Trump Administration Continues Trade Negotiations with Major Trade Partners

In the fall of 2019, the Trump administration reached several trade arrangements, some of them tentative, with important U.S. trade partners. On October 11, 2019, China and the United States announced a preliminary trade deal subject to finalization—one that came after more than a year of escalating tariffs. Just a week earlier, the United States had signed two trade agreements with Japan, one regarding tariff reductions and the other regarding digital trade. None of these deals appear to require subsequent congressional approval in the eyes of the executive branch, unlike the earlier United States-Mexico-Canada-Agreement (USMCA), which was signed in November 2018 and whose fate in Congress appears promising as of mid-December of 2019. In addition to these trade arrangements, the fall of 2019 saw several developments in trade relations between the United States and the European Union tied to the long-running trade disputes.

In March of 2018, the U.S. Office of the Trade Representative (USTR) issued a report concluding that China was engaged in certain unfair trade practices.¹ Over the next year and a half, the two countries engaged in dizzying exchanges of tariffs and counter-tariffs. Continuing this trend in early August of 2019, the Trump administration announced that an additional 10 percent tariff on $300 billion of goods would go into effect on September 1 and December 15, 2019.² In response, China announced it would raise tariffs on various products, including soybeans, pork, and corn.³ Soon after, President Trump tweeted that American companies should “immediately start looking for an alternative to China, including bringing . . . [their] companies HOME and making [their] products in the USA.”⁴ The same day, the Trump administration announced that it would increase the tariffs that were planned to take effect in September and December by 5 percent, as well as increasing another, preexisting set of tariffs by 5 percent on October 1.⁵

In September, however, signs of a thaw emerged. Pending high-level negotiations, China eliminated a small number of U.S. products from being subject to its tariffs, while Trump authorized a two-week delay of the 5 percent tariff increase that was supposed to go into effect on October 1 “as a gesture of good will.”⁶

On October 11, 2019, President Trump announced that a “phase one” deal had been reached with China, “subject to getting written” at a later date.⁷ As announced at that time, the deal included commitments by China to purchase $40 to $50 billion of U.S. agricultural products annually, to make its markets more accessible to U.S. financial firms, and to have greater foreign exchange market transparency.⁸ During the announcement, Trump and his advisors noted that the United States would further delay the implementation of the October tariff increases, although they were not clear about whether the tariffs planned for December would continue as scheduled.⁹

Further negotiations ensued and, on December 13, 2019, the United States and China stated that they had finalized their agreement.¹⁰ According to news reports, China committed to a sizeable increase in its purchase of agricultural products.¹¹ The United States agreed to cut the tariffs imposed in September 2019 down to 7.5% and to cancel the December tariffs. As of mid-December of 2019, the text of the agreement has not been released and was reportedly awaiting final refinement.¹²

Trump has stated that this deal will be one which does not require the subsequent approval of Congress as a matter of U.S. domestic law,¹³ perhaps because the main U.S. concession will be the rollback of tariffs, which the executive branch has the authority to undertake under preexisting congressional law.¹⁴ Trump has stated that after the completion of “phase one,” the United States and China will turn to “phase two” and negotiate further with respect to intellectual property, technology transfers, and possibly other issues.¹⁵

Shortly before the October announcement of the “phase one” deal with China, the United States signed two trade agreements with Japan. Early in the Trump administration, trade talks between the United States and Japan had been at a standstill following President Trump's 2017 decision that the United States would not become a party to the Trans-Pacific Partnership (TPP).¹⁶ In the fall of 2018, however, Japan agreed to begin negotiations on a new bilateral trade agreement, and the Trump administration notified Congress of the start of these negotiations.¹⁷ During the G-7 summit in France in August of 2019, Trump declared that the two countries were “fairly close” to completing “a major deal.”¹⁸ Several weeks later, on September 16, Trump relayed to Congress his intention to enter into two agreements with Japan: an “initial trade agreement” concerning tariffs and an “Executive Agreement” concerning digital trade.¹⁹ These agreements were finalized on September 25 and signed on October 7.²⁰

The agreement on tariffs provides that both parties will lower certain tariffs over time. A USTR press release states that “[o]nce this agreement is implemented, over 90 percent of U.S. food and agricultural products imported into Japan will either be duty free or receive preferential tariff access.”²¹ In exchange, the United States has agreed to eliminate or reduce tariffs for agricultural products “such as certain perennial plants and cut flowers, persimmons, green tea, chewing gum, and soy sauce,” as well as a number of industrial goods including “machine tools, fasteners, steam turbines, bicycles, bicycle parts, and musical instruments.”²² The digital trade agreement, which the USTR described as “meet[ing] the gold standard on digital trade rules set by the USMCA,” includes a host of provisions, including “barrier-free cross-border data transfers,” and prohibitions “on imposing customs duties on digital products transmitted electronically such as videos, music, e-books, software, and games.”²³ The terms of both agreements have considerable but not complete similarity to a subset of provisions from the earlier TPP.²⁴

