Commentary

Has Trump Evolved on Trade?

On the campaign trail and into the first year of his presidency, Donald Trump has been a walking, talking billboard for protectionist nationalism. He promised 45 percent tariffs on imports from China, 35 percent levies on imports from Mexico, a requirement that U.S. oil and gas pipelines use only American steel, and the closure of “loopholes” in our Buy American laws to ensure that only U.S. goods and American workers are eligible for federal procurement projects.

Trump withdrew the United States from the Trans-Pacific Partnership, forced renegotiations of the North American Free Trade Agreement and our trade deal with South Korea under threats of withdrawal, launched investigations under a provocative and rarely used statute to determine whether U.S. dependence on foreign sources of aluminum and steel represent national security threats, and initiated another investigation under an even more provocative statute to determine whether China is engaging in unfair technology transfer and intellectual property practices.

A year and change into his presidency, however, Trump’s making noises about rejoining the TPP, the odds are looking better for NAFTA renegotiation over withdrawal, and the president’s only overtly protectionist actions have been to impose safeguard tariffs on solar cells and tariff rate quotas on washing machines. Of course, imposing tariffs is as aggressive as it is self-destructive, so use of the word “only” is not to excuse the actions, but to suggest that the administration has exercised relative restraint. There is near consensus that the bark has been worse than the bite.

Have Trump’s views changed? Is he beginning to recognize that his protectionist impulses are economically and politically constrained? Are we merely in the eye of the hurricane? What to make of the state of U.S. trade policy?

Is he beginning to recognize that his protectionist impulses are economically and politically constrained?

First, we are by no means in the clear with respect to avoiding a deluge of protectionism. Still pending are three potentially explosive cases (and more contentious issues could soon emerge). The two investigations into the national security implications of U.S. imports of steel and aluminum, conducted under Section 232(b) of the Trade Expansion Act of 1962, reportedly have been completed. Whether those findings reveal national security concerns and, if so, whether the president is going to respond with trade barriers remains to be seen.

The president has broad discretion to impose high tariffs under this statute and—as is the case generally on matters of national security—the U.S. courts show great deference to the executive. Should Trump announce tariffs, the United States might find itself defending that decision at the World Trade Organization by invoking GATT Article XXI (the Security Exception), which allows members to abandon their tariff obligations in times of war or national security emergencies. Aggrieved trade partners, however, could then seek compensation under GATT Article XXIII (Nullification or Impairment), arguing that they were deprived of their expected trade benefits as a result or they could register their disapproval by simply retaliating with their own tariffs.

In my somewhat hopeful estimation, the administration will back away from the precipice and refrain from imposing trade restrictions in both 232 cases. Despite the rhetoric, Trump doesn’t want to subvert “his” economy. Having heard from steel- and aluminum-using industries, as well as potential, retaliation-targeted agricultural and manufacturing exporters over the course of the past year, Trump is today more aware that the impulsive actions he has threatened to take would carry some very significant economic and political costs.

In October, the administration self-initiated antidumping and countervailing duty investigations into aluminum from China. The move was predictably perceived as the administration going full “America First,” but was also a possible indication that the administration was looking for a way to extricate itself from its 232 promises. So, the aluminum 232 case could be terminated with a conclusion that national security is not threatened by imports of foreign aluminum, but that the main foreign competition is benefiting from government subsidies and is dumping. While those conclusions might not be correct and the trade remedy laws are badly flawed, at least the WTO and its members would have less difficulty swallowing U.S. restrictions imposed under a couple of abused, but familiar laws targeted exclusively at the most problematic country.

On the steel 232, of course the administration is loaded with former industry executives and trade lawyers. It’s safe to assume the steel producers will get their bowls filled. But, the relationship works both ways. Who better than the administration’s steel guys to explain to the industry that the risks of imposing tariffs under Section 232 would be too great and that the administration will help them out in other ways. By other ways, what is meant is that, in addition to the 158 already existing antidumping and countervailing duty measures restricting U.S. imports of 18 different kinds of steel from 29 countries at huge costs to downstream industries, there will be even more. How else might the administration help the U.S. steel oligarchs? By guaranteeing them a bigger slice of the $1.5 trillion infrastructure pie and by getting an enforceable commitment from China to reduce capacity and curtail production, which brings us to the other even more explosive case in the pipeline.

Section 301 of the Trade Act of 1974 provides legal authority for the U.S. Trade Representative (USTR) to deny U.S. trade benefits or impose import duties in response to foreign trade barriers, including “unreasonable or discriminatory” actions that harm U.S. exporters, service providers, or intellectual property rights holders. An investigation into alleged Chinese forced technology transfer and intellectual property infractions was initiated last year by the U.S. Trade Representative. Section 301 has not been used to threaten or dole out unilateral sanctions since the WTO was established in 1995 because—rather than permit member governments to be judge, jury, and executioner—members agreed to have these issues adjudicated and resolved through the WTO Dispute Settlement Body. The possibility of unilateral actions by the United States under this statute represents a big threat to the multilateral trading system because, frankly, no member has ever shown such blatant disregard for the rules. On the other hand, conducting an investigation under Section 301 that does not result in the imposition of unilateral sanctions is a different matter.

There is no major difference between the evidence-gathering phase of a 301 investigation and the evidence-gathering that culminates in the filing of a request for consultations at the WTO. Under both sets of circumstances, USTR and other agencies collect evidence. Assuming USTR has credible evidence of Chinese WTO violations, there is nothing that commits USTR to the 301 remedies phase, as opposed to peeling off and using the evidence to initiate a WTO case. Importantly, if USTR has credible evidence of underhanded Chinese practices that might not constitute WTO violations, he can still avoid 301 remedies by organizing a united front with like-minded, similarly-concerned governments to compel China to alter its course. (Here’s where being a part of the TPP would really pay dividends.)

It’s unclear how the administration will proceed in this case, but there are several unexplored paths short of sanctions that could bear fruit. It seems unlikely that an administration that seems to be demonstrating greater mindfulness of the importance of abiding by the trade rules would choose to pursue a rogue, unilateralist path—at least not without exploring the options that don’t make the United States the international scofflaw.

But then again, just today President Trump threatened new border taxes to remedy unfair foreign practices. Such are the risks of bringing reasoned analysis to current public policies.

Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies and author of the 2017 policy analysis: Cybersecurity or Protectionism: Defusing the Most Volatile Issue in the U.S.-China Relationship.