James S. Brady Briefing Room
3:36 P.M. EDT
MS. STROM: Thank you, guys, all for being here. This is a briefing on executive order on addressing trade agreement violations and abuses with Secretary Ross. It is on the record, off-camera, embargoed until 9:00 p.m., Eastern Time. And if you guys please would speak up when you ask your questions, make sure we can all hear you over here, that would be great. And with that, I’ll kick it on off to the Secretary. And remember to keep your questions on topic.
Yes, on the record, embargoed.
SECRETARY ROSS: Thank you. It’s me again. (Laughter.) I notice the audience is dwindling. I hope that’s due to Friday rather than to the speaker. But in any event, this is the executive order addressing specifically violations and abuses under existing trade agreements. So that’s what differentiates it from some of the earlier ones that we had. This is focusing more narrowly on the agreements themselves.
Now, not all of the free-trade agreements that we have result in deficits. But some of the larger ones also result in some of the larger deficits. In all trade relations with companies, other than free-trade companies, are governed by the WTO, the World Trade Organization. So that’s really the grandparent of all trade arrangements that we have.
And as far as I can tell there has never been a systematic evaluation of what has been the impact of the WTO agreements on the country as an integrated whole. So it’s trying to find violations and abuses. It calls for a report within 180 days. But this particular report, it calls for not just outlining the problem or problems, but also proposing the solutions — alternative solutions to them.
So that’s the guts of it. Now, why? What is it really all about? I think everyone here is generally aware that we do have a big trade deficit. It’s some $700 billion — not counting our trade surplus in services, just counting the trade deficit in goods; and it’s $500 billion, counting the trade deficit in — after netting out the benefits of the exported services. So that’s the general parameters.
This order involves the Department of Commerce and the U.S. Trade Rep jointly to conduct that review.
And so maybe it would be useful to you to hear where are some of the big deficits so that you can put it into perspective. China alone is the number-one deficit. It’s $347 billion. This is on the goods part alone. So the base is $700 billion. And China is 47.2 percent of that.
Japan is next at $68.9 billion, which is 9.4 percent.
Germany, $64.9 billion — 8.8 percent. I might point out that Germany doesn’t negotiate separately trade agreements. It negotiates them as part of the European Commission.
Mexico, which is obviously part of NAFTA, $63.2 billion, or 8.6 percent.
Ireland, $35.9 billion, 4.9 percent — also part of European Commission.
Vietnam, $32 billion, 4.3 percent.
Italy, again, part of the EU, $28.5 billion, 3.9 percent.
South Korea, $27.7 billion. We do have a free-trade agreement with South Korea. And that’s 3.8 percent of the problem.
Malaysia, $24.8 billion, 3.4 percent.
India, $24.3 billion, 3.3 percent.
So that’s the top 10 of the agreements. But for the most part, as you can tell from that, the largest portion is with the countries that are really just covered by WTO rules, as opposed to countries that are covered by individual free-trade agreements.
What are some of the problems under WTO? Its 160-some-odd countries are participants in the WTO, and the vast majority of those are countries that export to us, and in most cases, export more than they buy from us.
The U.S. only has 20 free-trade agreement partners, and that’s a very small number. Those of you who have been at some of the earlier briefings know Mexico, for example, has more than twice as many free-trade agreements by number as we do, and has them with the most important areas, such as the European Commission, which we do not have.
So it’s anomalous that the U.S. with its huge trade deficit has relatively fewer free-trade agreements than do much smaller countries like Mexico. And I think that points out one of the issues with our current relationship with the World Trade, namely Mexico and others have had very big external tariffs on many, many goods. U.S. is the least protectionist country. Many goods come in totally free, and others have little, tiny tariffs, like 2.5 percent. Countries like Mexico frequently have 15, 20 percent, even more than 20 percent tariffs.
The implication of that is, when they negotiate a free-trade agreement with another country, they can give something important to that country by way of tariff relief. If we, for example, only have a 2.5 percent tariff on autos, and no tariff on steel, what is it that the other country gains by making a free-trade agreement with us?
So in a weird way, the fact that we have been so free-trade oriented historically actually impedes our ability to make new free-trade agreements. And that’s something that I don’t think is very well understood, so I think it would actually do your readers a very good service to point out to them that the fact that we have made so many unilateral concessions impedes having more free-trade agreements with other countries. It’s an oddity of the way that we’ve behaved in the past.
The other thing about it, the President has talked a lot about reciprocal concept; namely if we have a country that has big trade barriers against us, we should logically have similar trade barriers against them. And if there’s a country that has relatively few barriers against us, we should have relatively few against them.
The only problem is, the World Trade Organization has what’s called a “most favored nation clause,” meaning that of all the countries with whom we do not have a free-trade agreement, we must charge the same tariff on the same item to those — each of those countries as we charge to the others. So that’s a significant impediment toward getting to anything like a reciprocal agreement.
