AffirmativeCase:RepealSection421TariffsonChineseImports
Fact1:Section421TariffsDiscriminateAgainstChineseImports
VivianC.Jones(CRSspecialistininternationaltradeandfinance)“TradeRemedies:APrimer”
CongressionalResearchService(March2012)
http://www.aiis.org/wp-content/uploads/2015/02/CRS-Trade-Remedies-Primer.pdf
Acountry-specificsafeguardonimportsfromChinaisfoundinsection421oftheTradeActof
1974.Thisprovision,enactedinsection103ofP.L.106-286,supersededsection406with
respecttogoodsfromChinaafterthePresidentextendedpermanentnondiscriminatory
(normaltraderelations)treatmenttoChinafollowingitsaccessiontotheWTO.Thelegislation
implementedananti-surgemechanismestablishedundertheU.S.-ChinaBilateralTrade
Agreement,concludedonNovember15,1999.Thistransitionalsafeguardmeasureisscheduled
toterminate12yearsafterChina’sWTOaccession.Althoughtheprocedureundersection421
actionissimilartothatundersection201,thesection421safeguardisdifferentinfourmajor
respects:(1)thestatuteprovidesreliefforsubjectmerchandisefromChinaonly,whereasthe
remedyinsection201appliestosubjectimportsfromallcountries;(2)consultationswith
Chinesetradeauthoritiesarerequired;(3)inadditiontotheUSITC,theUSTRtakespartinthe
procedureandalsosubmitsrecommendationstothePresident;and(4)thestandardforrelief
is“marketdisruption”—alowerstandardthaninsection201proceedings.
EXPLN:Althoughsection201oftheTradeActalsoauthorizestheimplementationoftariffs,
section421allowstariffsagainstChinatobesubjecttoalowerevidentiarystandard.This
lowerevidentiarystandardunfairlydiscriminatesagainstChineseimports.
Fact2:Section421TariffsIntendedtobeTemporary
JeanneJ.Grimmett(CRSlegislativeattorney)“ChineseTireImports:Section421Safeguardsand
theWorldTradeOrganization(WTO)”CongressionalResearchService(July2011)
http://digital.library.unt.edu/ark:/67531/metadc96669/m1/1/high_res_d/R40844_2011Jul12.p
df
Section421oftheTradeActof1974,19U.S.C.§2451,whichimplementstheChina-specific
safeguardinU.S.law,wasenactedinP.L.106-286aspartofapackageofprovisionsaddressing
variousissuesarisingfromtheaccessionofChinatotheWTO.Thestatute,whichalso
permittedthePresidenttograntmost-favored-nation(MFN)tarifftreatmenttoChinesegoods
uponChina’saccessiontotheWTO,wasenactedinOctober2000,alittlemorethanayear
beforeChinabecameaWTOmember.Section421isdescribedinlegislativehistoryas“a
temporary,extraordinarytraderemedyspecificallydesignedtoaddressconcernsabout
potentialincreasedimportcompetitionfromChinainthefuture.”Section421,related
provisionsontradediversionandregulatoryaction,aswellasanyregulationsissuedunder
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theseprovisions,willexpire12yearsafterthedatethatChina’sWTOAccessionProtocolenters
intoforce,orDecember10,2013.
EXPLN:AlthoughSection421tariffauthorizationwasintendedtobeatemporarymeasureto
aidChina’sentranceintotheWTO,thetariffsremainauthorizedinUSlaw,asseenin…
Fact3:Section421TariffsRemainAuthorizedbyCongress
MarcusNoland(Ph.D.EconomicsfromJohnsHopkinsUniversity,executivevicepresidentat
PetersonInstituteforInternationalEconomics)ShermanRobinson(formersenioreconomistat
theWorldBank,seniorresearchfellowatInternationalFoodPolicyResearchInstitute)
“AssessingTradeAgendasintheUSPresidentialCampaign”PetersonInstituteforInternational
Economics(privatenonpartisan,nonprofitthinktankforinternationaleconomicpolicy)
(September2016)
https://piie.com/system/files/documents/piieb16-6.pdf
Section421marketdisruptionsafeguards,aimedatChina,werephasedoutinDecember2013
underinternationallawbythetermsofChina’sProtocolofAccessiontotheWTO,butSection
421stillexistsontheUSstatutebooks.Thisisanotherexamplewhereaninternational
agreementisnotcodifiedinUSdomesticlaw.
