How Bad Is The Trade Climate? Here's A New Measure
The Trump administration  this week slapped substantial tariffs on imports of large washing machines and solar cells. The move drew particular attention because President Trumpâs protectionist rhetoric had not  to date  been matched with significant new protection. Do the new tariffs mark the start of a trade war? Just how serious is the situation?
The military has a way of addressing such questions: DEFCON  a scale ranging from 5 (tranquil) to 1 (most alarming) is meant to portray âDEFense CONditions.â We do not have a corresponding measure in trade  but given the concerns about where  the Trump administration  is heading  we need one. Soâ¦
This has been our recent norm. Certain practices to impede trade have gained fairly wide acceptance. Prominent among these are anti-dumping (AD) and countervailing duty (CVD) procedures. These are permitted under the WTO and result in substantial amounts of protection. But in the United States  the White House has no role in the process. While  the Trump administration has tried to take credit for some of these cases   they are normally launched by businesses and decided by the U.S. International Trade Commission (ITC) and the Commerce Department. Nominally  the President could not stop a case even if he wanted to. That may be unfortunate for consumers  but it also means that new tariffs applied this way are not usually taken as evidence of a countryâs aggressive policy.
. This has been our recent norm. Certain practices to impede trade have gained fairly wide acceptance. Prominent among these are anti-dumping (AD) and countervailing duty (CVD) procedures. These are permitted under the WTO and result in substantial amounts of protection. But in the United States  the White House has no role in the process. While  the Trump administration has tried to take credit for some of these cases   they are normally launched by businesses and decided by the U.S. International Trade Commission (ITC) and the Commerce Department. Nominally  the President could not stop a case even if he wanted to. That may be unfortunate for consumers  but it also means that new tariffs applied this way are not usually taken as evidence of a countryâs aggressive policy. TRADCON 3. Discretionary  unusual protection .
The President also has discretion over the breadth of the protection applied  including which exporting countries might be exempt from the new tariffs. President Trump notably included Mexico in the new tariffs  even though the ITC had determined that Mexican washing machine tariffs posed no threat to U.S. industry.
. Here is where the new action on washers and solar cells fits in. It was not an AD/CVD case. Instead  the administration dusted off a provision of trade law unused since 2002 â a âsafeguardâ provision of trade law intended to provide temporary relief for domestic industries that have been hurt by imports. Unlike AD/CVD  the White House does have discretion on whatever action is taken  including the ability to deny protection if the President thinks tariffs would hurt the public interest. That discretion was one reason that safeguards had become less popular among businesses seeking tariff protection â the AD/CVD cases seemed less likely to fall prey to considerations of consumer or diplomatic interests. The President also has discretion over the breadth of the protection applied  including which exporting countries might be exempt from the new tariffs.  President Trump  notably included Mexico in the new tariffs  even though the ITC had determined that Mexican washing machine tariffs posed no threat to U.S. industry. It is important to note that safeguard procedures are consistent with WTO agreements  if implemented properly. The last time the United States tried this  the WTO ultimately ruled that the 2002 steel safeguard tariffs were not implemented properly and the Bush administration withdrew them. This time around  South Korea  home of major producers Samsung and LG Electronics  has already indicated it will challenge the new tariffs at the WTO. TRADCON 2. Measures that seriously undercut trade rules  albeit in an orderly way .
A move by the  Trump  administration to withdraw from NAFTA would take us to TRADCON 2. It is technically permissible under both WTO rules and the provisions of NAFTA itself and it would still leave WTO strictures in place  but it starts to dismantle the rules-based trading system.
Another example of a move to TRADCON 2 would be flagrant disregard of an important WTO ruling. Suppose  for example  that South Korea prevails in its challenge to  the new safeguard tariffs and the Trump administration  were to decide to keep  them  in place anyway. Technically  under the WTO  a country is permitted to keep its new protection in place; it just faces the consequence of authorized retaliation by countries that were wronged. But such moves similarly threaten the system.
. A move by the Trump administration to withdraw from NAFTA would take us to TRADCON 2. It is technically permissible under both WTO rules and the provisions of NAFTA itself and it would still leave WTO strictures in place  but it starts to dismantle the rules-based trading system. Another example of a move to TRADCON 2 would be flagrant disregard of an important WTO ruling. Suppose  for example  that South Korea prevails in its challenge to  the new safeguard tariffs and the Trump administration  were to decide to keep  them  in place anyway. Technically  under the WTO  a country is permitted to keep its new protection in place; it just faces the consequence of authorized retaliation by countries that were wronged. But such moves similarly threaten the system. TRADCON 1. The demise of the rules-based trading system . This was what  President Trump  threatened repeatedly during the campaign  when  he  promised to slap 45 percent tariffs on China and 35 percent tariffs on Mexico.  He  also threatened to pull the United States out of the WTO. Such moves threaten the complete breakdown of the system of rules that the United States worked very hard to build over decades following World War 2. The motivation for the endeavor was not a starry-eyed vision of unfettered trade; it was the memory of the damage that countries did to each other in the Depression when the United States kicked off a round of protection with the infamous Smoot-Hawley Tariff of 1930. This is the fear with a full-blown trade war.
So how bad was  the new protectionist move by President Trump ?  It  took us to TRADCON 3.  It âs ill-advised policy and a reason for concern  but it could be worse. Given the rocky NAFTA talks happening this week  though  worse could come alarmingly soon.
