Trump’s tariffs and the WTO
By: Emre Arduman
Tags: Trading, International Relations, Law, Politics, Economics

Wikipedia

As Trump became the president of the United States, one of his most controversial actions was to impose tariffs on steel and aluminium. He invoked Section 232 of the Trade Expansion Act of 1962. On a global level, his tariffs were invoked by GATT’s Article XII. This led to retaliation by the countries that the tariffs were applied to. There seemed to be a global consensus that these tariffs by Trump were not justified, yet nobody was capable of stopping it. In this paper, I will discuss whether a response to the United States is possible by analysing Simon Lester and Huan Zhu’s paper, Closing Pandora’s Box.

In the first section, I will explain in detail how Trump applied these tariffs. In the second section, I will discuss the challenge this presents for GATT and WTO. In the third section, I will analyse the goals of rebalancing for these types of tariffs. These three sections will help us question the rule of international law for radical economic policies.

Before Trump, there was an unwritten rule of ‘good faith’ amongst nations, which helped in export controls over Eastern Europe during the cold war, an embargo of Argentina led by the European Community related to the Falklands War, and the U.S. embargoes on Nicaragua and Cuba. (Lester, Zhu). This unwritten rule is written over Article XII. Simply put, the Article XII states that a country can apply economic restrictions if they believe their national security is at risk. This seems to be a sensitive rule, since it is easy to create an excuse to gain political leverage. The unwritten rule, however, proved to be successful in the start of the 21st century. Everyone seemed to comply, since there were no cases between 1999–2016. This changed rapidly after Trump became president. He applied 5 tariffs on steel and aluminium. The tariffs apply to 45 billion$ worth of steel & aluminium import. The purpose of these tariffs was deemed damaging for foreign policy & excessive by the military, which only needed 3% of domestic production to satisfy their needs. (Lester, Zhu) It is concluded that the true motivation behind these tariffs is unclear. Many retaliated to Trump with their own tariffs, deeming the use of Article XII by Trump as an excuse.

This is a massive challenge for the credibility of GATT and WTO. A great metaphor to describe this problem is Pandora’s Box. United States decided to weaponize their leverage in free trade by applying tariffs. Their justification seems incredibly ridiculous, considering that they are one of the strongest political forces, if not the strongest, in the world. Any person can realize that their national security is not at stake. These tariffs are unjustified. This creates a problem: any country can now claim ‘national security interests’ to create leverage against other countries. This has the risk of opening up like a Pandora’s box, exponentially and without control. If, let’s say, that all countries in the world decided that invoking Article XII for these tariffs were unjustified, what would happen then? It is highly unlikely that anything would change, considering the political power that the United States have.

In this case, it seems that the United States can steamroll past any moral justification with ease. How can this be avoided in the future? How will the WTO and GATT respond? The article by Lester and Zhu states that a rebalancing is needed. It is unclear what kind of policy will follow. There is no technical detail in this matter. I will discuss the goals of rebalancing instead. The first is transparency. In the future, any article that seems to be used as an excuse for leverage needs to be called out. All loopholes in international law should be avoided. And second, economic compensations should be created for the victim countries of tariffs. For instance, it is argued that Iran should be helped by other countries once it is determined that they have been unjustifiably attacked by the United States. Third, if compensation is not possible, retaliation against the United States becomes morally justified.

References:

Simon Lester and Huan Zhu. “Closing Pandora’s Box: The Growing Abuse of the National Security Rationale for Restricting Trade.” GATO Institute, June 25, 2019.