The laws that let Trump impose duties unilaterally were made for an era when the U.S. dominated trade.
FROM THE WALL STREET JOURNAL | OCTOBER 14, 2018
Though Donald Trump defends his deployment of tariffs as a radical shake-up of world trade, he is using a dusty playbook. While the president certainly has the legal authority to impose duties, the statutes on which his administration relies are perilously out of date. They are based an economic order that no longer exists.
Section 232 of the 1962 Trade Expansion Act and Section 301 of the 1974 Trade Act serve as the basis for tariffs on more than $250 billion of Chinese imports, as well as duties levied earlier this year on all steel and aluminum imports. Those laws were passed during the heyday of U.S. economic dominance—a time when access to American markets was essential to dozens of countries. From the end of World War II through the 1970s, the U.S. was by far the largest economy, the largest exporter of manufactured goods, and the largest consumer of foreign goods.
But the relative stature of the U.S. in global trade has shrunk in the past four decades, as other countries and regions have become more affluent. In 1960 the U.S. represented 40% of global economic output; today it comprises barely 20%. This makes the Trump administration’s unilateralist approach an anachronism—and not a winning one. Using laws and policies designed for an era that no longer exists is tantamount to deploying antiquated weapons in a modern war.
In taking this unilateral approach, the administration ignores the vast multilateral framework that has emerged since the ’60s. The World Trade Organization, which the U.S. helped create, imposes firm collective sanctions, and the U.S. has won more than 90% of the 123 WTO disputes it has filed since 1995.
It should come as little surprise that the administration is using strategies employed in a different era. U.S. Trade Representative Robert Lighthizer played hardball with Japan in the 1980s as deputy trade representative. Then the U.S. successfully used Section 301 to put pressure on Japan to open its markets. But Japan then is not China now. The U.S. purchased about a third of Japanese exports in the ’80s and supplied close to half of its foreign investment. American companies were still competitive in Japan’s major export industries, such as cars and semiconductors. And the U.S. held more leverage as the main provider of Japan’s national defense.
Facing China today, the U.S. has almost none of those advantages. China has a $700 billion trade relationship with the U.S., including imports and exports, but it has a $3 trillion trade relationship with the rest of the world. That makes it less vulnerable to unilateral U.S. tariffs.
The desire for a return to the mid-20th century, when America made everything and sold to everyone, is understandable but not at all realistic. To bring such a circumstance about, much of the world would have to collapse economically. The U.S. in the immediate postwar period accounted for as much as 50% of manufacturing world-wide, largely because Europe and Japan were decimated. The world today is far richer, and the developing world has emerged in full force, accounting for more than 60% of global economic output. The U.S. remains large and incredibly prosperous, but it is no longer a giant in a world of economic pygmies. Making the U.S. market less accessible and rejiggering deals will no longer send allies and adversaries scurrying to make nice.
Times change, and the legal frameworks around trade need to be updated to match new circumstances. The statutes on which the Trump administration relies are vague, old and notably unilateral. They are fit for a world of American dominance that no longer exists. Mr. Trump thinks he’s standing up to America’s adversaries, but he is, as the adage goes, bringing a knife to a gunfight. All Americans will be the losers.