Fair Trade or Protectionism? Trade Enforcement Measures Taken by the United States

Container ship © Fotolia/pitrs

Container ship © Fotolia/pitrs

That the United States – like many other countries – uses trade defense instruments to counter unfair competition is nothing new. But what is alarming right now is not only the rapid increase in the use of such instruments but also the justification for deploying them. This reflects the Trump administration’s deep skepticism towards free trade and multilateral institutions.

Over the past two decades, the United States has been the second largest initiator of trade defense instruments in the world. That many of these measures are today directed against China is no more a novelty than is the fact that industries suffering under strong competitive pressures are frequently the focus of attention. However, the marked increase in such measures under U.S. President Donald Trump signals a new era in U.S. trade policy.

Increase in Anti-Dumping and Countervailing Measures

From the beginning of Trump’s presidency in January 2017 to the end of May 2019, the Trump administration initiated 165 anti-dumping and countervailing (anti-subsidy) investigations against a total of 36 countries, according to the United States International Trade Commission. Based on the findings of those investigations, measures were taken in 119 cases. Of the 109 anti-dumping investigations initiated under Donald Trump, no fewer than 77 have led to anti-dumping measures.

Of the 36 countries that were subject to investigation, China came under suspicion most frequently – with 55 investigations. Korea had nine investigations initiated against it and India eighteen. In addition, there were three or more anti-dumping investigations against Canada, Italy, Taiwan, Thailand, Turkey, Brazil, Indonesia and Vietnam. The steel sector was the most affected sector – with 64 investigations – while fossil fuels and related sectors accounted for 39 investigations. There were also investigations into the markets for metals, resin, polyester, silicon, rubber, and wood.

The Trump administration was somewhat more restrained when it came to countervailing investigations. Of the 56 investigations initiated, 42 have led to measures. These affected largely the same countries and economic sectors as the anti-dumping measures.

A Question of National Security and Fair Trade

At the beginning of March 2018, Trump announced the introduction of tariffs on steel (25 %) and aluminum (10 %). He was thereby responding to an investigation initiated by the U.S. Department of Commerce under Section 232 of the Trade Expansion Act of 1962, which had found that imports of steel and aluminum were threatening the national security of the United States. Exemptions for various countries and regions, including the EU, which the U.S. administration justified on the grounds of security partnerships, applied only until June 2018; the tariffs were imposed on the EU, Mexico, and Canada thereafter. In response, these nations and entities responded with retaliatory tariffs and initiated dispute settlement proceedings at the WTO.

In this vein, the Department of Commerce initiated a Section 232 investigation of imports of automotive and automotive parts in May 2018 to make a decision regarding their threat to U.S. national security. The Department finalized its report in early 2019, although it has not yet been published. In May 2019, President Trump announced that he would delay his decision by six months on what action to take regarding this report, acknowledging however that the report does come to the same conclusion as the steel report: imports of automobiles and parts threaten the national security of the United States. If President Trump was to impose such tariffs, it would pose considerable risks to the global economy.

The Department of Commerce has initiated two further Section 232 investigations. The first, launched in July 2018, examines the effect of imports of uranium ore, and the second, initiated in March 2019, examines imports of titanium sponge. The report regarding uranium imports was submitted to President Trump in April 2019, after which he has 90 days to decide whether to take action. The report on titanium sponge imports is expected in November 2019.

Clamping Down on the Theft of Intellectual Property

In mid-March 2018, President Trump signed a memorandum announcing the introduction of a 25 percent tariff on Chinese imports worth at least 50 billion U.S. dollars. These tariffs went into effect in July and August 2018. In response, China imposed retaliatory tariffs in each round, affecting important agricultural products and the automotive industry. Since then, the United States has implemented yet another additional round of tariff increases (10 %) on Chinese products worth 200 billion U.S. dollars. These tariffs were scheduled to increase to 25 percent on 1 January 2019, but were delayed pending trade talks between the two nations. Once again, the Chinese administration raised tariffs (5% and 10 %) on 60 billion U.S. dollars of American products.

The decision of the United States to impose these new tariffs is based on the findings of an investigation, launched in August 2017 under Section 301 of the Trade Act of 1974, into China’s theft of intellectual property and forced transfer of technology. Section 301 allows the U.S. president to take retaliatory measures, including imposing tariffs and quotas, if a country denies the United States its rights under a free trade agreement or takes measures that are unjustified, unreasonable, or discriminatory. According to the report on the investigation, the United States has suffered huge losses owing to Chinese trade practices.

At the G20 summit in Argentina in early December 2018, Trump agreed to suspend the rise in tariffs in response to a “very substantial” increase in China’s purchases of American energy, industrial and agricultural products. Needless to say, this did not indicate that the trade war was anywhere close to being over. Due to a lack of progress in the negotiations, President Trump increased the 10 percent tariff to 25 percent on a trade volume of 200 billion U.S. dollars in early May 2019. He also threatened further tariff increases on imports worth 325 billion U.S. dollars, although it is not yet clear when these would take place. In response, the Chinese finance ministry announced to also increase tariffs on imports of U.S. goods.

Safeguard Clause: A Breathing Space for Industry

Section 201 of the Trade Act of 1974 allows the United States to introduce temporary import restrictions if, owing to unforeseen developments or because of obligations under the WTO-GATT regime, imports have increased to such an extent that they seriously damage or threaten to seriously damage domestic industries. So far, the Trump administration has initiated three safeguard investigations: one each in the areas of washing machines, solar cells and modules, and crystalline silicon photovoltaic cells. In the first two cases, safeguard tariffs have been imposed. The investigation in respect of crystalline silicon photovoltaic cells is ongoing.

At Odds with Multilateral Trade Law?

Trade defense instruments are compatible with the WTO if used either to counteract unfair competition or to grant an industry a breathing space in which to undertake structural reform. Tariffs can also be imposed if national security, the environment or the health of the general public is at risk. However, there is one important condition: the measures taken must be in harmony with WTO regulations. The numerous dispute settlement cases at the WTO delineate that this is not always the case. Donald Trump’s trade policy is threatening to undermine the rules-based multilateral trade system. To counter this threat, every effort must be made to strengthen the multilateral trade regime and convince the Trump administration of the importance of adhering to the principles of global free trade.