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A
I'm Scott.
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B
I'm Bill and we're the Trade Guys.
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You're listening to the Trade Guys, a podcast produced by CSIS where we talk about trade in terms that everyone can understand. I'm Alex Kisling and I'm here with Scott Miller and Bill Reinsch, the CSIS Trade Guys.
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A
Thanks for listening to the Trade Guys. This is Trade Guy Scott. Today Bill and I talk about what's happened in the months since the Supreme Court ruled on the IPA tariffs. We're also going to cover the issues of Cuba and what it would take to unpack all the sanctions and give an update on usmca. All this and more on this week's episode of the Trade Guys. Well, good afternoon and welcome back to the Trade Guys. This is Trade Guys Scott, Bill and I are here today and we're going to start with a review of the bidding on tariffs. Tariffman Almost a month ago, we're actually recording this on March 19th. So on February 20th. So one day short of a month ago, the Supreme Court made its ruling on the IPA tariffs. And there have been a number of actions and reactions since then. And given the pace of things in Washington, where life comes at you fast, we want to give our listeners an opportunity to clear the decks. Let's talk about where do we stand at the end of all this, at least the first month, and what is the expected policy course for tariffs in the Trump administration and what to watch out for. Bill, could you sort of characterize what's happened on all these fronts over the last four weeks?
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D
Sure.
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B
Thank you, Scott. And just for our listeners, we haven't gotten rid of Alex, the moderator. He's away on a personal matter this
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D
week, so but he will be back helping keep us honest, straight and on time. This time we have to waddle through
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B
it ourselves on the tariffs.
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D
We dissected the court decision in the past, so I won't go through that again. The administration's response was immediate, as expected. They said they had a plan B and they do. And it was immediately to impose tariffs under Section 122 of the Trade act of 1974, which typically has produced two lawsuits now arguing that president can't do that. The basis of their argument is that Section 122 requires a balance of payments crisis in order to trigger it. And we don't have one. One, I think lawsuit goes a little bit farther and says not only do we not have one, but in an era of flexible exchange rates, you can't mathematically have one anyway that I know is Debatable. But the case that we're not in one right now because balance of payments is much bigger than balance of trade, it's a credible argument. There's mostly skepticism in the legal community about whether judges will buy it, but we will see in a way it kind of doesn't make a lot of difference. It permits. What Trump has done is impose a 10% tariff. The cap is 15. He said he's going to 15. They haven't done that yet. People are beginning to think that maybe they won't. There are a number of reasons why they wouldn't that are weedy. Maybe we'll take them up another time. I'm inclined to think it's going to stay 10 through July 24, which is when the 150 days expire. So what they've also done, and Scott alluded to this, is announced new actions that would provide a different legal basis for what they want to do anyway. And most of that involves using section 300 one of the same trade act, which authorizes the President take action against unreasonable or discriminatory practices that burden or restrict US commerce. They've launched 16 investigations. These are all country based investigations against 16 countries on the grounds of overcapacity, which is a little bit odd. I mean, everybody knows that China is a culprit here, but I'm not sure that the other countries that are investigating are culprits. But you know, here we are and an additional 60 countries, some of them are the same, being investigated on forced labor. I think what will happen on these is the administration tends to finish all of the investigations by July 24th so they don't have to go back to Congress and ask Congress to extend the 122 tariffs beyond 150 days. That would be a heavy lift in Congress. I'm not sure they have the votes to do that. I'm inclined to think they won't have the votes to do that. If they can come up with basically Plan C before July 24, they don't need to go back to Congress. So I would look for quickie investigations. And they've already followed up on that. The statute permits a year to study it, but it also has some speed bumps. It requires public comments and hearings. And in fact, those are already out. There's already been a notice in the Federal Register. Public comments can be made now. And hearings are tentatively scheduled for roughly the first week of May over several days. It depends, of course, on how many people request to appear. So they're doing all the things they need to do to have a quick investigation and get these things over with. What I think will happen, this is a bold prediction and listeners know that if we're right, we will flag it shamelessly, you know, for the three months coming after July 24, is that they will use this to basically reinstate the reciprocal trade agreements that they've negotiated with multiple countries already. And if you're reading the papers, well, today actually after some back and forth and up and down internally, the Malaysian government now seems to be the first to publicly say they're going to walk away from the agreement, their agreement, because they consider it void. In the wake of the Supreme Court decision. The administration said at the time of the decision that they consider the agreement still in effect.
