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WHICH WAY IS THE MORAL TRADE COMPASS POINTING? U.S. LOSES WTO ARGUMENT THAT TARIFFS ON CHINA PROTECT U.S. PUBLIC MORALS

public morals

WHICH WAY IS THE MORAL TRADE COMPASS POINTING? U.S. LOSES WTO ARGUMENT THAT TARIFFS ON CHINA PROTECT U.S. PUBLIC MORALS

Tariffs as a Proxy in a Larger Economic (and Moral?) War

By July 2018, the United States and China had each fired off the first shots in a tariff war that would escalate over the next year (see TradeVistas’ timeline here).

With higher tariffs on $60 billion in its exports to the United States and staring down the barrel of tariffs on another $200 billion, China requested the establishment of a WTO dispute settlement panel. Specifically, China sought for a panel to review whether U.S. tariffs – imposed unilaterally and without WTO authorization – violated the United States’ basic obligations to provide most favored nation treatment to China according to the U.S. schedule of tariff commitments in the WTO.

The dispute was triggered by the issuance of a March 2018 report describing the findings of an investigation by the Office of the U.S. Trade Representative under Section 301 of the Trade Act of 1974 into China’s unfair acquisition of U.S. intellectual property and technologies. In its first line of defense, the United States contends that most of the practices it reviewed as part of this investigation are not covered by existing WTO disciplines and therefore the measures it took (the tariff increases on imported goods from China) are “fundamentally not about WTO rights and obligations.”

Fast forward past the legal proceedings, the WTO panel to hear China’s claim issued its final report to the United States and China in June and it was made public on September 15.

The United States argued that, even if the panel finds it violated its WTO commitments to China, it was justified on the grounds that the tariffs were necessary to protect public morals.

It lost the argument. Here’s how. (Disclaimer: this is not a legal brief but rather a plain reading of the panel report.)

Summary of case

Going on the Moral Offense

USTR did initiate a WTO case against China focused on those practices it determined are covered by WTO disciplines and therefore could be addressed through WTO dispute settlement. But the United States also claims that the bulk of China’s practices contained in the scope of its Section 301 investigation are not addressed by WTO disciplines.

Further, the United States argues that China’s practices such as requirements upon foreign companies to transfer their technologies or license on non-market terms, and cyber-enabled theft, “undermine U.S. norms against theft and coercion and undermine the belief in fair competition and respect for innovation, all of which are key aspects of U.S. culture.” In other words, combatting them is a matter of protecting “public morals”.

First Things First

There’s an order in which a WTO panel considers the constituent parts of a case. In this case brought by China against the United States, the panel first reviewed whether the U.S. measures in question (several tariff increases covering different sets of products from China) were inconsistent with U.S. obligations. If so, the panel considers whether the inconsistency is justified as “necessary to protect U.S. public morals” under Article XX(a) of the General Agreement on Tariffs and Trade 1994 (GATT 1994).

GATT XXa

The United States did not refute China’s case that the tariff measures are inconsistent with U.S. market access obligations (under Articles I:1 and II:1(a) and (b)). Therefore, the WTO panel found in favor of China on this point and moved on to consider the U.S. argument that the WTO-inconsistent tariff measures were necessary to protect U.S. public morals, within the meaning of GATT Article XX(a).

Making a Moral Case

Article XX(a) was part of the original GATT 1948 but it was not invoked even once in the subsequent almost 60 years.

It has since been argued by WTO members to justify measures designed to prevent money laundering, organized crime and gambling within a Member’s territory (a dispute between Antigua and the United States over Internet gambling), by China (unsuccessfully) to prevent the distribution of foreign movies and other audio-visual entertainment, and by the European Union to restrict imports of seals and seal products, a case in which the panel accepted that animal welfare falls under public morals but struck down the form of the measure under dispute.

Brazil sought to use the public morals exception to exempt certain domestic companies that produce television equipment from paying taxes as part of its public morals objective of “bridging the digital divide” in Brazil.

The Sum of the Parts

There’s a certain amount of deference given to WTO members to define public morals, which shift in nature and importance within societies over time.

Because the exceptions in Article XX are seen as limited and conditional, the burden lies with the WTO member invoking the exception to prove the measure indeed falls within the scope of the exception.

On the basis of this justification, WTO panels apply several “tests”: Has the WTO member justifying a measure under this exception demonstrated that the measure protects public morals? Is the measure “necessary” to achieve the stated public morals objective? Is the measure being applied in a manner that constitutes “arbitrary or unjustifiable discrimination” within the meaning of Article XX?

In this case, according to the panel, the onus was on the United States to explain how its tariff measures contribute to its public morals objective as well as how the scope of WTO-inconsistent tariffs do not apply beyond what is necessary within the meaning of Article XX(a) of GATT 1994.

A Means to the End

At its core, the United States argued that tariff increases were necessary to induce a change in China’s cost-benefit analysis – in other words, the economic stakes needed to be high enough that China would be convinced to discontinue its alleged technology and intellectual property theft. Tariffs were necessary because previous forms of diplomatic and trade negotiation engagements had demonstrably failed.

The United States also argued that a ban on imports of Chinese products into the United States would represent an overly trade restrictive measure; in contrast, tariff increases are not overly trade restrictive.

Not Necessarily So

Part of the panel’s job is to judge whether the measure is a genuine means to an end. In this case, did the tariffs contribute to the public morals objective and, even if so, were WTO-consistent or less trade-restrictive alternatives available to achieve the same outcome?

Simply saying the tariffs were necessary isn’t a sufficient defense. Some quantitative or qualitative assessment must be presented to form the basis of a conclusion by the panel.

Immoral Goods?

In an interesting and important angle to the case, the European Union argued in a third-party brief that Article XX(a) requires that the risk to public morals manifest itself either in the content of the goods themselves or in the methods in which the goods were obtained or produced – that demonstrating so affords a sufficient nexus between the public morals objective and the measure restraining imports of those products.

Related to this focus on the products ensnared in the measure, China argued that the goods subject to increased tariffs went well beyond the scope of products that “may have” received the benefit of technology transfer or intellectual property theft. In their view, the measure was overly trade-restrictive and not related to protecting public morals.

