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Business Last Updated: Mar 19, 2018 - 11:34:19 AM


Trump Opened ‘Pandora’s Box’ With Tariffs
By Aeith Johnson, FP, March 14, 2018
Mar 17, 2018 - 12:22:05 PM

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There’s a reason countries have been loath to use the national security excuse to slap tariffs on imports: It’s a recipe for disaster.

The biggest risk from the Trump administration’s decision to slap tariffs on steel and aluminum imports isn’t the likely counterproductive impact on U.S. jobs and the economy, or even the threat of a tit-for-tat trade war with Europe and Asia. Instead, it’s the deliberate undermining of one of the pillars of the global trading system that’s been in place since the end of World War II.

To fulfill a campaign promise and justify slapping tariffs of 25 percent on steel and 10 percent on aluminum, U.S. President Donald Trump this month seized on a Commerce Department investigation that found that the underperforming metals sector posed a risk to U.S. national security. It’s a novel argument: When the George W. Bush administration imposed a similar tariff for similar reasons in 2002, it ultimately shied away from using the security rationale. Brandishing security worries to justify tariffs is also an idea that flies in the face of decades of U.S. government effort to keep other countries from throwing up protectionist walls on the basis of supposed national security threats.

“Across multiple administrations, the U.S. has always felt that we had to be careful how the national security exception was used, or other countries would use it to justify all sorts of restrictive trade measures,” says Michael Froman, who served as U.S. trade representative in the Obama administration and now works at the Council on Foreign Relations.

Since the United States helped cobble together a global trading system out of the ruins of World War II, countries have been been guided by a latticework of rules that determine what measures they can take and what they can’t. There’s one single part of the global trade rulebook, though, that’s essentially left to countries to decide for themselves: When to invoke the so-called national security exception. The exception gives countries an escape clause for any trade measures “necessary for the protection of its essential security interests.”

Most of the times countries have invoked the exception, which was included in the old 1940s-era global trade agreements and the World Trade Organization since 1994, there’s been a clear link of some kind to national security.

Britain and some Western European countries used it to put trade pressure on Argentina during the 1982 Falklands War. The United States justified an embargo on Nicaragua in the 1980s and additional sanctions on Cuba in the 1990s on the same grounds. Most recently, it’s been the underpinning for the Gulf States’ economic embargo on Qatar. (There have been a few howlers: Sweden tried to limit imports of footwear on national security grounds in the 1970s.)

The Trump administration’s formal rationale for the tariffs is that a flood of steel and aluminum imports is shuttering mills and smelters, which could leave the United States less able to crank up production of critical metals that are used by the defense industry, such as in navy ships and advanced jet fighters.

That argument has come into question most pointedly from the European Union, a defense partner that supplies the United States with a lot of high-value metals. “Justifying tariffs on the basis of national security considerations risks undermining the multilateral trading system,” said EU Trade Commissioner Cecilia Malmstrom on Wednesday, adding that invoking something meant for wartime is a misuse of the exception.

When the George W. Bush administration examined the same question, it found that the defense industry used just a tiny fraction of U.S. metals production capacity. The Trump Commerce Department, in contrast, determined that the U.S. defense base is threatened by a potential lack of domestic production capacity and is 12 times more vulnerable today than it was in the Bush years.

“This is as much of a stretch as we’ve seen from the United States, particularly given the expansive and attenuated rationale relied on by the Commerce Department to arrive at its recommendation,” says Robert Williams, executive director of the Paul Tsai China Center at Yale Law School.

But the Trump administration has publicly gone even further. One senior White House official defended the tariffs by arguing that economic vitality is synonymous with national security and cannot be understood solely in the narrow context of defense needs.

Trump declared that, “without steel, you don’t have a country,” and he has repeatedly tweeted that the tariffs are needed to protect jobs in the steel and aluminum patch.

“We’ve gone rogue,” says one congressional aide who works on trade issues.

“This gun’s been lying on the table since Act One. No one’s picked it up for a very good reason. Because it sets off a whole chain of things that you can’t control afterwards.”

It’s certainly an about-face for the United States, especially the acknowledgement that the tariffs are meant to boost employment in the steel and aluminum industries.

“This new vision of national security seems to view job losses in certain industries as a national security problem,” says Emily Blanchard, a trade policy expert at the Tuck School of Business at Dartmouth College. “This dramatic departure from the past threatens to open Pandora’s box,” she said.

“This dramatic departure from the past threatens to open Pandora’s box,” she said.

The obvious risk is that other countries can now seize on the national security exception to justify pretty much any restrictive trade measure — and the World Trade Organization and its members have no clear grounds to challenge it. The WTO is considering whether to review Qatar’s complaint about other Gulf states, which would be the first time the organization has ever weighed in on a matter that was deliberately left to countries to decide for themselves. The WTO has already expressed concern with the U.S. tariff plan and its justification.

India, for example, has long bridled at international efforts to persuade it to end food subsidies and other economic policies that distort agricultural trade, arguing that food security is an existential concern. Blanchard and other experts worry that other countries could now brandish their own national security exceptions to limit U.S. agricultural exports, one of the healthiest U.S. export sectors, worth more than $130 billion annually in recent years. Indeed, China has already hinted that $15 billion in U.S. soybean exports are in its crosshairs in reprisal for other recent Trump administration trade actions.

And just as the Trump administration is again taking aim at Chinese trade abuses — including reports this week of plans to block more than $30 billion in Chinese imports — the questionable use of the national security exception to protect steel jobs could jeopardize years of U.S. cajoling to get China to clean up its act.

Since China joined the WTO in 2001, U.S. officials have tried to get Beijing to keep national security arguments out of its economic development plans and trade policies. Even the Trump administration has sung from that hymnal. The January report on China from the U.S. Trade Representative slammed what it called China’s use of national security laws to pass “sweeping provisions addressing economic and industrial policy.”

“I think it weakens our position,” says Yale Law School’s Williams. “My worry is that invoking national security to support the steel and aluminum tariffs risks undermining the U.S. position across a range of issues by surrendering our trade strategy to a reciprocity of hypocrisy.”

Trade experts are torn on whether the Trump administration’s tariffs are part of its stated antipathy toward the WTO and the global trading system, or are a well-intentioned but clumsy effort to fix some of the distortions that China, especially, has caused in the global economy in recent decades.

Simply forcing the WTO to weigh the validity of the national security exception could be explosive. Giving international bureaucrats a veto in other countries’ security matters could be used by populists to discredit the whole system. The EU has already threatened to challenge the tariffs in the WTO if it doesn’t win a tariff exemption.

“It’s not clear to me that it’s important to the administration to maintain a rules-based system,” Blanchard says. She points to the administration’s embrace of precisely what U.S. officials have long criticized from China.

“If you can’t beat ‘em, join ‘em?”


Source:Ocnus.net 2018

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