US trade policy has officially hit rock bottom

U.S. trade policy has hit rock bottom. Tariff wars loom large this fall. It’s time for a change.

Start with the Trump/Biden steel and aluminum tariffs. If the U.S. and European Union don’t come up with a deal by October, Washington will reimpose its Section 232 tariffs on Europe, and Brussels will retaliate. 

Unfortunately, the bet is they’ll come up short. That’s because talks over a Global Arrangement on Sustainable Steel and Aluminum (GSSA) aren’t going as planned.

To diffuse version 1.0 of this tariff war, the U.S. and EU anticipated the GSSA with a joint commitment to promote low-carbon production and address global overcapacity, especially if nonmarket economies like China are to blame. The deadline to get all of this done is October 2023, a mere one year after the suspension of hostilities. 

Now, on the eve of version 2.0 of this tariff war, it’s clear the U.S. and the EU have very different philosophies on how to achieve a durable peace in steel and aluminum.

The U.S. wants to build a “climate club” around a system of tariffs that looks like the Section 232 ones. But the EU wants its Carbon Border Adjustment Mechanism to be center stage, drawing on its emissions trading scheme. Brussels also wants the GSSA to be consistent with rules under the World Trade Organization (WTO). 

Both approaches have aspects of green protectionism. David Kleimann calls the U.S. philosophy “tariff first, decarbonize later,” whereas Europe’s Carbon Border Adjustment Mechanism is seen by some countries, like India, as little more than a discriminatory “race to the top.”

Version 1.0 of this tariff war was punishing for both sides. Version 2.0 may be more costly.

Then there’s Mexico. To get out from under the initial salvo of Section 232 tariffs, Mexico promised to “monitor” for surges of exports to the U.S. If these exceed “historical volumes,” Washington can revert to its original 25 percent tariffs (10 percent on aluminum), the catch being that Mexico could then “retaliate,” but only in “the affected sector,” meaning steel for steel. 

This July, U.S. steel vendors lobbied the Biden administration to check Mexican exports, which increased by 72 percent in 2022 versus 2015-2017. Rather than curtail its exports, however, Mexico lashed out at much of the world.

In a decree issued Aug. 15, Mexico slapped 25 percent steel tariffs on those countries that don’t belong to any of its free trade agreements. The tariffs are justified on the basis that the Organization for Economic Cooperation and Development says there’s “excess global production” of steel, but they also target textiles, footwear, bamboo and rubber, among other products. In short, these tariffs are just part of an import-substitution plan hatched by the administration of Andrés Manuel López Obrador, and yet the U.S. praised Mexico for standing up to “non-market excess capacity in the steel sector.” Seriously?

What if Mexico’s salvo of tariffs triggers retaliation by affected countries and López Obrador backs down, including on steel? And what if the steel tariffs do little to quell accusations of transshipment through Mexico? The decree isn’t a solution to anything, let alone a credible way to avoid a trade war.

Next, consider the China tariffs under Section 301. These are under review by the U.S. trade representative, which is slated to report this fall on whether they’re working. The verdict is already in: they’re not.

The report will make for an interesting read, though, especially because of all the talk about how the U.S. could potentially recalibrate these tariffs to deal with China’s dominance in the market for electric vehicles. This could mean increasing Section 301 tariffs to put more pressure on China to stop its practice of forced technology transfer, for example. Yet it could also mean using Section 301 as a tool to boost competitiveness, unrestrained by the United State’s WTO tariff commitments.

Which is it? The irony is that a domestic U.S. court, rather than the WTO, is likely to provide important clues. That’s because American importers are going back to court to get a refund on the import duties paid on two of four rounds of China tariffs. 

The case, first filed in 2020, was originally heard by the U.S. Court of International Trade, which ruled for the government. Now, a group of American importers is appealing the ruling to the Court of Appeals of the Federal Circuit. They argue that the government ignored their concerns about the third and fourth rounds of Section 301, and never explained why it was proceeding with them, despite these concerns.

Much more is at stake than refunds on import duties. The third and fourth rounds of Section 301 tariffs were put in place to counter Chinese retaliation for the first two rounds. Yet, this is not how Section 301 is supposed to work. Any tinkering with the tariffs is supposed to help better the prospects for compliance, not enhance competitiveness. 

Since HTMX first filed its case, thousands of cases have been filed against Section 301. That’s serious money on the line. But the importers will have done a public service if they inspire Congress to make sure Section 301 isn’t used by future presidents as a license to wage an all-out trade war.

The Trump/Biden tariffs have done serious harm to America’s standing in the world, ripped apart U.S. supply chains and destroyed jobs at home. For what? This is what rock bottom looks like.

Marc L. Busch is the Karl F. Landegger professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a global fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on Twitter @marclbusch.