US economy

Will Trump stick to his guns over US tariffs on auto imports?


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Hello from Brussels, where it’s the biggest week for global trade wars since the last big week for global trade wars, which was a week or so ago. They come round so quickly these days. Today we’re taking a look at US president Donald Trump’s looming decision on whether to brand car imports from longstanding foreign policy allies as a national security issue and whack them with tariffs. He probably won’t. But he has already let loose the national security hobgoblin shrieking from its cave, allowing it to run amok through the World Trade Organization dispute-settlement system.

In today’s post, we question whether the EU’s retaliate-and-litigate response will actually enrage rather than deter the creature. Our Tit for Tat expert today is Rebecca Harding, chief executive of Coriolis Technologies, while our chart of the day looks at incoming 4b tariffs on China.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com, or email me at alan.beattie@ft.com.

Trump hugs his national security blanket tight

Daniel Craig...This film image released by Sony Pictures shows Daniel Craig as James Bond in "Skyfall." Celebrating his 50th birthday, James Bond has been learning some new tricks _ but 3-D isn't one of them. Producers of the spy franchise say they have no interest in a making a Bond film in 3-D. The upcoming "Skyfall" is the first Bond film to be released since "Avatar" made 3-D a common and often lucrative practice for blockbusters. (AP Photo/Sony Pictures, Francois Duhamel)
Daniel Craig as James Bond in ‘Skyfall’. Section 232 as a future film title is unlikely to win over 007 producers © AP

If it’s possible to have an anticlimax everyone was expecting, we’re probably going to get it this week. That’s when the deadline is for Donald Trump to answer the (frankly absurd) question of whether car imports from the US’s longstanding foreign policy allies including the EU are such a threat to American national security that he’s willing to clobber them with 25 per cent tariffs.

He probably won’t. Within the administration, there aren’t many — except his adviser Peter Navarro, who looks at tariffs the way children look at chocolate — who think this is a good idea. Nor does the US auto industry, which wants a cheap and reliable supply of imported parts and even whole cars.

Still, another postponement, even indefinitely, doesn’t eliminate the issue. The “Section 232” action (any James Bond movie producers reading this, feel free to use that as your next film title) — whereby tariffs are justified under Section 232 of the Trade Expansion Act of 1962 on the grounds of national security — will shift to the WTO’s judicial branch. The EU and others in 2018 brought a case against the US’s first wave of Section 232s against steel and aluminium imports.

Bold move. The US is defending itself by invoking the national security exemption to the general WTO rules, Section 21 of the Gatt. It says governments themselves can decide whether their national security is threatened, though supposedly only in specified circumstances including “time of war or other emergency in international relations”. (You could argue Trump himself created a permanent state of emergency in international relations, but let’s not go there.)

There have been fewer than two dozen uses of the exemption since the Gatt was signed in 1947. Governments have been cautious about using it in case it causes a surge of countries invoking it for protectionist reasons. Trump has blown that norm apart.

The ruling earlier this year in a WTO case by Ukraine against Russian restrictions on transit across its territory — in which the US filed a brief backing Russia’s invocation of Article 21 — has weakened the self-definition principle. Although Moscow won the case, the ruling made clear that WTO dispute settlement did have jurisdiction to scrutinise such measures. Dangerous ground. If a WTO panel ends up overruling the US’s own assessment of its national security needs, the reaction in Washington — Trump or no Trump — will be apoplectic.

Roberto Azevedo, director-general of the World Trade Organization (WTO), delivers a speech at the opening ceremony of the China International Import Expo in Shanghai on November 5, 2019. (Photo by ALY SONG / POOL / AFP) (Photo by ALY SONG/POOL/AFP via Getty Images)
Roberto Azevêdo, WTO director-general, thinks national security is better dealt with by negotiation than by dispute settlement © POOL/AFP via Getty Images

The EU also opened up another front with the US in 2018 by treating the Section 232 tariffs on its steel and aluminium as safeguards designed to deal with a sudden influx of imports, and “rebalancing” (i.e retaliating) with a bunch of tariffs on bourbon and so on. The US promptly counter-litigated against the EU, saying the retaliation was illegal.

Was it wise for the EU to litigate or retaliate at all? The rebalancing causes a lot of trade lawyers to raise their expensively groomed eyebrows, suggesting that even if the US national security argument is bogus, the EU can’t legally slap its own tariffs on immediately. And the EU’s WTO case against the Section 232 case could be the excuse Trump needs to bring the organisation crashing down altogether. Roberto Azevêdo, the WTO director-general, has made it clear he thinks national security is better dealt with by negotiation than by dispute settlement.

One bit of relief: the day of judicial reckoning has conveniently been delayed, perhaps beyond next November’s US presidential election. As of September, the panel hearing the EU’s case said it wouldn’t issue a report before autumn 2020.

Nonetheless, Brussels has got itself into a position from which it’s hard to retreat without looking weak. Trade Secrets would choose judicious cowardice over principled recklessness any day, but, to be fair, we don’t have to get re-elected or reappointed anywhere afterwards.

The national security issue is a fiendishly tricky one. Does Trade Secrets have an answer, except to retaliate and litigate as little as politically possible? Not really. As the old saying goes: we don’t have a solution but we do admire the problem.

Charted waters

The List 4A tariffs that the US imposed against China in September led to a predictable drop in imports — but there hasn’t been an uplift in imports of List 4B products ahead of the tariffs coming in on December 1.

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Tit-for-tat

Rebecca Harding, trade expert and chief executive of trade data company Coriolis Technologies, joins us to answer three blunt questions.

Hasn’t trade always gone hand-in-hand with foreign policy, and what’s different now?

Trade and foreign policy have always been two sides of the same coin but what is different now is that trade has become conflated with national security — that is, defence strategy and the protection of national interest. This turns trade into a strategic tool to wield power and influence. The US-China trade war is about this bigger power struggle — trade is weaponised as a result.

How do you think the US-China rivalry will end up?

The two powers are engaged in a strategic game and the most likely outcome is a stalemate. We are seeing this in the strategies of both sides as we head towards some kind of a deal now. Both are backing down on the imposition of some tariffs pushing the more challenging aspects of an agreement to a putative “phase two”. However, the completion of phase one does not mean the trade war is over or even that the animosity has ceased.

What’s going to be weaponised the most: tariffs, tech or currencies?

The US concern is that the power of Chinese tech is beginning to impact its security. Currency wars are a diversion tactic but as the US has stopped short of calling China a currency manipulator, further escalation is unlikely. Weaponising tech has the potential to damage both sides severely and create two parallel systems, so the most likely outcome is that the battle will continue to be fought through tariffs as a proxy for this bigger conflict.

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