Trade Compliance

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Understanding the Trump Administration’s “National Security” Rationale (Part I)

Posted June 12, 2018

A testy phone call last month between the leaders of Canada and the United States, that went viral after it was learned that President Trump had inaccurately quipped about a notable incident from the War of 1812, brought new focus to the officially stated reason behind the U.S. administration’s proposed tariffs on steel and aluminum products.
White House Burning
Generally speaking, raising taxes and tariffs in the United States is the responsibility of the Congress. According to the Constitution (Section 8, Clause 1), Congress – not the president – is vested with the authority to levy tariffs and regulate trade between the U.S. and other countries. But as with many other powers that have gradually migrated to the executive branch over the years, Congress has provided the president with the ability, under certain circumstances, to act unilaterally in this regard.

In the case of Trump’s metals tariffs, the administration relied on Section 232 of the Cold War-era Trade Expansion Act of 1962 (19 U.S.C. §1862) that gives the Secretary of Commerce the authority to investigate and determine the impacts of any import on U.S. national security and empowers the president to accordingly “adjust the imports of an article and its derivatives” as deemed necessary – by imposing punitive tariffs and/or restrictive import quotas, for example.

Following two lengthy investigations, Commerce determined that steel and aluminum imports “in the present quantities and circumstances” are weakening America’s economy and “threaten to impair” U.S. national security. While that would certainly be a sensible concern if the Unites States had become overly dependent in recent years on base metal imports from an unreliable global “frenenemy” such as China, that wasn’t found to be the case.

In fact, the biggest exporter of steel and aluminum to the U.S. is Canada, which supplied $7.2 billion of aluminum and $4.3 billion of steel last year. China isn’t even among the top ten largest exporters of steel to the U.S., and despite being the second largest exporter of aluminum to the U.S., it currently provides America with less than half of the amount that Canada does. Moreover, most of the steel and almost all of the aluminum imported from China is already subject to punitive U.S. anti-dumping and countervailing trade measures.

When Trump instigated the Section 232 probes last year, Prime Minister Trudeau expressed confidence that Canada wouldn’t be included in any resulting trade actions, saying it was “just silly” to imagine Canadian exports were a threat to the U.S., given the close level of co-operation between the two nations’ security and military forces.

Looking back with the benefit of hindsight, maybe Trudeau should not have been so dismissive when the investigations were launched, but his initial reaction was understandable considering that since the onset of WWII, with the 1941 Hyde Park Agreement, which allowed the U.S. to produce war materials in Canada for use by the British, extensive collaboration between the two countries has steadily grown to the point where they now “share the most integrated defense industrial base in the world,” according to an internal government briefing document.

Under the terms of various accords dating back to the 1950s that came to be known collectively as the Defense Production and Sharing Arrangements, Canada has been given “special treatment” in a wide area of U.S. defense matters, including national security assessments, where Canadian raw materials such as steel, aluminum and petroleum have, at least up to now, been treated as being essentially no different from goods produced in the U.S. when it comes to being part of the “North American defense industrial base.”

Redefining “National Security”

The question of what constitutes “national security” was addressed in a prior Section 232 investigation concerning the effects of imports of iron ore and semi-finished steel that was called for by the Bush administration in 2001. Observing that neither 19 U.S.C. §1862 nor the relevant Commerce regulations contain a definition of the term, the report following that probe stated it was therefore “incumbent upon the Secretary to employ a definition that is consistent with the statute and the intent of the drafters, and reasonable under the circumstances.”

In this regard, the 2001 report indicated that, “at a minimum, an assessment of the United States’ ‘national security’ requirements must include a military or ‘national defense’ component,” but importantly, also noted that the term “can be interpreted more broadly to include the general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements, that are critical to the minimum operations of the economy and government.”

Outlining the scope of the decision made in this instance, Commerce stated that as well as the expected national defense considerations, it had also looked into “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 any other serious effects resulting from the displacement of any domestic products by excessive imports, without excluding other factors, in determining whether a weakening of the U.S. economy by such imports may impair national security.”

Trump’s Policy Departure

While past administrations have used the national security exception to tariff-reducing international trade rules sparingly, always interpreting the provision in a fairly narrow way by focusing mainly on whether, in the event of a war or other national emergency, the U.S. defense industry would be able to obtain sufficient raw materials, either domestically or from reliably “safe countries” like Canada, the current White House has instead decided to adopt the broadest possible meaning of the term imaginable as it pertains to so-called “critical industries.”

Breaking with longstanding precedent, U.S. Commerce Secretary Wilbur Ross says he “expressly rejects” the notion that products from Canada and other U.S. allies “cannot impair the national security.” As he recently explained when defending Trump’s latest 232 investigation into the “threat” posed by imported automobiles, Section 232 “isn’t by any means confined strictly to military applications,” but covers “a very big variety of things” that are not “necessarily” tied to national security. “Economic security is military security, and without economic security you can’t have military security,” Ross said.