US President Donald Trump’s 25% tariff on steel imports and 10% on aluminium will take effect this week. He justifies his measure as necessary to protect US security interests, but his own party is now up in arms.
The Republicans argue that the tariffs will not achieve their major objective: to curtail China’s overcapacity of steel. US jobs will be lost, the economy will be damaged and national defence will be hurt.
The US already has more than 160 duties targeted at specific Chinese steel products, but a glut of global steel has caused prices to drop, hurting US producers.
The announcement seems to be primarily about what Trump promised in his election campaign. He said he would defend US workers from the "carnage" of "bad trade deals" and would "put America first". He specifically promised protection to Rust Belt workers. One of his first actions as president was to pull the US out of the Trans Pacific Partnership negotiations, which many say will weaken US trade and geopolitical interests while benefiting China.
It cannot be assumed that these tariffs will be implemented in their present form.
The president’s announcement does not form part of a well-designed and comprehensive national policy revamp. Opposition to the new tariffs is widespread.
Gary Cohn, who opposed the tariffs, resigned as White House chief economic adviser. Senior Republicans are of the view that "a better way to level the playing field for American companies would be to rally our friends and allies to advance a robust, targeted effort to ensure that only those responsible for excess global capacity pay a price".
Domestic and international opposition to Trump’s measure is bound to increase as the consequences become clearer. Tariffs are taxes that will make US businesses that rely on imported inputs less competitive and US consumers poorer.
US companies purchase imported steel for use in the manufacturing of a wide range of goods. If Trump fulfils all his earlier pledges, the results could be catastrophic for the economy. Tariffs also invite retaliation. The EU has announced that it will increase tariffs on a number of US goods.
Trump instructed that investigations be carried out under a seldom-used legal arrangement, section 232 of the Trade Expansion Act of 1962. This provision authorises the commerce secretary to investigate whether imports pose a threat to "national security", which is not defined. The statute places no limit on the nature of restrictions that may be imposed.
The Bureau of Industry and Security’s 2001 section 232 investigation found that, based on the statutory language and congressional intent, the standard would be met when imports of a product threaten to impair US national security either "by fostering US dependence on unreliable or unsafe imports" or "by fundamentally threatening the ability of US domestic industries to satisfy national security needs".
There may be challenges against the Trump measures in US courts on the basis that these requirements have not, in this instance, been met.
However, if the courts decline to intervene, the affected countries could have recourse to the World Trade Organisation’s (WTO’s) dispute settlement mechanism. The US could then invoke the security exceptions in the seldom-used General Agreement on Tariffs and Trade (GATT) article XXI, which permit a member country to depart from GATT obligations in "time[s] of war or other emergency in international relations". However, this would be highly controversial and could encourage other WTO members to resort to protectionism under the guise of national security. These concerns have historically acted as a check on WTO members’ invocation of Article XXI.
If exemptions from these tariffs are granted to some, there will be discrimination. This will make it impossible to invoke the agreement on safeguards and Article XIX of GATT 1994.
As the WTO states: "The guiding principles with respect to safeguard measures are that such measures must be temporary; that they may be imposed only when imports are found to cause or threaten serious injury to a competing domestic industry; that they (generally) be applied on a nonselective (ie most favoured nation) basis; that they be progressively liberalised while in effect; and that the member imposing them (generally) must pay compensation to the members whose trade is affected."
A WTO spokesman said a day after the US announcement that there was still time to discuss the measure. "There is an obligation for a member who takes a measure such as a safeguard or an antidumping measure or a countervailing measure to notify the organisation of that measure. We don’t know what the legal basis for the US measure is, so I can’t comment on whether or not they have an obligation to notify the announced measures from last night to the WTO."
The new anti-WTO sentiment in the White House is based on a belief that the US must defend its trade interests bilaterally or in smaller configurations and not be pulled into global agreements. It is claimed they work to the advantage of lesser powers and apparently at the expense of the US. By bargaining from a position of strength, the US could get better deals.
This approach runs counter to the inclusive nature of the WTO. It requires that existing trade arrangements be dismantled or their effects be reversed, as is being done in the push for renegotiating the North American Free Trade Agreement (Nafta). The irony is that Nafta is one of those smaller trade arrangements where US interests could be adequately protected.
If committed to this approach, the Trump administration will have to take more such measures. This invokes the prospect of a trade war. US allies will also be targeted by US tariff increases or other measures. Trump has already threatened the EU with restrictions on cars.
Trump’s recently announced tariffs won’t hurt China much. Affected nations, including Nato partners and allies such as the EU and Australia, will be harder hit and be pressured to retaliate. That is how trade wars begin.
There may be unexpected difficulties. The UK has indicated that it will try to obtain an exemption for British steel, resulting in a threat from the EU Commission to sue Britain if it secures a unilateral exemption from US steel tariffs.
SA’s Department of Trade and Industry has made inquiries about the proposed tariffs. It said that, if no alternative arrangement was agreed, the tariff would affect South African exporters from March 23. SA, benefiting from the African Growth and Opportunity Act is the most important African exporter of steel to the US, representing a small portion of total US steel demand of 105-million tonnes. However, this amounts to about 5% of South African steel production. Losing the US market could put 300,000 tonnes of steel production at risk, along with some 7,500 jobs in the steel and manufacturing supply chain.
The US market for aluminium produced in SA and Mozambique represents about 20% of annual sales by value, but only 2% of US aluminium product imports.
• Erasmus is an associate at Tralac, the Trade Law Centre.
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