FTZ users and operators can breathe a little easier about the increase to 25% in their ‘List 3’ import duties on merchandise from China. But only for 90 days. And the 10% duties on those items will remain for the foreseeable future.
President Trump agreed to postpone the increase in existing Section 301 tariffs, and to hold off on any new ones as President Xi Jinping pledged to increase Chinese purchases of American products. The two set the stage for more painstaking negotiations to resolve deeply rooted differences over trade.
The compromise, struck over a steak dinner at the Group of 20 meeting here and announced in a White House statement, was less a breakthrough than a breakdown averted. The two leaders remain far apart on basic issues of market access and trade policy, and there was no sign that either planned to back down on those. Still, the handshake deal between President Trump and Mr. Xi, after what the White House called a “highly successful meeting,” pauses what was becoming a headlong race toward economic conflict. It will reassure jittery financial markets, as well as American farmers, who worried about the fallout from a prolonged trade battle.
In a significant concession, President Trump will postpone a plan to raise tariffs on $200 billion worth of Chinese goods to 25 percent, from 10 percent, on Jan. 1. The Chinese agreed to an unspecified increase in their purchases of American industrial, energy and agricultural products, which Beijing hit with retaliatory tariffs after President Trump targeted everything from steel to consumer electronics.
The countries set an ambitious deadline of 90 days to reach a broader trade agreement, with the White House warning that if they did not come to terms by then, the existing 10% tariff rate would rise to 25%.
“The relationship is very special — the relationship that I have with President Xi,” the President told reporters as he sat across a long table from the Chinese leader before dinner was served. “I think that is going to be a very primary reason why we’ll probably end up with getting something that will be good for China and good for the United States.”
Mr. Xi replied, “Only with cooperation between us can we serve the interest of world peace and prosperity.”
The Chinese foreign minister, Wang Yi, said, “China is willing to expand imports according to the needs of the domestic market and the people,” which he said would “gradually ease the problem of trade imbalance.”
Of the roughly $250 billion worth of Chinese goods targeted by tariffs, $50 billion is already taxed at 25 percent, while the remaining $200 billion is taxed at 10 percent. As part of a series of tit-for-tat moves, President Trump said he would raise the tariff for all goods to 25 percent and consider imposing tariffs on an additional $267 billion worth of exports.
Some experts said the forces President Trump had set in motion with Beijing would be hard to restrain. The United States is demanding sweeping changes in China’s trade policy, which the Communist government might find politically difficult to enact and impossible to enforce.
And the 90-day deadline is exceptionally ambitious for a trade agreement that has eluded negotiators for nearly two years.
“A halt in the tariff wars will be welcome but won’t alter the fundamental collision course that Trump and Xi seem to be on,” said Daniel M. Price in the New York Times, a former trade adviser to President George W. Bush.
That ‘collision course’ extends to issues beyond trade, further complicating negotiations. The US Navy destroyer USS Stockdale and the underway replenishment oiler USNS Pecos sailed through the Taiwan Strait just before the G-20 meeting.
Beijing is extremely sensitive to US military maneuvers near Taiwan, which it considers a breakaway province.
In addition, the White House is also lining up other countries to clamp down on the forced transfer of technology to China — more steps that will provoke Beijing. Import issues discussed at the G-20 summit expanded beyond just China. On his second day in Buenos Aires, the President said little about global security or diplomacy, keeping a single-minded focus on trade. That put leaders like Chancellor Angela Merkel of Germany in an awkward position, because Germany, as a member of the European Union, cannot negotiate by itself with the United States on trade issues.
“We have a tremendous trade imbalance, but we’re going to get that straightened out,” he said before meeting Ms. Merkel on Saturday morning. “We all understand each other.” Talk of punitive tariffs on German auto imports has been quiet recently, but perhaps the White House was signaling that the issue remains on the table.
On Election Day, Democrats won control of the House of Representatives, which will likely require an adjustment to President Donald Trump's agenda in the next Congress.
In a somewhat unusual twist, even as a significant number of House seats flipped from Republican to Democratic control, Republicans expanded their majority in the Senate, where President Trump had spent more time campaigning. Capitol Hill will now have divided party control that could lead to more gridlock and clashes between the two chambers, or it could force the two parties to find common ground in order to move any objectives forward.
