- President Donald Trump authorised new tariffs on steel and aluminium last week.
- Trump justified the tariffs by saying they were needed to ensure national security.
- Trade experts say the reasoning could disrupt the current rules of global trade.
President Donald Trump’s new tariffs on steel and aluminium are set to have significant ramifications for not only the US economy, but also the global economic and trade landscape, experts say.
Edward Alden, a senior fellow at the Council on Foreign Relations, wrote Friday that Trump’s new tariffs – which function as a tax on imports – were the nail in the coffin of the international trade order of the past quarter-century.
Alden said that Thursday, when Trump authorised the tariffs of 25% on steel and 10% on aluminium, marked “the day the World Trade Organisation died.”
“The White House announcement yesterday threw the rulebook out the window,” Alden said. “The Trump administration is set to impose tariffs under a flimsy national security pretext that flouts if not the rules then at least the widely shared norms of the WTO.”
The core of Trump’s whack to the trade order is the grounds on which he and his administration imposed the new tariffs.
Trump used an obscure law to impose the tariffs
Trump used Section 232 of the Trade Expansion Act of 1962 to impose the measures. It allows the president to request the Commerce Department investigate the national-security risks associated with the imports of a certain good.
In this case, the Trump administration is arguing that if a geopolitical event were to put the US at odds with exporters of steel and aluminium, US producers could not make up the shortfall.
A US president hasn’t used that justification since Ronald Reagan in 1986. Even then, formal restrictions were not imposed – that has happened only twice, both on oil, with limits on Iranian imports in 1979 and on Libyan imports in 1982.
Just as rare as the US’s using the national-security justification is an international body’s having to rule on a case rooted in it.
The General Agreement on Tariffs and Trade allows countries to impose restrictions like tariffs for national-security purposes. But since the agreement’s adoption in 1947, only 10 complaints about such tariffs have been lodged; all were settled before arbitration.
“Using national security in a way that nobody believes – it’s a complete perversion of what is supposed to be extraordinary latitude in the world trading system for countries to deal with their national-security interests,” Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, told Politico.
Opening Pandora’s box?
Experts say the US’s using the veil of national security to impose economic sanctions potentially opens a Pandora’s box for other nations to do the same. Eventually, they say, flouting the rules could become the norm.
Matt Gold, a former deputy assistant US trade representative who teaches trade law at Fordham University, said the big issue for the WTO and the rules-based trade system was that it was all coming from the US.
“It’s a violation of very, very fundamental rules being committed by the world’s foundational economy – the United States – which is also the architect of the entire global system,” Gold said during an appearance on CNBC earlier this month. “And it has severe implications for undermining the credibility of the entire global trading system, in addition to the fact that it will bring litigation to the WTO by our trading partners for violation of those rules.”
While Trump has rooted his explanation of the tariffs in national security, Nancy Vanden Houten, a senior economist at Oxford Economics, said his last-minute decision to exclude Canada and Mexico partly to get more favourable terms in ongoing negotiations over the North American Free Trade Agreement weakened his stance.
“Both Trump’s liberal use of national security as a justification for levying tariffs (tying Canada’s and Mexico’s exemption to progress in NAFTA negotiations may weaken that argument) and a response from trading partners that front-runs a WTO ruling threaten to undermine the WTO and its ability to promote free global trade,” Vanden Houten said.
And experts say Trump’s suggestion that other countries can petition the US for an exemption undermines the WTO and trade order.
Typically, the adjudication of exemptions to various trade restrictions would go through the international body. The Trump administration has said its US trade representative, Robert Lighthizer, will be the point person in this case.
“It has further launched a free-for-all negotiating process in which its trading partners are now expected to come to the White House hat in hand begging for exemptions, a clear violation of the understanding that trade will be conducted under internationally agreed rules, not ad hoc negotiations,” Alden wrote.
Alden concluded that a loss of something as “important and valuable” as the global trade order – even with its flaws – was regrettable.
“The WTO was a lovely promise of a more rational, predictable, and fairer global economic order,” he wrote. “Its death should be mourned.”
Business Insider Emails & Alerts
Site highlights each day to your inbox.