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B
So there was probably going to be
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D
a dialogue between the US And Malaysia on this. But I think what the US Intent is to conduct these investigations, find everybody guilty of all of the practices, and then say the remedy is the tariff level that we agreed to in the agreement that we negotiated with you last year or earlier this year. And so the idea is you end up with, you know, 19% in Indonesia, 18% in Malaysia, 20% in Vietnam and so on and so on, 10% in the UK that of course is going to force the administration to explain why the same problem, say forced labor is an 18% problem in Malaysia, a 19% problem in Indonesia and a 20% problem in Vietnam. If it's the same problem, it's also going to force them to explain why forced labor is a problem in Canada, which I think is going to be difficult to sustain. So more lawsuits coming. But I think that's the plan and they'll implement it and we'll see what happens. We'll see if the lawsuits stick. Meanwhile, the conversation turns to refunds. And we touched on refunds last week, I believe, if not the week before. And that's beginning to roll out so far, I think in a good faith way for those of you that are in this business, good faith on the part of CBP Customs and on the part of the judge at the Court of International portrayed Judge Eden, who has all of these cases assigned to him. Right now there's about 2,000. But since there's roughly 330,000 importers, there'll probably be more. And he's maintained a tight time frame. Customs has responded with a plan to produce basically a computerized refund system by April 20th. That would be 45 days if you count weekends. And they're busy doing that. There's judge has been requiring them to make weekly progress reports, and one of which was today, and we don't see that.
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B
But the last one, I think they
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D
said they were about 70% on the way to finishing the model. There are three footnotes to this and then I'll stop babbling. Footnote one is that while the Customs Service seems to be proceeding in good faith and very quickly and the judge is holding their feet to the fire, there appear to be others in the administration who would prefer to slow this down and block it to the extent they can, which would begin by appealing the judge's order. We'll see if they do that and then we'll see how it turns out. But there is the possibility here of a higher level administration effort to slow
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B
roll the whole thing, assuming they don't.
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D
People in the business, they need to do two things. First of all, the guy who gets the money back is the importer who paid the tariff in the first place. So if you're upstream or downstream of that person or that entity, you don't get anything in the beginning. You may not ever get anything. So it's the importer who did it, who paid the duty, who gets the money back. In order to get the money back, that importer is going to have to do two things. One, he's going to have to file a claim with the data that describes how much he paid and what he paid it on and when he paid it. Importers are going to complain about that because Customs already has all that data. They got all that data when the import came in and the duty was paid. But they're going to make you do it again. The cynic in me suggests that they're making you do it again in the hopes that a lot of people will forget to do it. And the government can save some money by not having to refund everybody's money. So if you want your money back, you're going to have to ask for it. Basically. The second thing you're going to have to do, which is also you're going to have to do it anyway, which is good government, is Customs has gone to all electronic refunds and they did that outside this particular issue. And they started that on February 5th. So this is not news, but all these refunds are going to be given electronically. They're not going to be sending out checks in order to get electronic refunds from Customs for anything you have to register, which I gather is not a particularly hard process. Go to the website, go to FAQs, and it'll tell you what to do. And do it because if you don't do it, there's no way to get your money back. So those are the hurdles. Scott, fair enough.