The change in majority party signals a change early next year in leadership for every Committee in the House, and most importantly, for the Speaker of the House. U.S. House of Representatives Democratic Leader Nancy Pelosi drew a tough line against a small band of Democrats opposing her planned return to the speaker’s job next year, saying she would not agree to step down early to win their support.
Pelosi, 78, made history as the first woman speaker, holding the top spot from 2007 to 2011. In order to return to that job she must be elected by the full House on Jan. 3, when Democrats and Republicans will vote for speaker. She will need about 218 votes and probably will have to flip roughly 17 of the Democrats who have opposed her publicly.
Some Pelosi opponents want her to say when she will turn over the reins to the next generation of leaders, suggesting they might support her if she would spell out a plan for serving less than a full two-year term. She has led House Democrats either in the minority or majority for 16 years.
Pelosi has been cutting deals with a number of lawmakers to try to lock down votes and has expressed confidence of victory.
Under a Democratic-controlled House, Democrats will have more authority and fewer constraints on their ability to exercise oversight of the Trump administration and could launch investigations into the President's finances, including going after his tax returns, as well as ramp up a probe into the possibility that the Trump campaign colluded with the Russian government to win the White House.
While some intrigue remains for the position of Speaker, South Carolina Rep. James Clyburn was elected House majority whip last week, holding onto the No. 3 leadership position.
Clyburn, currently the assistant Democratic leader, served as majority whip when Democrats were last in the majority from 2007 through 2010. South Carolina is home to two of the largest Foreign-Trade Zones in the country, the BMW and Volvo automotive assembly plants.
Clyburn has long been the highest ranking black member of Congress. With New York Rep. Hakeem Jeffries elected earlier Wednesday as Democratic Caucus chair, there are now two black members in the top 5 party leadership positions for the first time ever.
Clyburn spoke at a 2013 FTZ industry conference in Charleston, and with the significant number of active zones in his state is personally aware of the high-wage jobs that rely on the program.
According to a recent article in the New York Times, Mandel Metals, an aluminum distributor outside Chicago, filed hundreds of requests with the administration to exclude its imports from the Section 232 levies impacting metal imports into the United States.
Again and again, the administration said yes, allowing Mandel to import — if it wanted to — up to 600 million pounds of tariff-free aluminum from Greece, Italy, France, Norway and, perhaps most surprising, China.
President Trump imposed sweeping tariffs on steel and aluminum to prevent China and other countries from flooding the American market with cheap metals, which he said posed a national security threat by “degrading” the industrial base. But his administration has granted nearly 3,000 requests that could exempt Chinese-made metal products from the tariffs, according to a congressional analysis shared with The New York Times.
Since March, when the Section 232 tariffs of 25 percent on steel and 10 percent on aluminum went into effect, the Commerce Department has approved a higher share of exclusion requests that include imports from China than it has from American allies like Japan and Canada.
The approval rate stems largely from the success of two companies. Mandel has won 400 aluminum exclusions — nearly half of all the exemptions granted to companies seeking relief from the aluminum levies through early November. Those exclusions allow Mandel to import six times the amount of metal it sells every year, and company officials say they will not come close to using all of that allowance.
Greenfield Industries, a South Carolina maker of saw blades and other cutting tools, has won 1,000 exclusions from the steel tariffs. Greenfield is owned by China’s Top-Eastern Group.
The exclusions stem from the Commerce Department’s process for determining whether companies can win tariff relief for imported metals. The requests are generally granted as long as no American producer formally objects and says it can provide the metals.
Both supporters and opponents of the tariffs have criticized the process as haphazard and ineffective. Aluminum trade groups — including some that have criticized the tariffs — say the fact that Mandel received approval to import more metal, including aluminum from China, than it can use highlights the program’s flaws. Others have criticized the process for giving large domestic producers, like Nucor and Century Aluminum, outsize power to block exemptions by claiming they can provide the metals.
“Generally, it seems the department is not evaluating whether there is actually demand in the market for these large volumes and has granted the requests based simply on the absence of any objections,” Heidi Brock, the president of the Aluminum Association, wrote in a letter to the Commerce Department this month. She cited Mandel and another set of exclusions, to Ta Chen International, for potentially one billion pounds of imports from China.
The department has struggled to process the flood of requests, even with more than 100 employees and contractors reviewing them.
