Trade War Risks From 'National Security' Tariffs -- The Outlook

Donald Trump's trade policy has so far been more bark than bite: dramatic rhetoric about shaking up the old order, backed mainly by new studies and completion of routine Obama-era cases touted with extra fanfare.

That may change as soon as this week, when the president bares his "America First" teeth with more ferocity, advancing plans to curb steel imports in the name of "national security."

Continue Reading Below

In doing so, Mr. Trump is dusting off little-used presidential powers rooted in a claim rarely invoked in world commerce -- one that has the potential to destabilize the global postwar trading regime.

"Justifying import restrictions based on national security is really the 'nuclear option,'" Chad Bown, a trade expert at the Peterson Institute for International Economics, wrote recently, warning of a "downward spiral" as trading partners "use similar exceptions to halt U.S. exports of completely different products to their markets."

While Mr. Trump isn't the first president to shield the long-troubled steel industry from imports, none has made steel protectionism so central to his political persona, branding prior import limits insufficient.

In April, Mr. Trump began to make good on his campaign promises, exhuming Section 232 of a 1962 trade law giving presidents the power to block imports that threaten national security, and ordering aides to provide options on how to carry out the law. Officials are preparing to do so by the end of June, with action expected to follow quickly.

"You'll be seeing that very soon," Mr. Trump said at a June 7 Ohio speech. "The steel folks are going to be very happy."

Do steel imports threaten security?

The Bush administration weighed that question in 2001, and rejected the idea -- the last time a Section 232 investigation was launched. The Commerce Department concluded at the time that only a tiny fraction of domestic steel output was needed for security-related uses, and that could be "easily satisfied...even if there were a substantial diminution of U.S. production." It also noted most steel imports come from close U.S. allies, which remains true today. About 60% of steel imports last year came from Canada, Mexico, the European Union, Japan and South Korea.

But domestic laws give an American president wide latitude to determine what threatens security, and Trump aides have made clear they take a more expansive view than predecessors.

The law's "definition of national security is much broader than what you might think," Commerce Secretary Wilbur Ross told a Wall Street Journal conference Monday, citing measures like trade's impact on employment. He said officials were looking beyond strict military concerns, noting that "there is only one U.S. manufacturer of the kind of steel that goes into transformers" for the electrical grid. "That, to me, is a legitimate national security issue," Mr. Ross added.

Global rules also give countries tremendous discretion to curb imports for national security. That's where the Trump actions could have the biggest repercussions.

The international trading system has long reflected the uneasy balance between the need to create consistent rules that could be enforced globally with the need to respect the sovereignty of member states.

The postwar arrangement overseen by the World Trade Organization includes a national security exemption, giving countries significant freedom to use it how they see fit.

Trade law scholars call it the WTO's only "self-judging" provision, or, as one put it with foreshadowing irony in a 2011 treatise, "an unreviewable trump card." Officials have long worried that the exemption, if used liberally, could upend the whole regime, posing a no-win dilemma for the Geneva-based trade arbiters.

The WTO could declare the policy illegal, stoking domestic political anger toward a world government challenging a country's right to protect itself. Or it could approve the plan, encouraging other nations to go the same route, triggering a tit-for-tat protectionism the system was designed to prevent.

The result for 70 years has been the trade version of the Cold War's "mutually assured destruction" doctrine preventing nuclear war.

Only 10 national security complaints have been lodged in Geneva since 1949, all settled before the parties pushed the world trade body into making a ruling. Most involved diplomatic disputes, like the U.S. embargo against Cuba. The only transparently commercial case was Sweden's 1975 quotas on footwear, which was quickly dropped under pressure and ridicule from allies.

In 55 years, the U.S. had launched only 26 Section 232 studies, with just two leading to limits, both on oil imports: from Iran in 1979 and Libya in 1982. Ronald Reagan did brandish the 232 threat as a bargaining chip, using it to persuade Japan in 1986 to "voluntarily" cut machine-tools exports.

Mr. Trump has already launched two such probes -- on aluminum as well as steel -- and Mr. Ross said Monday "others are being considered."

When world trade leaders first created the national security exemption in 1947, officials acknowledged they were creating a potentially perilous loophole, one participant warning at the time that "the spirit in which Members of the Organization would interpret these provisions was the only guarantee against abuses," according to records of that debate.

Trump aides are still wrestling with just how strong to make their steel curbs, a struggle indicated when they twice canceled congressional briefings on the measure last week. But Mr. Trump's core trade pledge has been to challenge the spirit American presidents have applied to the global trading system for 70 years, which is why the looming steel case could have such broad reverberations.

Write to Jacob M. Schlesinger at

(END) Dow Jones Newswires

June 18, 2017 11:48 ET (15:48 GMT)