In its rebuttal, the United States countered that the text of Article XX(a) does not require a direct correlation or “embodiment” between the products subject to the measure and the public morals being protected. Although the tariff measures included Chinese goods that benefit from “unfair and immoral Chinese technology transfer policies,” tariffs on goods not directly involved in these practices were included as well to reach a scope of tariff penalties more broadly commensurate with the estimated overall harm to the U.S. economy of China’s practices.

The United States also found itself defending the use of a common form of public consultation. USTR amended the scope or provided exclusions from the tariffs on the basis of public comments. However, the panel found it unclear how or whether public moral concerns factored into those decisions or whether any such exclusions would “undermine or run counter to the stated U.S. public morals objective.”

Case Not Made

Ultimately, the panel viewed the U.S. explanation for the nexus between the nature of the measure (the specific tariffs applied to specific lists of goods) and the public morals objective as insufficient. The panel ruled against the United States – in other words, the measure did not appear to be “necessary” to achieve the public morals objective.

Having concluded that necessity wasn’t proven, the panel did not compare the U.S. use of tariffs with any alternative measure or assess whether U.S. tariffs on goods from China constituted “arbitrary or unjustifiable discrimination” or “a disguised restriction on international trade”. Case over.

Lighthizer quote

Moral Dilemma

The WTO panel ruling in this case may have no practical effect. The United States could appeal the outcome, but the WTO Appellate Body does not have a sufficient number of appointed members to operate, so if the United States does not agree to adopt the panel decision as it currently stands, the case is stuck in a legal limbo.

Meanwhile, tariffs on goods from China remain, and tariffs on U.S. goods to China remain. If the United States did appeal and lost, the WTO panel could authorize China to retaliate – normally in the form of tariffs. But such authorization would merely formalize the action China has already taken without WTO permission – a hypocritical outcome at best.

More important than the dueling tariffs, the United States is aggrieved that China used the WTO as a shield for its “unfair and trade-distorting technology transfer policies and practices not covered by WTO rules” and that China committed the same WTO offense of applying tariffs on U.S. imports without awaiting the outcome of its case or receiving authorization to do so. That’s having your cake and eating it too.

In concluding comments, the panel observed that the “wider context in which the WTO system currently operates reflects a range of unprecedented global trade tensions,” perhaps an oblique acknowledgement that the issues the United States raised are indeed beyond the reach of current multilateral agreements.

USTR Ambassador Robert Lighthizer thinks so. In a press statement issued the day the WTO panel report went public, Lighthizer said the panel decision, “shows that the WTO provides no remedy for [China’s] misconduct.”

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

tiktok

D.C. District Court Judge Blocks Commerce’s TikTok Ban

A federal judge from the U.S. District Court for the District of Columbia granted TikTok’s motion for preliminary injunction, resulting in a nationwide temporary suspension of an order from the U.S. Department of Commerce (“Commerce”) for Apple and Google to remove TikTok from its U.S. app stores.

Last week, Chinese social media app WeChat was separately granted a similar injunction by a federal judge from the U.S. District Court for the Northern District of California. The two China-based smartphone apps are facing impending bans pursuant to Executive Orders (“E.O.”) 13942 (for TikTok) and 13943 (for WeChat), issued by the President on August 6, 2020.

Following the court’s ruling, Commerce issued a statement that it intends to comply with the injunction, but that it also “intends to vigorously defend the E.O. and the Secretary’s implementation efforts from legal challenges.” The preliminary injunction effectively grants TikTok’s parent company, ByteDance Ltd. (“ByteDance”), more time to finalize and obtain approval of its agreement with Oracle and Walmart. The pending deal over TikTok will still need to be reviewed and approved by both the Committee on Foreign Investment in the U.S. (“CFIUS”) and the Chinese authorities.

The court denied TikTok’s request for an additional preliminary injunction against the implementation of the second set of restrictions, which take effect on November 12, 2020. These restrictions would prevent the provision of internet hosting, content delivery networks, or other internet transit services to TikTok.

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Beau Jackson is a Kansas City-based partner with the law firm Husch Blackwell LLP. He leads the firm’s Section 337 practice.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

 

tariffs

WTO Rules that U.S. Section 301 Tariffs on Chinese Imports Violate International Trade Rules

The World Trade Organization (WTO) dispute settlement body ruled that the tariffs imposed by the U.S. on imports from China are inconsistent with the General Agreement on Tariffs and Trade (GATT), and recommended that the U.S. “bring its measures into conformity” with its obligations under the GATT. Beginning in 2018, at the direction of President Trump, the U.S. imposed tariffs on $400 billion worth of imports from China over 4 different lists or tranches. The U.S. and China negotiated a “phase one” trade deal earlier this year, however, most of the tariffs were still left in place.

The WTO panel concluded that the U.S. failed to demonstrate that the tariff measures are justified under Article XX(a) of the GATT 1994.  As a result, the panel found the U.S. tariff measures to be inconsistent with Articles I:1, II:1(a) and II:1(b) of GATT 1994. In other words, the WTO found that the U.S. tariffs on China were discriminatory and excessive, and the U.S. failed to present justification for an exemption that could have legally allowed for the tariffs.

Despite the WTO’s recommendation, its ruling is highly unlikely to sway the course of U.S. trade policy. This is not only because of the limited authority of the WTO, but also because the administration has argued that the tariffs are justified under U.S. law. Section 301 of the Trade Act of 1974 provides the U.S. government with the authority to impose trade sanctions on countries that violate trade agreements or engage in unfair trade practices, of which the U.S. has frequently accused China.

The WTO’s ruling is likely to increase the current U.S. administration’s distrust of the WTO. U.S. Trade Representative Robert Lighthizer criticized the ruling, saying “the United States must be allowed to defend itself against unfair trade practices…” and that “[the WTO’s] decision shows that the WTO provides no remedy for such misconduct” by China.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

wto

AMERICAN DOUBTS ABOUT THE WTO ARE GROWING LIKE WEEDS

Polls show that Americans are concerned about the rise of China and what it means for the U.S. economy and global standing.

U.S. leadership in the WTO could serve as a valuable counterbalance to China’s growing influence. But first, Americans need to know why they should care about the WTO.

The jungle is growing back

In The Jungle Grows Back, foreign policy scholar Robert Kagan cautions that the past seven-plus decades of relative free trade and expanding individual freedoms were not inevitable and may be “a great historical aberration” – the jungle grows back.

