On the campaign trail, Donald Trump’s trade policy was an alarming mixture of coruscating complaints and fierce threats of protectionist retaliation. But the world has been in the dark about how much of this rhetoric his administration might turn into reality. A flicker of light came on March 1 as the administration’s trade-strategy document was presented to Congress. Washington wonks see the hand of Peter Navarro, Trump’s trade adviser and author of a book (and film) called Death by China. Robert Lighthizer, the nominee for the US trade representative, has not yet been confirmed.
Little is new in the document’s promises of “new and better trade deals” or of strict enforcement of American trade laws. But a preference for bilateral trade deals over multilateral ones is a change of tack. And the tone is certainly confrontational: “It is time for a more aggressive approach.” The document also gives an indication of how a Trump administration might take a trade fight to China: by using sections 201 and 301 of the Trade Act of 1974.
The first weapon, Section 201, allows tariffs to be imposed as a safeguard to protect American producers from a surge of imports. Affected companies must show that they have suffered “serious injury,” but need not prove any unfair practice by the foreign firms.
Trump’s trade team may be reliving the experience of the Reagan administration, which in 1983 slapped an extra 45% tariff on imports of motorcycles in response to a petition from Harley-Davidson, an American manufacturer. Trump has referred to this as having had a “big impact.” But as a trade-enforcement tool, Section 201 has drawbacks. Proving a case can be tricky, since there is a high legal threshold for proving injury and the adjudicator, the International Trade Commission, is an agency respected for its independence. (The Department of Commerce, which makes rulings on anti-dumping, is seen as a softer touch.) Moreover, indiscriminate use of the provision will provoke other countries into retaliation. In 2002 America tried to slap tariffs of 30% on steel in violation of the World Trade Organization’s rules, but was forced to retract when faced with the threat of $2.2 billion’s worth of tit-for-tat tariffs on exports ranging from sunglasses to orange juice.
The second weapon in the arsenal, Section 301, is “scarier” than 201, says Kim Elliott, a trade expert. “The grounds for taking action are less well-defined.” It allows the administration to take action against “unfair” trade practices. America used to invoke this section to hit its trade opponents before disputes could be dealt with by the General Agreement on Tariffs and Trade, the WTO’s precursor.
Since the establishment of the WTO in 1995, the section has fallen into disuse, on the understanding that it could be implemented if a WTO ruling went in America’s favor and authorized tariffs on a trading partner that was breaking the rules. The fear, however, is that this week’s mention of Section 301 implies the Trump administration might start going outside the global rules of the WTO system.
The implicit target is China. In one of the most important of several disputes which are currently working their way through the WTO courts, China challenges America’s refusal to treat it as a “market economy.” If the WTO granted China “market-economy status,” it could limit the level of WTO-compliant tariffs America could impose on its exports.
© 2017 The Economist Newspaper Ltd., London (March 4, 2017). All rights reserved. Reprinted with permission.
Image credits: Doug Mills/The New York Times