At The Heritage Foundation, Portman Delivers Remarks on Trade Policy, Path Forward for U.S. Auto Industry
WASHINGTON, D.C. – U.S. Senator Rob Portman (R-OH) delivered remarks earlier today at The Heritage Foundation at their event “U.S. Automotive Industry Needs Free Trade.” He highlighted his Trade Security Act, the promise of the United States–Mexico–Canada Agreement, and the path forward on holding China accountable for violating our trade laws in a tough but fair manner.
Portman, who was the U.S. Trade Representative during the George W. Bush administration, has been a leading voice in the Senate on U.S. trade policy and serves on the Senate Finance Committee, which has jurisdiction over trade issues. Recently, Portman introduced the bipartisan Trade Security Act, which addresses the controversial use of a trade remedy tool called Section 232 to place tariffs on countries and products deemed to be a national security threat. The Trump administration’s decision to impose Section 232 tariffs on steel and aluminum from countries across the world—and possible future tariffs on automobiles and auto parts—has been met with concerns in Congress. The Trade Security Act would reform the Section 232 tariff process to ensure it is used solely for national security purposes and expand congressional oversight of this tool to prevent its misuse.
His remarks as delivered are below, and a video of the event can be found here:
“Terry has a great background as an ambassador to the United Nations, his work at the State Department, in addition to being author of this Index of Economic Freedom and I appreciate him having me here today. I think it’s a timely discussion, there’s lots going on with regard to the trade agenda. Lots of balls in the air. I’ve said publicly and privately to the administration there’s sometimes too many balls in the air because it’s difficult, having been a U.S. Trade Representative, sometimes to make progress on agreements when there’s so much going on. And I refer you to really four different prongs of the current trade agenda with the administration.
“One, of course, would be the Section 232 issue that was talked about here. That’s the exemption, really, to our trade laws for national security purposes. It doesn’t require showing any unfairness in trade. It doesn’t require showing that there is an influx of imports. It doesn’t require showing domestic industry being harmed. It is the ability under a section of the GAT and now WTO to be able to say, based on national security concerns, we want to put tariffs in place. And it’s only been used twice since its inception, which goes back to, I think, 1963. Both was with regard to oil in the ‘70s, one with Iran, one with Libya, and yet it’s being used today with regard to steel and aluminum tariffs.
“That’s the 25 percent tariff we talked about applied to the entire world, some countries have gotten exemptions from that, including the Republic of Korea, as was mentioned. There’s sort of a standstill with the EU on it, and then under the U.S.-Mexico agreement that was just announced, this is the update on the NAFTA, there is talk about having the 232 not apply there. But this is a, in my view, misuse of 232, and that’s why I have introduced legislation to kind of bring it back to its original purpose, which is true national security. In the case of 232 on steel and aluminum, as you may know, and Department of Defense—it is now known publically—did not support the national security basis.
“And by the way the same thing happened to George W. Bush when he came into office talking about putting steel tariffs in place. Originally he had talked about using this 232, the national security exemption. As you will recall, Terry, the Commerce Department, which has the responsibility for determining a national security threat, did not go along with that. They indicated this was not a national security issue so he ended up using another part of the trade laws, Section 201 as I recall, with regard to putting tariffs in place, which were short-lived. But the point is 232 has not been used traditionally as it’s being used now and that’s why I think it’s important to bring it back to what was intended back in the 60s, which was two national security situations.
“And specifically, our legislation would say two things, one, that the Defense Department, Secretary of Defense, would make the determination. They have the expertise after all to determine what is a national security threat and what is not. And again, in this particular instance, our understanding is that there was not agreement from DOD as to the 232 application to steel and aluminum. And then second, it says that with regard to the remedy, yes, Commerce would have the responsibility, whatever is appropriate, but that it would have the opportunity, also, to go back to Congress with the motion of disapproval should the Congress disapprove, to go back to the constitutional underpinnings of our trade policy, which is ultimately that Congress has the responsibility for commerce between nations.
“So, we think our legislation is appropriate. It is bipartisan. We are hopeful that that legislation can have a hearing and have a markup and that we can narrow the way 232 is applied because I think this using 232 has two potential problems. One is the fact that if we proceed with using 232 in this way, I think we will be taking away that tool in the future. Why do I say that? I believe that there will be cases taken to the WTO that will be successful, ultimately. There was one years ago with the European Union and us that was settled, but in this case if it’s clear that there are not national security reasons for the application, I think it’s possible that the WTO exemption for this might be taken away altogether, and I think it’s an important tool to have in the toolbox, in the case of national security problems. If you were to have a war and you were to need, for instance, the ability to avoid other countries from depleting, say, our steel and aluminum industries in order to provide the resources you needed for that conflict, that would be a case of national security.
