Trade War Risks From

'National Security'
Tariffs -- The Outlook
By Jacob M. Schlesinger Published June 18, 2017 Dow Jones Newswires

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."

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 jacob.schlesinger@wsj.com

(END) Dow Jones Newswires

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