The second thing is the WTO doesn’t really deal very much with non-tariff trade barriers, and it doesn’t deal very effectively with intellectual property rights, and doesn’t deal very much effectively with the whole digital economy. So there are some real gaps within it.
But there are those problems that I mentioned, then there’s also the structural problem of the dispute resolution mechanism. Takes a very long time, and given the composition of the WTO panels, often we’re defeated when people come and appeal it. Because if the people on the panel are mostly people who are doing the same thing as what you’re complaining about, it’s a little bit hard to get them to vote for you.
So those are just a few illustrations of the kinds of issues that we’re liable to come up with and try to figure out some solutions. Also, WTO is a very, very bureaucratic organization. Their main meetings occur four times a year. Well, when you think about how dynamic trade is and how rapidly it changes, the idea of a leisurely four-times-a-year meeting schedule, it’s really not very consistent with dealing with problems.
And then the last thing — if you look at the last annual report that the WTO published, it’s filled with complaints that there are more trade actions, more actions alleging violations than there used to be. And they lament that as protectionist. It apparently doesn’t occur to them that perhaps the cause of it is more violations by more countries. But that’s the reality. That’s why the trade actions are being brought, is that there’s more and more dumping all over the place, but there’s an institutional bias on their part toward the exporters rather than toward people who are being beleaguered by inappropriate imports.
So that gives you a little flavor for where this study may be heading.
Q I have two quick questions for you. When is the executive order going to be signed?
SECRETARY ROSS: I believe it has already been signed, has it not?
MS. STROM: Tomorrow.
Q Where? And will it be a public ceremony?
AIDE: It will be signed at the Ames Tool Company. I think it’s Camp Hill, Pennsylvania. It will be done prior to a rally at —
SECRETARY ROSS: Yeah, I’m going out there with the President tomorrow.
Q Mr. Secretary, just one follow-up on the structure of the report that will be issued in 180 days, you talk about having also solutions, not just identifying the problems. Will this be product-based, country-based, a combination of the two? Can you talk a little bit about how you’re looking to structure this report?
SECRETARY ROSS: Well, some of the issues will be product-based, such as those industries where there’s global overcapacity. You really have to deal with that on a product basis. Some will be more country-based because they’ll be based on behavioral issues of individual countries. And some will be both.
Q Sir, if you find the outcome of this study as an institutional bias against the U.S., would a retaliation move be to — from the United States — to recommend a withdrawal from the WTO?
SECRETARY ROSS: Well, we haven’t done the study and we haven’t presented the President with all of the alternatives. Certainly, as any multilateral organization, there’s always the potential for modifying the rules of it.
Q You mentioned that many EU countries — because the way the EU works in negotiating as a bloc, versus negotiating individual trade deals — could the United States and President Trump consider a separate bilateral deal with the EU? That’s sort of correlates to what he was asking about, withdrawing from GATT. I mean, if GATT is so unfair and this dispute resolution process is so unfair, and the “most favored nation clause” keeps us from making these bilateral trade agreements, why isn’t withdrawal on the table?
SECRETARY ROSS: Didn’t say it was on the table or off the table. What I said is the report hasn’t yet been done, hasn’t yet made recommendations, and therefore neither has the President taken action based on it. But there’s always the potential for amending organizations’ charters, like the WTO. And particularly when you’re in the position that we are — look, we’re the number-one importer in the whole world. Our deficit exactly equals the cumulative surplus of the rest of the world. We’re also the number-three exporter in the world. So it would be kind of a funny-looking World Trade Organization not to have its number-one importer and its number-three exporter. But I wouldn’t dismiss the potential for, in all of these — in the bilaterals, in the multilaterals, and with the World Trade — I wouldn’t dismiss the potential for seeking modification.
Q Mr. Secretary, then how does the order track with the President’s decision this week to renegotiate NAFTA? Does this study that you’re about to embark on, does that provide the framework for identifying issues that the President will then seek to modify?
SECRETARY ROSS: Well, NAFTA will certainly be part of this study — a big part of it. And that’s important because that is also fulfilling one of his many campaign promises. I think the amazing thing is that with all the problems of trade that we’ve had over the years, there never had been this kind of systematic, detailed review of what went wrong. And part of what the order will say is to try to compare what actually happened with the forecast that was made at the time those agreements were entered into.
Those of you who have been covering trade for a while will know that whenever we’ve ventured into any of these agreements, the forecast has always been that it would be a job-creator. Well, to the degree that those forecasts are wrong, it would be very useful to figure out why were they wrong and what can be done to fix it.
Q Was the development of this executive order parallel to that internal discussion of what to do with NAFTA? Is it an outgrowth of that? Is it separate? How does this relate to that decision?
