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Economic Analysis

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Trade War Jeopardizing National Security

President Trump’s inauguration has brought a number of moral and economic perplexities not just to the U.S., but to the entire world. Scrapping the Affordable Care Act of 2010 (Obama-care) at once, inhumanely enforcing immigration laws under the zero tolerance policy against Mexican migrants, pulling out from years of TPP negotiations, and threatening to erase the decades-old NAFTA alliance with Canada and Mexico are just a few to name.

Understanding his life-long America first spirit, no one doubted that his presidency would bring forth an era of beggar-thy-neighbor protectionism à la the 1930s. Indeed, the USTR and the Department of Commerce have introduced a series of protectionist measures against major exporters to the U.S. by invoking the safeguard clause under Section 201 of the Trade Act of 1974, and retaliatory tariffs against unfair trade practices under Section 301 of the same act. In 2017, the USTR recommended to impose 50 percent tariff on imported washing machines and solar panels under Sec. 201, and on July 6, the U.S. levied a 25 percent tariff on USD 34 billion worth of Chinese exports, and another USD 16 billion in July, under Section 301 of the Trade Act. This time, the target was aimed solely at China, and China immediately retaliated by counter-imposing the same tariff rate and trade volume. As promised, the U.S. announced the next round of tariffs on USD 200 billion worth of additional Chinese exports and possibly USD 300 billion worth later on, in the case that China retaliates once again.

But the most surprising and worrisome behavior of the U.S. is not the sheer volume on which tariffs are levied against China. It is the invocation of the rather old Trade Expansion Act of 1962 as a ground for raising tariffs against exporters. Section 232(a) of the Act empowers the U.S. president not to give preferential treatment under the Trade Act of 1930 if such action would threaten to impair U.S. security. In other words, the president should have the right to impose tariffs if there is a threat to national security. Soon after his inauguration in April 2017, Mr. Trump ordered to conduct an investigation on whether steel imports to the U.S. poses a potential threat to the national security. The outcome, revealed in February, 2018, concluded that steel imports did pose a real threat to national security, and therefore, the U.S. went ahead to impost 25 percent tariffs on imported steel products from all over the world.

Nobody could challenge or deny the solemn ordain of national security, but the sections are ambiguous and arbitrary as to be misinterpreted or over-used. For example, Section 232(c) stipulates that the president has to recognize in his determination of national security the close relation of economic welfare of the nation to national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries. Also, any substantial fall in employment, decrease in government revenue, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered in determining whether such weakening of the internal economy may impair national security. This means that national security could be deemed threatened to be impaired if unemployment or foreign competition is too high, economic growth is too low or government tax revenues are too small. As such, this subsection is so dangerous and precarious as to be overextended or misused to deem any industry or product as a threat to national security.

At the start, it was the steel industry, but now it has been extended to the automobile industry. This May, the president ordered the commerce department to conduct an investigation whether the imports of automobiles would pose a threat to the nation. The conclusion formed by the department is not yet clear, but the likelihood is high. If steel and auto imports are found to be a threat to the national security of the U.S., what else could not be? What about semi-conductors, which serve as the vital parts and elements of any machine or equipment? What about crucial chemical or biological imports? What about products with intellectual property rights? All of these critical products could be used as a tool for trade restriction under the guise of being a threat to national security.

Of course, the U.S. has the right to determine which imports pose a threat to national security, but arbitrary protection against imports according to ambiguous internal law may pose a serious threat to the security of the world. First, the other country has every legal right to oppose such tariffs and barriers. If the U.S. invokes the reason of national security, there is no reason why other afflicted countries should not. This could trigger an escalation of retaliatory actions which may lead to mutual destruction. Second, the global free trade framework which the U.S. has been an integral part of for the last seven decades is under serious danger. A disappointed U.S. may turn away from the global free trade system under Trump’s isolationism as in the past, but everybody knows it will not succeed and benefit anyone, including the U.S. An even more gruesome picture is to invoke Section 337 of the Tariff Act of 1930, legitimizing the immediate suspension of imports when trade partners are conducting unfair practices. If the global economy keeps growing amid Trump’s protectionism, then it would be just a minor blunder that everyone can neglect. But if not, the entire blame will be put onto Mr. Trump and his notorious push for protectionism. The very argument for national security would backfire to the endangerment of global security, not to mention a potential second term of his presidency. The trade war should be the last thing President Trump should wish for to ensure national security.

By Professor Se Don Shin
Dean, Sookmyung Women’s University

The above article does not necessarily reflect the views or position of KOTRA.

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