Executive Summary

The election of Donald J. Trump as the 45th President of the United States will have important implications for US trade policy. Assessing these implications in the immediate aftermath of the presidential election is, however, a complicated task. Mr. Trump made many, often conflicting, trade policy promises on the campaign trail; since the election, the Trump transition team has not issued a formal, detailed statement outlining his trade policy agenda, nor has it announced nominees for key positions at the Office of the US Trade Representative (USTR). Moreover, during the campaign, Mr. Trump's interventionist positions on trade policy were often balanced by claims that he was a "free trader", and he and his advisors have recently begun to walk back some of his more hardline campaign positions. Thus, while it is likely that the Trump administration will take a more interventionist approach to trade policy than recent US administrations, the extent and precise direction of this shift is difficult to predict.

The Trump campaign's trade policy platform was almost entirely interventionist – some might say "protectionist", or at least nationalist, reflecting his "America first" theme. It included plans to (i) seek renegotiation of the North American Free Trade Agreement (NAFTA) and withdraw from the agreement if the NAFTA parties do not agree to such renegotiation; (ii) withdraw from the Trans-Pacific Partnership (TPP); (iii) direct the Secretary of Commerce to "identify every violation of trade agreements" by foreign countries and direct all appropriate agencies to take action to end such violations; (iv) "eliminate Mexico's one-side backdoor tariff through the VAT"; (v) instruct the Treasury Secretary to "label China a currency manipulator"; (vi) instruct USTR to bring trade cases against China both in the United States and at the World Trade Organization (WTO); and (vii) "use every lawful presidential power to remedy trade disputes if China does not stop its illegal activities…including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962." Mr. Trump also has threatened to withdraw the United States from the WTO Agreements and other US Free Trade Agreements (FTAs); however, such threats have only been made in passing and are not included in the Trump campaign's written statements on trade policy.

This report examines the legal and practical constraints that President Trump would face should he seek to implement these trade promises. We highlight in particular the provisions of US law that President Trump might rely on to unilaterally raise tariffs, otherwise restrict imports, or unilaterally modify or withdraw from US trade agreements. It is conceivable that the Trump administration could seek Congressional enactments to pursue broader reforms to US trade law, but Trump's campaign did not suggest new legislation. We also discuss the likely implications of a Trump presidency for the TPP, ongoing and future trade negotiations, foreign direct investment in the United States, and the United States' role in the WTO.

Our views may be summarized as follows.

Possible Unilateral Actions under US Law

Current US law provides several mechanisms for the President to impose unilateral trade measures (e.g., duties or quotas) on foreign imports. As with previous administrations, the Trump administration could continue to utilize several provisions of the Trade Act of 1974 and the Tariff Act of 1930, which involve agency investigations and proceedings. Most of these actions, notably trade remedies (anti-dumping (AD), countervailing duty (CVD) and safeguard measures), would raise few legal concerns outside of the investigations at issue. On the other hand, other, less-used US laws such as Section 232(b) of the Trade Expansion Act of 1962 and the International Emergency Economic Powers Act of 1977 (IEEPA) potentially authorize President Trump to take broad, unilateral trade actions against imports – actions that would raise far more serious economic and legal concerns among, and likely opposition from, US business groups, trading partners and even the US Congress. In order to achieve Mr. Trump's trade promises using these less-utilized statutory provisions, the Trump administration would likely need to apply an expansive interpretation of the relevant legal standards, thus defying past agency practice.

For these reasons, it is more likely that the Trump administration will utilize more traditional unilateral trade mechanisms under US law, albeit in a more aggressive and publicized manner than that utilized by recent US administrations. The most likely unilateral actions involve the increased use of trade remedies and enforcement mechanisms, including the AD/CVD laws, anti-circumvention proceedings, and safeguards. This may include measures to address alleged currency "manipulation" by China or other countries through changes to the Department of Commerce's (DOC) long-standing practice of not using a country's currency practices as grounds to apply countervailing duties or anti-dumping duties. In particular, DOC could begin to treat currency undervaluation as a countervailable export subsidy or as grounds to modify market economy exporters' record costs when calculating dumping. This change could be implemented unilaterally at the administrative level or through congressional legislation. In addition, it is likely that the Trump administration will make minor changes to the Committee on Foreign Investment in the United States' (CFIUS) process for reviewing proposed foreign investments in the United States. Such changes might involve increased scrutiny of investments by foreign state-owned enterprises (SOEs) in the United States.

It is also possible, though less likely than the aforementioned actions, that the Trump administration utilizes Section 301 of Trade Act of 1974, which would allow USTR to take specific and direct action to counter perceived unfair trade practices by foreign countries while a WTO dispute over those practices is pending. The least likely unilateral actions are those under Section 232(b) of the Trade Expansion Act of 1962, Section 122 of the Trade Act of 1974, IEEPA, and the Trading With the Enemy Act of 1917 (TWEA). Moreover, given various legal and practical constraints, it appears unlikely that President Trump will impose punitive taxes on specific US companies that outsource employment and manufacturing, despite his campaign promises to do so. Such issues might instead be resolved through changes to other policies – for example federal tax and regulatory reforms or state incentives – instead of punitive trade measures.

Termination or Modification of US Trade Agreements

US law provides the President with varying levels of, and in some cases uncertain, authority to modify, renegotiate, or withdraw from US trade agreements. This authority is uncertain for three reasons. First, there is almost no precedent governing the legal provisions at issue here. Second, US laws implementing and governing FTAs reflect the implicit assumption that the primary goal is trade liberalization, and that the President would seek to liberalize trade. Likely for this reason, the provisions of these laws that govern potential US withdrawal from FTAs contain almost no detail. Third, each US trade agreement is actually governed by three different US laws: the Trade Act of 1974; the specific version of trade promotion authority (TPA) in effect at the time of the agreement's implementation; and the act implementing the agreement's specific commitments into US law. In some cases, these laws contradict each other on the question at issue (e.g., tariff modification), thus raising significant questions regarding the proper statutory interpretation.

