Trump has created an international 'free-for-all' that could cause huge waves in the global economy

Trump has created an international 'free-for-all' that could cause huge waves in the global economy

donald trump looking up

Gonzalo Fuentes/Reuters

President Donald Trump

  • President Donald Trump announced new tariffs on steel and aluminum last week.
  • Trump justified the tariffs by saying they were needed to ensure national security.
  • Trade experts say the reasoning could disrupt the current rules of global trade.

President Donald Trump's new steel and aluminum tariffs are set to lead to significant ramifications for not only the US economy, but also the global economic and trade landscape, experts say.

Edward Alden, a senior fellow at the Council on Foreign Relations, wrote Friday that Trump's new tariffs - which function as a tax on imports - have put the nail in the coffin for the international trade order of the past quarter-century.


Alden said Trump's announcement Thursday marked "the day the World Trade Organization died."

"The White House announcement yesterday threw the rulebook out the window," Alden said. "The Trump administration is set to impose tariffs under a flimsy national security pretext that flouts if not the rules then at least the widely shared norms of the WTO."

The core of Trump's whack to the trade order is the grounds on which he and his administration imposed the new tariffs, of 25% on steel and 10% on aluminum.


Trump used an obscure law to impose the tariffs

Trump used Section 232 of the Trade Expansion Act of 1962 to impose the measures. It allows the president to request the Commerce Department to investigate the national security risks associated with the imports of a certain good to the US.

In this case, the Trump administration is arguing that in the case of a geopolitical event that could put the US at odds with exporters of steel and aluminum, US steel and aluminum producers could not make up the shortfall.

That justification hasn't been used by an American president since Ronald Reagan in 1986. Even then, formal restrictions were not imposed - those only twice, both on oil, with limits on Iranian imports in 1979 and Libyan imports in 1982.


Just as rare as the US using the national security justification is an international body having to rule on a case rooted in the justification.

The General Agreement on Tariffs and Trade allows countries to impose restrictions like tariffs for national security purposes. But, since the GATT was adopted in 1947, only 10 complaints regarding national security tariffs have been lodged. All were settled prior to arbitration.

"Using national security in a way that nobody believes - it's a complete perversion of what is supposed to be extraordinary latitude in the world trading system for countries to deal with their national security interests," Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics, told Politico.


Opening Pandora's box?

Experts say the US using the veil of national security to impose economic sanctions, potentially opening Pandora's box for other nations to do the same. Eventually, they say, flaunting the rules could become the norm.

Matt Gold, a former Deputy Assistant US Trade Representative and trade law professor at Fordham University, said the big issue for the WTO and rules-based trade system is that it is all coming from the US.

"It's a violation of very, very fundamental rules being committed by the world's foundational economy - the United States - which is also the architect of the entire global system," Gold said during an appearance on CNBC. "And it has severe implications for undermining the credibility of the entire global trading system in addition to the fact that it will bring litigation to the WTO by our trading partners for violation of those rules."


Trump continued to root his explanation in the national security grounds on Thursday. Nancy Vanden Houten, senior economist at Oxford Economics, said his last-minute decision to exclude Canada and Mexico from the tariffs weakens his stance.

Trump said that the two allies were exempted from the steel and aluminum measure in part to get more favorable terms in negotiations over the a new version of the North American Free Trade Agreement, or NAFTA.

"Both Trump's liberal use of national security as a justification for levying tariffs (tying Canada's and Mexico's exemption to progress in NAFTA negotiations may weaken that argument) and a response from trading partners that front-runs a WTO ruling threaten to undermine the WTO and its ability to promote free global trade," Vanden Houten said.


And Trump's suggestion that other countries can petition the US to be excluded will undermine the WTO and normal trade order, experts say.

Typically, the adjudication of exemptions to various trade restrictions would go through the international body. The Trump administration has said US Trade Representative Robert Lighthizer will be the point person in this case.

"It has further launched a free-for-all negotiating process in which its trading partners are now expected to come to the White House hat in hand begging for exemptions, a clear violation of the understanding that trade will be conducted under internationally agreed rules, not ad hoc negotiations," wrote Alden of the Council on Foreign Relations.


Alden concluded that the loss of the global trade order, even with its flaws, was regrettable.

"But something important and valuable was lost," Alden wrote. "The WTO was a lovely promise of a more rational, predictable, and fairer global economic order. Its death should be mourned."