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Donald Trump and Shipping: What to Expect

Splash

The election of Donald J. Trump as President of the United States took many by surprise.  Of additional import to the industry, the Republican Party has maintained control of the House of Representatives and the Senate, meaning that the Republican Party now has a united government for the first time since 2006.  Now, as the new 115th Congress begins and the president’s inauguration is set for January 20, preparing for changes coming from the new government are more important than ever.  While the president-elect is a newcomer to politics, his 18 months in the spotlight have afforded an insight into a variety of positions that he may take.  Additionally, it is clear that particular platforms of the Republican Party and the president will impact the maritime industry.

Maritime’s Seat at the Table

Several cabinet appointments portend well for the maritime industry having a voice in President-elect Trump’s decision-making process. Elaine Chao's nomination as Transportation Secretary could be a good signal for the maritime industry in the Trump administration. She has experience in both MARAD and the FMC, and has experience dealing with port issues from her tenure as Secretary of Labor, as well as deep family ties to the industry. It bodes well for the shipping industry to have a Secretary of Transportation that knows the industry, something the United States has been lacking perhaps since Andrew Card’s tenure as George H.W. Bush’s Transportation Secretary in 1992-1993.  In her confirmation hearings, she identified infrastructure development and emerging technologies (particularly unlocking private investment in this sector) as a key aim; ports and intermodal infrastructure will have to raise their voices to be part of any new investment programs. With regard to the Maritime Administration, Secretary Chao put tackling the accreditation and semester at sea challenges at the U.S. Merchant Marine Academy at the top of her list.

Another prominent appointee with a maritime pedigree is the new Secretary of Commerce, Wilbur Ross, an investor in many areas including shipping, on which he also frequently comments publicly.  Mr. Ross has been a frequent proponent of increasing U.S. energy exports, particularly LNG.  In addition to his duties as secretary, insiders on the Trump transition team have reported that Mr. Ross could have additional duties as an adviser to President-elect Trump on trade agreements.

The appointment of Gen. John Kelly as Secretary of Homeland Security may also indicate an expanded role for the Coast Guard.  Gen. Kelly was the commander of U.S. Southern Command (SOUTHCOM) until early last year, overseeing American military operations in South America and Central America of which the Coast Guard is an integral part by providing cutter and aircraft platforms.  Gen. Kelly understands the value and importance of the Coast Guard maritime law enforcement efforts in U.S. counter-drug interdiction in the southern border approaches, and has advocated for more resources for the Coast Guard in the past. Having a DHS Secretary with an intimate knowledge of the Coast Guard could raise the agency’s standing within the large DHS.

Other prominent appointees and those under consideration also have maritime experience.  Rex Tillerson, the dark horse pick for Secretary of State, oversaw both the extraction of resources from offshore sources as well as the maritime transportation of energy resources in his former role as CEO of oil major ExxonMobil.

Trade

Free trade is almost a prerequisite to the success of the maritime industry, as the free movement of goods would mean an increase in shipping demand.  More than any candidate or political party, free trade suffered the greatest electoral loss in 2016.  The president-elect came to power largely on denigrating trade deals and the free movement of goods and services.  Additionally, since his election, the president-elect has frequently made reference to “35% tariffs” and other barriers to trade.

The appointment of Robert Lighthizer as chief trade negotiator, a Washington lawyer known for leading roles in key antidumping and countervailing duty trade remedy cases, signals the Trump administration’s intention to take a tough stance on trade with China and other global partners. Lighthizer, who was a deputy U.S. trade representative during the Reagan administration, will work closely with Commerce Department head Wilbur Ross and Peter Navarro, who leads a new National Trade Council. The three appear to be united in their resolve to chart a more aggressive course on the U.S. trade deficit with China.

These positions do not bode well for an increase of trade under the next administration.  More concerning for the global maritime industry, it may signal a long-term shift in demand in the United States, currently the world’s largest importer.  For example, even incremental adjustments in the U.S.-China trade relationship can have significant impacts on the outlook for the rapidly consolidating container sector to see supply and demand come back into balance.

