Trade

The Cold War origins of Trumps favorite trade weapon

The nuclear arms race with the Soviet Union was just about to dominate world headlines when Congress passed the Trade Expansion Act of 1962, giving President John F. Kennedy the authority under Section 232 to impose tariffs on imports to protect national security.

Earlier that year, the USSR had launched the first man into space, triggering concerns about the loss of U.S. technological leadership and the ability of the capitalist West to compete with the communist East in a life-and-death struggle for the future of mankind.

Then, just days after Kennedy signed the bill in October 1962, he discovered the Soviets had secretly moved nuclear missiles into Cuba, beginning a tense 13-day confrontation that many feared could escalate into a full-blown nuclear war.

Fifty-six years later, Donald Trump has embraced the obscure Section 232 provision like no other president, including Kennedy, who was assassinated just 13 months after signing the bill.

In recent months, Trump has used the measure to impose tariffs or other restrictions on virtually all steel and aluminum imports, prompting the European Union, Canada, Mexico and others to threaten or impose retaliation.

Although Section 232 delegates some of Congress constitutional authority over trade to the president, there has been very little, if any, congressional debate about it.

Later this year, he could impose similar duties on auto imports using Section 232, affecting far more trade than his steel and aluminum tariffs and further damaging relations with the United States biggest trading partners.

Section 232 was possibly included in the 1962 bill at Kennedys request, according to Douglas Irwin, a Dartmouth College professor who has written several books on the history of trade policy. But Kennedys remarks at the signing ceremony for the Trade Expansion Act show he had little interest in imposing tariffs, though he was excited about engaging in negotiations to bring them down.

Americas 35th and second-youngest president described the legislation in the most optimistic terms, stressing the need for allies to work together to open markets to help counter the Soviet threat.

“This act recognizes, fully and completely, that we cannot protect our economy by stagnating behind tariff walls, but that the best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from a free flow of goods,” Kennedy said. “A vital expanding economy in the free world is a strong counter to the threat of the world communist movement. This act is, therefore, an important new weapon to advance the cause of freedom.”

Donald Trump, with Director of the National Economic Council National Larry Kudlow (C) and White House chief of staff John Kelly (L), leaves the G7 summit in Quebec, Canada | Lars Hagberg/AFP via Getty Images

That rallying cry came less than two decades after the end of World War II, which decimated Europe and set the stage for the U.S.-USSR superpower rivalry. During Kennedys first year in office, communist East German authorities erected a wall encircling West Berlin in one of the most visible signs of the Cold War conflict.

“So national security is still in the minds of policymakers,” Irwin said. “I think what they were mainly concerned about is that if we had to fight a future war, that there might be certain minerals or goods that we didnt have domestically that would be necessary for fighting that war.”

Although Section 232 delegates some of Congress constitutional authority over trade to the president, there appears to have been very little, if any, congressional debate about the provision, which fits into a long tradition of making an exception to free trade for national security purposes, Irwin said.

“The founding fathers were worried about our dependence on foreign supplies in fighting the Revolutionary War and the War of 1812. So actually the tariff of 1816 was largely a response to what happened during the War of 1812 and the fact that we didnt have certain domestic supplies of iron goods or what have you that we might need to fight wars,” Irwin said.

Critics of Trumps trade actions charge that he has used Section 232 as a fig leaf for protectionism, aided by Commerce Secretary Wilbur Ross, who made some of his fortune in the steel sector.

All of us know it has nothing to do with national security, but the reason the president is doing this is because he doesnt have to prove anything to use it” — U.S. Senator Bob Corker

And in this Congress, some lawmakers want to claw back some of their trade powers.

Senators Bob Corker (R-Tenn.) and Pat Toomey (R-Pa.) are the principle co-sponsors of an amendment that would give Congress the opportunity to vote on tariffs imposed by the president using Section 232.

“What this amendment narrowly focuses on is the abuse of authority that the administration is utilizing to put tariffs in place on Canada, Mexico and many of our allies, especially in Europe,” Corker said on the Senate floor. “All of us know it has nothing to do with national security, but the reason the president is doing this is because he doesnt have to prove anything to use it.”

In that regard, Section 232 is different than most other trade remedy tools, which require the U.S. International Trade Commission, an independent body whose members are appointed by the president for six-year terms, to make a determination whether import relief is warranted, Irwin said.

Until the Trump administration, most Section 232 investigations were launched in response to a petition filed by an industry group.

The Section 232 process requires the Commerce Department to conduct an investigation in consultation with the Defense Department and send its recommendation to the president, who has the final say on whether to take any action.

In the steel and aluminum cases, Defense Secretary Jim Mattis agreed that unfairly traded imports “impair national security.” But the problem was not enough “to impact the ability of [Defense Department] programs to acquire the steel and aluminum necessary to meet national defense requirements.”

Mattis in a memo to Ross also warned of the damaging impact that a global tariff or quota could have on U.S. relations with allies, but Trump ignored his advice.

Until the Trump administration, most Section 232 investigations were launched in response to a petition filed by an industry group.

Kennedy never had the chance to use the legislation before he was assassinated in November 1963. But his successor, Lyndon B. Johnson, ordered an investigation into whether imports of watch parts and movements posed a threat to national security. The conclusion: No, they did not.

Four other probes were requested by private industry during Johnsons five years in office. They concerned bearings, tungsten mill products and two cases regarding minerals used to make steel. In each instance, no action was taken to curb imports.

Thats generally been the case during the nearly six-decade history of the statute, although Section 232 was used to ban oil imports from Iran in 1979 and Libya in 1982. A conservation tax on all oil imports imposed by President Jimmy Carter in 1979 was later found “to be illegal and removed,” according to a Commerce Department Section 232 guidebook.

But supporters of free trade fear Trump could do permanent damage to the international economic architecture constructed by the United States in the aftermath of World War II.

“With steel, I just dont think thats what the framers of the statute had in mind. Most of our imports are from neighbors and allies,” Irwin said. “Weve already whacked down imports from Russia and China with anti-dumping and countervailing duties, so its not like were really dependent on them per se … I think its more Wilbur Ross is a steel guy and the president identifies with steel, so it was the path of least resistance to get protection.”

Last month, a group of steel importers filed a lawsuit in federal court challenging the constitutionality of the Section 232 provision, arguing that Congress had “abdicated” its constitutional responsibility for setting tariffs in approving the provision.

Corker also has vowed to keep pressing for a vote on his amendment after Senator Sherrod Brown (D-Ohio), one of the steel industrys stronger supporters in Congress, blocked action last week to attach his proposal to the farm bill.

But supporters of free trade fear Trump could do permanent damage to the international economic architecture constructed by the United States in the aftermath of World War II while Congress passively sits by.

Best known now for Section 232, the Trade Expansion Act of 1962 led to the Kennedy Round of world trade talks, one of the first truly comprehensive multilateral efforts to bring down trade barriers, said Daniel Price, a former George W. Bush administration official now at Rock Creek Global Advisors.

“It is ironic that President Trump would invoke a provision of the same statute and abusively claim national security to put up tariff walls and undermine the rules-based system of which the U.S. has been the principal beneficiary going back to the Kennedy administration,” Price said.

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