EXPLN:EventhoughtheWorldTradeOrganizationnolongerrecognizestherightfortheUS
toimplementChinaspecifictariffs,Section421remainsinUSlawandcanbeusedbythe
presidentuntilremoved,asseenin…
Impact1:LowerEvidentiaryStandardsDecreasePresidentialAccountability
MarcusNoland(Ph.D.EconomicsfromJohnsHopkinsUniversity,executivevicepresidentat
PetersonInstituteforInternationalEconomics)ShermanRobinson(formersenioreconomistat
theWorldBank,seniorresearchfellowatInternationalFoodPolicyResearchInstitute)
“AssessingTradeAgendasintheUSPresidentialCampaign”PetersonInstituteforInternational
Economics(privatenonpartisan,nonprofitthinktankforinternationaleconomicpolicy)
(September2016)
https://piie.com/system/files/documents/piieb16-6.pdf
SincethelegislationtoimplementNAFTAandotherFTAs,aswellobligationsundertheWTO,
wasenactedbyCongress,whichalsoapprovednormaltraderelationswithChinauponits
accessiontotheWTOin2001,thequestionariseswhetheraPresidentTrumpcouldunilaterally
carryouthisthreats.Theshortanswer,atleastintheshortterm,is“yes,”bothbecauseofthe
president’sconstitutionalpoweroverforeignaffairsandbecausemultiplestatutesenactedby
Congressoverthepastcenturyauthorizethepresidenttoimposetariffsorquotasonimports
andregulateforeigncommerceinotherwaysaswell.
Conceivably,PresidentTrumpmightalsoinvokeSections201and421oftheTradeActof1974.
However,safeguardtariffsimposedpursuanttoSection201requireanaffirmativefindingof
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injurytoaUSindustrybytheUSInternationalTradeCommission(USITC)priortopresidential
action;moreover,aUSITCreportcoveringabroadcategoryofimportswouldtakeafair
amountoftime.IftheUSITCfindsnoinjurythepresidenthasnoauthoritytoactunderSection
201.OncetheUSITCissuesanaffirmativefindingofinjury,thepresidentcanimposewhatever
restrictionshechooses—heisnotboundbytheUSITC’sspecificrecommendations.
EXPLN:AlthoughSection201andSection421oftheTradeActbothauthorizethePresident
toimplementtariffs,Section421providesminimalpresidentialaccountabilityincomparison
toSection201duetoitslowerevidentiarystandard.ForSection201tariffstobe
implemented,theU.S.InternationalTradeCommissionmustfind“materialinjury”tothe
UnitedStates.ForSection421tariffstobeimplemented,theU.S.InternationalTrade
Commissionmustfind“marketdisruption.”
Impact2:LowerEvidentiaryStandardsEnableIneffectiveTariffs
VivianC.Jones(CRSspecialistininternationaltradeandfinance)“TradeRemedies:APrimer”
CongressionalResearchService(March2012)
http://www.aiis.org/wp-content/uploads/2015/02/CRS-Trade-Remedies-Primer.pdf
OnSeptember11,2009,PresidentObamaannouncedthathehaddecidedtoimposeremedies
oncertainpassengerandlighttruckvehicletiresfromChina,thusmarkingthefirsttimethata
section421safeguardwasimplemented.
EXPLN:Thefirstsection421tariffwasimplementedin2009.Let’sdeterminetheimpactof
thistariffbyexaminingevidencefrom…
GaryClydeHufbauer(Ph.D.EconomicsfromCambridgeUniversity,J.D.fromGeorgetown
University,ReginaldJonesSeniorFellowatPetersonInstituteforInternationalEconomics)Sean
Lowry(researchanalystatthePetersonInstitute)“USTireTariffs:SavingFewJobsatHighCost”
PetersonInstituteforInternationalEconomics(privatenonpartisan,nonprofitthinktankfor
internationaleconomicpolicy)(April2012)
https://piie.com/sites/default/files/publications/pb/pb12-9.pdf
Thetiretariffcase,decidedbythepresidentinSeptember2009,exemplifieshiseffortstoget
Chinato“playbytherules”andservesasaplankinhislargerplatformofinsourcingjobsto
America.However,ouranalysisshowsthat,evenonverygenerousassumptionsaboutthe
effectivenessofthetariffs,theinitiativesavedamaximumof1,200jobs.Ouranalysisalso
showsthatAmericanbuyersofcarandlighttrucktirespayaheftypriceforthisexerciseof
tradeprotection.Accordingtoourcalculations,explainedinthispolicybrief,thetotalcostto
AmericanconsumersfromhigherpricesresultingfromsafeguardtariffsonChinesetireswas
around$1.1billionin2011.Thecostperjobmanufacturingsaved(amaximumof1,200jobsby
ourcalculations)wasatleast$900,000inthatyear.Onlyaverysmallfractionofthisbloated
figurereachedthepocketsoftireworkers.Instead,mostofthemoneylandedinthecoffersof
tirecompanies,mainlyabroadbutalsoathome.TheadditionalmoneythatUSconsumers
spentontiresreducedtheirspendingonotherretailgoods,indirectlyloweringemploymentin
theretailindustry.Onbalance,itseemslikelythattireprotectionismcosttheUSeconomy
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around2,531jobs,whenlossesintheretailsectorareoffsetagainstgainsintire
manufacturing.Addingfurthertothelosscolumn,Chinaretaliatedbyimposingantidumping
dutiesonUSexportsofchickenparts,costingthatindustryaround$1billioninsales.