“Second, I think if we continue to apply it in this way and not base it on fairness what will result is exactly what we have seen already, which is other countries saying, great that’s fine, the United States is going to put in place these tariffs without any indication of unfair trade. In other words, no indication of them sending us exports that are sold at below their cost, which is called dumping, or subsidizing, which happens by the way quite frequently with some countries. And when that does happen, the United States has laws to deal with that that again are laws that are appropriate under the international rules under the WTO, antidumping laws, countervailing duty laws. But other countries are going to say if it’s not based on fairness you can put tariffs in place for any reason, fine, we are happy to do that. Because it’s sometimes quite popular to do it from a populist point of view. That could lead to, which you’ve seen with some of these countries, an escalation of tariffs.
“When we put the 232 against Canada with regard to steel, as an example, I think the amount was about $23 billion, they in turn immediately put tariffs on some of our products, about half of that, I think about $12 billion. That included, by the way, agricultural products from Ohio, my home state, manufactured products from Ohio, my home state, and you had this escalation of tariffs, which ultimately is not good for economies of either country, certainly not good for consumers.
“I think those are the two risks you run when you say we’re not going to use our trade laws. Fairness is in the eye of the beholder, to a certain extent, I get that. But when you go to the process to determine what’s fair and what’s not fair, for instance dumping or subsidizing, or a surge of exports to the United States meant to destabilize an industry and then proving that industry is materially damaged, which is what the International Trade Commission and the ITA are responsible for determining—Commerce Department and International Trade Commission both have those responsibilities. If you go through that process and you’ve shown some unfairness, a lack of a level playing field. That’s what our trade policy ought to be based on.
“Terry and I may differ a little bit, because he’s more of a pure free trader and I’m not. Having been at USCR and representing Ohio, which is a huge manufacturing state, I do understand that at times it is appropriate for us to make that determination of what is fair and what is unfair. And in turn require that level playing field and ideally what you end up with is a situation where both countries agree to back down. So in other words, rather than raising tariffs on our side and having the other country raise tariffs, which harms both countries’ economies and consumers in both countries, you want to go down to the lower level, and the United States, frankly, is relatively open and free economy. Our tariffs are relatively low compared to other countries. There are some countries that have even lower tariffs, they are the exception, but we should be encouraging every country in the world to adopt the lower tariffs, lowered barriers but to do it in a fair way.
“What the administration has done is, one pursue this 232, which we talked about. Second, they have renegotiated NAFTA, so it’s an updating of NAFTA. That’s the U.S.-Mexico agreement, USMCA. I think they could’ve found a better acronym. I call it USMCA, which you know just trips off the tongue, doesn’t it? It’s just a beautiful acronym. But anyway, USMCA is the second one, and I’m delighted that we reached an agreement with Mexico and Canada, by the way. I, again, representing Ohio, did have some concern with the existing North American Free Trade Agreement because it had not been updated 24 years and it was time to do it. Things like electronic commerce, as an example, but also on other issues where there needed to be some changes on the labor and environmental side and so on. If those are brought up to speed with other agreements, there are others aspects we will talk about in a second but that was an initiative, which again with so many balls in the air, my concern was we would probably take too much time to get the result because we were distracted by so many other things and it did take too much time but we got there.
“Now we have this new agreement that has been decided on. It won’t be voted on by Congress until next year because of the amount of time it takes under our trade promotion authority in Congress. I would say there’s one small caveat, which is you could, if Congress agreed, you could expedite that process a little bit and try to do something before year end but it will be difficult to do that. But that’s possible, but more likely it comes up next year.
“So, you have 232, we talked about. You have the U.S.-Mexico new free-trade agreement between North American countries, which is very important. By the way, for Ohio our biggest trading partner by far is Canada, by far. Second is Mexico. China is a distant third. So for us it’s incredibly important to have that in place. Third, I would say is rebalancing trade with China. That’s the Section 301 case against China. That’s different from 232 because it is based on a sense of fairness or unfairness. The WTO may well step in at some point as they have in the past and say that the 301 is not properly being implemented, but the fact is if you read that 301 case against China it’s very specific as to what we are asking for.
“It does have to do primarily with intellectual property, so it has to do with hacking, licensing agreements, joint venture requirements and things where China is not playing by the rules. In other words, is not a level playing field. If a Chinese company wants to come here, by the way, and set up a company they are free to do so and they do it. But the same is typically not true with regard to U.S. investment there, as an example. The intellectual property that is often taken in this process is then used not just in China but often comes back here to this country to be used unfairly in the sense that we have intellectual property laws in place to protect, whether it’s manufacturing processes, patens or trademarks.
