G20 leaders steel themselves for Trump's next trade move
U.S. considers whether steel imports pose national security threat, as allies scratch heads
Of all the issues testing the mettle of G20 leaders in Hamburg, Germany this weekend, U.S. President Donald Trump's threat to put new tariffs on steel imports to protect national security may be the strangest.
If the logic put forward by countries like Canada prevails, his threats may also be empty.
Or not. Who can say these days, really?
"It doesn't seem as though economic logic is what's driving [the U.S.] decisions," said Chad Bown, a senior fellow with the Peterson Institute for International Economics.
On the campaign trail last year, Trump railed against the evil of Chinese steel being dumped into the U.S., robbing American steelworkers of jobs. But Bown's research finds duties already in place on Chinese steel are working; very few U.S. imports come from China.
That means that if a U.S. Commerce Department investigation — anticipated last week, but curiously not done ahead of the G20 — finds foreign steel imports a "national security threat," it's not really China that would be hit by new import quotas or duties.
It's some of America's best trading partners: Japan, Germany, and yes, Canada — barring a North American exemption.
European Commission President Jean-Claude Juncker rattled his sabre for a trade war at the G20 summit in Hamburg, Germany on Friday. The EU is in an "elevated battle mood," he said.
He hopes it won't be necessary. But, without providing details, Juncker said the EU could react with countermeasures "within a few days — we won't need two months for that."
That's how this escalates, fast, into something major.
'The nuclear option'
"At these fora like the G20, the focus now, entirely, is on what the Trump administration is doing ... as opposed to the focus being on what the underlying source of the potential concern is, which is the global overcapacity of steel," Bown said.
Trump's threat is extremely dangerous, he said, calling it "the nuclear option" — something that ignores international rules and doesn't allow counter-arguments.
Yes, countries could — and would, the EU's trade commissioner, Cecilia Malmstrom, suggested Friday — appeal to the World Trade Organization.
"That to my mind gives the Trump administration the political ability to say ... 'You're going to have some unaccountable judges in Geneva to tell us in the United States what's in our national security?'" Bown said.
"It really would give them the political motivation or excuse to not abide by legal rulings, or something as drastic as pulling the United States out of the [WTO]."
Fearing this, injured countries might hesitate to appeal steel tariffs, he said. "But then if we don't challenge this ... what kind of signal does that send?"
It's a Pandora's Box, Bown said.
Farmers don't want competition from imports? Surely food sovereignty could be a national security concern, too.
A legitimate reason?
Is there a legitimate national security reason to restrict trade?
It's fuzzy. And the U.S. hasn't done it since the oil crisis in the '70s.
Susan Ariel Aaronson from George Washington University compares steel to blacksmithing: demand will keep dropping as alternative building materials emerge. But the Chinese haven't slowed production, so that depresses global prices.
"This has nothing to do with trade," she said. "My gut is that this is more about keeping a [campaign] promise and they can't do it under WTO rules," she said. "National security allows you to do that, but it's just stupid."
"It's terrifying," she said. "It's beyond crazy."
What's more shocking, she said, is that the American business community — especially secondary manufacturers downstream from the steel jobs Trump's fixated on — haven't come out harder against taxing their inputs.
Could Trump walk this back?
"As long as he looks like he tried to do something, that's what he's going to try to do. I do think they're more protectionist talk than action," Aaronson said.
"They're bullies," she said. "He likes to threaten."
Simon Lester, a trade policy analyst with the Cato Institute, isn't sure whether the Trump administration is serious, or just softening up the other side.
"It's felt like since the campaign that there's a trade war coming. So, when's it coming? Is it really coming?" he said.
"I'm still kind of hopeful that they'll realize it and this is more about leverage than an actual measure that they're going to impose."
But given the political fanfare over steel, the Commerce Department's findings may be a foregone conclusion, he said, especially since "national security" is self-judged.
"They will recommend some measure," he thinks. "They don't then need to take it, though."
Which brings us back to Canada.
Last month, Prime Minister Justin Trudeau pointed out Canada collaborates daily with the U.S. on security, intelligence and defence issues, so portraying it as "somehow not a trusted partner to sell steel is uh, a little bit silly, to be quite frank," he said.
Speaking to reporters on Saturday from Germany, Trudeau said he's spoken to Trump a number of times about steel.
"We are comfortable that the 232 provisions will not apply to the Canadian steel industry, which is extraordinarily well integrated into the American, U.S. steel industry as well," he said, referencing section 232 of the Trade Expansion Act, which deals with threats to national security.
"The kind of back and forth. complementarity between Canada and the U.S., on steel is something that we both value tremendously as countries."
Canada's embassy in Washington put out a fact sheet this week about how the balance of trade on steel favours the U.S. Both countries need to consider all the middle class jobs involved, the lobbying line goes.
"This is a message [Foreign Affairs Minister Chrystia Freeland] has personally delivered to U.S. secretaries and senators in recent months. We think it is unwise to look at Canada through a national security lens and hope this issue can be resolved," Freeland's press secretary, Adam Austen, wrote CBC News.
NAFTA talks may start next month. Lester says that without an exemption for North America's heavily integrated industry, the Trump administration stands to mess up something in which they've put a lot of stock.
"Canada and Mexico will be concerned enough about this to say, 'Look, how do you expect us to talk in good faith about redoing NAFTA when you're just blowing up the system and undermining NAFTA and the WTO?'" he said.
"That might be what they're struggling with."