Requests for tariff exemptions are expedited unless American producers like Century Aluminum in Hawesville, Ky., object by saying they can provide the metals. According to department statistics, companies filed 51,059 steel exclusion requests and 6,701 aluminum requests through early November. It had ruled on 18,137 of the steel requests, about 36 percent, and 981 of the aluminum requests, about 15 percent. Three-quarters of the steel decisions were approvals, compared with 85 percent for aluminum.
The approvals contrast with the exclusion process for the tariffs that President Trump imposed on $50 billion worth of Chinese products. That process, which is being run by the Office of the United States Trade Representative, has denied 1,300 requests and approved none.
Perhaps no one is more puzzled by the process than Mandel’s executives, who say they don’t intend to import Chinese aluminum this year.
“Our intent was not to shoot the moon here and gobble up exclusions,” said Mike Ward, the company’s president. “We didn’t know any better. They seemingly greenlighted everything we sent them.”
Mandel doesn’t forge aluminum products in its headquarters facility in Franklin Park, Ill. “We take aluminum,” Mr. Ward said, “and cut it to a size our customers can use.”
The aluminum it buys is low end — and not what American producers specialize in these days. “There is a shortage of the common alloy being produced in the United States,” said Rick Mandel, the chairman and chief executive officer.
When Mandel officials called the Commerce Department this year for guidance on filing exclusion requests, they were surprised at how little information the government could offer. So they filed requests for every product they import. To date, 443 of them have been approved, or 45 percent of all aluminum exclusions issued by the department.
A Commerce Department spokesman said requests without objections, such as Mandel’s, were expedited in the review process.
“Exclusions are granted only when U.S. producers do not make the product in sufficient and reasonably available amount, in satisfactory quality, or for a specific national security consideration,” the spokesman said. He added that the tariffs “have led to significant restarts in the steel and aluminum industries in facilities across the country.”
Commerce Department statistics show steel imports are down 11 percent for this year. Census statistics show aluminum imports are down about 9 percent. But the drop in foreign metal has not mollified Democrats, who say President Trump’s approach is simply sowing uncertainty among American companies while allowing China to continue sending its metals into the United States.
Just one day before Canada, the United States and Mexico were due to sign their new trade pact, negotiators were still thrashing out what exactly they would be signing.
The three countries agreed to the USMCA, as the agreement will be called, after a year and a half of difficult talks concluded with a late-night bargain just an hour before a deadline on Sept. 30.
“As is always the case ... with these agreements, there are always details to be finalized and we are very hard at work doing that,” Canadian Foreign Minister Chrystia Freeland told reporters in Buenos Aires before the ceremony, adding that one of the issues was that the deal still needed to be translated into three languages.
To punctuate the need to move forward with the new agreement, President Donald Trump announced at the G-20 meeting that he will formally terminate the North American Free Trade Agreement soon. Although there are many similarities between USMCA and the NAFTA agreement it replaces, FTZ users will need to closely examine the new trade agreement to confirm how it impacts their operations.
“I'll be terminating it within a relatively short period of time,” Trump told reporters aboard Air Force One as he flew back to Washington after the G-20. “We (will) get rid of NAFTA. It's been a disaster for the United States."
Trump signed the USMCA with the president of Mexico and Canada’s prime minister, following through on a campaign promise he made to renegotiate the long controversial NAFTA agreement. The move will give Congress six months to accept that new agreement or revert to pre-NAFTA trade rules.
The decision was intended to send a message to Democrats, who will take control of the House of Representatives in January. Many have expressed skepticism about the new trade agreement that Trump negotiated, which sets up lively discussions in the months to come.
November made for a lot of waiting in the FTZ industry. Significant leadership changes in Congress as a result of Election Day won’t all be worked out until next year. The US-Mexico-Canada Agreement, the free trade agreement intended to replace NAFTA, was signed on the last day of the month, with frenetic negotiations right up to the last minute. USMCA ratification coincided with the attendance of the 3 leaders at the G-20 summit in Buenos Aires, Argentina. The summit also produced a freeze in the trade war between the United States and China after President Trump and President Xi Jinping held a dinner which produced a 90-day delay in the expansion of Section 301 tariffs. Also on the last day of the month, the 41st President of the United States, George Herbert Walker Bush, passed away, triggering flags all over Washington to be flown at half-mast. We honor his memory with our photo of the flag at the rear of the Capitol building, where he will lie in state this week.