Sanctions

Iran Sanctions

The new government takes a harder view on Iran sanctions than the Obama administration, which raises the risk that Iran sanctions will impact the maritime industry in 2017.  Donald Trump’s views on Iran have wavered and changed over time.  Although President-elect Trump initially signaled mild support for the Iran deal (suggesting he would “police” it), he has changed his approach, claiming that he seeks to “dismantle” the Iran deal in a speech before AIPAC in March 2016, claiming that it would be his “number one priority.”  Throughout the summer, he continued to disparage the Iran deal.  Since winning the election, the president-elect appointed Rep. Mike Pompeo, one of the fiercest critics of the Iran deal.

Further, the Republican Party has made opposition to Iran a centerpiece of its foreign policy, indicating that a united Republican government may well reinstitute sanctions.  The current Congress recently passed legislation with bipartisan support that would reauthorize the president to institute Iran sanctions.

It has been reported that key transition officials have been working with Capitol Hill on a new Iran sanctions strategy for several weeks. Reports have emerged that the Trump administration and many in Congress are now looking at a middle way to achieve its desired political outcome without scrapping the Iran deal entirely.  In particular, sanctions related to non-nuclear issues, such as human rights, ballistic missiles, or terrorism, would not violate the current Iran agreement.  Regardless of the political outcome, from a commercial perspective, there is significant risk that the incoming government will ratchet up Iranian sanctions, and companies should be prepared to “snap back” appropriate sanctions management techniques by early 2017.

Cuba Sanctions

Rapprochement with Cuba has been another key piece of the Obama administration’s foreign policy that is at risk with the new administration and congress.  While Donald Trump signaled mild support for the rapprochement early in his candidacy, he has since taken a more hardline stance.  Shortly after the death of Fidel Castro, the president-elect tweeted that he would “terminate the deal” unless Cuba came back to the negotiating table.  Reince Priebus, Trump’s Chief of Staff, stated that the president-elect would reverse U.S. policy on Cuba in the absence of significant political reforms.  The president-elect has also appointed Mauricio Claver-Carone, Executive Director of Cuba Democracy Advocates, an avid opponent of the government of Cuba and supporter of the embargo, to his transition team, along with another leading Cuban-American expert on foreign affairs and sanctions policy and implementation.

The Republican Party generally take a hard line on Cuba, calling for both the “dynastic succession of power within the Castro family” and “the legalization of political parties, an independent media, and free and fair internationally-supervised elections” as prerequisites for the rollback of U.S. sanctions.

Were President Trump to re-impose the “180-day rule” or other provisions that impact the maritime industry in the Cuba trade, he will have support in his administration, but the outlook in Congress could be more textured, as numerous U.S. companies eye trade and investment opportunities from the ongoing loosening of Cuban trade restrictions.

Russia Sanctions

Russia could prove an interesting sticking point between the White House and Congress.  President-elect Trump has frequently touted his relationship with Russian President Vladimir Putin as a linchpin in his reimagining of U.S. foreign policy.  However, his party has largely supported sanctions since Russia’s annexation of Crimea and conflict with Ukraine.  Persons close to the Kremlin seem to believe that the next administration will reset relations with Russia.  Additionally, the fact the ExxonMobil CEO Rex Tillerson, whose company has been involved with the development of Russia’s offshore energy resources, has been appointed secretary of state may demonstrate that the Trump White House will take a softer stand on Russia.

International Relations

In addition to the sanctions issues that will be prominent both within the White House and to maritime companies, there are several geopolitical issues that could impact the maritime industry under the Trump administration.

China, Taiwan, and the South China Sea

President-elect Trump used China as a frequent scapegoat during his campaign, accusing China of, among other things, manipulating trade and its currency to the detriment of the United States.  Since the election, two high-profile incidents have raised the stakes between China and the United States.  The president-elect accepted a congratulatory phone call from the President of Taiwan, which China regards as a breakaway province.  This move by the president-elect drew a swift rebuke from China.  Domestic analysts also saw this move as a break with recent U.S. practice, signaling a new approach to relations with China that could be more aggressive.  Adding to these tensions, China recovered an underwater drone.  President-elect Trump tweeted that such an act was “unprecedented.”  This issue was defused by China’s return of the drone to the U.S. Navy.

