Steel, Aluminum, the Policy Process, and the Trading System
March 12, 2018
Today’s title is a mouthful, but there is a lot to talk about. Last week, I discussed the steel and aluminum tariffs in terms of what the appropriate response from our trading partners ought to be (don’t hit us; press the Chinese, who caused the problem in the first place). Today, I want to focus on some likely fallout from the decision—not on those industries or their downstream customers, but on the policy process in the United States and the trading system generally. Those are going to be longer-term consequences, but they might actually end up being more important than the fate of the particular industries.
First, there has been a good bit of discussion about Gary Cohn’s departure from the National Economic Council (NEC). Most of it has focused on the significance of the White House being without a senior voice for free trade, but I think the greater impact may be on the decisionmaking process itself. Part of Cohn’s job, as well as Rob Porter’s, was to manage the process and provide some adult supervision. Government tends to work best, and make the wisest decisions, when there is an orderly process. Agency stakeholders need to be involved; private-sector interested parties on all sides need to be consulted; papers need to be prepared; recommendations need to be debated, refined, and debated again. From all that comes, hopefully, a competent, well-researched document with viable options and the pros and cons of each. That enables the president to make a thoughtful, informed decision with full knowledge of the consequences.
Early signs are that the process has broken down, and the White House appears to be reverting to what we saw a year ago—policy by tweet, with White House staff frantically running around trying to first understand and second explain the new policy that appeared in 140 characters 20 minutes earlier, and career personnel struggling to make sure the new policy is legally sound and sufficient and that all required “t’s” have been crossed and “i’s” dotted. In short, the president is becoming untethered to the discipline of a process and, some would say, thereby to reality. This will not have a happy ending. The odds of bad policies being announced are much higher, and the odds of even good policies being poorly or even illegally implemented increase as well. It is probably unfair to blame systemic failure on the departure of two individuals, but if strong replacements are not brought on board soon, that is exactly what we will get.
Dangers to the multilateral trading system loom as well. I do not agree with those suggesting that this single decision is the death knell of the World Trade Organization (WTO). Although it is certainly not good for it, an obituary is premature. There is a legal process that can play itself out in several ways. One is that the European Union treats the U.S. action as a safeguard measure, which is permitted under WTO rules, and responds with equivalent measures, also permitted under WTO rules. Not a happy ending, but at least one that works within the existing legal framework. Another is that the European Union, or any other steel exporting country, complains to the WTO that the U.S. action violates our obligations, and a dispute settlement process ensues. That process will take some time, which means a de facto cooling off period, and the outcome is uncertain. The United States could lose and announce it did not intend to comply, which would be a stake in the organization’s heart, or it could lose and negotiate—perhaps for years—the terms of compliance. We have been doing that in the Antigua online gambling case, and the system has yet to collapse, and we are not the only guilty party who has done that.
More likely, we would win because the administration would invoke the national security exemption in Article XXI of the General Agreement on Tariffs and Trade (GATT). That would be a highly unfortunate outcome because it would open the door to others to do the same thing, but, strictly speaking, it is complying with the rules. The exception is there and available. The result in that case is less a dramatic death than sand leaking out of the bag, as the organization becomes weaker and less relevant. Certainly there are bad outcomes here, and they are more likely than good outcomes, but it is too soon to dig the grave.
Unfortunately, it does appear that the administration is not particularly concerned about the WTO or its potential demise, having some affection for the GATT and the 1980s, when Ambassador Robert Lighthizer was last in government and sovereignty was the order of the day. However, nostalgia for that period, at least in the trade field, is misplaced, and memories are short. The United States was regularly frustrated in its efforts to have its trade grievances redressed, which is why it ultimately supported the more robust dispute settlement system we have now, and I would argue that we have gained from that decision far more than we have lost. As Santayana said, “Those who cannot remember the past are condemned to repeat it.” In this case, we seem to be mis-remembering the past, but the result will be the same—10 years from now we will find ourselves once again arguing for a strong dispute settlement system.
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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