The World Trade Organization (WTO) was sown from the seeds of democratic, free-market ideals. But China’s state-directed economic approach has growing influence and WTO members have been unable to cultivate modern trade deals to counter it.

Meanwhile, new TradeVistas polling shows Americans are mostly unaware the WTO – which represents the U.S.‘ own free-market principles – has reached this pivotal moment. The WTO’s detractors are free to plant doubts that, left untended, will grow like weeds.

Two-thirds of Americans are ready or open to the idea of leaving the WTO

Presented in detail in our companion article, Do Americans Want the U.S. to Leave the WTO?a TradeVistas poll conducted earlier this month finds that most Americans either support leaving the WTO or feel “indifferent” or “unsure” about whether to withdraw from the organization.

It’s not that Americans are necessarily focused inward, though COVID-19 has stimulated concerns about the extent of America’s reliance on global value chains. Rather, TradeVistas’ poll finds that Americans overwhelmingly want the United States to be “leader of the global economy”. They just don’t see membership in the WTO as critical to that goal.

leave WTO

What should we learn from these results?

While it might be tempting for trade policymakers to concentrate on converting the vocal minority that supports U.S. withdrawal, two undercurrents in the poll results merit close attention.

First, the subset of strong WTO opponents is substantially outnumbered by those whose views are less strongly held, and the consequences of such indifference should not be ignored. The old adage, “you don’t know what you’ve got until it’s gone,” doesn’t necessarily apply to trade institutions. Recall that when President Trump withdrew from the Transpacific Partnership Agreement on day three of his presidency, polls at the time demonstrated that 72 percent had either not heard about the TPP or “not much”. Are they remorseful now? Generally, no, despite the concerns from industry and the trade policy community. As for President Trump, the political gains from withdrawal were minimal, but neither was there a backlash.

Second, asked whether WTO rules help U.S. companies compete on fair terms or help prevent foreign governments from applying unfair requirements to U.S. companies, a clear majority – even those who strongly supported leaving the WTO — felt it was likely true that the WTO accomplishes those goals. With deeper knowledge and greater understanding of what the global trading rules offer American creators, producers and service providers, Americans may be more inclined to support the WTO, or at least support the WTO’s set of agreements, which they perceive to benefit the overall economy.

Restatement of WTO Q on Rules and Unfair Requirements

Engaging Americans on what’s at stake

Unsurprisingly, a survey by the Pew Research Center this spring found that nearly two-thirds of Americans now have a negative opinion of China. And 9 in 10 Americans see Chinese power and influence as a threat to the United States. Where there’s much less agreement, however, is how the United States should manage its relationship with China, including on trade. All too often overlooked in these discussions is the WTO – an institution whose purpose is to set the rules for global trade and through which the United States could exert its influence to restrain the commercial and economic practices it finds damaging.

In our absence, China is seizing that opportunity. If the United States spent decades building an international system in the likeness of its free-market democracy, China is actively working to remake that system in its own image. China now heads the International Civil Aviation Organization, the International Telecommunications Union, the Food and Agriculture Organization and the United Nations Industrial Development Organization. China recently ran a candidate to lead the World Intellectual Property Organization but the United States led a coalition to oppose it.

And what of the WTO’s majority of developing country members? What is the significance of Afghanistan and Liberia choosing to join the WTO, of Belarus, Iraq, and Timor-Leste in the queue? These are conflict-affected nations that seek to rebuild their post-conflict economies. They see WTO membership as a step toward necessary but difficult economic reforms at home – reforms they hope will reap economic gains that will bring more lasting security and stability. As was originally envisioned, American leadership in the WTO enables the United States to gain from trade while supporting democratic transitions and the expansion of prosperity around the world.

China is making significant infrastructure and financial investments around the world, drawing fragile democracies into their ambit. Americans would understand if the WTO were positioned as a way to counter China’s growing economic influence in the developing world.

How trade policymakers can position the WTO as more relevant to ordinary Americans

The global trade policy community mostly agrees the WTO is in need of reforms to restore its core functions of negotiating trade-liberalizing deals and ensuring effective implementation and enforcement of those trade deals.

Let’s be honest, however. Though vital for the health of the WTO, the average American is not interested in the minutia of tweaks to the WTO’s dispute settlement system, in the vernacular “special and differential treatment” for developing countries, or the definition of a market economy. When the trade community is too focused on those details, it risks losing sight of the broader need to attract American public support for the institution itself.

To position the WTO’s role more prominently in Americans’ understanding, trade policymakers should appeal to citizens in the following ways:

To Americans’ sense of fairness:

The average American is interested in basic fairness and in ensuring that major economies play by the same rules. Before the WTO, countries that signed onto its predecessor, the General Agreement on Tariffs and Trade, were called Contracting Parties. The GATT was a contract. Americans like contracts; we are good at writing contracts. We enter them voluntarily when the terms are favorable and mutually agreeable.

The United States negotiated favorable terms under the GATT and then the WTO. If those terms no longer serve the United States well, it can negotiate different or additional terms. But the United States can only do that if it remains a member.

To Americans’ need for control over their own destiny:

The average American feels conflicted about international organizations because they fear a loss of sovereignty. However, WTO rules do not prevent national policies to promote domestic jobs and growth. Rather, the disciplines of the global trading system compel governments to adhere to the norms of transparency and non-discrimination as those policies are developed and implemented.

If the American public perceives the U.S. government has made poor policy choices, that’s on our policymakers, not the WTO. And if we fail to treat companies from other nations in a non-discriminatory manner, we can be sued in the WTO just as we can sue other governments. But: only our elected representatives in Congress can change our laws. It would be helpful for more Americans to understand this.

To Americans’ desire to be left alone:

TradeVistas’ polling affirms that Americans feel contradictory impulses when it comes to their world view. This is nothing new. Americans have shown tremendous generosity when it comes to protecting other nations, but that does not mean most Americans think it is (or should be) our role. Many Americans believe others in the world deserve fundamental economic freedoms, but often feel we should mind our own business. Americans built many of the international institutions that exist, but today exert relatively little influence over them and often feel threatened by them. We’d prefer to be left alone.

Counterintuitively, the global trading rules and the WTO itself mesh well with this approach. As an extension of the American ideals of free-market democracy, the global trading rules are designed to protect individual economic freedoms, not to constrain them. Though governments are its members, the rules are designed to keep government as much out of the way of individuals and companies as possible – to let them thrive under regulations that are no more trade restrictive than necessary. The rules are accepted because most other nations in the world are also aligned with a free-market orientation.

