May 20, 2019 11:13AM

A Truce In One of the Tariff Wars

On Friday, we had an event that is rare in trade policy these days: Some tariffs were reduced. As the Washington Post reported:

Trump did something unusual on the trade front: He removed a tariff

The United States agreed Friday to lift its tariffs on industrial metals from Mexico and Canada, clearing a major obstacle to congressional passage of President Trump’s new North American trade deal.

During the Trump administration's time in office, there have been many excuses to raise tariffs, but few reasons to lower them, so this was good news. Of course, the administration's actions don't count as actual liberalization, because this wasn't some long-standing tariff that had been bothersome for decades and we finally got rid of it. Rather, this was a tariff Trump himself had imposed on steel and aluminum imports in 2018 under Section 232 of the Trade Expansion Act of 1962, ostensibly on the basis of "national security," but without evidence supporting that. Imposition of these tariffs led to retaliation from many of our trading partners, including Canada and Mexico. Rather than being new liberalization, Friday's actions just get us back to where we started. 

Nevertheless, the decision to remove these tariffs on imports from Canada and Mexico is a welcome one. And the result is better than many people were hoping for. A few weeks ago, my colleague Inu Manak and I worried that the tariffs would be replaced by a formal regime of quotas, which can be worse than tariffs. Instead, the tariffs will disappear completely, although there is the possibility that if a surge of imports of these products occurs, the Trump administration could quickly reapply tariffs on certain products. The agreement is better than expected, but not perfect, and some details about "monitoring" imports still need to be worked out.

As indicated in the Washington Post article, these tariffs were one impediment for Congressional approval of the renegotiated NAFTA (the United States-Mexico-Canada Agreement, or USMCA), and perhaps that was Trump's main motivation here. Approval of USCMA is still uncertain, though, because the Trump administration now has to work with the House Democrats to make changes which satisfy them. That won't be easy, but it is possible we could see the new agreement approved in the coming months. There is not much new liberalization in the USMCA either, but its passage would eliminate the possibility that Trump would withdraw from NAFTA, taking us back to the much higher pre-NAFTA tariff levels. With this administration, avoiding new protectionism is considered a win.

As for all the other Trump administration tariffs out there, they are still with us, including the Section 232 steel/aluminum tariffs on products from many other countries. And there may may be more tariffs coming, including Section 232 tariffs on autos and auto parts, for which the decision was delayed last week. But at least on one day, on one tariff issue, there was some positive news.