Trump’s tariffs and the death of the global economy

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Jemy Gatdula

Being Right

Trump’s tariffs and the death of the global economy

In the world of international trade, it would appear that March — not April — is the cruelest month. It (more specifically the 8th of March 2018) being the day that the global trading system, as well as the World Trade Organization, died.

That is, if media and trade commentators are to be believed. Which also gives an indication of how international trade is sometimes desperate for drama.

What is really fascinating is when you consider all the dire warnings people declare about “Trump’s tariffs” (e.g., see Politico’s “Trump threatens to blow up global trading order with tariffs”; 9 March 2018), contrasted with those downplaying its effects (see Reuters “Trump’s trade tariffs: Long on rhetoric, short on impact?”; 6 March 2018).

Incidentally, as far as Asia is concerned, Moody’s has this to say: “In Asia, the direct economic effects at the macro level would be very small as exports of aluminum and steel to the US typically amount to less than 1 percent of gross domestic product (GDP) or exports.”

Instead, what Asian businesses should look out for is the possible diversion of steel production output that would lead to “intensifying competition.”

Hardest hit should have been Canada and Mexico but they’re exempt from the tariffs. Also exempt (temporarily), according to USTR Robert Lighthizer, are Argentina, Australia, Brazil, South Korea, and the EU. These, ironically, make up the bulk of US steel imports. Prominent countries in the tariff list are China, Russia, Taiwan, Japan, and India.

So nobody can really predict the short and long impact of these tariffs.

Still, Trump’s tariff on steel is 5% lower than 2002 and definitely far less pernicious than Reagan’s “voluntary export restraints.” All for an industry having merely 150,000 workers.

Of course, that’s if it’s all about economics.

Politically, it may take a different turn. Take the aforementioned 2002 steel tariffs, for which George W. Bush can say afterwards he won control of Congress. Donald Trump would surely be counting on the same as he faces his own midterm elections this year.

Yet, what about the dreaded trade war?

But the world has always been in a trade war. The point of the WTO was to scale down trade’s cold ruthlessness. This doesn’t mean, however, that competition stopped.

Tariffs may have gone down but non-tariff measures and financial complications globally have gone up. Trump no way was the cause of that.

Besides, with every country having business in other countries, what kind of trade war can that be?

Intriguingly, China’s retaliatory measures, obviously directed at Trump’s core political constituency, included to everybody’s surprise, soybeans and aircraft.

But even that plays into Trump’s portrayal of himself domestically as fighting for US rights abroad against unfair trading countries. Expect a negotiated settlement sometime after the midterms.

Trump tariffs

Ironically, Trump is turning out to be the best troll against the protectionist Left. He has united everyone to support international trade.

Even more ironic, his tariffs actually reignited interest in and may reboot the international trading system.

For not since the WTO’s Cancun collapse has international trade been at the exciting forefront of the world’s news.

But are the Trump’s tariffs legal?

Domestically, Trump has several avenues, one of which is to do so with Congressional approval.

But with the Democrats playing obstacle to anything with the name “Trump” in it, other legal routes are the 1917 Trading with the Enemy Act, the 1974 Trade Act, and the 1977 International Emergency Economic Powers Act.

Trump’s executive order relied on the Trade Expansion Act of 1962. Interestingly, all the laws mentioned (except the 1974 Act) had a Democrat in the White House.

The justification for the tariff increase was a Commerce department report stating that the steel and aluminum imports constitute a threat to “national security.”

Incidentally, Philippine law authorizes President Duterte (when Congress is not in session) to do the same.

RA 10863, Section 1608 (the “flexible clause”), states that in the interest of general welfare and national security, the President, upon NEDA’s recommendation, can:

“(1) Increase, reduce, or remove existing rates of import duty including any necessary change in classification. The existing rates may be increased or decreased … but in no case shall the increased rate of import duty be higher than a maximum of one hundred percent (100%) ad valorem;

(2) Establish import quotas or ban imports of any commodity, as may be necessary; and

(3) Impose an additional duty on all imports not exceeding ten percent (10%) ad valorem whenever necessary.”

Under international law, Trump is relying on the “safety valve”: GATT Article XXI, the “national security exception.” The latter is essentially a “self-judged” term, as per the 1949 GATT panel in US-Czechoslovakia: “every country must be the judge in the last resort on questions relating to its own security.

Aside from retaliatory measures, the EU or China may eventually challenge the tariffs before the WTO dispute body.

How that turns out is anybody’s guess.


Jemy Gatdula is a Senior Fellow of the Philippine Council for Foreign Relations and a Philippine Judicial Academy law lecturer for constitutional philosophy and jurisprudence.

Twitter @jemygatdula