The global trade rules are a scaffolding around a building that rests on the foundations of free-market democratic ideals. Leadership by America and its allies are what holds that building up – not the rules themselves. We are free to hold contradictory views but we have much to risk by acting in contradictory ways. In other words, it’s not enough to support the rules, we have to fight for them. Otherwise, the jungle grows back.

Q on US leader of global economy

To Americans’ concerns about China:

The United States and like-minded nations are the individual bricks in the edifice of free-market democracy. Beyond our own internal disagreements, Americans generally agree that China stands for something else.

Here again, author Robert Kagan cautions:

“History shows that world orders, including our own, are transient. They rise and fall. And the institutions they erected, the beliefs that guided them, and the “norms” that shaped the relations among nations within them—they fall, too. Every international order in history has reflected the beliefs and interests of its strongest powers, and every international order has changed when power shifted to others with different beliefs and interests.”

There is certainly room for criticism that China has “gamed the WTO system,” or that the current global trade rules are insufficient to prevent China from gaining an unfair advantage in global markets where American companies compete. Americans could be convinced that other WTO members share this concern and are willing to follow an American lead to preserve the benefits of the global trading system. More compelling perhaps, is to show them that U.S. withdrawal from the WTO serves China’s interests more than it does ours.

Tend to weeds now before the jungle grows back

Right now, the WTO appears a garden that has not been properly tended. Weeds are growing where they are not wanted.

My former colleague and WTO negotiator Mark Linscott recently wrote, “The drift and malaise in the WTO has been a collective failure [by its members] over a number of years,” attributable to “a lack of leadership, a frequent resort to entrenched bad habits, particularly in pitting the developing world against the developed one, engaging in action-numbing group think, and [failure] to find creative ways to achieve breakthroughs.”

If we continue this way, it will soon become hard to discern the roots of our intentional plantings from those of the weeds as they became intertwined. After all, there is no “weed” in nature – weeds are the state of nature.

What Mark describes is the default that WTO members must fight against. And if the WTO is to endure, we must also compel the American public to fight against its own default – a lack of awareness and indifference.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

phase one

Trade Secret Protection in China After the US-China Phase One Trade Deal

The US-China Phase One trade deal, signed in January 2020, was viewed by many as a game-changer in causing China to upgrade its enforcement regime against trade secret misappropriation. But how much impact will the deal actually have for US companies trying to prevent trade secret theft in China? As this article explains, while there will likely be an impact, it may be less consequential than anticipated.

The Phase One Agreement’s Trade Secret Provisions

The Phase One Agreement contains a number of provisions aimed at protection of trade secrets and effective enforcement against misappropriation. Although the Agreement’s requirements are bilateral, they mainly consist of obligations by China to take certain steps to enhance its trade secret protection laws to match existing U.S. laws. These steps include enumerating acts of misappropriation to include electronic intrusions, breach of duties not to disclose information that is secret, and unauthorized disclosure or use that occurs after acquisition of a trade secret. The Agreement also calls for burden-shifting in civil proceedings so that “the burden of production of evidence or burden of proof … shifts to the accused party … where the holder of a trade secret has produced prima facie evidence … of a reasonable indication of trade secret misappropriation ….”  Additionally, the Agreement dictates that China provide for prompt and effective provisional measures to prevent the use of misappropriated trade secrets, and identify use or attempted use of claimed trade secret information as an “urgent situation” authorizing judicial authorities to grant preliminary injunctions. Finally, the Agreement requires China to broaden the scope of trade secret cases where criminal liability may ensue.

Comparison to Current Trade Secret Protection Laws in China

China is a civil law country. The laws governing trade secrets are mainly provided in the Anti Unfair Competition Law, with the remaining authority provided in the Civil Law, the Criminal Law, the Labor Law and judicial interpretations issued by the Supreme People’s Court (the “SPC”). The latest amendment of the Anti-Unfair Competition Law in 2019 has already accomplished some steps required by the Agreement, such as the aforementioned expanded list of misappropriation acts and the burden-shifting rule. Similarly, for provisional remedies, a 2018 notice by the SPC provided guidance to all courts on what circumstances constitute “urgent situations” that should merit applications for preliminary injunctions; while the “urgent situations” were not expressly defined at that time to include use or attempted use of claimed trade secret information, when broadly interpreted, they would cover this situation. For these reasons, what US companies now should monitor is how effectively the laws are applied to protect trade secrets.

One of the major difficulties US companies face when enforcing their trade secret rights in China, is obtaining sufficient admissible evidence to prove both misappropriation and damages. This is especially true when the trade secret theft has cross-border elements, whereby the trade secrets are afterwards used in China, e.g. by third parties who are not obviously connected with the perpetrator.

According to China’s Civil Procedure Law, there are eight types of evidence, including statements, documentary evidence, physical evidence, audio-visual materials, electronic data, witness testimonies, court expert opinions and inspection records. However, in practice, documentary evidence is given almost total supremacy over the other types of evidence. This means that, in practice, witness statements and cross-examinations of witnesses carry less evidentiary weight. The prioritization of documentary evidence by China’s courts presents challenges for US companies seeking to use testimony or other non-documentary evidence available in the US to establish in Chinese civil proceedings that the trade secrets being used in China originated from the US (likely via an ex-employee’s breach of confidentiality duties).

Moreover, Chinese law does not provide for discovery procedures. This means that the defendant is not obliged to produce unfavorable evidence at the request of the plaintiff. At the time of filing the claim, the plaintiff must, by and large, submit (documentary) evidence to prove the facts it relies upon, and it must generally locate and produce such evidence on its own. The absence of discovery, as well as the additional formal requirements for receipt of foreign evidence, can make it challenging for trade secret holders to meet their burden of proof.

When facing these challenges, US trade secret holders should proactively think about how to collect necessary evidence cross-border so that they can support filing of a civil claim in China and ultimately stop further leakage or use of the trade secrets. This may involve collecting initial evidence of misappropriation from the US, and then using the US evidence to plead in China for a court investigation order or an order to search and preserve evidence from the defendant. The trade secret holder can leverage its pleading and the investigation and preservation orders, combined with the burden-shifting rule, to prevail on its civil claim.