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A
Well, thank you. That's very comprehensive. I think our listeners will either have appreciated that or have hit the fast forward button. In any case, as I look at this first, the administration probably used the IPA tariffs because they were the simplest, fastest, least fewest obstacles to accomplish what the president wanted to accomplish. Once they lost the case and they couldn't use the IPA tariffs anymore, the administration basically said we disagree, but we're going to comply, which is basically what you've heard described here. The next thing they said, I paid very close attention to Treasury Secretary Bessant after the decision was announced by the court and he made, among other comments, the most important one he made was this doesn't change our outlook for total revenue from tariffs, which indicates that there was a Plan B all along and the Plan B will collect about the same revenue, give or take, as the Plan A did. So the method to get there is what Bill described. And once again, the administration is showing its preference for action to solve a problem rather than manage it and to move as fast as they can when they can move fast. So section 122, they have 150 days and they'll probably outrun the courts at this point. 150 days expires on the balance of payments tariffs before there's much more than a preliminary hearing on the merits of a case against that decision. Bill's right. It's tough to say in a world of floating exchange rates that the United States has a balance of payments problem. We do have a chronic current account deficit and driven by trade deficits 50 years or so worth cumulatively. But that's not the same as a balance of payments deficit. So once again, you're, you don't want to get to the statutory interpretation and probably they're not going to try for the renewal. It will be my prediction, which I think Bill would agree with. Then the fallback position is they're going to try to solidify as many of these bilaterals as they can and the tool they're going to use is the next most flexible, least limited trade sanction authority, which is section 301. That's why they went there. I don't know what their beliefs are about forced labor. It doesn't really matter. What matters is they're looking for a way to act. And section 301 is our trading partners have always hated it because it gives the administration such very broad powers in terms of how to characterize unfair practice and what actions to take in the face of unfair practices. So I think that's what we're in for over the next months and weeks. And not much noise about Section 232. I think they've gotten most of the investigations that they could had a shred of credibility about on national security. They've gotten them started in an in process, so less activity there. The final point I'd make is AIPA as a statute still stands. It's been reinterpreted to exclude tariffs. That was the court's decision. But when President Trump threatened an embargo on Spain because of their lack of cooperation with the Middle east war policy of the United States, that would probably be an IPA sanction. They'd probably use that statute on Spain if they chose to. And that was. Is, of course, still valid, a valid use of iipa. So a strange world.
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B
It's also one of a growing list of threats he's made that he hasn't followed up on. I mean, maybe he will, but, you know, he didn't do the Greenland threats. He's.
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D
We'll see.
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There's a lot going on right now. He's kind of busy. So he is.
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D
He. He is. Bus on the 232s, I just add,
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you know, they kind of left national security far behind when they went for bathroom vanities and kitchen cabinets. And some of these haven't finished, like the aircraft one, which is now overdue,
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D
and some others, I think are also overdue.
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B
And I suspect the problem is that while in this administration, it's not hard to define something as a national security threat. You know, kitchen cabinets. Give me a break. If they can say that's a national security threat, you know, anything's a national security threat. It turns out it's a lot more complicated to decide what to do about it. And that's the other half of the equation. You know, the government needs to do two things. They have to decide if there's a threat, and then they have to come up with a remedy. And Trump famously has one tool, tariffs.
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D
That's not necessarily an effective remedy in
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every one of these cases. I've looked at the aircraft one more closely than some of the others. And, you know, it was pointed out
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D
to me that if they decide that
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aircraft imports are a threat and they do what they've been doing for a lot of other cases, which include not only the end product, but parts and components thereof, you know, the biggest victim would be Boeing.
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A
Sure.
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Because they have one of the most global supply chains around. They bring in a lot of stuff from multiple countries. And frankly, in part, I used to
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have to deal with this when I
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was both on the Hill and in the government. In part, they do that because so many airlines are government owned and other governments, ours are not. Other governments do that. And governments tend to say, you want us to buy your planes, we want you to make the plane here.
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D
And of course, Boeing says, well, we
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can't make the plane there, it's too complicated. And the other country says, well, you know, what are their pieces and bits and pieces you can make here? And Boeing will say, well, we can make the bathroom there, we can make the seats there. And the other country says, no, no, no, no, no. We want the avionics, we want the technology that goes with it, and we want to make a wing. This was the Japanese issue. And there's a negotiation.
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D
What you end up with is a
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complicated supply chain which hopefully is highest quality, lowest cost, and best delivery schedule. But it's very much an international one. And part of it is driven by demands on Boeing that if they want market access, they have to do it this way. They would be a big loser in a tariff based 232 decision that, you know, the administration may think, well, we're helping Boeing because we're sticking it to Airbus. But in fact, it wouldn't work out that way.
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D
So these things, they're not buried, they're
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not dead, but they may not all see the light of day at the same time.
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You may very well see some more of them.
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You know, Commerce Department seems to enjoy doing them, so stay tuned.
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But I think Scott's right.
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301 is the tool of choice.
