March 23, 2018 10:35AM

Sorting Out All These Tariffs: Are We Having a Trade War Yet?

Tariffs are making headlines just about every day now, but it's often not clear which stories are about threats of tariffs, and which are about actual tariffs that will be applied. Back on March 8, President Trump announced that he would impose tariffs on imports of steel (25%) and aluminum (10%), but also noted that Canada and Mexico would be exempt and there was going to be a 15 day period to talk about exemptions for other countries (as well as specific product exclusions). Other countries complained that the purported justification for the tariffs, national security, had no basis, and the EU threatened retaliatory tariffs.

That 15 days was up today, but before we get to that, yesterday President Trump was threatening more tariffs, this time only against China, for various practices -- e.g., alleged forced technology transfers and a failure to safeguard intellectual property rights -- that it has engaged in over the years. The Wall Street Journal described yesterday's action this way:

The White House is putting together a package of 25% tariffs on Chinese imports, and Mr. Trump’s advisers said they had targeted 1,300 product categories. The president said that action could affect imports of “about $60 billion,” but his advisers, speaking earlier, said that it was more likely to be $50 billion, or roughly 10% of the more than $500 billion the U.S. imported from China last year.

The administration says it will publish a formal list of proposed tariffs in 15 days. U.S. industry would get 30 days to comment on which products should be selected for tariffs, said the office of the U.S. Trade Representative. ...

So these China-specific tariffs are in the works, but they are not being imposed just yet. There is still time to convince the Trump administration to focus more on bringing complaints against China to the World Trade Organization (WTO), as we advocate here and here.

In the meantime, though, the Trump administration imposed the steel and aluminum tariffs as of today. However, in the end, they exempted (at least until April 30) many additional countries: Brazil, the EU member states, South Korea, Australia, and Argentina. That softens the impact of the tariffs considerably, and the EU may not retaliate just yet (although it is not happy with an exemption that is only temporary). But other countries, including China, are subject to these tariffs. These countries are likely to file complaints at the WTO, but in addition, China has announced (in Chinese) that it will retaliate with tariffs of its own. No word yet on retaliatory actions from others.

What's interesting about China's retaliation is that it has picked up on an EU legal theory, under which the retaliatory tariffs are actually permissible under WTO rules, as they are an action related to a "safeguard" measure (because the national security justification is a sham, the argument goes, the U.S. tariffs are actually safeguard measures). I'm skeptical of this theory (see the comment discussion here), but at this point all sides are pushing the boundaries of what is legal.

So where does all this leave us? Are we having a "trade war" yet? That's a term that gets thrown around a bit loosely, but we now have some (arguably) extra-legal tariffs imposed, and some (arguably) extra-legal tariffs being threatened in response. Whether it's a "trade war" or a "trade skirmish," it's a dangerous road we are going down, and there is the prospect of escalation if the additional tariffs on China announced yesterday are imposed. 

There is still time to rein all this in, though. The Trump administration has decided to bring a WTO case against China related to one set of Chinese practices; working with other countries on multilateral efforts to address China's practices more broadly is a much better approach than unilateralism. If the Trump administration can be convinced to focus on working through the WTO, rather than imposing tariffs unilaterally, much of the damage can be avoided.