Apart from civil claims, US IP owners may request that China’s law enforcement agencies pursue criminal liability for perpetrators in trade secret misappropriation cases. The Phase One Agreement calls for China to lower its threshold for initiating a criminal investigation of trade secret theft, including eliminating any requirement that a trade secret holder must establish actual losses as a prerequisite to such an investigation.

At present, Article 219 of the PRC Criminal Law stipulates that whoever commits illegal acts of infringing on trade secrets and thus causes “serious” or “exceptionally serious” losses shall be subject to criminal liability.  Under the Regulations on Prosecution Standards for Economic Crimes of the Supreme People’s Procutorate and the Ministry of Public Security, losses of more than 500,000 yuan can trigger a criminal investigation. However, there are different views from local enforcement agencies on whether the losses should be limited to actual losses and how a trade secret holder should prove its losses. The current prevailing view is that the losses should not include anticipated losses such as reduced market share or loss of competitiveness. Such a narrow reading of losses as a criminal enforcement threshold contributes to insufficient protection of trade secret rights. As an example, for trade secret theft cases involving production know-how, it is difficult to show actual losses when the culprit has started to use the know-how to build a plant or prepare to make products, but it has not yet sold the violative products.

If the Criminal Law is amended to eliminate the requirement of establishing actual losses, this will address a current problem and improve trade secret protection in China.

Conclusions and Alternatives

The Phase One Agreement undoubtedly will enhance some aspects of civil and criminal trade secret protection laws in China.  Ultimately, however, the degree of success of these efforts may depend more on the commitment by China’s courts to reliably implement and enforce these laws.

One final note for US companies to consider is that trade secret enforcement alternatives may be available in US federal courts, even for acts of misappropriation in China. Specifically, the Defend Trade Secrets Act of 2016 applies to misappropriation outside the US if “an act in furtherance of the offense was committed in the [US].”  18 U.S.C. § 1837. Such “act[s] in furtherance of the offense,” that would enable a US court to adjudicate misappropriation in China, might be as straightforward as selling or marketing imported products within the US that incorporate the stolen trade secrets.

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Zhen Feng (also known as Katie Feng) is a partner based in Hogan Lovells Shanghai IP Agency.  She specializes in all areas of IP with a focus on IP litigation, IP strategic counseling and brand protection. She advises numerous clients from diverse backgrounds on formulation and implementation of IP enforcement strategies in China through a combination of administrative, civil and criminal actions. Katie has been recognized by several industry publications as a leading IP lawyer in China, such as Top 250 Women in IP 2020 by IP Stars, Top 100 Women in Litigation by Benchmark Litigation Asia-Pacific 2020 and Recommended Individual for Litigation by IAM Patent 1000 2020. She can be contacted at +862161223826 4032 or by email zhen.feng@hoganlovells.com or by wechat account: zhenkatiefeng_wechat

Steve Levitan is co-chair of Hogan Lovells’ global trade secret group. He has led numerous intellectual property lawsuits, with an emphasis on trade secret, patent, trademark and technology contract disputes. He practices before US federal district and appellate courts, California state courts, the US International Trade Commission (ITC), and in International Chamber of Commerce (ICC) and American Arbitration Association (AAA) arbitrations. He also regularly counsels clients on the protection of trade secrets and confidential information. He is based in Hogan Lovells’ Silicon Valley, California office, and can be contacted at +1 (650) 463 4032 or by email: steve.levitan@hoganlovells.com.

 

sheepskin

China’s Sheepskin and Lambskin Market Is Estimated at $1.9B

IndexBox has just published a new report: ‘China – Sheepskin and Lambskin – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

The revenue of the sheepskin and lambskin market in China amounted to $1.9B in 2018, standing approx. at the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price).

Production in China

In 2018, the sheepskin and lambskin production in China totaled 544K tonnes, flattening at the previous year. The total output volume increased at an average annual rate of +3.0% from 2013 to 2018; the trend pattern remained relatively stable, with somewhat noticeable fluctuations being observed in certain years. The growth pace was the most rapid in 2016 with an increase of 4.6% year-to-year. Over the period under review, sheepskin and lambskin production reached its maximum volume in 2018 and is expected to retain its growth in the near future.

Producing Animals in China

The number of animals slaughtered for sheepskin and lambskin production in China stood at 142M heads in 2018, remaining stable against the previous year. This number increased at an average annual rate of +1.8% from 2013 to 2018; the trend pattern remained consistent, with only minor fluctuations being observed in certain years. The growth pace was the most rapid in 2014 when the number of producing animals increased by 4.6% against the previous year. Over the period under review, this number attained its maximum level at 144M heads in 2016; however, from 2017 to 2018, producing animals failed to regain its momentum.

Yield in China

Average yield of sheep or lamb skins (without wool) in China totaled 3,842 kg per 1000 heads in 2018, standing approx. at the previous year. The yield figure increased at an average annual rate of +1.2% over the period from 2013 to 2018. Sheepskin and lambskin yield peaked in 2018 and is expected to retain its growth in the near future.

Imports into China

In 2018, approx. 311K tonnes of sheep or lamb skins (without wool) were imported into China; jumping by 2.2% against the previous year. Over the period under review, sheepskin and lambskin imports attained their peak figure at 313K tonnes in 2013; however, from 2014 to 2018, imports failed to regain their momentum.

In value terms, sheepskin and lambskin imports totaled $406M (IndexBox estimates) in 2018.

Imports by Country

In 2018, Australia (147K tonnes) constituted the largest supplier of sheepskin and lambskin to China, accounting for a 47% share of total imports. Moreover, sheepskin and lambskin imports from Australia exceeded the figures recorded by the second-largest supplier, New Zealand (51K tonnes), threefold. The third position in this ranking was occupied by the UK (45K tonnes), with a 15% share.

From 2013 to 2018, the average annual growth rate of volume from Australia was relatively modest. The remaining supplying countries recorded the following average annual rates of imports growth: New Zealand (+6.1% per year) and the UK (-4.5% per year).

In value terms, Australia ($238M) constituted the largest supplier of sheepskin and lambskin to China, comprising 59% of total sheepskin and lambskin imports. The second position in the ranking was occupied by New Zealand ($45M), with a 11% share of total imports. It was followed by the UK, with a 8.7% share.

From 2013 to 2018, the average annual rate of growth in terms of value from Australia totaled -4.1%. The remaining supplying countries recorded the following average annual rates of imports growth: New Zealand (-17.4% per year) and the UK (-22.5% per year).

