UNDERSTANDING PRESIDENT TRUMP’S REVOLUTION IN U.S. TRADE POLICY

1. UNDERSTANDING PRESIDENT TRUMP’S REVOLUTION IN U.S. TRADE POLICY A Presentation byRICHARD O. CUNNINGHAMSenior International Trade PartnerSteptoe & Johnson LLPWashington, DCAt the27th Annual International Korean Lawyers ConferenceOf theInternational Association of Korean LawyersSeoul National UniversitySeoul, KoreaSeptember 20, 2019

2. WHAT ON EARTH IS GOING ON HERE? • Until Now: Over 70 Years of U.S. Trade Policy • Leading proponent of multilateralism and of rules-based trading system: GATT, WTO, regional FTAs • Prime negotiating objectives • Open markets for U.S. exports and investments • Agree on rules for “fair” trade • Address unfair practices through international dispute settlement (WTO, FTAs) and through unilateral proceedings (antidumping, countervailing duties, etc.) specifically authorized by GATT/WTO • Understanding that economies evolve: agrarian to industrial to services to …BUT only sporadic and inadequate measures to assist workers/companies “left behind” by such transitions

3. WHAT ON EARTH IS GOING ON? (cont’d) • A Growing Share of the U.S. Electorate Feeling Aggrieved by “Globalization” and U.S. Trade Policy • Workers, companies and communities left jobless or impoverished by the disappearance of manufacturing • Geographic differences • East and west coast states – doing well • South and middle of the country – feeling “left behind” • Educational differences • Well educated people – especially STEM-educated – doing well • Less educated people – fewer and low-paying jobs, made worse by lack of retraining, worker mobility, etc.

4. WHAT ON EARTH IS GOING ON? (cont’d) III. If You Feel “Left Behind,” What Do You Blame? • Low-priced imports • Off-shoring of production (global value chains) • Bad trade agreements • Unfair foreign trade practices • Immigration • Currency Manipulation IV. The “Answer”: Donald Trump and “Make America Great Again”

5. PRESIDENT TRUMP’S TRADE POLICY • The New U.S. Trade Philosophy and Objectives • The purpose of trade policy is to provide economic benefits to U.S. workers and industries, not to liberalize trade or increase global welfare • Specific objectives • Restore U.S. manufacturing by bringing production back to the U.S. – global value chains are, for the most part, a bad thing • Maintain and expand U.S. technology leadership • Eliminate bilateral trade deficits and equalize U.S. tariffs with higher tariffs maintained by other countries • Eliminate foreign countries’ “unfair” practices – subsidies, IP violations, currency manipulation, etc. • Protect U.S. “national security” from cyberespionage/sabotage threats to the viability of essential U.S. industries, etc. • While the U.S. will continue to address foreign countries’ barriers to U.S. exports and investments, this has a reduced priority

6. PRESIDENT TRUMP’S TRADE POLICY (cont’d) • The New Approach To Trade Negotiations • Emphasis on bilateral, not multilateral negotiations • The WTO is viewed as ineffective, dominated by developing countries that do not share U.S. trade objectives • Negotiations are seen as fundamentally transactional, and U.S. has maximum leverage in bilateral negotiations • Leverage – through threats of tariffs, quotas, supply restrictions or other measures – is the essential element of U.S. negotiating strategy • Leverage need not to be consistent with WTO rules - § 232, § 301, etc. • A leverage measure may be put to multiple uses – e.g. auto tariff threat used to force Mexican immigration concessions, steel § 232 tariff used to extract auto and pharmaceutical concessions from Korea and to obtain release of U.S. person held by Turkey • Leverage is to be progressively increased until the country agrees to U.S. demands • The as yet unanswered question – Does the U.S. have adequate “game plans” for each negotiation? • Specifically, what is the “game plan” if, after leverage is raised to the highest level, the other country still will not reach the desired agreement?

7. PRESIDENT TRUMP’S TRADE POLICY (cont’d) • Taking Unilateral Action Against Foreign Practices • WTO dispute resolution is largely ignored • Takes too long • WTO Appellate Body seen as hostile to U.S. views [NOTE: While the AB has ruled against a number of U.S. trade remedy practices, the U.S. wins the great majority of cases it has brought against such foreign practices as subsidies, IP measure, market access barriers, etc.] • The U.S. is engaged in a campaign to force “reform” of the AB by blocking the appointment of new AB members. • In WTO-authorized trade remedy proceedings (antidumping, countervailing duties) the U.S. agencies increasingly employ methodologies criticized as (and sometimes found to be) WTO-inconsistent, including zeroing, differential pricing, NME surrogate country analysis, particular market situation, public body and finding injury for increasingly profitable industries. • The most important Trump Administration trade remedy policy, however, is the statutes that allow powerful unilateral measures with minimal procedural requirements and (in the Administrations view), no possibility of challenge in U.S. courts or at the WTO: § 301, § 232, entity list, procurement restrictions, etc.

