US steel tariffs – not just about national security or sector support

US steel tariffs – not just about national security or sector support

When US President Donald Trump announced that he would be imposing tariffs on imported aluminum and steel (exempting only NAFTA partners Canada and Mexico), the media was abuzz with commentary about the potential implications of the new policy. Proponents argued it would revitalize the US steel industry while detractors argued it would set off an international trade war, potentially triggering a global recession.

What was buried in the discourse, however, is that apart from penalizing foreign steel producers, the imposition of steel tariffs is only the latest salvo in a series of admonishments by the current US administration that call into question the efficacy and relevance of the World Trade Organization (WTO) and its relationship with the United States.

The WTO’s catch-22

A few days before Washington’s official announcement, WTO director general Roberto Azevêdo publicly called for a “measured response” to then threats of tariffs on steel imports into the United States, noting that retaliatory measures would do far more harm than good to the international trade community. What he could not say was the WTO was ultimately powerless to stop the United States.

The steel tariffs were imposed under an obscure law within section 232 of the US Trade Expansion Act of 1962, which essentially gives the US government the authority to impose tariffs should they serve to protect national security. Capitalizing on a dated technicality may seem on the surface a desperate attempt to pettily strike back at an organization Washington believes to be impotent, but the move is actually quite calculated.

By using section 232, the Trump administration has not so gingerly placed the WTO between a rock and a hard place. From a strictly legal perspective, the WTO could rule against the United States in a dispute brought forward by the European Union or China or any other country adversely affected by Washington’s decision, forcing the United States to repay any collected tariffs. Its ability to do so, however, is uncertain given there is no precedent for a ruling for or against tariffs on the grounds of national security during the WTO’s mandate. And given the existing contempt in Washington for the WTO and the Trump administration’s penchant for hard negotiation, it is disputable whether or not the United States would comply or choose instead to attack the WTO and float the possibility of its exit from the international body, as it has done implicitly in the past with North Atlantic Treaty Organization and the United Nations.

Conversely, if the WTO finds in favor of the United States, it will open a Pandora’s box of comparable tariff impositions on the grounds of national security from around the world, effectively nullifying any semblance of internationally governed trade.  

A not-so-subtle message

To be sure, the goal of the steel tariffs was to penalize steel exporters the United States sees as employing unfair trade practices, namely China, and not to leave the WTO in a Catch 22. Yet it is hard to imagine there is not some level of satisfaction in Washington that an international body it believes has been neglectful of enforcing its own rules and that has allowed offenders to carry on unimpeded is being sent a not-so-subtle message that a reckoning is imminent.

One need to go back only to the WTO’s 11th Ministerial Conference in Buenos Aires in December 2017 to find evidence of Washington’s derision toward the WTO’s governance. It was then that United States Trade Representative Robert Lighthizer publicly chastized the international body for allowing rapidly emerging markets with the highest levels of GDP growth globally to skirt WTO rules by claiming “developing nation” status.

But antagonism between Washington and the Geneva-based institution has been palpable since the onset of the current US administration and resulted last November in the United States vetoing the critical selection of new judges for its Appellate Body. The veto was a protest against what Lighthizer described as an over-emphasis on litigation over negotiated dispute resolution. And while the WTO can circumvent Washington’s interference by shifting to a majority-vote system (it currently requires unanimous approval by 164 WTO members), it is loath to do so lest it trigger a hasty US withdrawal from the WTO, which would have a negative impact on all WTO members.

Carrot and stick

It is against that backdrop that Washington implemented tariffs on steel and aluminum imports and put the international community on notice that trade with the United States would be on Washington’s terms, not the WTO. And yet it is arguable the Trump administration is taking a carrot-and-stick approach to its dealing with the international body. If the steel tariffs are the stick, then a recent, post-tariff announcement trilateral statement between US, EU, and Japanese trade officials might be considered a carrot.

The statement not only signals a willingness on the part of Washington to work collaboratively within the rules of the WTO to resolve trade disputes, but could be a harbinger of a generally less combative relationship between Washington and Geneva. Should that occur, it would be at least one positive outcome of the imposition of steel and aluminum tariffs. Although, if steel-tariff detractors prove correct that the tariffs will set off a trade war, the amicability within the WTO will serve as little more than political face-saving with little substance behind it.

For this reason alone, 2018 could prove to be a watershed year for the US relationship with the international trade community.

David Rish is president of global trade management at customs brokerage, freight forwarding, and trade consulting firm Livingston International.