SECRETARY ROSS: There isn’t a day that goes by that the President doesn’t discuss some aspect of trade. It’s all a continuous activity because trade is so important to the economy, it’s so important to the administration’s four-point plan, and it’s so important to the promises he made during the campaign. And as you’ve noticed, this President, unlike many others, is really trying his best to live up to his campaign promises.
Q Sir, could I ask you a question in terms of the historical perspective on this? As you know, traditionally, American administrations have been willing to tolerate some trade deficits in terms of geopolitics — because trade doesn’t exist in a vacuum. It’s to cement alliances. It’s to spread capitalism, spread prosperity. What has changed in this moment in history for the United States that its perspective on those things is shifting so the United States is more focused on the dollars and cents of these than it is on the geopolitical implications of them?
SECRETARY ROSS: Well, I think what’s changed is that manufacturing has shrunk severely in this country. We’ve lost some 70,000 manufacturing factories in recent years.
And middle-class America, part of the reason why it’s been so devastated — and frankly part of the reason why it pretty much voted for the President — is they’re fed up with having their jobs go offshore. They’re fed up with some of the destructive practices that have resulted in that. So in effect, the country said in this last election, it’s about time to fix these things.
And the President heard that message.
Q Does that mean that the United States is no longer as interested in the other things, the military alliances, spreading capitalism, spreading prosperity around the world?
SECRETARY ROSS: No, I didn’t say that at all. It’s a question, however, of proportionality. There is always a geopolitical content to everything. Take for example, South Korea, obviously, one of the issues there is they live in a very tough neighborhood right now. And so it is a question — and they’ve shown that there’s some political fragility there, too, with the removal of the last President. And I think it’s around the 14ht of May, there will be an election for a new President. So there are always geopolitical issues. There are often military issues. The question is: What proportion of the decision-making weight do you give to which of these other concepts?
Q Will the review include a review of studies which hold that the loss of manufacturing jobs in a lot of cases was due to the increasing productivity and advances in technology, not necessarily jobs being moved to other countries?
SECRETARY ROSS: Sure.
Q Will it review those studies and whether they’re valid?
SECRETARY ROSS: Well, this is not to say that the only problem for jobs is trade agreements. That would be silly to say.
But we’re not going to be able to impede technology in its growth, nor do I think we should do so. So we will have to face the challenges of artificial intelligence, of driverless cars, of robots, of God knows what else that some young scientist in a garage will come up with.
But those things we can’t control. We must try to deal with the things we can control. And to some degree we have some control over our trade arrangements.
Q Two questions for you. The first one: How does this kind of line up or compliment the other study that you’ve been asked to do, which is the industry-by-industry, country-by-country look?
And then also to follow up — go ahead.
SECRETARY ROSS: Yes. That focused on the sources. It didn’t get into as much the causes. This is really trying to say of all the possible causes, what portion of the problem is attributable to the various trade agreements? So it’s much more precise in its focus.
For example, we are a net importer of petroleum, even with all the good growth in shale oil. Well, so that means those imports are going to occur quite independently of anything else. You can’t really put a blame to that.
So we’re not saying that all imports are bad. Some imports are actually quite necessary. And not all imports from developing countries are because of dumping. Some are simply because of lower cost structure. But it’s important to sort out those which are from the agreements themselves, or from persistent violations of them. Because those are things we can try to correct.
Q Just to follow up on a previous question. The President obviously has talked about his decision to try to renegotiate NAFTA, also made some comments — I believe it was yesterday — to Reuters about the South Korean agreement. Will you, as you’re making this assessment, be taking those comments into account and for instance not recommending a complete withdrawal from a trade agreement that the President has said he wants to renegotiate?
SECRETARY ROSS: Well, withdrawal is the most extreme form of renegotiation. And so to me it would really be more of a last resort if you can’t negotiate or can’t get to negotiate.
Now, it’s also possible that some of the parties here will refuse to negotiate. And if they do, then that doesn’t leave you an awful lot of alternatives.
Q Sir, may I ask you about a specific thing in steel?
SECRETARY ROSS: Yes.
Q You describe an approach, like I think which is a part of the President’s policy of Buy America, and I know that you launched investigations — Article 232 investigations on steel and aluminum. And maybe if you could explain what products that will cover? And also this Buy America thing, will it include private investors? Like, will you require private investors to also buy American steel — for instance, for pipelines that you build?
MS. STROM: This briefing is on this particular executive order. If you have questions on those previous ones.
Q If you could just please —
SECRETARY ROSS: Well, there was an order issued on pipelines. You can read that for yourself.
Q A lot of the constituencies that put Trump in office have expressed concerns over renegotiating NAFTA and trade deals in general, particularly Iowa farmers — for example, corn farmers in particular. What is your message to these farmers who export a lot of their crop to Mexico who are worried that renegotiating these deals or ending them altogether could hurt their bottom line?
