U.S. President Donald Trump has a chance to pursue protectionist trade measures that could be his most significant trade restrictions yet. After an investigation launched in April 2017, the Commerce Department has found that steel and aluminum imports threaten to impair U.S. national security. To counter that threat, it has recommended a wide range of remedies, including a global tariff on steel imports of at least 24 percent and quotas restricting imports to just 63 percent of their 2017 volume. Trump and his administration now have until April 11 and 19 to decide what measures to take on steel and aluminum imports, respectively.
If implemented, the restrictions could be the start of a series of trade measures advancing the White House's protectionist agenda. Though the implications of these measures would be significant, legal challenges and domestic division could prevent them from being effective. Stratfor will be watching for the following in the lead-up to Trump's decision and immediately after.
Divisions Within the West Wing
The Trump administration has been long-divided between a protectionist wing that backs more aggressive measures to increase trade enforcement and protect U.S industries, and a globalist wing that has pushed back against trade restrictions. While Trump has regularly called for trade deals that benefit the United States more strongly, other voices from within the White House have argued, for example, that several of the United States' largest trading partners in steel are close U.S. allies with important defense treaties. The division has played out significantly in trade investigations, with the globalist wing — led by Treasury Secretary Steven Mnuchin, Secretary of State Rex Tillerson and a chief economic adviser, Gary Cohn — often butting heads with the protectionist camp — led by U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and the director of the National Trade Council, Peter Navarro.
Although Trump requested the Section 232 investigation that brought about the newly recommended measures in June 2017, this break between the protectionist and globalist wings caused a delay until the legally mandated deadline in January 2018. And this division has also played out between businesses. The steel industry and its unions have called for Trump to follow through on his campaign promises by enacting the measures, but other industries, particularly those reliant on steel, will doubtless push back. And this debate could temper whatever action — if any — that Trump takes.
Whatever the result, the recommendation will provide important information on the balance of power between the two camps in the administration. Moreover, it will test the extent to which Trump is willing to go against certain business interests.
Legal Loopholes
The Commerce Department's investigation has already come under criticism from trade experts who claim it uses national security as a pretext for clear-cut protectionism. While it's difficult for Trump to unilaterally change U.S. trade policy in other areas, such as NAFTA, a Section 232 trade investigation provides a potential avenue toward Trump's trade goals. However, domestic opposition and legal precedents mean that court challenges are likely. Challengers could claim, for example, that the United States is throwing out decades of standard practices in similar investigations and casting aside previous definitions of what constitutes a threat to U.S. national security.
This is not the first time the steel and iron ore sector has been the subject of such an investigation. In 2001, an investigation into imports of iron ore and semifinished steel determined there was no evidence that such imports threatened U.S. national security. And if it can be successfully argued that protectionist measures were the Trump administration's goal all along, the United States could face a legal argument that Section 232 is not being put to its intended use.
Anger Abroad
Challenges to any new U.S. trade measures will also come from abroad. U.S. trade partners could respond with direct retaliation, and China and the European Union have already begun considering responses. China has launched its own investigationinto trade dumping of U.S. sorghum, and it has floated the possibility of targeting U.S. soybean exports or the U.S. agricultural sector as a whole. The European Union, meanwhile, has reportedly launched investigations into its own trade measures on Wisconsin dairy products and on Kentucky bourbon.
In addition, U.S. tariffs could be challenged through the World Trade Organization (WTO). South Korea's trade ministry said Feb. 19 that it would consider filing a WTO complaint if the United States follows through on the suggested tariffs or quotas. Though there is technically an exemption for national security under WTO rules, it has never been through a full WTO litigation. Creating a legal precedent by allowing the United States to claim national security could open the floodgates for other countries to use the same argument in situations where it is even less applicable. But litigating the national security exemption would be a lengthy process, and the United States would continue implementing the tariffs in the short term.
For now, the most important outcome of the ongoing U.S. trade investigations hints at what is to come. The investigation into China's intellectual property rules and technology transfers will be completed later this year, and there are signs that the White House seems to have internal divisions over how aggressively to go after China. Should Trump accept the Commerce Department's recommendations and put significant trade measures into place, that could be a harbinger for even more significant action against China later this year.
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