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 U.S. 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 beginning of December 2018, the U.S. administration initiated 137 anti-dumping and countervailing (anti-subsidy) investigations against a total of 34 countries, according to the United States International Trade Commission. Based on the findings of those investigations, measures were taken in 104 cases. Of the 89 anti-dumping investigations initiated under Donald Trump, no fewer than 67 have led to anti-dumping measures.

Of the 34 countries that were subject to investigation, China came under suspicion most frequently – with 46 investigations. Korea had eight investigations initiated against it and India fourteen. 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 53 investigations – while fossil fuels and related sectors accounted for 31 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 48 investigations initiated, 37 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; they 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.

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. 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 disadvantages 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 does not indicate that the trade war is anywhere close to being over.

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.