Last week’s decision by the erratic Trump trade team to raise steel and aluminum tariffs amounts to declaring a trade war on effectively every major trading partner in the world market.
It presents an enormous economic threat to domestic industries that use steel and aluminum — that will have to raise prices, no doubt — and to sectors that will suffer from trade retaliation, such as agriculture and other political targets. But these losses are not the only damages that may result from these wars.
{mosads}The Trump administration claims that these tariff increases are justified under Section 232 of the Trade Expansion Act of 1962, which permits an exception to trade rules to protect national security and are recognized under World Trade Organization rules.
Commerce Secretary Wilbur Ross issued a finding in January that steel and aluminum were being imported into the United States in such quantities as to weaken “our internal economy” and threaten the national security of the United States.
He recommended reducing imports to a level that would “enable U.S. steel mills to operate at 80 percent or more of their rated production capacity.”
Secretary of Defense James Mattis issued a memorandum that concurred with Commerce’s overall findings but expressed concern over the effect of the proposed actions on key U.S. allies, and it estimated that the Department of Defense’s need for steel only represent about 3 percent of U.S. production.
Many trade lawyers do not think that the national security defense under Section 232 is justified under the facts of this case. They believe it would be difficult to defend successfully in a WTO case expected to be filed by the targets of this action. It may be that this is what the Trump trade team has in mind.
U. S. Trade Representative (USTR) Robert Lighthizer has historically urged an aggressive approach to interpreting WTO obligations. “An unthinking, simplistic and slavish dedication to the mantra of ‘WTO-consistency,” he has argued, “makes very little sense…Indeed, derogation may be the only way to force change in the system.”
Even before he was confirmed, his language was used in the 2017 USTR Trade Policy Agenda, to note that WTO commitments are not “religious obligations” and to promise to “act aggressively as needed” to combat unfair trade practices through U.S. trade remedies, such as Section 301 of the Trade Act of 1974, “when the WTO adopts interpretations of WTO agreements that undermine the ability of the United States” to act unilaterally.
Unlike Ambassador Lighthizer, Secretary Ross had very little experience with trade policy before President Trump appointed him to lead the Commerce Department, and he obviously knew very little about the WTO. After 16 months in office, he has nothing but contempt for the institution.
He believes that it is at best outdated, and all the concessions that the U.S. made after World War II to Europe and Asia are no longer appropriate. He has criticized the most-favored-nations, nondiscrimination concept, which is the cornerstone of the General Agreement on Tariffs and Trade/WTO system.
In short, he argues for modification that recognizes the leverage that the United States has as the largest economy in the world, the largest importer and the third-largest exporter.
Although the U.S. was in an even higher leveraged position when the system was created, Ross complains that the concessions made at the creation of the system are outdated and should be reversed to reflect modern realities.
Ross and Lighthizer defend the use of “unilateral” trade actions under Section 232 in this case, and under Section 301 of the 1974 Act against China on intellectual property complaints, as a more urgent method of addressing violations than under the slow WTO dispute system.
Ross has called that system “a joke” (a dubious judgment considering the overall success the United States has had in it since its creation).
It is obvious that this act of war is as much a challenge to our trading partners and a threat to our economy as it is a challenge and threat to the current world trading system that we have operated under for the past 70 years.
The uncompromising positions presented to our North American Free Trade Agreement partners are now being posed to the WTO. What the Ross, Lighthizer and White House National Trade Council Director Peter Navarro team now are proposing is an America First Trade Organization. Let’s see how well that goes over.
C. Donald Johnson is a former U.S. ambassador at the Office of USTR; a former Democratic member U.S. Congress; and the author of, “The Wealth of a Nation: A History of Trade Politics in America,” Oxford University Press (May 2018).