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Fair enough. We want to move on to things in our Western hemisphere. There are two issues that have long histories that we'll try to update today. First is Cuba. If you follow the news, the lights are going out in Cuba. Change appears to be afoot, that things are anticipated. And it's one of the more thorny situations with regard to what it takes to resume trade with Cuba. A few weeks ago, we talked about Cuba, and I characterized it as the family feud of American trade policy. And because the relations between the people in Cuba now and the people who were basically thrown out of Cuba at the time of the revolution in 1959 and then the following years are literally families, so they know each other well, it's led to a lot of sort of bitterness in the rhetoric and in the lists that Cuba winds up being on Cuba has, of course, done a lot to be a thorn in the side of the US but the fact that this fight was so intense overlooks the fact that there are still relatives of the Florida Cuban Americans and the New Jersey Cuban Americans and other Cuban Americans still in Cuba. And those family ties are not nothing. So what we have basically is 70 years worth of sequential administration piling on that has to be unpacked. So Bill and I were trying to get the record straight, but I believe it was the Eisenhower withdrew diplomatic relations. President Kennedy imposed the embargo, which still stands. It's been strengthened. Cuba is on a number of lists. It's a state sponsor of terrorism. It's one of the most repressive. So the human rights lists all contain Cuba. There's prohibited transactions with the military. Travel and remittances are very carefully controlled, and in most cases, prohibited. They are seen as a both a terrorist state and a state sponsor of terrorism, which gets them on a lot of lists that prevent goods and people from moving. Plus, there have been a lot of congressional actions in the past. So whatever regulations are in place that enforce the embargo can't be changed by a single president or even entire administration. Congress will have to get involved. At least that's been the case since 1996 and the helms Burton Act. And then finally, there are a lot of people who lost their property as the revolution went on. And there's a list of certified claimants that goes back to the late 50s. Many American companies are on that list. And those issues are far from being resolved. They've been handled in an administrative fashion. The list is validated, but it's by no means resolves. So we've got a mess to unpack. Despite the friendliness of the families and the proximity of the island of Cuba to the mainland, it's going to be a while.
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B
The estimated value of those validated claims is between 1 and $2 billion. So it's not small and it continues to accumulate. There are claims that are still being processed by the Foreign Claim Settlement Board.
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D
There's an irony here.
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B
I mean, first of all, I think the main point is that when Trump said, I can do anything I want with Cuba, that's simply wrong. The law is very clear that the President can't do anything he wants with respect to Cuba. And the irony here is the reason for that, the reason for the Helms Burton act in 1996 and the earlier Cuban Democracy act, which was introduced by
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then Senator Torricelli from New Jersey in
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1992, was concerns that from their point of view, soft headed president might try to improve the relationship with Cuba and undermine the hardliners. So they wrote in this was a hard fought battle. Clinton did not like being constrained in the way that Helms Burden was limiting the President's authority. But basically, you know, he didn't have the votes. I think he included a veto would have been overridden. Congress is very strong on this. But the irony was it was to constrain the President from doing something they didn't want. Now there's a president who's doing exactly what they want and he can't because of the law.
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A
Right.
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B
And so he's going to have to go back to Congress and ask if he wants to make any kind of a deal, if you will, with the Cubans. He's going to have to go back to Congress and seek some relief from these statutes. I mean there's some things he can do.
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D
He can take them off some of
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these lists and he can repeal the executive order he issued in January that basically was designed to be an oil embargo that affects other countries. So there's things he can do unilaterally, but he's really constrained by going much farther by the statute. And the other constraint which should not be underestimated is the one that Scott mentioned, which is this fairly large number of claimants who had their property expropriated or confiscated by the Cuban government.
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D
And the claims are out there, there's
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a board that has validated them. They're legitimate. And the people in Congress who are highly influential in this process are very close to a lot of those people. So if you want to, you know, the dilemma Trump is going to discover that he has, which I don't think he realizes now, the dilemma he's going to discover is that if he wants to make some kind of a deal with the Cuban government, even though it's a deal that Cuban American expatriates might welcome, they're going to demand a price for that. And the price for that is if they want to get their property back. And that raises a couple problems. One, it's a lot of money and we're now nearly 70 years later, that property doesn't always exist anymore. You know, if you owned a hotel, maybe very likely long gone, so what exactly would you be getting back? The answer usually is compensation. And that's why the Foreign Claim Settlement Board is assessing the value of these various claims. Get the money back. Well, it's pretty clear the Cuban government doesn't have any money. So I'm not sure where the money is going to come from. But what I am sure is that the Cuban American expatriates are going to demand it.
