Trump’s sharp campaign threats on trade could be dulled by new Commerce nominee. 
The extent to which President-elect Trump pursues the often extreme trade policies he promised during his campaign will depend largely on who he chooses to fill key positions, and whoever that is will have readily available tools to pursue those policies.
That person now appears to be Wilbur Ross Jr. who was Tuesday named as the nominee for DoC secretary. The long-time Wall Street executive, known at the “king of bankruptcy,” acted as an advisor to Trump during campaign to develop policies in areas such as corporate tax cuts, infrastructure spending and international trade.
As the chief of private equity firm Wilbur R. Ross & Co., which has acquired and restructured failing companies, Mr. Ross has outspokenly advocated renegotiating US trade pacts. In a recent interview with the Financial Times he said he was keen to encourage international commerce while insisting that trade deals must be renegotiated to benefit of the US, echoing the heart if not the more extreme elements of Trump’s campaign rhetoric. But Mr. Ross has also been on record saying there would be no trade wars. “There are plenty of things that could be done that would not be the end of the Earth but would help our trade balance,” he told Yahoo Finance in an interview after the election.
In the FT article, Mr. Ross noted that cutting the balance-of-trade deficit doesn’t mean slapping 45% tariffs on all Chinese imports, as Trump threatened numerous times during the campaign. Instituting such tariffs across all Chinese imports would, in fact, be difficult if not impossible for the president to enact on his own. However, Trump could impose anti-dumping duties against specific companies as well as measures across specific categories of imports that could far exceed that tariff level. In addition, the president has significant unilateral powers to impose tariffs, quotas and quantitative restricts on imports, even stopping trade flows altogether, if such measures are deemed in the national interest or there’s a national security reason to do so.
“If the US misuses those policies, other countries could and probably would file a claim with the World Trade Organization’s dispute settlement body,” said Emily Blanchard, associate professor at the Tuck School of Business at Dartmouth College, “That’s a long remediation process. The US can jack up tariffs very quickly and not have them peeled back for a long time, even if the WTO finds against the US.”
US steel and other companies have already filed more than 120 anti dumping orders, often with the encouragement of the Commerce Department. However, a more aggressive head of that department could facilitate an increase in such orders. After the Commerce Department has made an initial judgment to proceed, the United States International Trade Commission (USITC), an apolitical and independent organization, would then take into account commercial and consumer interests and makes a ruling on the tariffs, although that decision can take years.
Even if shorter-term measures are limited in their impact, they could potentially escalate into a full-fledged trade war with long-term consequences. For example, Commerce Department approval of significant anti-dumping duties on several Chinese companies would almost certainly prompt China to claim a violation of the WTO agreement countries have signed, essentially to abide by a shared set of rules in order to keep tariffs low. The WTO could then authorize the aggrieved nation to retaliate with its own tariffs, against whatever imports from the US it deems to be most impactful.
However, it typically takes the WTO’s dispute settlement body a lengthy period to reach such decisions, so China might proceed with tariffs without the WTO’s green light. Such a conflict could escalate into a broader trade war. Blanchard said the strongest curb on overzealous protectionism is likely to come from MNCs themselves. Even so, some tariff spikes are likely to slip through with potentially escalating results.
“I worry about some of the unlikely-but-not-impossible scenarios. For example, suppose that the US violates its WTO commitments, the WTO DSB finds against the US, and the US just kind of shrugs its shoulders in such a way that it makes other countries start to question the value of the WTO’s dispute settlement panel,” Ms. Blanchard said.
So far, Trump and his surrogates haven’t yet said a great deal about the WTO and have focused instead on existing trade agreements such as the pending Trans Pacific Partnership (TPP) and the 23-year-old North American Free Trade Agreement (NAFTA). At this point TPP is all but dead, but Nafta may take some fire, at least superficially.
“Trump can do a lot to rewrite Nafta without consulting Congress,” said Elizabeth Moeller, a partner at Pillsbury Winthrop Shaw Pittman, noting that it could generate opposition from free-trade advocates such as House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell. “Why burn bridges with Congress so early?”
Professor Farok Contractor, distinguished professor, management and global business, Rutgers Business School, said that an alternative to renegotiating trade deals is to give additional incentives to companies to increase US exports and thereby create more jobs in the US.
“Expanding plants devoted to exports and committing to hire a certain number of workers could be supported with accelerated depreciation provisions or even tax credits,” Prof. Contractor said. “That could come into conflict with the WTO, but other countries do that in latent or subtle ways and get away with it.”
Such solutions would certainly appear to be preferable to an escalating tariff war. Chad Brown, a senior fellow at the Peterson Institute for International Economics and formerly a lead economist at the World Bank, pointed out that supplies often go back and forth across border of Mexico and the US.
“If anything crossing the border is taxed an additional 35%, that’s going to throw supply chains out of whack,” Mr. Brown said. “In the case of Mexico, a 35% tariff would be hugely problematic considering all the things we import from there, including autos and electronics.”