“That’s what that issue is about. That one again would be great if we could have some resolution. What I promoted there is, having negotiated with China when I was U.S. Trade Representative, they were very good negotiators. So when I meet with the Chinese ambassador about this issues, as I have recently, and they say they are confused, what are our objectives? I point them to the actual petition, actually the trade case itself, which again is very specific. It’s not just about buying more soybeans, although that would be nice. We sell a lot of soybeans to China from Ohio, and we appreciate that market, but is about structural changes in their trade relationship as a mature trading partner now and as an export driven economy we’re simply saying they should play by the rules.
“I met this morning with the presidents of the major research universities in America, as an example. There’s a concern about Chinese access to intellectual property through our research, as one example. That’s the third front. The fourth front I think is actually very exciting, and that is more trade opening agreements.
“So you’ve heard recently from the U.S. Trade Representative that they’re interested in opening up new agreements potentially with the EU, with Japan, with the UK. I started a group last year on UK, maybe it was earlier this year, a caucus when the Brexit vote occurred that said that we would like to have a free-trade agreement with the UK as they exit the European Union. I think that’s an important first step toward a broader UK agreement because we have the ability with the UK to put together an agreement relatively quickly. We have very similar approaches to trade. We have relatively low tariffs. We have the opportunity to change some of the standards to make them more uniform and to really improve trade between our two countries. My hope is we’ll be able to do that. That’s exciting to me.
“With trade agreements, sometimes they get criticized, including sometimes by our commander-in-chief, and I’ve talked to him about this issue, so I’m not saying anything I wouldn’t say to him publicly and privately. You have to look at our trade agreements and the objective as to what the result has been, and that is good for exports and good for American workers and American farmers. So are all the agreements perfect? No, no agreement is perfect. Did we need to update NAFTA? Yes, we did. It is appropriate that we did so. However, we only have trade agreements with about 10 percent of the global economy. In fact, it’s less than 10 percent. Let’s take 10 percent. Think about it, we don’t have trade agreement with Japan, EU or China. We have trade agreements with some important countries like Mexico and Canada, but the largest economies we don’t have a trade agreement with. Where we have a trade agreement, which is about 10 percent of the world, about 20 countries, we actually have a trade surplus, barely, but we have trade surplus. 10 percent of the world actually accounts for 47 percent of our exports. So 47 percent goes to less than 10 percent of the world. Those are the countries with which we have trade agreement.
“The context of a trade deficit of about $500 billion, to have a trade surplus, slight trade surplus with these countries is significant and we should think about that. As important as it is to have balanced trade, as I call it, and that is to have this level playing field, and again a pure free-trade position as Terry explained eloquently earlier, would say that balanced trade is not as important because ultimately consumers benefit more from just open trade without worrying about the balance, but from that perspective I think it’s really important we open up more markets and that’s why I’m excited about, again, their interest in moving ahead with an UK agreement, moving ahead with a broader European Union agreement, with Japan, which would then bring us in more to other countries obviously in the Asia Pacific region, which would be good with regard to our continued economic competition with China, to have not just a bigger footprint in that region of the world, but also to help develop some of the standards so that they are based on market economies and knocking down barriers, transparency, all the things we know will lead to better economic growth in the Asia Pacific area. Those are the four areas that they’re working on and they are all really important.
“Since we’re talking about autos today, in part, they are all really important to the auto industry. If you think about it, our auto industry is a huge industry here in this country but also a huge export industry. Ohio, by the way, is a second largest automotive state in the United States both by vehicle output and also by the number of jobs we have, about 100,000 auto workers in Ohio. We are also the number one producer of engines and transmissions in the country. Take that, Michigan. I’m co-chair of the Senate Auto Caucus. I’m from a big auto state and I think it’s critical we do all we can to support and grow this industry that’s so important to our state. And again, I think this two-pronged approach, one, make sure imports are fairly traded, and two, aggressively opening up markets overseas works perfectly for the auto industry.
