Conversations: Trade & Tariffs With Lewis Liebowitz

Earlier today, GFTZ President & CEO Julie Brown spoke with Lewis Liebowitz, an international trade and Customs attorney based in Washington, D.C. about where U.S. international trade is headed.

Q: Lewis, tomorrow is election day. Trade will surely remain a focal point in Washington no matter the outcome. Tell us what the trade landscape looks like today.

A: Most people are interested in how imports are trending, based on what I’ve been hearing. So let’s look at that first.

Since 2018, imports into the United States are down. In 2018, total imports of goods were about $2.55 trillion; in 2019, total imports were $2.50 trillion, a decline of 1.9 percent. From January-August 2019, imports were $1.67 trillion; in 2020, January-August, imports were $1.48 trillion, down about 11 percent from 2019.

Second, let’s look at the reasons for the changes. There was government action—in 2018, steel and aluminum trade restraints were imposed, along with Section 201 actions on washing machines and solar panels. Tariffs on the European Union related to the Airbus-Boeing dispute caused a decline in imports from Europe.

There were also the Section 301 tariffs on China, which took effect in significant terms in 2019. Imports from China in 2018 were $544 billion, and decreased to $455 billion the following year, a decline of 16.3 percent. In 2020, January-August, imports from China were $263 billion, down 13.4 percent from the same period in 2019. Most of the government action affecting China was the Section 301 tariffs. The decline in imports in 2020 was mostly due to the coronavirus; the Phase One China agreement actually reduced the impact on China of the Section 301 tariffs.

Q: But what about COVID-19? The pandemic surely has to account for a significant portion of the declines in imports over the last eight months or so.

A: Yes, the coronavirus was largely responsible for a decline of imports from the world at large in 2020. The lockdowns during the late winter and spring of 2020 brought many sectors of the economy to a halt. It is legitimate to ascribe the lockdowns to government action; but it was not action aimed at reducing imports.

Q: So, do you see imports likely increasing?

Looking at all the factors together, it’s not easy to attribute the general decline in imports from year to year to government action to curb imports. The trend has been up, and imports were essentially equal in 2019 to 2018 levels. The tariffs probably prevented an increase in imports but they were not sufficient to roll them back.

So, the first trend, I think, is that imports are likely to keep increasing as long as U.S. economic activity is increasing. Remaking U.S. strategy regarding global commerce will, in a democracy, not be able to reverse trends 80 years in the making. Government policy can shift imports among source countries, which the China tariffs certainly have done; but moving commerce from offshore to domestic will be much harder. Tariffs can’t accomplish those goals because voters will not permit it for long.

The second trend, in my view, is the reordering of global trade to include like-minded countries and regions and exclude others. There appears to be a growing consensus among analysts that the strategy to change behavior of emerging economies, chiefly China, through engagement and peaceful competition has not succeeded.

Q: What can be done to change that?

A: There is no consensus regarding the actions needed to change that result. So far, tariffs have, according to most analysts and the media that writes about it, hurt the United States more than our adversaries; China’s behavior has not changed and is not likely to change in the foreseeable future.

Q: To what extent are U.S. imports raw materials, manufactured products used by industry or finished consumer goods?

A: U.S. imports in 2019, the latest full year, show that manufactured goods are the runaway leaders in U.S. imports. The top five sectors have held steady for most of the last decade, with the 2020 share of imports in parentheses:

• Machinery and mechanical equipment (15%)
• Electrical machinery (13%)
• Vehicles (10%)
• Pharmaceuticals (6%)
• Oil and gas, other minerals (5%)

There have been some big changes in some of those percentages. The biggest change has nothing much to do with government policy, although that could change if the federal government turns against fracking: in 2011, oil, gas and mineral imports were a whopping 19 percent of total imports; now they are 5 percent. Fracking has changed the landscape. Manufactured machinery and components, the first two categories listed above, have held steady for the last ten years.

Q: Look ahead, if you can. What are the big debates about over the next four years?

A: The next four years will feature, I believe, a vigorous debate over many issues regarding global economics and foreign policy, which are increasingly intertwined. Imports have been on a steady upward tilt during good times for several decades now. The blip in 2019 is not likely to reverse that.

Instead of merely chanting that China “must be held to account,” we will need to get specific about what policies will put more pressure on China to change their behavior. Equally important, we need to discuss what policies will change our behavior. Our economic future depends not so much on identifying foreign practices that hurt us as identifying our own bad habits and changing them. We are not as good, compared to other countries, as we used to be. And standing still in an increasingly competitive world, means getting run over from the rear. We must continually improve what we do best or we will slide.

Whoever wins on Tuesday, or some later date, both of those debates will be front and center.