Another long-running dispute that impacts Sino-U.S. relations are the South China Sea’s (“SCS”) disputed maritime claims.  This issue has caused international tension in an area where more than half of the world’s international trade transits.  Escalation of these disagreements would hamper the free movement of goods by sea and impact the bottom line of many maritime companies.  The area has become a flashpoint since the election, with China staging military exercises in the SCS after the phone call from Taiwan.  The president-elect has also made an issue of China’s expansion, tweeting “Did China ask us if it was OK…to build a massive military complex in the middle of the South China Sea? I don’t think so!”  Secretary of State nominee Rex Tillerson added fuel to the fire in in his confirmation hearing saying that China should be denied access to the artificial islands it has built and equipped with military facilities. Chinese media outlets responded fervently that such an action would trigger a U.S.-China war.

Turkey and Cyprus

Turkey is poised to play a significant role in the foreign policy of the Trump administration.  The Trump administration has key ties to Turkey, with the president-elect’s company having done business there and National Security Advisor Michael Flynn until recently lobbying for an organization with potential ties to the Turkish government.  U.S. relations with Turkey, a large shipowning, ship building, and ship recycling nation, are likely to have an impact on the maritime industry.

Solving the long-standing occupation of another key maritime nation, the Republic of Cyprus, presents an opportunity both for the incoming administration and the maritime industry.  Ending the occupation of Cyprus could lead to opportunities both in terms of carriage of goods to and from Cypriot ports as well as the potential development of offshore resources.  Incoming Secretary of Commerce Wilbur Ross was until recently a member of the Board of Directors of the Bank of Cyprus, experience that may provide insight to the administration as it develops its policy on this issue.  Despite progress in 2016 by both sides, resolution of the issue remains elusive.  The Trump administration’s ties to key parties in the dispute may provide an opportunity to solve a long-standing issue to the benefit of the global maritime industry.

Kurdistan Regional Government

The status of the Kurdistan Regional Government (“KRG”) as an entity within Iraq or as a separate entity could impact maritime interests.  The 2014 litigation regarding the M/T United Kalavryta, which sat offshore while Iraq and the KRG battled in U.S. courts, crystallizes this reality.  While CEO of ExxonMobil, Rex Tillerson signed a production agreement directly with the KRG, sidestepping Iraq, which claims that as a province of Iraq resources located in the KRG are subject to control from Baghdad.  This move was counter to U.S. policy at the time and drew rebukes from the government in Baghdad, and Mr. Tillerson faced questioning regarding this policy during his confirmation hearing.  Additionally, Walid Phares, a foreign affairs adviser close to the president-elect, has been a long-time supporter of Kurdish causes in the Middle East.  While these data points certainly do not add up to a policy precedent, they may indicate an openness to discussing the KRG’s status in the administration.  Regardless, stakeholders should monitor developments to ascertain potential changes and associated opportunities.                                                          

Environment

It is unlikely that the Trump administration will be able to have as significant an impact on maritime environmental regulation as it will on trade policy.  Most U.S. marine environmental laws are based on international agreements through the International Maritime Organization.  Even if the Trump administration fulfills its promises to roll back regulations and ease environmental compliance, it is unlikely to impact the maritime industry. However, budget cuts and reallocation of enforcement resources from environmental programs could impact the ability for agencies to pursue environmental violations.

Jones Act

All indicators suggest that the U.S. Jones Act fleet will have a friend in the Trump administration.  That said, although the president-elect has some power to enforce and make changes to the implementation of the Jones Act, the power to modify or repeal the Jones Act lies solely with the U.S. Congress, which is unlikely to exercise this power.  However, in his endeavors to fulfill his electoral promises to support U.S. workers, the president-elect has shown his willingness to go beyond what other presidents have done to support domestic industry.  Time will tell if this will be the case with the Jones Act.

Conclusion

As the new administration comes together and considers its policy priorities, stakeholders in the maritime industry should make their plans accordingly.  Success with industry-wide issues like trade and tariffs are best done when the industry speaks with a united voice.  With regards to sanctions and compliance, companies should stay the course and look to take advantage of business opportunities with the advice of counsel.  Robust environmental compliance practices should also continue industry-wide.  The new U.S. government provides opportunities and risks for an industry already facing its share of struggles.  One certainty is that engaging early and often with the government is likely to benefit stakeholders in the maritime industry.

"Donald Trump and Shipping: What to Expect," by Stefanos N. Roulakis was published in Splash on January 20, 2017. To read the article online, please click here. Reprinted with permission.