SECRETARY ROSS: Sure. Well, agriculture is one of the things that we do the best of any country in the world, and it is a huge source of export for us. So I can understand why they would have fear, because fear of the unknown is the worst fear. But our approach to the negotiations will certainly not be to undertake activities that would endanger the farmers. The farmers are very big sources of our export.
Our idea in the negotiations is to try to do better with exports, not to try to truncate them.
Q But President Trump has said uncertainty in business is tantamount to not knowing what your next move is, and some of these farmers have said, I’m not sure how much crop I need to plan, how much I need to budget for, because they don’t know what’s happening with NAFTA. Do you understand those —
SECRETARY ROSS: If I were a farmer, I would plant as much as I can logically plant under today’s environment. And I would — certainly wouldn’t shrink my production just because there’s going to be some renegotiation. I think that would be silly.
The fact is that most of the rest of the world is incapable of feeding itself. So it isn’t as though this is a discretionary purchase by people, nor, in most areas of farming, is there gross overcapacity in the world. So if some country would cut back on what they purchase from us by going to someone else as a competing vendor, then whoever else had been the customer of that competing vendor is going to have to buy our stuff anyway.
I think it’s highly unlikely that worldwide food consumption will go down just because we renegotiate trade agreements.
Q Just two quick questions. Can you clarify — I know you went over this, but I’m still not really understanding — how does this report differ from the earlier reports that this report is going to be looking for solutions where the other one was just looking at kind of the sources of trade deficits?
SECRETARY ROSS: Well, the difference here is it’s focusing on the agreements themselves rather than on behavior of individual countries. So the agreements are part of the target.
Q The agreements, including the WTO?
SECRETARY ROSS: Yeah, yeah, sure. The WTO is the biggest of all trade agreements. There’s 164 countries.
Q And also on South Korea, which you talked about earlier, and some of the geopolitical things there. If that trade agreement was going to be renegotiated, what are some of the things that you would be looking for from South Korea?
SECRETARY ROSS: I think we’re wandering a little bit off the topic here. If, as and when we actually begin negotiations with South Korea, and especially as we conclude them, that would be a great time to ask that question.
Q You describe the WTO as bureaucratic. How would you rate its effectiveness as an organizational body? Does it need to be modernized? Is it outdated?
SECRETARY ROSS: Well, I think any entity that’s been going for a real long time needs to be updated. I don’t think there’s any question about that. I think there’s also no question that we need some sort of an arbiter of international trade.
So at the 40,000-foot level, there’s a need. But when you get down to the ground level, the real question is implementation and how well has it been implemented. That’s where issues come on. Also, it was developed, for the most part, many, many years ago when the world was a very different place from what it was — what it is today.
You go back to the GATT, which is the father of world trade, in those days the U.S. ran a consistent trade surplus. So the whole viewpoint that our government had in negotiating the WTO was starkly different from what it is today. We were also in the process of trying to help countries rebuild themselves after World War II.
So the whole playing field is different, and therefore it’s not so illogical that some structural changes in the organization might be warranted.
Q I wanted to ask you —
SECRETARY ROSS: Let’s let this — she’s been very patient.
Q Thank you. For China, I wanted to ask, there are a lot of violations of different trade practices, let’s say, especially fair trade practices on the side of the Chinese government by sponsoring the local companies and basically depressing also the activity of foreign companies working inside China. So there are multiple — I’m sure you know all about that. So the question is, will those problems be somehow tackled in this particular order, or maybe some other ways?
SECRETARY ROSS: No, because one of the weaknesses in the current WTO is it doesn’t really deal very effectively with what I would call non-tariff trade barriers. And a lot of what you mentioned are non-tariff trade barriers, but they’re quite formidable ones.
And so that’s one of the things that really is lacking in the WTO.
Q Would this particular order — will that be investigated as well with this?
SECRETARY ROSS: Well, it would be looked at, sure. Because one of the elements that you want to look at in any treaty is not just what’s in it, but what’s left out of it.
Q What offices in Commerce will be performing this review?
SECRETARY ROSS: I beg your pardon?
Q What office at Commerce will be tasked with performing this review?
SECRETARY ROSS: Well, we’ve now — with so many reviews, we’re probably going to use a lot of the 47,000 people we have there. Thank you very much.
Q Any indication about the hiring freeze on Commerce?
MS. STROM: We’re going to have a factsheet on this, don’t worry, guys. It’s just going through approval. So I’ll send it to everybody. And I think you noticed our email system has been a little iffy, so if you need to email me, Natalie.M.Strom@who.eop.gov. And as soon as it’s ready I’ll send it to everybody.
Q Is this the last EO of the week that he’s signing — (laughter) —
MS. STROM: I don’t know that, but — I couldn’t say one way or the other but I certainly hope so, for my own benefit.
4:06 P.M. EDT
Source: White House Press