EXPLN:Thelowerevidentiarystandardforsection421ledtotheimplementationofan
ineffectiveandharmfultariff.Notonlyweremorejobslostthangained,butconsumers
sufferedduetohigherpricesandproducerssufferedduetoretaliatorytariffs.Toprevent
section421frombecominganevenbiggerprobleminthefuture,weproposethefollowing
plan:
Plan:RepealSection421TariffAuthorization
Mandate:Section421oftheTradeActof1974willberepealed.
Agency&Enforcement:CongressandthePresident
Timeline:Immediatelyuponanaffirmativeballot
Funding:Nofundingnecessary
EXPLN:ThisplanwillremoveauthorizationforthePresidenttoimplementChina-specific
tariffsatalowerevidentiarystandardthanforothercountries.Section201tariff
authorization,whichusesahigherevidentiarystandardacrossallcountries,willremainin
place.
Advantage1:MoreEffectiveTariffs
BruceA.Blonigen(Ph.D.EconomicsfromUC-Davis,economicsprofessoratUniversityof
Oregon)KaSaundraTomlin(economicsprofessoratHowardUniversity)WesleyWilson
(economicsprofessoratUniversityofOregon)“Tariff-JumpingFDIandDomesticFirms’Profits”
NationalBureauofEconomicResearch(July2002)
http://www.nber.org/papers/w9027.pdf
Onaverage,affirmativeU.S.ADdecisionsareassociatedwith3%abnormalgainstoa
petitioningfirmwhenthereisnotariff-jumpingFDI,butnoabnormalgainsifthereistariffjumpingFDI.Theevidenceforthismitigatingeffectisstrongestwhenannouncementsofthe
intendedtariff-jumpingFDIhavealreadyoccurredbeforeanADdecisiontakesplace,which
happenedinafairnumberofcases.
EXPLN:Thisevidencedemonstratesthatdomesticcompaniesonlybenefitfromtariffsifthe
foreignfirmisunableto“tariff-jump,”whichrelocatesproductiontoavoidthetariff.Asseen
inthenextpieceofevidence,Section421tariffsareespeciallypronetotariff-jumpingasthey
arelimitedtoasinglecountry…
PhilLevy(businessstrategyprofessoratNorthwesternUniversity,SeniorFellowontheGlobal
EconomyattheChicagoCouncilonGlobalAffairs)“DidChinaTradeCosttheUnitedStates2.4
MillionJobs?”ForeignPolicyMagazine(May2016)
http://foreignpolicy.com/2016/05/08/did-china-trade-cost-the-united-states-2-4-million-jobs/
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Iservedonacoupleoftheinteragencypanelsthatreviewedthesecases,though,andwould
offeranalternativeexplanation:Therearemorethantwocountriesintheworld.Ineachofthe
twoSection421casesIheard,theimportersmadecrediblepresentationsthat,weretariffsto
beimposed,theywouldswitchtheirsourcingfromChinatoVietnam,ortoIndia,orBrazil.In
onecase,thefactorymovewasestimatedtotakethreeweeks.Inanother,contingent
contractswerealreadyinplace.ProducinginthoseplacescostabitmorethaninChina,which
iswhytheyweren’ttheoriginalsourcingcountries,buttheywerecheaperthantheUnited
States.SowhatbenefitwouldU.S.workershaveseeninblockingChinatrade?None.That’s
whywerecommendedagainstimposingtariffs.
EXPLN:BecauseSection421tariffsareonlyimposedonimportsfromasinglecountry,they
areunabletopreventtariff-jumping,andwillthusbytheirverynaturebeineffective.
RepealingSection421ensuresthatwhentariffsareimplemented,theywillbeimplemented
inanon-discriminatorymanner,whichlimitstheirharmandmaximizestheirbenefit.
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