Import Prices by Country

The average sheepskin and lambskin import price stood at $1,305 per tonne in 2018, jumping by 1.9% against the previous year. Over the period under review, the sheepskin and lambskin import price, however, continues to indicate a deep shrinkage. The growth pace was the most rapid in 2017 when the average import price increased by 5% against the previous year. Over the period under review, the average import prices for sheep or lamb skins (without wool) attained their peak figure at $2,230 per tonne in 2013; however, from 2014 to 2018, import prices remained at a lower figure.

Prices varied noticeably by the country of origin; the country with the highest price was Australia ($1,613 per tonne), while the price for the UK ($781 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of prices was attained by Australia, while the prices for the other major suppliers experienced a decline.

Source: IndexBox AI Platform

China

What Every Business Should Know About Selling in China

Not only is China the most populous country on earth (1.3 billion people), it also has the second-biggest economy in the world by Nominal GDP (14.242 trillion dollars).

As the country has pursued ever more progressive policies to trade (and despite the current trade war between China and the United States) more and more opportunities to sell in the country have arisen to businesses across sectors. If you see China as a potential growth market, here are some of the most important considerations when selling in China.

Seek advice

When looking to enter a foreign market, it is always advisable to seek sage advice, and even look to local businesses who you can partner with. Although you may not wish to go down the partnership route, it is definitely advisable to seek the counsel of businesses who are already operating within the sphere, or groups such as the Global Innovation Forum who often provide free advice regarding penetrating new markets. 

This is a smart strategy because selling in China will be totally unlike selling domestically, or in European markets, for example. Any insights that you can garner will be potentially critical to the success of your sales strategy and approach in China, because as is abundantly clear, you will be operating within a totally different market, both literally and culturally.

“The cultural considerations when accessing new markets should never be overlooked. From the way that you brand and market your products to the way that you negotiate with local businesses and retailers, everything you do will be influenced by different rules: rules to which you are unfamiliar. Get the help you need to pass through this difficult phase,” advises Grant Tarrant, a business writer at Writinity.com and Lastminutewriting.com.

Understand Chinese governmental practices and rules

Although the Chinese Government has grown increasingly receptive to foreign businesses working and partnering in China, rules will still be a little conservative in comparison to the Western approach. Make sure you totally familiarize yourself with what you are expected to adhere too, especially when visiting the country and seeking to operate a sales operation from within China.

For example, you will need to understand the levels of bureaucracy that exist to set up a business entity that operates within China. For example, you may need to set up as a Wholly Foreign-Owned Enterprise (WFOE) to operate, and this can be a costly and timely exercise that may delay you implementing your sales strategy. Forming a business plan which pays close attention to all the requirements (and timeframes) of the Chinese state is essential.

Understand your customer

This piece of advice holds for whoever you are selling too, but obviously your Chinese customer base will be different from your US customer base and will have different expectations. For example, haggling is a standard cultural procedure, and Chinese customers demand to know a product impeccably before they buy, so ensure that your eCommerce operation includes high numbers of images and product reviews: this will be expected.

“If you study Chinese eCommerce sites such as Taobao you will see that it facilitates the Chinese custom of haggling down prices. In the West we are totally unfamiliar with this practice as we are satisfied that the price is the price, Be prepared to change your approach accordingly,” says Rachel Walliston, a marketer at Draftbeyond.com and Researchpapersuk.com

Provide impeccable customer support

Chinese customers have come to expect an extremely high level of customer support from their retailers and will demand this from any new business operating within their sphere. Knowing this, make sure you ramp up support efforts, and that, of course, raises questions regarding how you will do this in a new language and culture. Seeking advice from established entities is again the recommended route, and establishing support centers in the country is also best practice. 

Understand the marketing and communication channels

If you go in with a Facebook-based marketing strategy, be prepared to be disappointed. In China the social media platforms are different, for example, WeChat is one of China’s most popular platforms, but barely exists outside of the country. It has been dubbed a ‘super-app’ because it can be used for a multitude of actions, so utilizing such platforms is an absolute must if you wish to successfully penetrate the Chinese market. 

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Ashley Halsey is a writer, editor and international business expert who can be found at both Luckyassignments.com and Gumessays.com. She has been involved in many projects in Asia, and enjoys traveling, reading and cultural exchanges.

paperboard box

U.S. Folding Paperboard Box Market – Imports from China Recorded a Dramatic Increase of 17.9% in 2018

IndexBox has just published a new report: ‘U.S. Folding Paperboard Box Market. Analysis And Forecast to 2025’. Here is a summary of the report’s key findings.

The revenue of the folding paperboard box market in the U.S. amounted to $14.4B in 2018, remaining relatively unchanged against the previous year. This figure reflects the total revenues of producers and importers (excluding logistics costs, retail marketing costs, and retailers’ margins, which will be included in the final consumer price). Over the period under review, folding paperboard box consumption continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2016 with an increase of 2.9% y-o-y. Folding paperboard box consumption peaked in 2018 and is likely to continue its growth in the immediate term.

Folding Paperboard Box Production in the U.S.

In value terms, folding paperboard box production amounted to $14B in 2018. Overall, folding paperboard box production, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2016 when production volume increased by 3% against the previous year. Folding paperboard box production peaked in 2018 and is likely to continue its growth in the immediate term.

Exports from the U.S.

In 2018, the exports of folding paperboard box from the U.S. stood at 16K tonnes, declining by -16.7% against the previous year. Overall, folding paperboard box exports continue to indicate a noticeable deduction. The growth pace was the most rapid in 2016 when exports increased by 13% year-to-year. In that year, folding paperboard box exports attained their peak of 20K tonnes. From 2017 to 2018, the growth of folding paperboard box exports remained at a lower figure.

In value terms, folding paperboard box exports totaled $42M (IndexBox estimates) in 2018. Over the period under review, folding paperboard box exports continue to indicate a moderate contraction. The growth pace was the most rapid in 2016 when exports increased by 8.2% against the previous year. In that year, folding paperboard box exports attained their peak of $51M. From 2017 to 2018, the growth of folding paperboard box exports failed to regain its momentum.

Exports by Country

The Dominican Republic (1.9K tonnes), Belgium (1.1K tonnes) and Italy (932 tonnes) were the main destinations of folding paperboard box exports from the U.S., together accounting for 25% of total exports.

