Closing Pandora's Box: The Growing Abuse of the National Security Rationale for Restricting Trade

16 Pages Posted: 2 Jan 2020

Date Written: June 25, 2019

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 Expansion Act of 1962 gives the president authority to restrict imports on this basis after an investigation by the Department of Commerce. 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. In the domestic arena, there have been court challenges against the tariffs imposed under Section 232 and against the constitutionality of Section 232 itself. In addition, legislation has been introduced in Congress to rein in the president’s authority by requiring congressional approval of tariffs or other import restrictions before they can go into effect. Internationally, many U.S. trading partners responded immediately to the steel and aluminum tariffs with tariffs of their own, and both the U.S. tariffs and the retaliatory tariffs are the subject of litigation that will test the limits of the WTO’s dispute settlement process and the trading system itself.

This study 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 allows 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: Trade Tariffs, Trade Regulation, Protectionism, Department of Commerce, World Trade Organization, WTO, Trade Expansion Act of 1962, Section 232

JEL Classification: F00, F1, F10, F13, F17, F41, F5, F50, F51, F52, F53, F55

Suggested Citation

Lester, Simon and Zhu, Huan, Closing Pandora's Box: The Growing Abuse of the National Security Rationale for Restricting Trade (June 25, 2019). Cato Institute Policy Analysis, No. 874, 2019, Available at SSRN: https://ssrn.com/abstract=3501793

Simon Lester (Contact Author)

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

Huan Zhu

Cato Institute ( email )

1000 Massachusetts Avenue, N.W.
Washington, DC 20001-5403
United States

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