Trump’s Gunboat Diplomacy Takes Aim at the Global Trading System

Cross-posted from Forbes.com

By any objective measure, the degree and nature of U.S. reliance on imports of steel and aluminum do not threaten national security. President Trump’s claiming so was a smokescreen. The president wanted the domestic authority to impose tariffs, and invoking Section 232 of the Trade Expansion Act of 1962 was a foolproof way to get it.

The statute gives the president the broadest possible discretion to define and mitigate a “national security threat.” Because he can modify the tariffs or exempt countries from its reach practically on a whim, Trump has amassed the leverage he wants to bend U.S. trade partners to his will: Buy more U.S. products and I’ll drop the tariffs! Curtail your exports and I’ll modify the scope! Ramp up your NATO spending and I’ll call off the dogs!

Those who share Trump’s worldview might call this strategy ingenious. It is certainly unconventional, provocative, and possibly unhinged. Whatever you call it, Trump’s gunboat diplomacy is a major departure from the policy continuity of the last 13 U.S. administrations, and it presents a grave threat to the international trading system and the global economy.

Not since Herbert Hoover has a U.S. president been so cavalier about the consequences of protectionism. Never has a president been more dismissive of the importance of trade to our prosperity and security. Never has a president been so impervious to the lessons of history.

On trade, Trump is one-dimensional. He sees deficits as proof that the United States is losing at trade (and losing because the foreigners cheat). A winning policy, he believes, would produce trade surpluses. But, if that’s true for the United States, it’s true for all countries and since all countries can’t run surpluses, trade can’t possibly be an exercise in cooperation and mutually beneficial exchange. To Trump, trade is a survival-of-the-fittest, winner-take-all, Hobbesian struggle.

Animating this zero-sum fallacy is a sense of resentment that permeates the American nationalist narrative. Donald Trump, Robert Lighthizer, John Bolton, Peter Navarro, and others advising the president see the United States as a benevolent giant, having selflessly provided the resources, security, and generosity of spirit to rebuild Western Europe, East Asia and the rest of the free world after the war. Under the U.S. security umbrella, our allies took advantage of our kindness, short-changed the till, flaunted the rules, became economic rivals, and adopted policies that advanced their own interests at the expense of America’s industrial base. Or so goes the story.

This variant of American exceptionalism demands tribute in the form of our allies’ unquestioning support for U.S. positions on matters of foreign and economic policy, and reparations in the form of excusing U.S. policy transgressions and acquiescing in other U.S. claims to entitlement or special consideration. That the United States isn’t treated exceptionally by the World Trade Organization’s Dispute Settlement Body—which is to say with extra helpings of deference or even turning a blind eye to U.S. infractions—as recognition for America’s selfless leadership in establishing the rules and institutions of the trading system helps explain Trump’s reckless trade policy tack today.

Trump’s trade policy is all about asserting U.S. sovereignty over the presumed constraints of international law and using the leverage that comes from threatening to impede access to the world’s largest market to compel foreign governments to take certain actions. Trump reckons that countries running surpluses with the United States have more to lose from a trade war, hence his assertion that trade wars are “good” and “winnable.” While it may be true that the United States would be less weakened than other countries by a trade war (as the U.S. is much less dependent on trade than almost every other country—imports plus exports account for 27% of U.S. GDP as compared to a world average of 53%), the damage to the U.S. economy would be considerable nonetheless. But the very notion of feeling confident to threaten a trade war because U.S. “casualties” would be lighter than say China’s or Europe’s is anathema to any proper understanding of how trade and the global economy really work. Trade is not a zero-sum game, but a win-win, lose-lose proposition. Hurting our trade partners unequivocally hurts ourselves. Trump’s predecessors understood this.

U.S. importers and trading partners are all well aware of the flimsiness of Trump’s national security argument for steel and aluminum tariffs, and domestic legal actions and WTO challenges are likely to materialize. But that will take time and, in light of the so-called National Security Exception (Article XXI of the General Agreement on Tariffs and Trade) that would seem to permit governments to raise tariffs to protect national security, a successful outcome is very uncertain.

Meanwhile, foreign retaliation is no panacea. Smart governments get no pleasure from raising trade barriers because smart governments know that those barriers impose the greatest burdens on their own countries’ businesses and consumers. Even though the EU has published a retaliation list, which targets U.S. exports from states of important members of Congress, European restaurants, hotels, and households don’t want to bear the burden of paying more for their bourbon and cheese. Moreover, imposing direct retaliation instead of pursuing resolution through the WTO dispute settlement system could very well find those who retaliate in violation of the rules before the United States is ever held to account.

If there is going to be retaliation, expect it to come via copycat invocation of some bogus national security rationale. That would at least provide a similar level of insulation from WTO rebuke that probably shields the U.S. steel and aluminum actions. One could imagine the EU going after Google, Amazon, and the other U.S. internet giants, which have been in Brussels’ cross-hairs for years. Restrictions on the kinds of information that can cross borders, data localization requirements, and other onerous rules to “protect national security,” which also happen to burden the U.S. business models, could be imposed.

Likewise, Beijing already considers China’s reliance on western technology to be a national security threat. In fact, China already has a National Security Law and a Cybersecurity Law, both of which extend unspecified and unpredictable authorities to the Chinese government to inspect U.S. information and communications technology products, and to compel U.S. companies to “share” their technology. Those practices are among the subjects of the Trump administration’s highly provocative Section 301 investigation. If China was previously on the defensive about those allegations, any inclination toward changing those policies it may have had has probably waned as a result of the U.S. precedent to invoke national security to rationalize protectionism. Now, Beijing has another option.

Of course, the significance of these national security tariffs to the future of the trading system will pale in comparison to any U.S. measures imposed unilaterally pursuant to the Section 301 investigation of China. As a WTO member, the United States cannot be judge, jury, and executioner. The United States can bring its evidence of Chinese violations to the WTO and ask for a ruling as to whether China is, in fact, in violation. If China is found to be in violation and it fails to bring its policies or practices into conformity with the WTO agreements it is violating, then the United States can pursue retaliation.

But Trump is said to be seeking a list of retaliation targets totaling somewhere between $30 and $60 billion worth of Chinese imports and is reportedly intent on pulling the trigger. Such a blatant violation of WTO rules perpetrated by the United States would signal the world that Trump is not interested in the rule of international trade law, but in asserting U.S. sovereignty at all costs. And the costs will be huge, as other governments follow suit and the once predictable global trading system descends into a wild west of anything goes lawlessness.

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