Remember when Donald Trump’s trade wars were front-page news?
At this point, concerns over Trump’s tariff policy seem almost quaint: Who
cares if an insurrectionist is also a protectionist?
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But some of the tariffs Trump imposed are still in
place, and recently, the World Trade Organization (WTO), which is supposed to
enforce rules for global commerce, declared that the official rationale for
these tariffs — that they were needed to protect US national security — was
illegitimate.
And the Biden administration, in turn, told the WTO
— in startlingly blunt language — to take a hike.
This is a very big deal, much bigger than Trump’s
tariff tantrums. The Biden administration has turned remarkably tough on trade,
in ways that make sense given the state of the world but also make me very
nervous. Trump may have huffed and puffed, but Biden is quietly shifting the
basic foundations of the world economic order.
Since 1948, trade among market economies has been
governed by the General Agreement on Tariffs and Trade (GATT), which sets
certain ground rules for, um, tariffs and trade. In 1994, the GATT was folded
into the rules of the WTO.
The GATT/WTO system does not mandate any particular
level of tariffs. It does, however, forbid countries from imposing new tariffs
or other restrictions on international trade — in effect, it locks in the
results of past trade agreements — except under certain specified conditions.
One of these conditions, laid out in Article XXI, says that a nation may take
action “which it considers necessary for the protection of its essential
security interests”.
If that sounds open-ended, that is because it is.
And Trump clearly abused the privilege, claiming that we needed tariffs on
steel and aluminum to protect us from the menacing threat of … imports from
Canada.
As it happens, the tariffs on Canadian metals are
gone, as are most of the similar tariffs on Europe (although the agreement
there stops short of full free trade). But the tariffs on China are still in
place. More important, the Biden administration has declared that the WTO has
no jurisdiction in the matter: It is up to America to determine whether its
trade actions are necessary for national security, and an international
organization has no right to second-guess that judgment.
Wait, what? According to the right, Biden and
company are globalists, soft on China and unwilling to stand up for America.
Why have they got so tough?
Part of the answer is that US policymakers are more
aware than ever before of the threats autocratic regimes can pose to the
world’s democracies. Russia’s invasion of Ukraine has shown that dictators
sometimes resort to military force even when it does not make rational sense,
and Vladimir Putin’s attempt to punish Europe by cutting off the flow of
natural gas highlights the risk of economic blackmail.
China is not Russia, but it is also an autocracy
(and seems to be becoming more, not less, autocratic over time). And the Biden
administration is trying to limit China’s ability to do harm, with a special
focus on semiconductors, which play such a central role in the modern world.
On one side, America is now subsidizing domestic
production of semiconductors, aiming to reduce reliance on China among other
suppliers. Even more drastically, the US has imposed new rules intended to
limit China’s access to advanced semiconductor technology — that is, we are
deliberately seeking to hobble Chinese technological capacity. That is pretty
draconian; you can see why I am a bit nervous.
The thing is, it is easy to imagine China appealing
to the WTO, arguing that these actions violate international trade rules. But
the US has signaled in advance that it does not care — that it considers these
policies to be outside the WTO’s jurisdiction.
And there is more. The Biden administration’s
biggest policy achievement so far is the enactment of the Inflation Reduction
Act, which despite its name is largely about fighting climate change. It does
so mainly by subsidizing clean energy, which is fine. But the subsidies have a
strong nationalistic aspect — for example, tax credits for electric cars are
restricted to vehicles assembled in North America.
Almost surely, this economic nationalism — which
allows climate activists to point to all the jobs created by green energy
subsidies — was essential to getting the bill passed. But does it violate trade
rules? I am not sure how the Biden administration will defend the policy if
challenged, but it might say that protecting the environment is a national
security issue.
That may also be the defense offered for a proposed
US-Europe agreement to impose “climate-based tariffs” on Chinese steel.
But if the US, which essentially created the
post-war trading system, is willing to bend the rules to pursue its strategic
goals, does not this run the risk of protectionism growing worldwide? Yes, it
does.
Nonetheless, I think the Biden administration is
doing the right thing. The GATT is important, but not more important than
protecting democracy and saving the planet.
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