By Marc Chandler
This post first appeared on Marc to Market
The Trump Administration’s decision to levy tariffs on steel and aluminum imports on national security grounds is controversial. Usually, national security is understood in a more direct sense. The relationship between national security and trade has not been well developed in trade law. Surely, probing and pressing in this area is not illegitimate. The idea of applying it against strong US allies, like Japan, Canada, and the EU is troubling. However, the tariffs themselves are not unprecedented. In fact, the steel tariffs under George W Bush were even steeper.
The Trump Administration has launched an investigation into auto imports on national security grounds. Whatever definition of national security that allows steel from Canada, for example, to objectionable, must be sufficiently elastic and broad that nearly anything can apply, including automobiles. The investigation is expected to conclude by the end of next month. If tariffs are applied, it would be bigger than the washing machines, solar panels, steel and aluminum actions put together. However, the threat itself is foreboding.
Europe seems to be of two minds. On the one hand, requirements of WTO membership means that the EC cannot simply cut the tariff on US auto imports. It must cut all auto tariffs for WTO members or reach a broader trade agreement, like the one that the EU reached this week with Japan after five years of negotiating. On the other hand, Juncker is reportedly going to Washington DC next week to meet with Trump, ostensibly to discuss reducing tariffs. The US tariff on autos is 2.5%. The EC’s levy is 10%. However, the US also puts a 25% tariff on light trucks, which dates back to the mid-1960s.
Reports suggest the US will soon announce a new investigation on national security grounds: Uranium. This may be the closest issue to what most reasonable people might think as national security. According to the EIA, in 2016, only 11% of the uranium shipped to US nuclear power reactors came from domestic sources. A quarter of the US uranium supply came from Canada. Another fifth came from Australia. Kazakhstan accounted for 24% and Russia 14%. Some foreign producers are state-owned, which pose a competitive challenge.
Shares are US producers have reacted positively, as one might expect, to the prospects of protective tariffs. It is not clear when an announcement of the investigation will be made. At the end of last month, the Commerce Department indicated a decision would be made shortly. Now, the thought is that the fallout from Helsinki may be a distraction.