By having two separate trade agreements, rather than a combined one, the Trump administration was able to invoke statutory authority for one of the agreements. Section 103(a) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 authorizes the president to “enter into trade agreements with foreign countries” where these agreements are limited to certain adjustments to tariffs.²⁵ Trump invoked this section by name in notifying Congress of his intent to enter into the agreement on tariffs with Japan.²⁶ With respect to the digital trade agreement, the Trump administration's notification to Congress did not specify any statutory authority authorizing this agreement, instead simply describing it as an “Executive Agreement.”²⁷ In past administrations, the USTR and other executive branch actors have taken the position that certain internationally legally binding trade agreements do not require congressional approval.²⁸ The assumption as of fall 2019 is that both agreements with Japan will enter into force on January 1, 2020.²⁹

Trump characterized the agreement on tariffs as “a tremendous trade deal” and remarked that negotiations for “phase two” are already underway.³⁰ The next phase will likely relate to U.S. imports of Japanese automobiles, the further entry of U.S. service providers into the Japanese markets, and the regulation of currency exchange rates.³¹ At least pending the completion of this second phase, some have “question[ed] the extent to which [the initial agreement on tariffs] adheres to Article XXIV of the General Agreement on Tariffs and Trade (GATT) under the [World Trade Organization (WTO)] that requires [Free Trade Agreements] cover ‘substantially all trade,’ in particular given the exclusion of auto trade.”³²

In seeking to structure the trade deals with China and Japan so as to bypass the need for subsequent congressional approval, the Trump administration is likely conscious of its experience seeking congressional approval for the USMCA. This renegotiation of the North American Free Trade Agreement (NAFTA) was signed on November 30, 2018.³³ By the end of November of 2019, however, only Mexico had received the legislative approval necessary to effectuate it.³⁴ In the United States, the fate of the USMCA in Congress appeared uncertain throughout the fall of 2019. On May 30, 2019, the USTR submitted “a draft Statement of Administrative Action (SAA) to implement the [USMCA] and a copy of the final legal text as it now stands.”³⁵ On December 13, 2019, the implementing legislation itself was submitted for congressional consideration, triggering a fast-track process for an up-or-down vote.³⁶

Before triggering this process, the Trump administration had undertaken negotiations with Congress—and particularly with the Democrat-controlled House of Representatives—in order to increase the likelihood that the USMCA will be approved. This also required re-opening certain issues with Canada and Mexico. In a major breakthrough in these negotiations in early December of 2019, the Speaker of the House Nancy Pelosi announced support for a modified version of the USMCA, one whose changes strengthened compliance mechanisms for the labor and environmental provisions, while reducing intellectual property protections for certain kinds of pharmaceuticals.³⁷ Immediately afterward, lead negotiators for Canada, Mexico, and the United States signed a revised version of the USMCA incorporating these changes.³⁸ On December 19, 2019, this implementing legislation passed the House of Representatives by a vote of 385–41, and its prospects of passing the Senate in early 2020 are promising.³⁹

In contrast to the indications of progress with respect to trade deals with China, Japan, Mexico, and Canada, trade relations between the United States and the European Union saw mixed developments during the fall of 2019. On August 2, 2019, the United States and the European Union did sign an agreement that increased the quantity of hormone-free U.S. beef that could be exported duty-free to the European Union.⁴⁰ In contrast, another ongoing dispute escalated—this one over countermeasures in response to unlawful subsidies to aircraft manufacturers. On October 18, 2019, after getting approval from the World Trade Organization, the United States imposed tariffs on $7.5 billion worth of European goods as a countermeasure for EU subsidies to Airbus.⁴¹ The United States undertook this step notwithstanding the fact that it has been found in violation of international trade law with respect to U.S. subsidies to Boeing and that, before too long, the WTO will presumably also authorize the EU to impose major tariffs as countermeasures.⁴² In response, EU Commissioner for Trade Cecilia Malmström characterized the U.S. tariffs as “short-sighted and counterproductive” and declared that, upon WTO authorization, the European Union would “have no other option” in the absence of a settlement other than to respond with tariffs.⁴³