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 defence 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 scepticism towards free trade and multilateral institutions.

Over the past two decades, the United States has been the second largest initiator of trade defence 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 could signal the start of a new era in U.S. trade policy.

Increase in Anti-dumping and Anti-subsidy Measures

From the beginning of 2017 to mid-April 2018, the U.S. administration initiated 102 anti-dumping and anti-subsidy investigations against a total of 31 countries, according to the United States International Trade Commission. Based on the findings of those investigations, trade measures were taken in 65 cases – a 58 percent increase over 2016. Of the 67 anti-dumping investigations initiated under Donald Trump, no fewer than 40 have led to anti-dumping measures.

Of the 31 countries that were subject to investigation, China came under suspicion most frequently – with 15 investigations. Korea had seven investigations initiated against it and India five. In addition, there were anti-dumping investigations against Canada, Italy, Taiwan, Thailand, Turkey, Brazil, Indonesia and Vietnam. The steel sector was the most affected sector – with 28 investigations – while fossil fuels and related sectors accounted for 23 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 anti-subsidy investigations. Of the 35 anti-subsidy investigations initiated, 21 have led to anti-subsidy 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 per cent) and aluminium (10 per cent). 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 aluminium 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, apply only until May 2018.

Clamping Down on the Theft of Intellectual Property

In mid-March 2018, President Trump signed a memorandum announcing the introduction of a 25 per cent tariff on Chinese imports worth at least US dollar 50 billion. Since then, the U.S. Trade Representative has presented a list of 1,300 tariff lines – which targets products from industries such as aerospace, robotics, and information and communications technology – that are currently the subject of consultations.

The decision to impose the new tariff was 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.

In response, China announced that it intended to impose an additional tariff of 25 per cent on U.S. imports worth the same amount – that is, US dollar 50 billion. In all, 106 U.S. products are reported to be affected by the tariff, including important agricultural products such as soya beans, millet, beef and tobacco. For his part, U.S. President Trump tasked the U.S. Trade Representative with examining whether tariffs could be imposed on further Chinese imports worth US dollar100 billion.

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, protective tariffs have been imposed. The investigation in respect of crystalline silicon photovoltaic cells is on-going.

At Odds with Multilateral Trade Law?

Trade defence 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. That this is not always the case can be seen from the numerous dispute settlement cases at the WTO. 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.