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A
Yes.
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B
So Trump is going to have to find the money one way or the other. He may do that in part by appealing to the relatively large number of Cuban expatriates who've made fairly large fortunes in the United States and have done very well here and may very well be willing to chip in. I mean, the current Cuban government has also figured this out and they've appealed to the Cuban diaspora, which is not just in the United States. You know, it's all over the Western hemisphere to reinvest in Cuba. And Trump, I think, will try to tap into some of his southern Florida friends to do the same thing. But the price is going to be settling the claims. And that's not going to be a small thing. It's this little thing over here on the side of history. But it's about to become a much
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D
more of a front page item, definitely.
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A
So we got a lot of work to do. And I do remember sometime around the year 2000 when there was a thought that US relations with Iran were warming up. And one of the think tanks, I'm pretty sure it was the Atlantic Council, one of them, put together a how to guide what it would take to unpack all the sanctions and all the restrictions that the U.S. had placed on Iran, in this case since 1979. And it was not quite as thick as the Manhattan phone booth used to be, but it was several hundred pages of identified statutes or rules or listings and the actions required to unpack it. So it's a lot of work to take these things apart and a lot of people get involved and we'll see where it ends. As a final issue, we want to update our listeners on the USMCA talks which began in Washington this week. Recall that the USMCA has a basically a sunset provision and this is the year of the Review that by July 1st of 2026, the three parties need to agree on what USMCA will look like going forward or it will be be set to sunset in another 10 years. Now, USMCA and before NAFTA were vitally important agreements to production integration in North America. And most of the firms that are engaged in North American marketing, production, manufacturing, whatever you, however you want to characterize it, rely on the rules of the NAFTA and the USMCA to operate every single day, have very important agreements in terms of global competitiveness of American firms. So this is something that's very important commercially to almost every business who does business outside the United States. Bill, what do you think is the path forward either a crisis or a renewal?
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B
Well, we talked about it before.
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D
What I said was there's going to
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B
be a lot of drama. You know, there's, with Trump there's always drama. I would expect multiple threats to withdraw.
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A
Yes.
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B
And the current threat, both implicit and
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D
explicit, is not to renew it, but to negotiate two separate bilateral deals.
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B
Ambassador Greer has made a point that he's proceeding to negotiate with Canada and Mexico separately. This week was Mexico he met with the Canadian counterpart, I think late February I believe.
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D
I don't think they call that a negotiation, but there was a meeting.
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B
He may continue to try to negotiate along bilateral, two bilateral tracks.
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D
The agreement is not set up to
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do that in the sense that on July 1st they have to decide what to do with the agreement as is. And my colleague Diego Marquin Vitar in the Americas program here at CSIS did a paper last August that laid out six alternative outcomes. And he actually, and I'm helping a little bit, are doing an update to that now. Eight months later, nine months later, still the same six outcomes, but the odds of different ones being have changed a little bit.
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D
I think the three that are least
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B
likely are just simply renew the thing that's just not in the cards at all. Second would be that we actually do withdraw and torpedo the whole thing, which I think won't happen, frankly, for political reasons. It's an election year that would be enormously disruptive to all three economies. The President's political advisors are sure to tell him this is not something you want to do three months before an election. You know, that's just another four months before an election that just would be, you know, if you're not doomed now, you certainly will be doomed by the if you do that.
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D
So we don't see that happening and we also don't see a failure of the 10 year ongoing consultation process that ultimately leads to the deal simply giving
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B
up the Ghost in 2036.
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D
What appears most likely right now is
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B
I think, and we're not all on the same page on this, but what I think is extension with amendments and each of the parties will have demands. Trump will probably have the most and they'll be extreme. So there'll be drama there. As we all know from the last year, his history is to make extreme demands and then settle for much less. So I wouldn't rule out a semi happy ending here in the sense that they negotiate some changes that all three countries could actually accept and are not just forced down their throats. The pessimists at CSIS would say, yeah, it's more likely that they're going to get these things forced down their throats and it may be wise for them not to agree to that. That leads to the other two scenarios. One in which they don't agree to renew on July 1st, and that kicks the process into this 10 year annual review system in which every year they have to go through this again. This is the maximum pain scenario.
