June 2018 | Carlo Dade

What the U.S. has – and hasn’t – learned since the last time it slapped tariffs on imported steel

The aluminum and steel tariffs President Donald Trump slapped on Canada last week may have caught some Canadians by surprise. But it’s not the first time in recent history that that the U.S. has imposed tariffs on imported steel (albeit not on Canada) – and done so immediately in advance of U.S. congressional mid-term elections.

What is most striking this time is that the Trump administration has either missed or chosen to ignore the painful economic and political lessons learned less than two decades ago by President George W. Bush.

In 2002, President Bush at the urging of his chief political advisor Karl Rove, and against the advice of his economic team, imposed tariffs of eight to 30 per cent on foreign steel imports. The calculation by Rove was that this piece of news would be warmly received in Ohio, Pennsylvania and West Virginia – all key states in that election and home to steel production. Importantly, the Bush administration used anti-dumping authority to impose the tariffs and not the national security or section 232 authority that President Trump has just invoked. As such, Canada and Mexico were, in essence, exempt from the Bush administration’s tariffs because of protections under NAFTA. President Bush was aware of the broader power of using the section 232 authority. At the request of two congressional democrats, he initiated a 232 investigation on steel imports a year prior, in 2001. That investigation ended with the president taking no action, as has been the case with most of the 232 investigations concluded in the U.S. The use of the national security provision is considered so drastic that it known as “the nuclear option” and has rarely been used.

But, a year later, in advance of crucial mid-term elections (kind of a redundant term) the temptation was too great for a president worried about control of Congress, and Karl Rove’s idea to use the less drastic but still effective anti-dumping case held sway. This proved to be one of Karl Rove’s less successful brilliant ideas. The 2002 tariffs proved so disastrous, an admission made by the Bush administration and confirmed by U.S. government analysis, that they were rescinded by the administration earlier than scheduled. Analysis by the U.S. International Trade Commission (ITC) found the tariffs caused a net loss of $41.6 million to the U.S. economy. Meanwhile, big business and a multitude of smaller “hometown” businesses that used steel were up in arms; unions were also not enthusiastic. As the Washington Post put it, “Politically, the strategy failed to produce union endorsements and appears to have hurt Bush with workers in Michigan and Tennessee — also states at the heart of his 2004 strategy.”

Yet, here we are again. Trump appears to be following the now widely known and recognized mistake made by his Republican predecessor.

Of course, the situations are not identical.

A crucial difference this time is that the U.S. administration has used national security provisions of American trade legislation to impose the tariffs whereas President Bush used anti-dumping provisions. There are several differences, the most important of which for Canada and Mexico is that the use of the broader national security section of the 1962 Trade Expansion Act, section 232, inadvertently allows the U.S. to broaden the range of countries that can be targeted to include Canada and Mexico. If the U.S. invokes national security, there is little if any recourse under NAFTA.

This is also critical because it points to another way that this situation could be resolved. The ultimate justification for the imposition of the tariffs has to be on grounds of negative impact to U.S. national security. The legislation reads:

the Secretary and the President shall, in the light of the requirements of national security and without excluding other relevant factors, give consideration to domestic production needed for projected national defense requirements, the capacity of domestic industries to meet such requirements, existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense, the requirements of growth of such industries and such supplies and services including the investment, exploration, and development necessary to assure such growth, and the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements. In the administration of this section, the Secretary and the President shall further recognize the close relation of the economic welfare of the Nation to our national security, and shall take into consideration the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive imports shall be considered, without excluding other factors, in determining whether such weakening of our internal economy may impair the national security.
(Italics added for emphasis)

That determination cannot logically be tied to the success of the NAFTA negotiations. Yet, this is what President Trump has done publicly and repeatedly. Claiming that progress on the NAFTA talks would change the administration’s imposition of tariffs invoked under section 232 of the 1962 Trade Expansion Act makes a mockery of the act and Congress in ceding its authority to the president. To link the 232 “harm of national security” to progress in NAFTA talks would require that the office of the Commerce Department that conducted the investigation would have had to have found that Canada’s refusal to accede to U.S. demands to open, for example, its supply-managed dairy and poultry systems, was tied to the harmful impacts of importing Canadian steel. In other words, if Canada agrees to the list of outstanding U.S. demands in the NAFTA negotiations, then somehow the importation of Canadian aluminum and steel would cease to be a security threat as defined under section 232 of the 1962 Trade Expansion Act. What President Trump has done is to offer to reverse the finding of the investigation in exchange for Canada caving in to U.S. demands on the NAFTA negotiating table. As such, it is a clever negotiating tool. It is also a clear abuse of the intent of the law. And as such, Congress could reign in the president.

Management of trade is a congressional responsibility – a solely congressional responsibility. The authority that an administration has to do things like negotiate trade agreements or impose tariffs on steel is authority that is ceded to it by Congress. This stems from Article 1, Section 8 of the U.S. Constitution which clearly and unequivocally states that Congress shall have the power “…to regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” The 1962 Trade Expansion Act is Congress dictating what the president shall, can, or may do to exercise power on behalf of Congress to manage trade. Congress ceded authority to the executive; Congress can take it back or limit it. And this Congress is getting increasingly restless with the Trump administration’s handling of the trade file. If the 2002 experience is any indication – and this current round of tariffs looks like it could lead to a similar economic hit among a wide array of companies – then we should see Congress begin to reassert its authority and potentially override or reign in the president.

Again, the fact that the tariffs strategy worked out so badly in 2002 and the fact that the president has clearly abused the authority given to him by Congress by using “national security” as a rationale to create a bargaining chip are grounds to act.

And Congress has acted before to reign in a president who overstepped his authority in the use of section 232 of the 1962 Trade Expansion Act. In 1975, the Congress passed HR 1767 which, “suspended for a 90-day period the authority of the President under section 232 of the Trade Expansion Act of 1962 or any other provision of law to increase tariffs or to take any other import adjustment action with respect to petroleum or products derived therefrom; to negate any such action which may be taken by the President after January 15, 1975 and before the beginning of such 90-day period.”

The reasons behind the 1975 move to reign in then-President Gerald Ford are not important and would require another blog post. What is important is that Congress (and the Senate) acted to exercise their constitutional powers, or to take power back from a president. Had President Bush not moved so quickly to rescind the tariffs that he imposed in 2002, which would have been in place before the next election in 2004, it is likely that Congress would have moved to revoke his authority as it had 27 years earlier with his Republican predecessor. But, given the stubbornness of the current occupant of the White House, it’s more likely that we could see what happened in 1975 happen again in our lifetime.

Carlo Dade is the director of the Trade & Investment Centre at the Canada West Foundation.