He's Baaaaack!
December 9, 2019
Last week featured the return of Tariff Man, coincidentally (or not) on the one-year anniversary of the first tweet from the president calling himself Tariff Man. He gave meaning to the nickname by announcing three new tariff actions: on Brazilian and Argentine steel and aluminum, on France, and on the four European countries that make Airbus planes. There are some important differences between them, and each is potentially significant in its own way, so I want to spend a few minutes on each.
The Brazilian and Argentine tariffs were announced in a tweet to the surprise of everyone: the targets and those in the U.S. government charged with implementing them. Both countries had previously negotiated agreements to limit their steel and aluminum imports to the United States, but the president decided that the currency depreciation both countries had experienced was eroding the benefit of the import limits, so he effectively cancelled those agreements and imposed the tariffs that were originally announced back in March 2018.
Of the three actions he took last week, this one is the hardest to justify or even to understand. There were negotiated agreements in place. The currency depreciation appears to be the result of domestic economic factors, not deliberate action by the two governments. In other words, Brazil and Argentina are being punished for something they did not deliberately cause and wish were not happening. The fact that it occurred with import-limiting agreements in place tells other countries that negotiating with the United States provides little benefit. What is the point of reaching an agreement if it can be thrown into the trash can with a tweet? In the case of Brazil, it is a particularly bitter development in view of President Bolsonaro's efforts to build a good relationship with President Trump. The original tariffs were imposed under Section 232 of the Trade Expansion Act of 1962, which has been the subject of ongoing litigation. It appears this new development will also be litigated on the grounds that the president has exceeded his authority under Section 232.
The second action involves the threat of $2.4 billion in tariffs on France in response to its enactment of a tax on digital services. This one is easier to understand. The tax has been subject to criticism from both the U.S. government and the U.S. companies who would be affected by it. French efforts to persuade other EU countries to do the same thing have not been successful, with most countries, including the United States, preferring to wait for a consensus proposal being developed by the Organisation for Economic Co-operation and Development (OECD). In this case, the tariffs are threatened under Section 301 of the Trade Act of 1974, the same provision used to authorize the tariffs on China. Use of the provision is controversial in the World Trade Organization but less so domestically in light of the perceived unfairness of the French action. As with the China tariffs, this is a case of right diagnosis, wrong prescription. If imposed, the tariffs will annoy the French as well as Americans who like French wine and cheese. Whether they will do anything to solve the problem is uncertain. The purpose of Section 301 is to lead to a negotiation to solve the problem. The tariffs by themselves solve nothing, but if they bring the French to the table, that would be a positive development.
The third tariff action is the announcement that the U.S. trade representative intends to increase the amount of retaliation in the Airbus case. The United States won its case against Airbus and was subsequently authorized by the WTO to impose $7.4 billion in retaliation. The European Union challenged that figure, but the WTO recently rejected its argument and reaffirmed the retaliation. The United States, which had not originally retaliated to the full extent permitted, now plans to increase the amount. This is the easiest one to justify. The United States prevailed at the WTO, and the action is consistent with its obligations. Like the others, however, it does not do much to solve the problem. Nor does it seem necessary to initiate negotiations since the European Union has been requesting them for some time. The additional tariffs may be intended to increase U.S. leverage, but it is hard to assess their effectiveness unless and until there is actually a negotiation.
So, what do all these actions mean? First, Tariff Man is back. If you thought the roller coaster ride was over, you're wrong. Second, he has shown once again he has only one arrow in his quiver. Tariffs appear to be the only solution to U.S. trade problems. Third, while some of these actions are more justifiable than others, they again raise questions about whether the president's use of trade authorities is proper and legal. If nothing else, it will keep the courts busy. Fourth, justifiable or not, none of them do much to solve the problems they are intended to address, while all of them create considerable collateral damage. Finally, and doubtless most important, they keep us Trade Guys on the front page.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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