[TGT] this week slapped substantial tariffs on imports of large washing machines and solar cells. The move drew particular attention because President Trumpâs protectionist rhetoric had not  to date  been matched with significant new protection. Do the new tariffs mark the start of a trade war? Just how serious is the situation?
The military has a way of addressing such questions: DEFCON  a scale ranging from 5 (tranquil) to 1 (most alarming) is meant to portray âDEFense CONditions.â We do not have a corresponding measure in trade  but given the concerns about where   [TGT] is heading  we need one. Soâ¦
This has been our recent norm. Certain practices to impede trade have gained fairly wide acceptance. Prominent among these are anti-dumping (AD) and countervailing duty (CVD) procedures. These are permitted under the WTO and result in substantial amounts of protection. But in the United States  the White House has no role in the process. While   [TGT]  has tried to take credit for some of these cases   they are normally launched by businesses and decided by the U.S. International Trade Commission (ITC) and the Commerce Department. Nominally  the President could not stop a case even if he wanted to. That may be unfortunate for consumers  but it also means that new tariffs applied this way are not usually taken as evidence of a countryâs aggressive policy.
. This has been our recent norm. Certain practices to impede trade have gained fairly wide acceptance. Prominent among these are anti-dumping (AD) and countervailing duty (CVD) procedures. These are permitted under the WTO and result in substantial amounts of protection. But in the United States  the White House has no role in the process. While   [TGT]  has tried to take credit for some of these cases   they are normally launched by businesses and decided by the U.S. International Trade Commission (ITC) and the Commerce Department. Nominally  the President could not stop a case even if he wanted to. That may be unfortunate for consumers  but it also means that new tariffs applied this way are not usually taken as evidence of a countryâs aggressive policy. TRADCON 3. Discretionary  unusual protection .
The President also has discretion over the breadth of the protection applied  including which exporting countries might be exempt from the new tariffs. President Trump notably included Mexico in the new tariffs  even though the ITC had determined that Mexican washing machine tariffs posed no threat to U.S. industry.
. Here is where the new action on washers and solar cells fits in. It was not an AD/CVD case. Instead  the administration dusted off a provision of trade law unused since 2002 â a âsafeguardâ provision of trade law intended to provide temporary relief for domestic industries that have been hurt by imports. Unlike AD/CVD  the White House does have discretion on whatever action is taken  including the ability to deny protection if the President thinks tariffs would hurt the public interest. That discretion was one reason that safeguards had become less popular among businesses seeking tariff protection â the AD/CVD cases seemed less likely to fall prey to considerations of consumer or diplomatic interests. The President also has discretion over the breadth of the protection applied  including which exporting countries might be exempt from the new tariffs.   [TGT] notably included Mexico in the new tariffs  even though the ITC had determined that Mexican washing machine tariffs posed no threat to U.S. industry. It is important to note that safeguard procedures are consistent with WTO agreements  if implemented properly. The last time the United States tried this  the WTO ultimately ruled that the 2002 steel safeguard tariffs were not implemented properly and the Bush administration withdrew them. This time around  South Korea  home of major producers Samsung and LG Electronics  has already indicated it will challenge the new tariffs at the WTO. TRADCON 2. Measures that seriously undercut trade rules  albeit in an orderly way .
A move by the   [TGT]   administration to withdraw from NAFTA would take us to TRADCON 2. It is technically permissible under both WTO rules and the provisions of NAFTA itself and it would still leave WTO strictures in place  but it starts to dismantle the rules-based trading system.
Another example of a move to TRADCON 2 would be flagrant disregard of an important WTO ruling. Suppose  for example  that South Korea prevails in its challenge to   [TGT] were to decide to keep   [TGT]   in place anyway. Technically  under the WTO  a country is permitted to keep its new protection in place; it just faces the consequence of authorized retaliation by countries that were wronged. But such moves similarly threaten the system.
. A move by  [TGT]  to withdraw from NAFTA would take us to TRADCON 2. It is technically permissible under both WTO rules and the provisions of NAFTA itself and it would still leave WTO strictures in place  but it starts to dismantle the rules-based trading system. Another example of a move to TRADCON 2 would be flagrant disregard of an important WTO ruling. Suppose  for example  that South Korea prevails in its challenge to   [TGT] were to decide to keep   [TGT]   in place anyway. Technically  under the WTO  a country is permitted to keep its new protection in place; it just faces the consequence of authorized retaliation by countries that were wronged. But such moves similarly threaten the system. TRADCON 1. The demise of the rules-based trading system . This was what   [TGT] threatened repeatedly during the campaign  when   [TGT]   promised to slap 45 percent tariffs on China and 35 percent tariffs on Mexico.   [TGT]   also threatened to pull the United States out of the WTO. Such moves threaten the complete breakdown of the system of rules that the United States worked very hard to build over decades following World War 2. The motivation for the endeavor was not a starry-eyed vision of unfettered trade; it was the memory of the damage that countries did to each other in the Depression when the United States kicked off a round of protection with the infamous Smoot-Hawley Tariff of 1930. This is the fear with a full-blown trade war.
So how bad was  the new protectionist move by  [TGT]  ?  It  took us to TRADCON 3.  It âs ill-advised policy and a reason for concern  but it could be worse. Given the rocky NAFTA talks happening this week  though  worse could come alarmingly soon.