The Circle Is Now Compete for U.S. Foreign Economic Policy

Meet the new protectionists, same as the old protectionists

Photo by María Ten on Unsplash

Back when the Trump administration was in charge, they engaged in a LOT of trade protectionism and economic coercion. This was one of Donald Trump’s few core policy convictions. He really did believe that the United States had been screwed over by the liberal international order created by… the United States. Therefore, “trade wars are good, and easy to win!” Trump’s track record in this arena proved that supposition to be false in a number of ways. If there is anything I have learned in the 21st century, however, it is that some folks are just gonna believe what they want to believe.

One of the dumber elements of Trump’s trade policy was the May 2018 use of Section 232 of the 1962 Trade Expansion Act to impose tariffs of 10 percent on all aluminum imports and 25 percent on all steel imports. Section 232 requires a claim that the imports represent a threat to U.S. national security. Even the Defense Department’s memo concluding that these imports represented a national security threat, however, was peppered with language indicating that the claim was weak beer.

It is undeniably true that global steel markets suffered from excess capacity, but tariffs were a piss-poor solution to that problem. As the Peterson Institute for International Economics recently explained:

Although they were motivated by combatting China, they were imposed on NATO and other alliance members, because the United States had largely stopped importing steel and aluminum from China, as a result of antidumping and countervailing duties imposed by earlier US administrations.

Similarly, the economic effects of the tariffs were eminently predictable. The U.S. has a lot more manufacturing jobs and output in the steel-and-aluminum-using sectors than in steel and aluminum. According to EconoFact, “the number of jobs in U.S. industries that use steel or inputs made of steel outnumber the number of jobs involved in the production of steel by roughly 80 to 1.” And, sure enough, weaker demand due to higher steel prices caused firms like US Steel to shutter plants and see their stock price fall precipitously in the year or so after the tariffs were originally imposed.

The Trump administration dismissed concerns about the economic and political repercussions, claiming that the tariffs would strengthen the country and that anyway there would be no retaliation. Both claims proved to be wrong. U.S. consumers and workers were hurt, as were poorer countries overseas. U.S. national security was not bolstered a whit.

Needless to say, a lot of countries objected to the bogus use of national security grounds for the tariffs. In 2018 the Trump administration claimed that they were justified under Article XXI of the WTO’s founding agreement, which allows such measures to be used “in time of war or other emergency in international relations.” Norway, Switzerland, Turkey, and India, among others, brought cases to the World Trade Organization, arguing that Trump’s national security logic stretched the meaning of that clause of Article XXI beyond all comprehension. While WTO signatories have traditionally deferred to national definitions of a national security emergency, most commentators agreed that the Trump administration had abused that deference.

Sure enough, when the WTO finally ruled against the United States, hoo boy you could feel the electric charge of populist nationalism vibrating off of the U.S. Trade Representative’s response. The statement read like Trump was dictating the reply:

The United States strongly rejects the flawed interpretation and conclusions in the World Trade Organization (WTO) Panel reports released today regarding challenges to the United States’ Section 232 measures on steel and aluminum brought by China and others. The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO Member to respond to a wide-range of threats to its security.

These WTO panel reports only reinforce the need to fundamentally reform the WTO dispute settlement system. The WTO has proven ineffective at stopping severe and persistent non-market excess capacity from the PRC and others that is an existential threat to market-oriented steel and aluminum sectors and a threat to U.S. national security. The WTO now suggests that the United States too must stand idly by. The United States will not cede decision-making over its essential security to WTO panels.

The… Administration is committed to preserving U.S. national security by ensuring the long-term viability of our steel and aluminum industries, and we do not intend to remove the Section 232 duties as a result of these disputes.

Bellicose and hyperbolic rhetoric, a refusal to adhere to international agreements — yep, that sounds super-Trumpy!

Except that eagle-eyed readers might have noticed a minor ellipsis in that last paragraph. That’s because I tricked you! Psych! This statement was not from the Trump years. USTR Spokesperson Adam Hodge issued it last Friday. [Wouldn’t the headline and subhed have given that away?—eds. Just let me have this rant — remember, I’m unedited now!]

I know I sound like a broken record on this issue, but the point that bears repeating: the primary difference between the Trump administration’s foreign economic policy and the Biden administration’s foreign economic policy is that the Biden team is way better at implementing protectionist policies.

It’s one thing if the Biden team wants to rationalize a strategic decoupling from China: I get that. I even kinda sorta get the principle of defending the national security exemption in Article XXI. Applied properly and judiciously, it’s important that there be such an exception.

Defending the steel and aluminum tariffs, which represented Trump’s crudest, dumbest attempt at issue linkage, is something altogether different. I believe the young people today — the ones most hurt by the higher consumer prices created by this kind of dumb protectionism — would call it “extra.” The claim of a national security threat was always ginned up, particularly since the 2018 action had no effect on imports of Chinese goods — they were already facing steep tariffs.

The Biden administration simultaneously wants to claim that “America is back” from the bad old days of the Trump administration while implementing an awful lot of trade restrictions that target U.S. allies. The inherent tension between these two aims is not going to go away — which means that, from time to time, I will have to remind readers about the logical hole at the center of Biden’s grand strategy. Or as Brad DeLong recently explained to the Financial Times, “The U.S. is now an anti-globalization outlier.'“