From 2013 to 2018, the most notable rate of growth in terms of exports, amongst the main countries of destination, was attained by Belgium, while the other leaders experienced more modest paces of growth.

In value terms, the Dominican Republic ($5.7M), Costa Rica ($3M) and Italy ($2.6M) were the largest markets for folding paperboard box exported from the U.S. worldwide, with a combined 27% share of total exports. These countries were followed by France, Panama, Germany, Belgium, the UK, Colombia, Nicaragua, the Netherlands and Ecuador, which together accounted for a further 34%.

Nicaragua experienced the highest growth rate of exports, in terms of the main countries of destination over the last five-year period, while the other leaders experienced more modest paces of growth.

Export Prices by Country

In 2018, the average folding paperboard box export price amounted to $2,724 per tonne, rising by 4.2% against the previous year. Over the period from 2013 to 2018, it increased at an average annual rate of +1.4%. The pace of growth appeared the most rapid in 2017 an increase of 5.6% y-o-y. The export price peaked in 2018 and is expected to retain its growth in the immediate term.

There were significant differences in the average prices for the major foreign markets. In 2018, the country with the highest price was Germany ($3,297 per tonne), while the average price for exports to Ecuador ($1,188 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of prices was recorded for supplies to Panama, while the prices for the other major destinations experienced more modest paces of growth.

Imports into the U.S.

In 2018, the imports of folding paperboard box into the U.S. amounted to 161K tonnes, surging by 17% against the previous year. The total import volume increased at an average annual rate of +5.4% from 2013 to 2018; the trend pattern remained consistent, with only minor fluctuations being recorded throughout the analyzed period. The most prominent rate of growth was recorded in 2018 with an increase of 17% against the previous year. In that year, folding paperboard box imports reached their peak and are likely to continue its growth in the immediate term.

In value terms, folding paperboard box imports stood at $536M (IndexBox estimates) in 2018. The total import value increased at an average annual rate of +6.0% from 2013 to 2018; the trend pattern remained relatively stable, with only minor fluctuations being recorded over the period under review. The pace of growth appeared the most rapid in 2018 with an increase of 14% y-o-y. In that year, folding paperboard box imports reached their peak and are likely to continue its growth in the immediate term.

Imports by Country

In 2018, China (103K tonnes) constituted the largest supplier of folding paperboard box to the U.S., accounting for a 64% share of total imports. Moreover, folding paperboard box imports from China exceeded the figures recorded by the second-largest supplier, Indonesia (15K tonnes), sevenfold. The third position in this ranking was occupied by Germany (10K tonnes), with a 6.4% share.

From 2013 to 2018, the average annual growth rate of volume from China amounted to +5.1%. The remaining supplying countries recorded the following average annual rates of imports growth: Indonesia (+11.4% per year) and Germany (+20.5% per year).

In value terms, China ($387M) constituted the largest supplier of folding paperboard box to the U.S., comprising 72% of total folding paperboard box imports. The second position in the ranking was occupied by Germany ($26M), with a 4.8% share of total imports. It was followed by Indonesia, with a 3.9% share.

From 2013 to 2018, the average annual rate of growth in terms of value from China amounted to +5.8%. The remaining supplying countries recorded the following average annual rates of imports growth: Germany (+17.1% per year) and Indonesia (+7.2% per year).

Import Prices by Country

In 2018, the average folding paperboard box import price amounted to $3,337 per tonne, dropping by -2.2% against the previous year. Overall, the folding paperboard box import price, however, continues to indicate a relatively flat trend pattern. The most prominent rate of growth was recorded in 2014 when the average import price increased by 3.2% y-o-y. The import price peaked at $3,413 per tonne in 2017, and then declined slightly in the following year.

Prices varied noticeably by the country of origin; the country with the highest price was China ($3,755 per tonne), while the price for Turkey ($1,213 per tonne) was amongst the lowest.

From 2013 to 2018, the most notable rate of growth in terms of prices was attained by Taiwan, Chinese, while the prices for the other major suppliers experienced mixed trend patterns.

Source: IndexBox AI Platform

The Trade War Continues and Businesses are Responding

The trade war raging between the U.S. and China, which seemed headed toward a resolution before President Donald Trump in May accused the Chinese of reneging on commitments they made, is obviously the talk of the global trade-o-sphere.

Trump on May 9 announced tariffs on $200 billion worth of Chinese imports would go from 10 percent to 25 percent. China fired back by announcing it would hit $60 billion worth of U.S. imports with tariffs ranging from 5 percent to 25 percent on June 1. So, the Trump administration countered by saying it would impose 25 percent tariffs on all remaining Chinese imports—or about $300 billion worth of goods—“shortly.”

The president beat back the backlash by saying U.S. tariffs would be paid “largely” by the Chinese, but even members of his own political party argue that the tariffs have been and will be paid almost entirely by American businesses and consumers. “There will be some sacrifice on the part of Americans, I grant you that,” said U.S. Sen. Tom Cotton (R-Arkansas) to CBS News.

Obviously, not everyone (including Trump supporters) agree with the president’s March 2018 proclamation, “Trade wars are good, and easy to win.”

-Vijay Eswaran, entrepreneur, speaker, philanthropist and founder and executive chairman of the Hong Kong-based multi-business conglomerate QI Group of Companies: “Trade wars are never good, and certainly not easy to win. The main victims of this tariff war are the American consumers. Tesla had to raise the price of two of its cars by $20,000 last year after a new round of Chinese tariffs. Walmart and Target have already warned the government about an increase in prices on many everyday essentials. It’s just going to get worse.”

-Nelson Dong, senior partner at the international law firm Dorsey & Whitne, where he is co-head of their Asia group, as well as a current member of the boards of directors of the National Committee on U.S.-China Relations and the Washington State China Relations Council: “As has already been evident since mid-2018, the Administration’s Section 301 tariffs and China’s retaliatory tariffs will now further disrupt—or even break—many thousands of supply chains in both countries as local consumers either turn away from buying affected imports or are just forced to pay the resulting higher prices. Inevitably, suppliers in third countries will also be eyeing this U.S.-China trade war and looking to take advantage of the situation to replace either Chinese or American sources of supply as many importers look for ways to avoid these punitive tariffs.”

