Lighthizer Says China Trade Conflict Will Take Years to Resolve, but Tariffs May Not Last That Long

U.S. Trade Representative Robert Lighthizer said the effort to get China to change its industrial policy and intellectual property practices will take years, but added that "that's not to say what we're doing now will be in place for years." Lighthizer was testifying July 26 to a Senate Appropriations subcommittee on the administration's trade policy, and was pressed again and again on how long tariffs will continue to increase costs on American businesses, and how long retaliatory tariffs will damage their ability to export.

Only Sen. Joe Manchin, D-W.Va., provided unalloyed support for the USTR's views on NAFTA and tariffs, as all other senators from both parties hammered Lighthizer with stories about how their constituents are losing money because of tariffs, and with questions about why the administration is closing doors to exports, not opening them.

Sen. Jerry Moran, R-Kan., the subcommittee chairman who called the hearing, forced Lighthizer to admit that Japan has no interest in negotiating a bilateral deal. Moran's home state of Kansas has many beef producers who would have benefited from Japanese liberalization on beef imports that was part of the Trans-Pacific Partnership. Lighthizer said he and Trump feel "we have more leverage" when negotiating one-on-one. Moran also expressed skepticism that the European Union talk of buying more soybeans is a win by the administration, since the EU is a smaller purchaser of soybeans than China is, and because a shift of South American soybeans away from the EU and to China naturally would lead to U.S. soybean purchases. "When these trade issues are behind us, I'm worried we will have lost our purchasers," he said. Payments to farmers are a Band-Aid, he said.

When West Virginia's Republican Sen. Shelley Capito asked why the auto plant in her state has to pay more for Canadian aluminum, and asked what would happen if auto tariffs were placed on Canadian imports, given that half the engines and transmissions the plant makes go back to Canada to a Lexus assembly plant. "What's the end game here, and when will we get it," she asked.

"I'm meeting this afternoon with the Mexican side," Lighthizer replied. "My hope is that we will before very long have a deal with Mexico, and as a result, Canada will come in and compromise. I don't believe they have compromised in the same way the United States has and Mexico has."

A Canadian official who requested anonymity said Canada has been constructive throughout negotiations, and added that in order for negotiations to progress, all three countries have to be committed to "improving North American competitiveness and achieving an outcome that brings benefits to all three countries."

Lighthizer explained that Mexico would like to get a deal done before Dec. 1, and for the political timelines in the U.S. and Mexico to allow that, an agreement in principle would have to be reached by the end of August. "My sense is that's not an unreasonable time frame if everybody wants to get it done," he said, though he also later said, "I don't know if we'll get to an agreement -- it depends on everybody being reasonable."

One of the areas where Lighthizer thinks Mexico and Canada are not being reasonable -- and they think the reverse -- is on the question of a sunset clause after five years. Sen. Lamar Alexander, R-Tenn., warned Lighthizer that he would not vote for a NAFTA with a sunset clause, and he believes many Republicans would vote against it, too, "because it's not worth anything." Moran said after the hearing he also thinks a sunset clause is the wrong tack, and not just because businesses would dislike the uncertainty. "I've been through TPP numerous times in my time in Congress -- these issues are very difficult. They're very difficult politically even for members of Congress who are supportive of trade. The politics of trade agreements are hard to overcome, and the idea that we would renegotiate a trade agreement that would be hard to get approved in the first place every few years ... is not a good idea."

Many senators spoke about the trade war with China. Sen. Chris Coons, D-Del., said he was an in-house counsel for a global manufacturing firm for eight years, and knows the problems with Chinese intellectual property theft intimately. But virtually all those who spoke were critical of the administration's reliance on tariffs -- they believe they are being employed to the exclusion of other strategies.

The most heated exchange came between Rep. Brian Schatz, D-Hawaii, and Lighthizer. Schatz said that because of the pressure from constituents when retaliatory tariffs and ordinary tariffs bite, the U.S. cannot win a game of chicken with China. "They can wait us out," he said. "They can endure more pain over time than we can." When Lighthizer suggested Schatz doesn't believe China is a threat to America's economic future, Schatz cut him off, and said that's not what he was getting at. "It just means you don't pick stupid fights!" he exclaimed. Lighthizer, his voice rising, said, "I don't think it's a stupid fight!"

Several senators also said they think the use of a national security argument against allies like Canada and Sweden is not justified, and that by arguing that anything that damages the economy is a threat to the military, the administration has stretched the statute to absurdity. After the hearing, Moran said he will be calling Commerce Department officials to testify about Section 232 later in August. "We are anxious to have answers as to when this might come to an end. These are not answers that are easily attained."