Trump tariffs may threaten WTO
Other nations may use security rule to skirt trade system
WASHINGTON — By justifying sweeping tariffs on imported metals in the name of national security, President Donald Trump has lobbed what could be a grenade into the global trading order.
For decades that order has been underpinned by the World Trade Organization, whose 164 memberstates have agreed to abide by WTO rules for open trade and settling disputes.
The United States has been the Switzerland-based group’s chief architect in establishing the principles and procedures governing international trade.
But the Trump administration has repeatedly upbraided the organization as slow and incapable of resolving problems, like China’s mercantilist behavior. Unhappy with the outcome of many WTO decisions, the U.S. has blocked appointments of judges to fill vacancies, rendering the appellate body ineffective.
Now the president is playing the national security card — and some fear that could do serious damage to the multilateral trading system, even blow it up by encouraging other countries to use the same rationale to bypass WTO rules or give Trump an excuse to back out of the group.
“It is putting a lot of pressure on the WTO in a very sort of existential way,” said Jennifer Hillman, a Georgetown law professor and former WTO appellate body member.
The Trump administration justified the tariffs — 25 percent on foreign steel and 10 percent on aluminum — on the basis that imported metals presented a threat to the country’s ability to domestically produce what is needed for the military, invoking a rarely used national security provision of a 1962 U.S. trade law.
Some are skeptical about that threat.
Despite a rise in imports, U.S. mills still churn out much more than what’s needed for the military.
“There’s enough (domestic) steel and aluminum for the ships, the armored vehicles, the aircrafts that we build,” said Nayantara Hensel, former chief economist for the Navy.
Trade statistics also show that much of the imported steel and aluminum comes from Canada, Germany and other allies in Europe and Asia that have military agreements with the U.S.
That was part of the thinking underlying the Bush administration’s finding that steel imports, which in 2001 also were weighing on U.S. producers, did not pose a threat to national security.
But the Trump administration took a broad interpretation of “national security,” arguing that ensuring sufficient domestic supplies of steel and aluminum is crucial not just for national defense but also for economic security, which includes U.S. infrastructure like transportation networks, electric power grid and water systems.
“You don’t have steel, you don’t have a country,” Trump said in issuing the tariff orders March 8.
Trump has exempted just Canada and Mexico from the metals tariffs, and only conditionally.
Others have begun negotiating with the administration about how they also might avoid the hit, although it’s still not clear what the criteria are for excluding certain countries or products from the duties.
At least some trading partners are likely to contest the tariffs with the WTO. The duties are set to take effect March 23.
The question is, what can the WTO do about it?
Trade lawyers say the Trump administration’s metals tariffs are illegal under the WTO. The U.S. didn’t first negotiate through the Geneva-based organization, as required.
In granting exemptions to some countries, the administration has violated a cardinal rule of giving equal treatment in trade.
But there is an escape clause.
According to one of the WTO’s articles adopted from the earlier General Agreement on Tariffs and Trade, a member nation can break the rules of trade and take actions that it “considers necessary for the protection of its essential security interests.” This provision, Article 21, doesn’t specify what those interests are, or who determines them.
What is striking, said Georgetown’s Hillman, is that the Trump administration has taken the position that once Article 21 is invoked, that instantly removes the WTO’s authority to settle the dispute.
“What I don’t know yet, and nobody knows yet, is whether the rest of the members of the WTO are willing to go along with that,” Hillman said.
If the WTO agrees with the U.S. position, many worry that other countries will raise tariffs or erect trade barriers under the same banner of national security, which could ultimately undercut the foundation of the WTO.
But if the WTO decides to take up the case, speculation is rife that the U.S. could simply walk away from the WTO.
Trump could have chosen a different route to protect steel and aluminum manufacturers, whether giving them grants or turning to the more common trade remedy of levying “global safeguard” tariffs to stem the tide of imports.
That is what Trump did earlier this year on imported solar panels and washing machines.
But to apply safeguard tariffs, the independent U.S. International Trade Commission has to find that increased imports threaten to cause serious injury to the domestic industry. And it’s not clear the commission would have come to that conclusion on steel.
Last year the three largest U.S.-based steel makers were profitable, helped by a stronger global economy and higher steel prices. The largest, Charlotte, N.C.based Nucor Corp., reported a profit of $1.4 billion on a 25 percent jump in sales to $20 billion.
Dean Pinkert, a trade lawyer and former International Trade Commission member, pointed to another reason Trump may have gone with the national security justification: Unlike global safeguard tariffs, limited to four years, duties based on national security can last indefinitely.
The WTO’s head, Roberto Azevedo, has raised concerns about the new U.S. tariffs and urged restraint from all parties, worried about retaliation.
“The potential for escalation is real, as we have seen from the initial responses of others,” he said.