“For those of you don’t know it, the auto industry is our single largest export sector, and this is a surprise to some people who think it might be soybeans or the ag-sector. But nearly one in five American-made cars and trucks are being sold overseas. So the Jeep plant in Toledo, Ohio, sends Wranglers overseas. It’s important to have access to these foreign markets. It’s vital to the health of the auto industry as it is to our economy as a whole. Just like everything else, as a I said earlier, the auto industry does face unfair competition. I may differ from some in the room, but currency manipulation is one of them. When a country purposely manipulates its currency to have an effect on trade, it hurts our ability to sell cars overseas. I would use Japan as an example. Japan is intervened in its currency markets 376 times since 1991. By the way, foreign import penetration in Japan is less than six percent, and the U.S. penetration is far less than that. That’s partly because of currency manipulation, partly for other reasons. It’s not the only reason. Standards and technical barriers are one way that countries, including Japan, box out American auto exports. Some countries will not accept the Federal Motor Vehicle Safety Standards, making it difficult if not impossible for American cars to be on their roads. That’s in a sense a protectionist approach but hidden as a standards issue. I’ll give you an example, Colombia and Ecuador recently tried to restrict the American Safety Standards in favor of European standards. USTR, to their credit, recently was successful in having those countries revise their regulations to protect that market for U.S. vehicles.
“As we open new markets we need to ensure our trading partners do respect our laws and play by the rules instead of deciding to subsidize certain industries that are favored by them, and we need to be tough but fair with regard to countries that cheat, we need to have a level playing field. If we do that I believe American businesses and workers will be fine. There’s some countries that are going to have a competitive advantage on labor rates, as an example, but we have a competitive advantage on other things, including energy costs now, including our research and development here. And I think if it’s a level playing field we could compete and we could win. American workers believe that, too. We have legislation that I introduced in 2015 that’s working to do just that. We called it very, creatively, The Level the Playing Field Act, and it’s actually working to make it easier on the front-end for workers and for businesses to win cases before the International Trade Commission, basically saying let’s expedite these cases, get them decided quickly so that when something is dumped, sold at below its cost or subsidized, you won’t have to wait so long that your company goes out of business or you lose a lot of your workforce to resolve the issue.
“I also co-authored what was called the ENFORCE Act in 2016, which helps on the back-end. So the front-end is the Level the Playing Field Act, but the back-end is once these tariffs are in place because of unfair trade, how do you ensure that they’re actually implemented? Countries and companies, foreign companies, try to evade those tariffs and so we need to have a stronger enforcement effort to ensure that there is a level playing field both on the front and also on the back-end to make sure new duties are actually being enforced. Those are things that are going to help with regard to trade and keeping it fair.
“On the NAFTA agreement, because it was talked about earlier, 24 years ago we had more auto jobs in America obviously when NAFTA was first written. For a lot of reasons, some of it was automation for sure. Some of it is implementation of technology to make the production more efficient. But it’s also interesting that we’ve lost about 350,000 auto jobs while Mexico has gained about 430,000 auto jobs since that time. That’s a fact. It doesn’t mean all that is because of unfair trade again, but I do think some of the aspects of the new USMCA are going to help. I think specifically, and it was talked about, the percentage that has to be made in North America to apply for tariff-free treatment. Again, I may have difference with Terry on this, but the idea is that you have this agreement between these three countries and if you want to take advantage of the lower tariffs between these countries, then you don’t want to have have cars coming in and being sold essentially from, let’s say China or Japan, into Mexico and then without having a lot of value added to the car, have it be sold into this market and take advantage of this market when we are not getting the same advantages in Japan or China for our products. The idea is to have an agreement that works in these three countries.
“So there was, 24 years ago, a 62.5 percent requirement that the value of the vehicle, 62.5 percent of it where an auto part had to be made in one of the three countries to take advantage of the agreement. This new agreement ups that to 75 percent. I know the auto companies will be talking later today, they can talk about what they think about that, but my sense is most of the auto companies are okay with that. They were not okay with some of the aspects that were discussed in the agreement, nor was I, but I think we resolved something there that will work for the U.S. autoworkers and U.S. auto companies.
“For the first time these new rules of origin will require 70 percent of the steel used in the vehicle to be North American steel. And again, pure free traders will say that’s not appropriate. I would say, this is an agreement between our three countries and I think it’s appropriate that that steel be produced as much as possible within those countries, given what’s happening with regard particularly to China, where they have an enormous overcapacity of steel production. They’ve gone from about 15 years ago producing 15 percent of the global steel to about half of the global steel today in China. They don’t need it. So they send it out to other countries. There is a glut and they often sell it below its cost and some of it comes to our country, some of it directly, some indirectly, most of it indirectly from other countries. You want to avoid that issue in order to, again, establish what your fairness standards are, and we can disagree or agree on that but then have those standards be applied. That’s part of the changes you’ll hear about today from the auto industry.
