A Proposal for 'Rebalancing' To Deal With 'National Security' Trade Restrictions

Abstract

Over its first two years, the Trump administration has aggressively reshaped U.S. trade policy. One of its most controversial initiatives is the expansive use of “national security” to justify imposing tariffs and quotas. Section 232 of the Trade Act of 1962 gives the president authority to restrict imports on this basis after an investigation by the Commerce Department, and the administration has already done so for steel and aluminum and is now threatening similar actions on automobiles. The World Trade Organization (WTO) has a special exception for such measures, so there is at least an argument that they are permitted under international law. However, the administration has taken what was previously considered a narrow and exceptional remedy and broadened it to serve as a more general tool to protect domestic industries.

This paper argues that WTO dispute settlement cannot easily resolve disputes of this kind, and suggests an alternative mechanism to handle these issues. Instead of litigation, a “rebalancing” process like the one used in the context of “safeguard” tariffs and quotas should be utilized for national security measures. Safeguards are a political safety valve that allow the trading system to pursue broad-based liberalization by providing the flexibility to protect domestic industries under certain conditions (ideally, by offering compensatory liberalization elsewhere). By adopting a similar political arrangement for national security trade restrictions, the overall balance in the system can be preserved, permanent damage to the WTO dispute system avoided, and a potentially destructive loophole kept closed.

Keywords: WTO, National Security

JEL Classification: K33