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A
So painful, yes.
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B
They have to go through it again less than until they agree or it dies in 2036. The administration may find that attractive because at a minimum, that gets them past the midterm election. Effectively, if you do this, you kick the can from July 1, 2026 to July 1, 2027. So you have to go through the same exercise again. But you don't do it in an election year. And the administration may decide that, you know, once we get past the election, for better or worse, then I have a lot more flexibility to make more extreme demands. So they may buy into that. It wouldn't surprise me a bit if that's what happens. And the third possibility, which will also be threatened, I think it already has been and will continue to be threatened, is two bilaterals. And it appears that Mexico and Canada don't think that's a good idea. One response, of course, would be they would negotiate one between themselves too. So it's kind of silly. I think it's a threat and it's a viable threat. They could do that. I don't think that. It certainly wouldn't be as growth promoting and as constructive as renewal would be. And it would not end a lot of the uncertainty that's already being generated over the future. The reality, like it or not, the reality is that post, because of NAFTA and now usmca, we have an integrated North American economy and it's most visible in industries like automobiles. But it's an integrated economy.
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D
If you start to take it apart,
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B
you know, bad things are going to happen and it's going to be enormously destructive to all three. And Trump may think, well, it's going to hurt them more than it hurts us. Well, you know, maybe he's right about that. But that doesn't stop the fact that it's going to hurt a lot of Americans, both on border states, but also farther away. So there we are, Scott, that's for certain.
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A
And the one thing we didn't talk about in these three issues is it would sure be nice for somebody to wake up the United States Congress and inform them that the Supreme Court thinks they have the power to regulate tariffs, and they actually do have plenary Authority in Article 1, Section 8 to conduct international trade. And so we'd like to see them involved. Certainly they ought to say what AIPA means and doesn't. They're the ones who wrote it. But also on the other two issues, on Cuba, Congress is a necessary element for any change in the relations between the United States and Cuba. Likewise, the importance of USMCA goes to every single congressional district and every state. So Congress owes itself, and it owes its constituents to get up on its hind legs and engage.
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B
At the moment, it seems that the Congress has a lot of invertebrates. And I agree with Scott. They have the power. The Constitution gives them the power. The Supreme Court just reaffirmed that this is an opportunity for them to take advantage of that, demonstrate their power, and set the country on the trade course that they want to set it on. Part of the problem, of course, Scott skipped over is there's not a lot of agreement amongst themselves.
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D
Right.
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A
There's not a clear vision about what
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B
to do in either party.
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A
Right.
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B
Republicans, I think, are publicly on board with Trump because they're afraid of him. Privately, they're divided. I think there's a lot of them, particularly representing farm states that are very uncomfortable with the tariffs. And the Democrats, as I know very well being one, have been divided on trade since nafta. And you continue to see those divisions essentially in the party between the center and the left. And, you know, Biden did his best to paper over those, the differences. And he did it basically by not doing anything. You know, if you're not pursuing a trade agreement, then you're not creating division in your party about what should be in the trade agreement. And so he did a pretty good job of that, but the consequence was that he didn't accomplish very much. So, you know, they need to do what Scott said they should do. But, you know, the first step is they kind of have to sort out what they think. And that's going to be complicated.
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A
Oh, definitely will be. And. But until then, President Trump fills the vacuum, and so the vacuums don't go unfilled in Washington. And this is, you know, a repeat lesson in that manner.
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B
There's probably a metaphor in there somewhere about what the. All the dust and dirt and grime that the vacuum accumulates and then the MTA process.
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A
Yes, that's right.
- [33:52]
B
But I'll have to think about that some more to figure out exactly how to play that in the future.
- [33:57]
A
Fair enough. Well, in the meantime, thanks for listening. We're glad we had a chance to get all of us onto the same page of all this activity that's going on. Bill, thanks for your time, and we'll see you next week.
- [34:09]
B
Thank you.
- [34:15]
C
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