed in with predictions of 20,000 job cuts by its members.

The American Institute of Architects said the import levies would “drastically increase” the cost of building materials, threatening the viability of the president’s infrastructure proposal.

Republican lawmakers also want the president to establish a “robust exclusion process” when he announces the tariffs so that businesses can apply for waivers to import products that cannot be obtained from domestic sources.

The president may sign the official tariff order as soon as today, but details of additional exclusions may not be ready for 30 days, according to one former U.S. trade official.

When the U.S. last imposed tariffs on imported steel in 2002, George W. Bush’s administration had a waiver process in place six months before the tariffs took effect.

“In the short term, it’s going to be chaotic,” said William Reinsch, a former Commerce Department official who now is at the Center for Strategic and International Studies.

The situation left lobbyists and economists alike unsure of the road ahead. By themselves, the tariffs are likely to have little impact on a $20 trillion economy that is already at full employment.

But with the European Union, Canada and China vowing retaliation, there is a danger that a costly global conflict could erupt, said Jim O’Sullivan, chief U.S. economist for High Frequency Economics, who expects the economy to expand by 2.9 percent this year.

“My fairly positive forecast for the economy assumes it does not turn into a major confidence-sapping trade war, with equities plunging etc.,” O’Sullivan said via email. “I think the equity market will be an important signaling device here.”

For now, the stock market — after plunging by 586 points when the tariffs were announced — appears sanguine.

The Dow Jones industrial average fell by less than 1 percent on Wednesday, and remains higher than on March 1, when Trump first disclosed his tariff plan.

The president signaled in a pair of tweets that his attention may soon shift to China.

“The U.S. is acting swiftly on Intellectual Property theft. We cannot allow this to happen as it has for many years!” he tweeted.

The administration has been considering for weeks various measures intended to punish China for compelling foreign companies to surrender their trade secrets in return for access to the world’s second-largest economy.

Among the options under review are tariffs on a range of Chinese products and new restrictions on Chinese investment in the U.S., according to individuals familiar with the discussions.

The most radical steps would attempt to unwind existing Chinese investments, not just limit new ones, but that would raise legal questions, they said.