“I want to hear from them to see what they think about it, but I think in the end we ended up with an agreement that provides some stability and predictability, and I think perhaps most important for me is that there is talk about now applying the 232, this is the national security waiver we talked about at the outset, to autos. Recall, I said with regard to steel and aluminum, I think we need to have a level playing field but we have to be sure it’s based on some sense of fairness. And, again, there can be a debate on that but let’s determine what that is, not just based on national security when it’s not a proper use of national security. There is discussion of now saying we’ll do that to autos as well as we have with steel and aluminum. I would suggest again balanced trade. Let’s be sure it’s fair, let’s aggressively pursue our trade remedies and trade enforcement. Let’s not apply 232 to car imports from places like Canada where we don’t have national security concern. In fact, what we have is a supply chain that goes back and forth from Northern Ohio and Canada constantly as an example, back and forth with parts and so on. So I think using 232 would be a mistake with regard to autos.
“In the agreement, the U.S.-Mexico agreement, we talked about, USMCA, there was a side letter that basically gives Mexico and Canada a safe harbor on 232 on autos. In other words, they now don’t have to fear the application of the 232 as is being threatened. I think that’s really important and in some respects that may be the most important part of the agreement in terms of the future stability of the car industry in America. Again you’ll hear from experts on that. Because they’re the ones had to deal with this every day. I think they are looking for that predictability and that safe harbor, so I’m glad that happened. And again I think it’s a mistake for us to misuse 232 whether it’s on autos or other products for all the reasons we talked about earlier. We may well lose the tool altogether. We are going to see higher tariffs being happily applied to our exports of agricultural manufacturing services, goods and services, so I do hope that we will be sure that we are sticking to our fairness standard. By the way if you did apply 232 to autos, the best estimate I’ve seen is it would increase the cost of making a car in America by about $2,000. They may have higher numbers today because I know there’s some that will be even higher than that. There’s another study saying it could cost 624,000 American jobs. That seems high, but on the other hand, let’s hear from the experts. So this has real consequences in terms of my state of Ohio and our country and our consumers. I would say that autos help run our economy. They don’t run a national security risk. And again that’s why we’ve introduced this legislation called the Trade Security Act, which takes us back to the original intent with regard to how the 232 ought to be applied.
“Finally with regard to China, I would just say there are lots of issues. We talked about intellectual property issues earlier, Republican and Democratic administrations alike have tried to deal with China on the trade issue to try to get their attention and, frankly, China continues to violate and circumvent our trade laws in so many respects. I hope the administration’s latest action will get their attention but I hope we can resolve it. I will be clear on what our objectives are and it will be based on a sense of fairness. On autos, just quickly, we talked earlier about China’s interest in acquiring more technology. They have been consistently acquiring American automotive technology. They require a joint venture for auto production if you want to make a car in China it’s got to be a joint venture. The non-Chinese investor, U.S. company is capped at 50 percent. Usually it is 49 percent. 51 percent Chinese owned, as a maximum for the foreign investor. They have acquired information technology, and it’s made it harder for foreigners to invest in autos.
“Before 2010, China encouraged the manufacture of automobiles. Then they permitted it, from 2010 to 2014. Then in 2015 they restricted it to bolster its favored Chinese companies. So we’ve gone from encouraging, having companies go to China. I remember being there in the 1980s when Jeep first set up a factory there and was encouraged at that time getting the technology was important and getting the jobs. Then they permitted it and then they restricted it. And so for electric cars, China has put barriers on other countries exports to pressure foreign companies to bring technology there for manufacturing. The result is nearly 500 electric vehicle producers in China. I think soon these Chinese electric vehicles will be arriving here in this country. What we’re seeing with electric cars is right out of the playbook they’ve used with regard steel, overcapacity. We know how the steel overcapacity has turned out. Overcapacity has hurt our steel industry and other steel industries around the world, which again is why this trade enforcement is important.
“I do think we have to resolve these issues and they are tough issues. Again, I look forward to hearing from the companies today as to what they think about autos in China. I will say that American ingenuity and assembly-line automobile manufacturing is what made owning cars possible for everyone. I still own and drive in 1917 Model T, and so I think about it every time I drive my Model T, wow this thing is 100 years old and it was made right here in America. That technology is something we want to be able to maintain and then to use so other countries can benefit from it around the world.
“I think, ultimately, it’s about the two-pronged approach, this balanced trade approach. One, enforcing our trade laws to ensure that imports coming in are not unfairly treated, and doing so aggressively but on the basis of fairness. And then second, expanding markets. So important. I think our trade agreements are an example of that and we should do more of them. If we do so then American workers, American farmers, and American service providers are going to benefit. Thank you all for having me here today. It’s great to be back.”