-Americans for Prosperity President Tim Phillips: “This White House has accomplished many significant economic and regulatory reforms that have reduced unemployment, lowered taxes and removed barriers to opportunity for millions of Americans. Our economy is thriving despite these tariffs, not because of them. We strongly encourage the administration to listen to America’s job creators who need trade barriers reduced, not expanded.”

-Scott Wine, chairman & CEO OF Polaris Industries: “Ultimately, if this was not resolved, we would have no choice but to move production to Mexico. … This would essentially be forcing me to push jobs outside the U.S.”

-Tiffany Zarfas Williams, owner of the Luggage Shop of Lubbock in Texas: “I definitely want China to be held accountable, but I don’t know why we are punishing consumers in our own country. That’s the part that’s hard to understand as a small business owner in Texas.”

-Rick Helfenbein, president & CEO of American Apparel & Footwear Association, to CNN: “This confirms our worst fears. There are those of us who are optimists and thought it would go away and those who say it could come back at any time—and this points to the latter;” and to Fox Business: “Two-thirds of the GDP is consumer based. Ten percent of the jobs in America are retail, and in the first four months of this year, more stores have announced closings than all of last year.”

-John Bozzella, president of Global Automakers, which represents international car companies: “Our concern is, as we go back into a phase of tit-for-tat tariffs, that the auto industry would face some significant pain.”

-Cal Dooley, president of the American Chemistry Council: “The risks of continuing to use tariffs as a negotiating tactic with China are simply too high—and any potential benefits still unclear.”

-David French, senior vice president of government relations for the National Retail Federation: “American consumers will face higher prices, and U.S. jobs will be lost.”

-Lisa Hu, founder of the handbag company Lux & Nyx: “You start a business thinking you know how much things are going to cost, and then something like this comes along and changes everything. … Are these tariffs going to happen? Are they not? I’m having to make long-term decisions based on the little information I have now.”

-American International Automobile Dealers Association CEO Cody Lusk: “If President Trump follows through on his threat to place 25 percent tariffs on imported autos and auto parts, he will be directly responsible for a drastic tax increase on American consumers, which could result in a loss of 2 million vehicle sales and jeopardize up to 700,000 American jobs.”

Do Tariffs Cause Prices To Go Up? Not Necessarily

President Trump recently raised tariffs on $200 billion worth of Chinese exports and threatened to impose import duties on all Chinese goods coming into the United States. Will American prices rise substantially as a result? This is a loaded question, because contrary to popular belief, tariffs don’t always raise prices.

One alarming study from The Trade Partnership, a think tank, estimates that an average American family of four may have to pay an extra $767. And if all Chinese exports are taxed, the cost could rise to more than $2,000.

However, the effects of tariffs on prices are not as straightforward as they may appear at first glance. Indeed, until the pioneering contribution by the late Lloyd Metzler, a University of Chicago professor, the question was not even explored. It was taken for granted that tariffs automatically raise the prices of imported goods. But Metzler’s article, known in the literature on international economics as the Metzler Paradox, changed this view once and for all. Let us analyze the problem without hysteria.

Tariffs have two effects on prices: one tending to raise them, the other tending to lower them. The overall impact depends on which effect is stronger.

It all comes down to supply and demand for goods in China. The United States is a large importer of Chinese products, so tariffs will cause a huge decline in American demand for Chinese goods because of the initial rise in prices. But as demand falls substantially, prices of exportable goods inside China will also decline substantially.

Assuming that transportation costs are minimal, as they are nowadays, the American price of a Chinese product is determined as follows: American Price = Chinese Price(1 + t), where “t” is the rate of tariff. From this formula, it is clear that there are two countervailing effects on the U.S. price of a Chinese good. A rise in the tariff rate initially tends to raise it, whereas the resultant fall in the Chinese price tends to lower it. The final effect depends on whether the Chinese price declines more or less than the rate of tariff.

As a simple example, suppose Walmart imports a shirt from China for $20, and then faces a 25 percent tariff on that import. If China’s price is constant, then the same shirt will now cost $24. But the Chinese price cannot stay constant. Since the United States imports a vast number of Chinese shirts, the demand for Chinese shirts will fall sharply, and that will lower the Chinese price. Say this price declines to $18, then a 25 percent tariff will raise its U.S. cost by one fourth to $22.50, which is still higher than its free-trade cost of $20.

At a Chinese price of $16, the tariff-inclusive price will be the same as the free-trade price. But if the Chinese price were to fall below $16, the cost to Walmart will be less than $20. Thus, it all depends on the forces of supply and demand inside China.

The extent of the Chinese price decrease depends on the cost of producing a shirt. If this cost is low, then the price decrease can be large in the wake of declining demand, because a producer can still make some profit. Since Chinese wages are much lower than American wages, the Chinese cost of producing a shirt is likely to be very low, in which case the Chinese shirt price can fall substantially. If that happens, American prices of goods imported from China could actually decline.

Indeed, this may explain why thus far the U.S. tariffs that were imposed on Chinese exports in September 2018 have not been inflationary. In fact, even the Federal Reserve has been surprised by the recent cooling of core inflation and, as a result, pledged not to raise interest rates any further.

So the American consumer has nothing to worry about, especially when the consumer can easily switch to imports from other countries.

Large trade deficits with China have decimated American manufacturing and wages. U.S. industries need a revival, and tariffs are indispensable toward this purpose. In 1800, at the start of the American republic, barely 5 percent of the U.S. labor force was employed in manufacturing; today, according to the Economic Report of the President, 2019, the share is about 8 percent — vastly below the 30 percent figure that prevailed in the 1960s. We are very close to where we were in 1800, and clearly, the manufacturing sector still needs a lot of support.

Note that under Abraham Lincoln tariffs were as high as 60 percent. As a result, following the Civil War, American manufacturing became the envy of the world. By 1900 the United States was among the nations with the highest living standard. Even though tariffs were high, prices fell or remained stable for several years.

Such price behavior helped raise the overall standard of living. When a 60 percent tariff rate could not harm the American consumer, how can a mere 25 percent? Free trade has been the holy grail of international economics for decades, but historically, the fastest growth in the American living standard has occurred under the umbrella of tariffs.

Ravi Batra is a professor of international economics at Southern Methodist University, Dallas, Texas. He is the author of The Myth of Free Trade. His latest book is End Unemployment Now: How to Eliminate Joblessness, Debt, and Poverty Despite Congress.