ICAS Trade ‘n Tech Dispatch (online ISSN 2837-3863, print ISSN 2837-3855) is published about every two weeks throughout the year at 1919 M St NW, Suite 310, Washington, DC 20036.
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Be that as it may, how valid is the idea of reciprocal tariffs? For starters, reciprocal tariffs are completely unlawful as per current multilateral trade law (which thankfully is not stuck in the early-1930s); such tariffs essentially stand the non-discrimination principle on its head. WTO member states are allowed to bind and apply their tariffs at any rate they please but must offer the same rate to all trading partners (by way of an exception to the rules, this standard of equal treatment can be relaxed for preferential trade partners). If a country wishes to modify, and raise, its sectoral tariff bindings in order to provide policy space, there is a pathway to do so too without having to negotiate bindings with all 160+ WTO trade partners. Given the U.S.’ standing within the system and the importance of having it abide by the system’s laws, other major economies might be willing to cut it the necessary slack rather than extract substantially equivalent concessions. But countries are not allowed to levy different duties on an identical good to different trading partners and thus discriminate amongst them, which is what the reciprocal tariffs would amount to.
But more to the point, how wise – or unwise – are such tariffs? Reciprocal tariffs might sound fair and just in the Trumpian headspace but it is by no means a given that if a U.S. trade partner reduces its tariff to the level in the U.S.’ schedule of commitments, that the benefit from the lowering of the tariff level would accrue to U.S. producers. In fact, the benefits will most likely redound to more competitive manufacturers – either an East or Southeast Asian one or a German or Central European one. Even in the area of agriculture, U.S. producers stand to be outcompeted by Brazilian, Argentine, Australian and New Zealand ranchers and farmers. So much for lowering foreign partners’ tariffs then (although if Trump is successful in doing so, it would amount to a major new round of multilateral trade liberalization – call it the Trump Reciprocal Round!). Reciprocal tariffs are probably in Trump’s view a ruse to raise U.S. tariffs on a select few major trading partners with high tariff levels, such as India and Brazil, and thereafter utilize the leverage to shake them down for particular market access gains. Not great, but by the same token it would not amount to being a terrible abuse of authority and power either.
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With Round Two of additional Section 232 national security tariffs on steel and aluminum due to kick-in on March 12, it is worth sparing a moment to take stock of Round One of the tariffs during Trump 1.0. On April 20, 2017, the Trump administration kicked off a sweeping investigation under Section 232 of the Trade Expansion Act to determine whether steel imports threaten America’s national security. In its January 11, 2018 report titled “The Effects of Imports of Steel on the National Security”, the Commerce Department duly found that excessive steel imports – which constituted about 30% of U.S. domestic demand – had injured the domestic industry, directly challenged the U.S. steel industry’s financial viability to invest for the future and meet the projected needs of the U.S. military and critical infrastructure sectors, and thereby threatened to impair the U.S.’ national security. On this basis and starting March 23, 2018, the administration imposed a 25 percent tariff on a range of steel imports, with intent to ensure an 80 percent capacity utilization rate within domestic industry (a further set of tariffs on derivative steel articles – nails, tacks, pins, staples, etc., – was announced in January 2020). Several allies and partners – Australia, Argentina, Brazil, Canada, the European Union, Mexico, South Korea – were initially afforded exemptions from the tariffs following the Defense Department’s objections. During internal deliberations, DoD had pushed back against the Commerce Department’s findings, noting that its ability to acquire the steel necessary to meet national defense requirements was unimpacted. This pushback had bearing, given that the relationship between the U.S. military’s needs and the U.S. industries’ ability to meet those needs had been the express purpose of the Section 232 statute at the time of its legislative passage in 1962.
Trump 1.0’s March 2018 steel and aluminum tariffs were met with a raft of foreign countermeasures, including China’s countermeasures on $2.7 billion worth of U.S. fruits, nuts, wines, meat, steel pipes and aluminum waste exports. Cases were also filed at the WTO by Canada, China, the European Union, India, Mexico, Norway, Russia, Switzerland and Turkey, and dispute settlement body (DSB) panels ruled in four of these cases in January 2023 that the tariffs were inconsistent with the U.S. obligations under the GATT’s Most Favored Nation treatment provision as well as the Security Exceptions provision (the measures had not been “taken in time of war or other emergency in international relations”), and were thereby unlawful. Later that March, the U.S. International Trade Commission (USITC) released its findings of the effects of the steel Section 232 tariffs, noting that on average from 2018 to 2021, the Section 232 tariffs had reduced imports of affected steel products by 24 percent, increased the price of steel products in the United States by 2.4 percent, and increased U.S. production of steel products by 1.9 percent. U.S. importers bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs. And while the Section 232 tariffs did increase domestic sourcing, it also reduced production in downstream industries that use steel inputs to the tune of $3.5 billion. Unhelpful but not earth-shattering numbers.
Will Round Two of the Section 232 national security steel tariffs be any different? Their economic impact will likely be just as negative for downstream industry and foreign exporters alike, and perhaps even more so given the elimination of exclusions for allies and partners in order to achieve the domestic industry’s 80% capacity utilization rate (it currently hovers at 75%). The tariffs are additionally being imposed without even the pretense of a prior investigative review, which might procedurally open them up to a domestic legal challenge. And as for their consistency with international law, the Round Two steel tariffs will be found to be just as unlawful as its Round One predecessor. Not that it would matter to Mr. Trump though.
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