Tariff Hikes Not Sole Preoccupation: Fate of CAFTA, GSP and IRA in Question

Thompson Hine Senior Counsel Dan Ujczo called tariffs the "trillions dollar question." He told a post-election webinar audience this week that they shouldn't fool themselves into believing President-elect Donald Trump is saying he's going to impose a 10% tariff on all countries (or a 20% tariff) just to use it as a hardball negotiating tactic.

"This ain’t threats and tactics, this is what they’re going to do," Ujczo said. He noted that businesses talked about Trump using tariffs as a threat or negotiating tactic in 2016, "and look what happened," he said. He said no matter what role former U.S. Trade Representative Robert Lighthizer plays in a second Trump administration, it remains that Lighthizer "firmly believes that a 10% or a flat tariff is a fairer way to do trade."

Ujczo said companies need to review their contracts for international commercial terms, and make sure they include "delivery duty paid" language. He advised importers to get their transportation providers under master service agreements, "because this could get kind of COVID ugly." He said he knows a lot of companies are trying to rush goods onto ships now. "The aggressiveness with which your freight forwarder and other logistical providers may be pricing, it’s not COVID-esque, but we’re getting close," he added.

Ujczo said the tariff hikes are going to affect profits at U.S. firms. "You have to remember, we never really got to the consumer goods" in the Section 301 action, he said.

Center for a New American Security scholars were also speculating on how China hikes would go. Emily Kilcrease, the think tank's senior fellow and director of its Energy, Economics and Security Program, said, "At a 60% tariff rate, you're going to have to have an exclusion process. Will the exclusion process mitigate economic impacts in the U.S.? Will it water down the effect? Who knows. I think those are all the details that will remain to be seen as it's rolled out. I do think it's a very serious proposal and I do think it's one that we're going to see early on."

David Spooner, U.S. Fashion Industry Association Washington counsel, also spoke earlier in the week about the trade implications of the Republican control of Congress and the White House at USFIA's trade conference in New York. "If I really knew what's to come, I'd be making a lot more money than I do at Barnes & Thornburg," he quipped, referring to his law firm.

He said the gossip is that Trump really wants Lighthizer back as USTR, and Lighthizer doesn't want to be USTR, he wants Commerce or Treasury -- but Trump doesn't want him at Commerce or Treasury.

Spooner was the one that put up the slide "Tariff Armageddon," which triggered nervous laughter in the auditorium.

He noted that Trump never said he was going to put a 10% tariff on all countries but that there would be 10% or 20% tariffs "on foreign countries that have been ripping us off for years." But, in response to a question at the end of his talk, Spooner said he does think those tariffs will be across-the-board.

CNAS' Kilcrease also suggested the administration might target only countries with trade surpluses with the U.S. "Obviously they're very concerned about U.S. trade deficits with other countries. So do they target those countries where that country is running the trade surplus with the United States? And what is the end game on all of these sorts of negotiations as well? I think that is a very open question. Maybe the asks are different everywhere, but again, like, I am not ruling out the possibility that just a hard reset on some of these economic terms of trade would be a fine landing zone for the Trump team and again, negotiations may just be bonus."

Lawyers from both sessions talked about whether the president would use a statute in the first week that could allow him to hike tariffs on all countries due to a "national emergency," whether he would start with hiking tariffs on Chinese goods through the existing Section 301 action, or whether any of the tariffs would wait for a tax package, so that that revenue could be used as a pay-for.

Spooner expressed skepticism that any tariffs, even the existing sections 232 and 301 sets, would be codified, because, he said, it's so hard to legislate controversial trade bills.

David Schwartz, leader of Thompson Hine's international trade group, said he expects an executive order raising tariffs in the first week after the Jan. 20 inauguration.

Lawyers are also wondering about the fate of legislation that affects supply chain sourcing decisions, such as the Inflation Reduction Act, which links consumer tax electric vehicle tax credits to North American assembly, a certain amount of North American content in EV batteries, and keeping China out of those EV battery supply chains.

Ujczo, who has many auto industry clients, said that Elon Musk's Tesla might have an advantage if other automakers' cars' customers couldn't get those discounts. But, he added, more than $150 billion has been invested in the U.S. for EVs and EV batteries, with the biggest investments in Republican areas in North Carolina, Georgia, Michigan, South Carolina and Nevada, and House Speaker Mike Johnson, R-La., said Congress would tackle the IRA with a scalpel, not a sledgehammer.

Spooner addressed the Generalized System of Preferences benefits program, which had been a haven for avoiding Section 301 tariffs on some goods before it expired almost four years ago. He said, "GSP renewal is unlikely to happen this year, but Ways and Means would likely have a bill similar to its [April] bill early in 2025 -- unless the Trump administration opposes it."

Spooner said he's a little worried that GSP will not come back any time in the next four years, because, he said, the Trump administration "derailed efforts to renew it" in 2019, before it expired, "because they don't like trade preference programs."

USFIA President Julia Hughes told the audience that USFIA is pushing for GSP passage during the lame duck, and said "there's a shot," though she's not sure there's even a 50% chance of success. However, she said, "I feel everything's going to be much harder next year."

Ujczo was more pessimistic. "I just think because we’re faced, going forward, with a climate where we’re trying to increase tariffs 'round the world ... I don't see a path forward for the renewal of GSP during the second Trump administration."

Trump and Lighthizer are not the only trade skeptics who have been players in Washington over the past eight years, of course, and Spooner talked about the implications of Democrats losing influence, as well.

The Senate flip "affects our industry a ton," he said, including because of Ohio Democrat Sherrod Brown's loss. Brown "was super active in trade issues relative to our industry in a way that was usually not favorable to importers."

The National Council of Textile Organizations convinced DHS to implement a textile strategy, including intensifying audits in Mexico and Central America to ensure that the fabrics factories are using don't include Chinese cotton that could have been grown in Xinjiang.

"Kim Glas, she's a very good lobbyist," Spooner said of NCTO's CEO, but given that she's very closely tied to the Biden administration, he doesn't know if the organization's argument that Chinese cotton is infiltrating the CAFTA garment supply chain will be as persuasive in the coming years. Still, he said, NCTO's emphasis on American manufacturing jobs is in step with the Trump philosophy.

Also on CAFTA, Spooner said even though there is no mechanism to do so, he thinks it's possible the U.S. will remove Nicaragua from the trade deal. "I've long said it's unlikely," he said. "I think it's much more likely" under Trump's pick to be secretary of state, current Sen. Marco Rubio, R-Fla.