8. TRADE POLICY MOVES TO TRADE WAR • Act One – The Crusade Against China • The dominant view in this Administration is that how China’s “state capitalism” will be allowed to function in the global trading system is The Great Trade Issue of Our Time. • The Administration has concluded that the WTO cannot or will not adequately address China’s trade practices. Accordingly, the U.S. is applying an array of unilateral measures: • “Pushing the envelope” in AD and CVD methodologies – NME methodology and “particular market situation” in AD cases; “public body” and treatment of currency manipulation as a subsidy in CVD cases. • Addressing subsidy – created overcapacity as a national security issue • Addressing threatened – not necessarily actual – cybersecurity and cybersabotage as national security issues through import restrictions, procurement restrictions and bans on supply of materials, components and technology to Chinese companies (“entity list”) • A § 301 proceeding against a broad range of Chinese practices – forced tech transfer, IP violations, subsidies, etc. – leading to progressive and severe tariffs on Chinese imports • Labeling China as a “currency manipulator”

9. TRADE POLICY MOVES TO TRADE WAR (cont’d) • Act One – The Crusade Against China (continued) • It must be emphasized that numerous Chinese trade practices do in fact raise serious concerns about consistency with WTO rules or with fundamental fairness. • In some instances, China simply denies the allegations • In other instances – notably subsidies – China defends its action by claiming it is a “developing country” • The problem, in my view, is not that the charges against China are without merit. Rather, the problem is that the approach taken by the Trump Administration is unwise and poses serious dangers to the trading system: • Rejection of WTO solutions in favor of “brute force” unilateralism, • A dangerous linking of trade policy with national security, and • Most important, U.S. demands for systemic, structural reforms that – as is becoming increasingly clear – China cannot and will not agree to. WHAT HAPPENS THEN?

10. TRADE POLICY MOVES TO TRADE WAR (cont’d) • Act Two – A Coming Trade War With the European Union? • While there have always been U.S.-EU trade disputes, the two have historically been allies on most major trade issues. • Today, however, a substantial number of major U.S.-EU issues are nearing trade war status: • The long-standing dispute over civil aircraft subsidies • The United States’ imposition of steel and aluminum “national security” tariffs • The U.S. threat to impose § 232 tariffs on European automobiles • The stated Trump Administration intention to support the UK over Brexit • The recently – initiated U.S. § 301 proceeding against France (with implications for other EU Member States) over that country’s imposition of a tax on trade in digital services • While these disputes do not pose the “clash of economic systems” presented by China, they are numerous, implicate large volumes of trade, and are all coming to a crisis point in the second half of 2019. And the EU has taken the “hard line” that it “will not negotiate under threat of U.S. sanctions.”

11. SOME IMPLICATIONS FOR KOREA AND KOREAN COMPANIES • Implications for Korea’s Trade Policy • Korea is caught in the middle, between its largest trading partner and a country Korea needs as a major geopolitical ally. What are its options? • Korea cannot explicitly take sides on the major issues in the U.S.-China trade war • However, Korea can and should continue its practice of challenging U.S. trade excesses – differential pricing, particular market situation, etc. – in WTO dispute settlement and (with caution) demonstrate impartiality by selectively challenging Chinese IP and market access practices • Korea can also take a leadership role in a multi-country effort to reform and modernize the WTO • Until the Trump Era, I have urged that Korea seek ways to act as an intermediary in Northeast Asia trade and geopolitical issues in which it, along with China, the U.S. and Japan, have interests. While that requires more caution today, Korea should still be alert for such opportunities.

12. SOME IMPLICATIONS FOR KOREA AND KOREAN COMPANIES (cont’d) • IMPLICATIONS FOR KOREAN COMPANIES • Korean industries will continue to be “innocent bystanders” caught up in trade causes where the main target is China. • Korean companies that have significant production in China should plan in advance to reduce the exposure of those operations to U.S. trade cases • Concentrate Chinese production on serving non-U.S. (and non-EU) markets • Where necessary, restructure value chains by shifting some production from China to less-vulnerable countries. (Caution: Other NME countries may not be the best choice.) Also, consider vulnerability arising from U.S. DOC’s “particular market situation” practice • Consider rule of origin issues • Some Korean companies may have opportunities to replace U.S. companies as suppliers to Chinese tech companies and to replace Chinese or EU companies in U.S. markets • In some industries, Korean companies may have to deal with competing international standards as U.S., China and EU compete in global standard-setting

13. A FINAL THOUGHT: U.S. TRADE POLICY REVOLUTION MAY NOT BE TEMPORARY There is a temptation to think that these changes in U.S. trade policy are a temporary Donald Trump phenomenon, and that U.S. policy will return to “normal” if President Trump loses the 2020 Presidential election. We should not be so confident that a Democratic Party President would fully reverse the current trade policies. • The unrest in the U.S. industrial heartland will continue, and the Democratic Party will respond to that. • This means that much of the trade war with China will continue under a Democratic President • The emphasis may shift away from unilateral measures in new initiatives, but it is unlikely that the Section 301 issues will simply be abandoned. • In addition, the aggressive U.S. methodologies in AD and CVD cases will almost certainly continue. • Some major changes in policy are likely, however: • The U.S. will resume its support of and leadership in the WTO • The U.S. is likely to rejoin the TPP • A U.S. vs. EU trade war is much less likely