USA: An Introduction to International Trade: Trade Remedies & Trade Policy
USA: Trade Remedies & Trade Policy in an Era of Change
Navigating a more complex and less predictable trade policy environment
US trade policy has become less stable and less predictable in recent years. The Republican party in particular has been revaluating its historical pro-trade stance, focusing more on supply chain vulnerabilities and protecting domestic production capacity. Market access risks from discriminatory tariffs, industrial subsidies, and new national security policies are increasing. At the same time, intensifying use of new and existing import rules is increasing compliance challenges.
These changes mark a potentially significant shift in the way US government policy affects global interconnectedness, with important implications for businesses in affected sectors and countries. New tariffs, trade disputes with China disrupting regional supply chains in the Asia-Pacific, discriminatory subsidy programs, and higher trade compliance costs are all risks to consider.
Increased use of presidential tariff authorities
The United States’ presidents have intensified their use of unilateral tariff authorities in recent years, creating new challenges for importers and foreign exporters. Starting under the Trump administration and continuing in the Biden administration, the United States has introduced new tariffs, accepting the commercial ramifications and the allegations of disregarding treaty commitments.
Section 301 of the Trade Act of 1974 assigns authorities to the United States Trade Representative (USTR) for investigating foreign government practices that are “unjustifiable and burdens or restricts United States commerce” and taking appropriate action to obtain remediation of the burdensome practice. Since the creation of the World Trade Organization’s dispute settlement system in 1995, USTR has typically only used Section 301 processes to develop cases for dispute settlement. Unilateral Section 301 actions resumed under the Trump administration, which imposed extensive Section 301 tariffs on imports from China. The Biden administration has since maintained and expanded those tariffs. The Trump administration also considered using Section 301 tariffs in other situations, including to deter US trade partners from applying digital services taxes to US businesses. With the negotiations to resolve the digital services tax dispute taking longer than anticipated, the threats of Section 301 tariffs may soon return.
Section 232 of the Trade Expansion Act of 1962 empowers the executive branch to investigate the national security risks of imports and, where risks are identified, impose import restrictions. In 2018, the Trump administration-used Section 232 authorities to impose tariffs on imports of steel and aluminium, which it expanded to include certain derivative articles in 2020. The Biden administration maintained the tariffs, but with more exceptions for US allies and free trade agreement partners. The steel and aluminium investigations were the first uses of the Section 232 authorities since 2001. There have been seven more investigations since the steel and aluminium action, targeting the automotive sector, power transformers, and various metals and minerals. The Trump administration ultimately declined to impose tariffs in any of these other investigations.
New remedies authorities and growing enforcement activity
The United States is an active user of trade remedies against imports that are perceived to be unfairly traded or harmful to domestic industries, including antidumping duty (ADD), countervailing duty (CVD), and safeguard measures. Currently, the United States enforces over 700 antidumping duty and countervailing duty orders, with the largest number (236) imposed on imports from China and the second largest number (73) imposed on imports from India.
In March 2024, the Department of Commerce (DOC) issued amendments to its trade remedies regulations, which will make it easier for DOC to find dumping and subsidization across a wider range of potential investigations and potentially set higher duty rates in some circumstances. The reforms include new rules to account for foreign governments’ under-enforcement of labor, environmental, and intellectual property protection laws in calculating price and cost distortions; clarifications of DOC’s authority to declare a Particular Market Situation (PMS); and withdrawal of the rule that prevented DOC from investigating transnational subsidies; among various other technical clarifications and changes intended to conform the regulation with established practices.
Recent years have seen a general increase in ADD/CVD evasion and anticircumvention investigations by US Customs and Border Protection (CBP) and DOC as the US government tries to plug ever-sprouting holes in the trade enforcement system. The Enforce and Protect Act (EAPA), administered by CBP, remains a key tool for targeting trans-shipped goods, by investigating whether an importer has falsely entered goods already covered under an ADD/CVD order. There were only seven EAPA investigations in 2018; that number increased to 64 two years later in 2020 and remains high. Similarly, anticircumvention inquiries, which investigate whether to enlarge an ADD/CVD order’s scope to cover goods not already covered, are a key tool for DOC. Anticircumvention activity has increased since the Trump administration introduced the practice of the government self-initiating anticircumvention inquiries in certain cases (rather than initiating cases in response to a petition from the domestic US industry).
Legal compliance obligations are growing
The United States has been gradually expanding its regulatory reach into international supply chains in recent decades, targeting products of illegal deforestation, conflict minerals, and forced labor. Activity is now intensifying further, with significant expansions of forced labor rules forcing companies to adopt more comprehensive supply chains due diligence systems.
Congress passed the Uyghur Forced Labor Prevention Act (ULFPA) at the beginning of the Biden administration in 2021 and its implementation has been an executive branch priority ever since. The UFLPA applies a rebuttable presumption that goods mined, produced, or manufactured wholly or in part in Xinjiang or by an entity on the UFLPA Entity List are made with forced labor and restricted from entering the United States under Section 307 of the Tariff Act of 1930. Though the UFLPA targets forced labor abuses in Xinjiang, the complexity of modern industrial supply chains means that products imported into the United States from anywhere in the world can be subject to detention. Since the law’s entry into force in June 2022, CBP has detained over 9,000 shipments worth a total of $3.5 billion. Two thirds of these detained shipments originated in countries other than China.
This increased focus on customs rules and tariff enforcement may lead to a broader intensification of customs enforcement as well. Intensified activity is most evident in low-value shipments (including e-commerce shipments) that enter the United States through the de minimis channel. CBP has begun cracking down on de minimis shipments amid growing concerns about lax enforcement in the sector. A new regulation for de minimis entry procedures is under development, which would likely create new data reporting and compliance obligations for importers. Congress may take these reforms further, debating several bills that would significantly curtail use of de minimis entry.
Shifting stance on subsidies
The United States has been deploying new domestic subsidy programs on an unprecedented scale in the past few years. Seeking to strengthen high-tech supply chains, reduce greenhouse gas emissions, and respond to international market distortions caused by non-market economies, the United States has introduced subsidies for construction of new semiconductor manufacturing facilities, production of a broad range of green energy technologies, and purchasing of electric vehicles. These policies are an important evolution in the United States’ posture on industrial subsidies, given the country’s history of trying to discipline the market-distorting effects of other countries’ subsidy programs.
The long-term trajectory of this policy shift is uncertain, but in the near term, the effects on business are substantial. Businesses will have to consider whether they can compete in the US market against subsidized competitors, and if not, what to do instead. Some companies are choosing to invest in the United States (or Canada and Mexico in some cases) to benefit from the subsidies. Even when positioned to benefit from the subsidies, companies are facing complex regulatory and approval processes that require careful legal advice. Others are finding themselves excluded or are having to reorganize their ownership structures because businesses linked to certain countries of concern are prohibited from accessing some of the most valuable subsidies on offer.
A New Era
A new era of trade policy and trade enforcement has arrived in the United States. The implications for businesses are wide-ranging, affecting investments, supply chains, legal and commercial risks, and ultimately their bottom lines. Sound legal and policy advice is no longer a luxury, but a necessity.