The power of the President to terminate a US trade agreement or modify tariffs is weakest for the WTO Agreements, broader but ambiguous for regional FTAs (NAFTA and the United-States-Dominican Republic-Central America FTA (CAFTA-DR)), and strongest for bilateral FTAs such as those with Australia, Chile, Colombia, Korea, Panama, Peru, and Singapore. Regardless of this theoretical legal authority, however, President Trump's withdrawal from a US trade agreement without congressional consultation and consent would doubtless generate not only economic turmoil but also court challenges from the US business community, trading partners and even Congress itself.

Outside of terminating or modifying US trade agreements, President Trump also could seek to enter into negotiations to amend such agreements. The President has this authority under TPA, though in several cases it is unclear whether US law requires congressional approval of any such amendments. A strong argument may be made that, outside of certain tariff or "rules of origin" modifications, congressional approval would be required for any agreed changes to US trade agreements resulting from President Trump's renegotiation efforts.

For these reasons and based on recent Trump team statements, it appears likely that President Trump will seek to renegotiate certain US trade agreements, particularly NAFTA. The extent of these negotiations is currently unclear, and could range from uncontroversial issues (e.g., e-commerce or consultations) to contentious issues such as lumber trade, country of origin labeling, domestic taxes or bilateral trade balances. It is also possible, though much less likely, that President Trump will seek to unilaterally raise tariffs on US trade agreement partners under the tariff modification authority set forth in TPA and various FTA implementing bills, or that President Trump will seek to enter into negotiations to amend the WTO Agreements (something he and his advisors have mentioned with respect to value-added taxes (VATs)). Though Mr. Trump and his advisors have discussed publicly a potential withdrawal from the WTO Agreements, the NAFTA, and other US trade agreements, the Trump administration is highly unlikely to take such actions because of their serious legal and economic implications.

Implications for Current Trade Negotiations and the WTO

It appears unlikely that the Trump administration will pursue renegotiation of the TPP, given Mr. Trump's statement on November 21 that he intends to issue a notification of intent to withdraw the United States from the TPP on his first day in office. Consequently, if the TPP is ever to enter into force in its current (or slightly modified) form, it likely will not include the United States as a party. It is unclear whether President Trump will decide to continue the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), the Trade in Services Agreement (TiSA), or the Environmental Goods Agreement (EGA) as he has not expressed an opinion on these issues publicly. However, President Trump may be reluctant to continue these negotiations given, inter alia, their association with President Obama and Mr. Trump's stated preference for negotiating smaller, bilateral agreements. Mr. Trump and his advisors have expressed interest in negotiating a bilateral FTA with the United Kingdom; however, such negotiations might not begin until the latter half of President Trump's term in office due to the complications associated with "Brexit".

Regarding the WTO, it appears likely that the Trump administration will be more active in bringing new disputes particularly against China. However, it is unclear what role, if any, Mr. Trump envisions the United States playing in the WTO's negotiating functions. As noted above, Mr. Trump's advisors have mentioned that they might seek to negotiate changes to the WTO Agreements to address VATs. However, given Mr. Trump's pledge to negotiate trade agreements on a bilateral basis, it seems unlikely that the Trump administration will be interested in pursuing trade liberalization through new multilateral or plurilateral negotiations within the WTO.

Outlook

At this juncture, it is important to reiterate that our analysis addresses all potential trade laws implicated by Mr. Trump's campaign promises, not concrete statements of policy from the new administration. Though much attention has been paid to the more extreme trade policy proposals made by Mr. Trump during the campaign, we presume that, absent formal, post-election policy statements, the Trump administration will not seek to implement the most extreme aspects of Mr. Trump's interventionist promises because of their likely legal and economic ramifications. As noted above, these include Mr. Trump's threats to withdraw the United States from the WTO or other trade agreements such as NAFTA, or to impose substantial tariffs on all Chinese imports through little-used national security statutes such as Section 232. These actions, if pursued unilaterally by the Trump administration, would raise serious legal questions and have significant economic implications for globally-integrated US companies (and their workers) and US trading partners. Such unilateralism would therefore likely encounter opposition from Congress, the US business community and other governments, thus leading to economic uncertainty, market turmoil and numerous court challenges. It is unlikely that President Trump would be willing to spend time and political capital defending such policies, nor would he wish to preside over (and be seen as responsible for) the severe legal and economic disruptions that would likely result from their implementation.

There are, however, less controversial actions that President Trump might take in an effort to fulfill his campaign promises. As noted above, these include (i) using trade remedies and enforcement mechanisms, including the AD/CVD laws, anti-circumvention proceedings, and safeguards more aggressively than recent administrations; (ii) designating China or another country as a "currency manipulator"; (iii) withdrawing the United States from the TPP; (iv) requesting renegotiation of NAFTA (and potentially doing the same for other US trade agreements); and (v) making minor changes to the CFIUS review process, perhaps to target investments by foreign SOEs for additional scrutiny. The President might also take a more aggressive position in WTO dispute settlement on issues such as industrial subsidization, or amplify the Obama administration's efforts to enforce various provisions of our current bilateral and regional FTAs. Such actions would not require congressional approval, and could allow President Trump to claim that his campaign promises to tighten trade enforcement are being upheld, while avoiding more severe legal and economic consequences.

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