Trump Dials Up the Trade War to 11

The Trump administration’s surprise decision to invoke national security concerns to justify hefty new tariffs on automobile imports promises to further sour relations with major trading partners, undermine the global trading system that drives economic growth — and ultimately weaken, not strengthen, U.S. national security.

As it did this year to curb imports of steel and aluminum, the Trump administration is dusting off 1960s-era legislation to potentially put in place protections for the U.S. auto industry. The Commerce Department said late Wednesday that it’s beginning an investigation into the so-called national security implications of U.S. imports of cars and car parts; media reports suggest that the administration may be mulling tariffs of as much as 25 percent on imported goods.

Justifying protective tariffs by arguing that steel imports represented a threat to national security was already a stretch and opened the United States to countertariffs and international legal actions. Using the national security argument to try to protect domestic manufacturers of cars and light trucks bends the legislation out of all recognition, trade experts say.

“It’s not at all clear that this does anything to enhance national security. We don’t drive Ford Escorts into battle,” says Phil Levy, an economic expert at the Chicago Council on Global Affairs and a former George W. Bush administration official.

The Trump administration takes an expansive view of what national security means. In announcing the steel tariffs, officials argued that economic strength, including a vibrant metals sector, was essentially synonymous with national security. For the auto measures, the administration is adopting similar language. Commerce said it is looking into whether automobile “imports are weakening our internal economy and may impair the national security.”

Major trading partners aren’t buying it. “We believe that there is no justification for the United States to impose tariffs on steel and aluminum on grounds of national security. Invoking national security would be even more far-fetched in the case of the car industry,” a spokesperson for the European Commission says. European Commission Vice President Jyrki Katainen suggested Thursday that any new auto tariffs “obviously would be against the World Trade Organization” rules.

Other big trading partners, such as Canada and Mexico, are also trying to figure out what the new trade threats mean. Both countries have free trade with the United States thanks to the North American Free Trade Agreement, and it isn’t clear if any new tariffs would automatically apply to exports from those markets or not. Asian trading partners including Japan and South Korea, both of which were earlier hit with tariffs on steel exports, also reacted negatively; Japanese Trade Minister Hiroshige Seko called the announcement “extremely regrettable” while South Korean officials huddled to discuss possible countermeasures.

What the new round of tariffs almost certainly won’t do is strengthen national security — especially amid the war of words with Europe over the U.S. withdrawal from the Iran nuclear deal, coupled with Thursday’s decision by President Donald Trump to call off a planned June 12 summit with North Korean leader Kim Jong Un, a cancellation that reportedly blindsided allies in Seoul and Tokyo.

Even though the United States and South Korea reached a deal to avoid steel tariffs, there is still confusion in Seoul over what limits will ultimately be placed on South Korean steel exports, Levy says. That lingering bad blood — plus the combination of threatened auto tariffs on a booming sector for both Japan and South Korea and the seeming implosion of the North Korean peace talks — threatens to weaken the U.S. position in Asia.

“So much of what we call U.S. security relies on having allies who stick with us, and who we stick with, irrespective of irritants like trade policy,” says Benn Steil, the director of international economics at the Council on Foreign Relations. But the Trump administration doesn’t seem to believe that, he says, instead viewing other countries as transactional counterparts or outright enemies.

And it’s not even clear why the Trump administration is considering protective tariffs for the domestic auto industry, which has been going gangbusters for the last three years and whose switch to producing more trucks and sport utility vehicles is driving huge sales numbers.

It could be, like the steel tariffs or policies meant to bring back coal, a political sop ahead of crucial midterm elections to parts of the country that voted for Trump in 2016.

“Maybe it’s just domestic politics — before midterms, being able to say to the Rust Belt, ‘Look at what I’m doing to protect the auto industry,’” says Emily Blanchard, a trade policy expert at the Tuck School of Business at Dartmouth College.

Another possibility is that Trump wants to use the threat of auto tariffs to force Mexico and Canada to make concessions on NAFTA. The slowly progressing talks on the regional trade deal have been hung up over rules for auto manufacturing, and Trump on Wednesday called both countries “spoiled” and hard to deal with on trade.

Another theory is that the Trump administration wants to put serious teeth into its demand that more car parts be made in the United States. Under existing trade rules, carmakers could shrug off symbolic tariffs if they used non-U.S. parts, but slapping a hefty tariff on foreign auto parts would cause serious pain — and might force all parties together to reach a deal on a new NAFTA.

More broadly, though, it’s unclear why threatening tariffs would make Canada or Mexico any more eager to make politically painful concessions to renew a free trade deal that in theory should already shield them from tariffs.

Another possibility is that the administration is trying to boost the competitiveness of the U.S. auto sector. “Automobile manufacturing has long been a significant source of American technological innovation,” the Commerce Department said, noting that the share of imported cars has risen from about one-third to one-half of the U.S. market in the last 20 years. The administration stressed its desire to foster innovation in autonomous vehicles, electric cars, and advanced materials.

But the stringent fuel economy standards put in place by the Obama administration — currently under threat from the Trump administration — have already been driving U.S. automakers to make huge advances in fuel efficiency, electric cars, and advanced, lightweight materials. Academic research suggests that automotive innovation is spurred even further by those tough fuel economy standards.

Indeed, while U.S.-based automakers haven’t been asking for protective tariffs, this month they pleaded with the administration not to scrap the tougher Obama mileage standards, as Trump intends to, warning that such a move could “disrupt a period of rapid innovation in the auto industry.”

A final possibility is that “America First” officials in the administration are simply taking aim at the entire global trading architecture. One of its pillars is a rules-based order, where countries can’t just slap tariffs on imports on specious grounds.

“It’s so transparently protectionist, and the national security justification is so weak. It’s a way of saying, ‘Anybody can do anything they want,’” Levy says.

The administration already took one swipe at that trading order with the steel tariffs, but the system didn’t totter or break. Most countries won some sort of exemption, and the WTO hasn’t had to grapple with any formal challenges yet.

“If they were seeking to blow up the global trading rules, then national security tariffs on cars are the way to do it. If cars are national security, then what’s not?” Blanchard says. Such a move risks a cascade of similar protectionist measures around the globe, especially in agriculture, which is politically sensitive almost everywhere.

Ultimately, the Trump administration’s unilateral and uncompromising approach to its major trade and security partners — on issues including European compliance with Iran sanctions and gratuitous trade wars — risks making it that much harder to summon international support for U.S. efforts to tackle real problems, such as nuclear proliferation in Iran and North Korea.

“The United States is starting to get treated like a crazy wild-haired guy waving a bag full of newspapers in the street,” Levy of the Chicago Council says. “People cross the street to avoid him — it’s not somebody they want to deal with.”