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The State of Trade Shows Increased Scrutiny, More Tariffs and More Tension

The first half of 2018 has certainly been memorable for global trade conflict, but it’s been a crazed carryover from actions that began in 2017.

In the U.S. International Trade Commission’s (ITC) “Year in Trade” report, the commission outlines what took place in trade—from tariffs imposed on key trade partners like China, the European Union and Canada to the contentious renegotiation of the North American Free Trade Agreement. President Trump has also been levying steel tariffs on countries all over the world in an effort to boost U.S. industry and counter what the administration claims is unfair pricing. Trump has claimed national security threats as his reason for imposing the tariffs—and trade experts are concerned the president may return to the tactic to implement more changes in trade.

In light of tensions between the U.S. and China over China’s intellectual property missteps and the trade deficit between the two nations, the Office of the U.S. Trade Representative (USTR) self-initiated an investigation of China’s acts, policies and practices related to technology transfer, intellectual property and innovation, which in 2018 has resulted in the actual or potential imposition of tariffs on $50 billion worth of imports from China.

On Thursday, Customs and Border Protection began to collect on an additional $16 billion worth of imports from China that will be subject to a new 25 percent tariff. This second tranche of added tariffs follows the first group of $34 billion that went into effect on July 6.

In the report’s area on intellectual property, there were 130 active investigations and ancillary proceedings, up from 122 the prior year, 74 of which were instituted in 2017, down from 80 the previous year.

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In 2017, China remained the U.S.’s largest single-country trading partner, accounting for 16.4% of U.S. merchandise trade. U.S. two-way merchandise trade with China increased 10 percent to $635.9 billion in 2017. The U.S. merchandise trade deficit with China remained higher than the U.S. trade deficit with any other trading partner in 2017, at $375.2 billion.

U.S. imports of textile and apparel from China fell 0.4% to $45.03 billion in 2017 compared to the prior year and imports of footwear fell 3.8% to $14.26 billion. The U.S. exported $932 million worth of textiles and apparel to China last year, a 4.5% gain, and $109 million in footwear was exported.

Also high on the Trump administration’s trade agenda was the relationship with North American neighbors Mexico and Canada, which he’s working to address by imposing tariffs on steel and aluminum on Canada and renegotiating NAFTA.

U.S. trade with Canada and Mexico accounted for $1.1 trillion or 75.1% of overall U.S. trade with free trade agreement partners. U.S. exports to the NAFTA countries rose 5.8% to $525.4 billion, while imports increased 7.4% to $614 billion.

In August last year, the U.S., Canada and Mexico launched negotiations to update NAFTA in the areas of digital trade, intellectual property, cybersecurity, regulatory practices and treatment of state-owned enterprises. Rebalancing the trade agreement and reduce the U.S. trade deficit with Canada and Mexico, are also key focuses in the renegotiation.

U.S. imports of textiles and apparel from Mexico rose 5.2% in 2017 to $6.1 billion, while Canada shipped $2.23 billion worth of those goods last year, a 2.3% increase. U.S. textile and apparel exports to Canada rose 2.7% to $5.22 billion, as shipments to Mexico increased 2 percent.

Other trade preference programs also saw new actions in 2017.

Goods coming in under the Generalized System of Preferences (GSP) increased 11.9% to $21.2 billion, accounting for 9.9% of total U.S. imports from GSP beneficiary countries and 0.9% of total U.S. imports.

The top five GSP beneficiary countries–India, Thailand, Brazil, Indonesia and Turkey–accounted for 74.5% of imports under the preference program. In 2017, duty-free status was extended to all GSP beneficiaries for 23 categories of travel goods, including luggage, backpacks, handbags and wallets. The aim of the GSP program is to accelerate economic growth in developing countries by offering unilateral tariff preferences for imports into the U.S. market.

In December, Argentina’s GSP eligibility was reinstated after a nearly six-year suspension but Ukraine’s was partially removed due to failure to adequately protect intellectual property rights. In June 2017, USTR initiated a country practice review of Bolivia over worker rights issues.

Textile and apparel imports from GSP countries were up 9.6% last year to reach $689 million. That accounted for a 3.2% share of U.S. imports of textiles and apparel.

Looking at AGOA, 38 sub-Saharan African countries were eligible last year for the trade benefits and duty breaks the agreement affords. Another two, Gambia and Swaziland, were reinstated as eligible. Of these 40 countries, 27 were also eligible for specific textile and apparel benefits as designated by AGOA.

Preferential treatment for apparel under AGOA requires apparel to be made from U.S. or sub-Saharan Africa regional yarns and fabrics, cut and assembled in one or more AGOA countries that are eligible for the program’s apparel benefits, with some relaxed criteria for lesser-developed countries.

U.S. imports of apparel from AGOA countries increased 2.3% in 2017 to $1.03 billion. Kenya, Lesotho and Madagascar provided the bulk of the goods, while Ethiopia and Ghana had substantial increases.

Trade enforcement generally picked up last year under the ITC and other government agencies, as the government sought tighter control of unfair trade practices

Findings from the report point to increased Customs scrutiny and enforcement on actions including dumping of materials like polyester on the U.S. market.

The ITC instituted 58 antidumping injury investigations, up from 36 in 2016, and made 54 preliminary determinations compared to 35 a year earlier. Antidumping duty orders were issued in 33 of the final investigations on 15 products from 16 countries, compared to eight products from 16 countries the prior year.

The ITC instituted 26 new countervailing injury investigations, compared to 16 in 2016, and made 17 preliminary determinations, up from 14, and 16 final determinations, down from 25. Countervailing duty orders, an import tax imposed on certain goods in order to prevent dumping or counter export subsidies, were issued in 11 of the final investigations on nine products from five countries, compared to seven and seven, respectively, a year earlier.

Actions on antidumping and counterveiling duties included polyester staple fiber from China, South Korea and Taiwan. In several cases, companies from those countries had to pay penalties for bringing goods into the U.S. either below fair market value or below the cost of production.