Last week, US president Donald Trump took the extra-ordinary decision to impose import tariffs of 25% and 10% on steel and aluminium, respectively, by invoking the provisions of Section 232 of the Trade Expansion Act of 1962. This provision allows the Administration to take measures to protect domestic industries for “national defense” and “national security”. While announcing his decision, the president has also insisted that the increase in tariffs, he has sanctioned, would be for an “unlimited period”.
Trump’s action was backed by an investigation conducted by the Bureau of Industry and Security of the US Department of Commerce, the report of which was released last month. This investigation had made a strong case for the imposition of tariffs on the two metals for national security, based on the understanding that “national security 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.” Armed with such sweeping powers given to it by its national legislation, the US Administration has, thus, undermined the global trade rules governed by the WTO that abhors unilateral actions by any member of the organisation, particularly, when the interests of the other members are adversely affected.
Two significant issues must be highlighted in the context of the Trump Administration’s decision to increase steel and aluminium tariffs. The first is this is not the first instance of the tariff protectionism by this Administration, and the second is that the decision is threatening to impart a shock to the global economy just when it is showing signs of overcoming the impact of the recession of 2008. Given the importance of the steel and aluminium, countries around the world are taking a serious view of Trump’s imposition of high tariffs affecting these industries. But, the problems caused by this recent round of US trade protectionism run much deeper because of the two reasons. One, there has been excessive use of anti-dumping measures on steel. Second, there are two other products, namely washing machines and solar cells and modules, whose imports have been restricted by the US president in the recent months.
Until the middle of last month, the US had 169 anti-dumping and countervailing duty orders in place on steel, of which, 20 are against India, and there are seven more ongoing investigations. As a result of such extensive use of anti-dumping actions, India and the other major exporters face considerable uncertainties in the world’s largest export market for steel. At the beginning of the year, Trump authorised imposition of restrictions on the imports of washing machines and solar cells and modules using the provisions of Section 201 of the Trade Act of 1974, the first time such authorisations have been made in the past 16 years. Section 201, which is the analog of the “safeguard measures” under the WTO, allows, as a temporary measure, to raise import duties or imposing non-tariff barriers on goods entering the US that injure, or threaten to injure, domestic industries producing similar goods. In case of washing machines, import quotas have been established for three years, wherein, in the first year, 20% tariffs would be imposed on imports of up to 1.2 million washing machines and 50% tariffs would be imposed on imports beyond the above threshold. The safeguard measures, in case of solar cells and modules, would last for four years, with 30% tariffs being imposed in the first year.
The bigger concerns arising from the safeguard actions are Trump’s assertions that these actions, authorised only two months ago, have already helped in the sprouting of factories in both sectors. In other words, the president has developed his own narrative about the “positive” impact tariff protection is bringing to the US businesses. Given his record of steadfastly standing by his narrative, there remains a high probability that the president would feel the strong urge to take similar protectionist measures in other sectors as well to “make America great again”.