3.5.2018 Window on Washington: Trade Wars

Window on Washington: Trade Wars

Ilya Naymushin/Reuters
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CFR fellows discuss President Donald J. Trump’s recent announcement to impose tariffs on imported steel and aluminum, and consider the global response and the potential for retaliatory measures. 

Speakers

Edward Alden

Bernard L. Schwartz Senior Fellow

Michael Froman

Distinguished Fellow

Presider

Robert McMahon

Managing Editor

MCMAHON: Well, thank you. And welcome, everyone, to this CFR conference call on trade. There’s still a lot of details that remain to be reported, but President Trump has announced tariffs on imported steel and aluminum—25 percent on imported steel, 10 percent on imported aluminum. And it’s aroused a great deal of concern about the prospects for a trade war. I’m Robert McMahon, managing editor of CFR.org. And I’ll be presiding over this call with two CFR experts who are particularly well-suited to explain what’s going on and where it might be leading.


First is Ted Alden, a CFR senior fellow. And he’s author of the book Failure to Adjust: How Americans got Left Behind in the Global Economy. Second is Michael Froman, who’s a CFR distinguished fellow and former U.S. trade representative in the Obama administration. This is going to be an on-the-record call for 45 minutes. I will kick off the conversation first with Ted and Michael, and we’ll talk for 20 minutes or so. And then we will open up the question—open up the call for those of you who have questions.


Ted, I wanted to start off with you and talk a little bit about this process that’s underway. There’s a—it’s under the section—it’s called Section 232 of the Trade Expansion Act. Can you talk about what has triggered this and where this is coming from?


ALDEN: Yeah. Thanks very much, Bob. It’s great to be here with you and with Ambassador Froman as well. So I’m looking forward to this. Yeah, so Section 232 is an old provision of U.S. trade law going back to 1962 that allows the president to block imports if those imports are deemed to be impairing or threatening to impair U.S. national security. It’s not a provision that’s been used in a long time. The last investigation was in 2001 on imports of iron ore and semi-finished steel, and that was rejected. The analysis at the time was there was no threat to U.S. security. The last successful case, you’ve got to go back to the mid-’80s, involving machine tool imports, primarily from Japan and Germany.


So the big trigger here is a general problem of global overcapacity in both of these industries, steel and aluminum, caused largely by the huge increase in Chinese production over the last 10 or 15 years. Pretty clear that China subsidizes its steels and aluminum producers very heavily. It’s produced a global glut in both products, which has either driven down or kept prices low. President Trump signaled way back in the campaign that he was going to resurrect this provision as a tool for putting tariffs on steel and aluminum imports. So in way, this is simply the playing out of a longstanding campaign promise. But obviously, it has triggered a very, very strong reaction from U.S. allies, from Congress, from industry that would be affected.


I mean, we can talk a little bit more about how the analysis was done and its implications, but this would certainly—if, indeed, the administration does go forward—be the more provocative trade action that the United States has taken in a very long time. 


MCMAHON: Well, Ted—as a follow up, Ted, it’s been noted that a great deal of the steel and aluminum that the U.S. imports comes from countries that are U.S. allies—you know, Canada, European states, Asian allies—and not necessarily China, although China obviously has a big part to play in this—in the overall context of this. So is it—is it rare to see an administration invoke national security when it involves supplies that are coming from allied states, allied countries?


ALDEN: Yes, it’s extremely rare. And in fact, you know, I’ve been digging back through the text of the previous 232 investigations. And the standard was always: Can the Pentagon meet its needs from domestic supplies or from reliable U.S. allies? Which, certainly under any definition, would include Canada and, I would hope, Mexico, and the U.K., and Japan, and Korea, and some others. So this analysis, particularly in the case of steel—there is a bit more nuance in the aluminum investigation—expressly rejected that. Said, it doesn’t matter whether the steel is coming from allies or not. Imports are harming the U.S. steel industry, and a strong steel industry is critical to national security, and therefore we have to protect the industry.


I mean, just a footnote on the sources of supply: China at the moment is the 11th largest source of U.S. steel imports. It supplies less than 2 percent of the U.S. market. The countries that get targeted by this are, as you suggested, all reliable trading partners and allies. I mean, countries like Canada, and Korea, and Japan, Germany, Mexico, Brazil, and others. The Chinese really are not targeted directly by this action at all.


MCMAHON: So, Michael, let me turn to you. You were not too long ago in an administration somewhat vexed as well by some of these issues—related issues. Can you talk a bit about what the levers—what other levers there are for countries facing what they see as unfair practices or unfair, let’s say—let’s say dumping of items like steel and aluminum?


FROMAN: Well, first, I think we should stipulate that it is in our national interest to have a strong steel and aluminum industry domestically, and that there is a real problem of excess capacity, particularly emanating from China, which is distorting global trade in these products. The problem is that this action doesn’t really address that. It doesn’t directly address the China issue but instead, as Ted said, hits some of our closest allies and partners, and, frankly, takes the focus off of China, where it belongs, and puts the focus on us, on the United States, as the isolated party in the global economy for these measures.


The other tools that could be used—one reason why you’re not importing much steels from China is because the U.S. steel industry’s been very effective and very sophisticated in their use of the anti-dumping and countervailing duty laws that we have to keep out steel coming from China, and to keep out steel from a number of other countries where there may be unfair trade practices. So that’s sort of the first line of defense. There are also the possibilities of going to the WTO. In the last weeks of the Obama administration, we filed a case against China precisely related to aluminum overcapacity. And it was an innovative case in that it targeted the Chinese state-owned banking system that was providing subsidized credit to the aluminum sector, which led to that overcapacity. That’s a systemic approach that would have had the backing of the WTO. This administration has not followed up on that—on that case, has not pursued that case. So that’s another tool that one could use.


And then finally, I think—I think that we are most effective influencing China’s behavior when we have the will behind us and a coordinated approach, and when we’re pushing in line with some forces within China that want to see reforms. And certainly, we started that process in the last administration to organize pressure on excess capacity. But there’s a lot more that could be done there. The question is whether taking this kind of action against some of our closest allies and partners makes it more difficult for them to work with us to put pressure on China, because domestically and otherwise they’re going to be in a position of having to stand up to the United States rather than collaborating with it vis-à-vis the real source of the problem.


MCMAHON: So just so I’m clear, so the—as you said, from the outset, it is a matter of concern, and it is a national security concern that the U.S. have access to healthy supplies of items like steel, but that there are avenues that don’t necessarily require the invoking of national security concern formally through, say, WTO—through the WTO to try to seek redress.


FROMAN: That’s right. And the U.S. has—and most of our closest trading partners—have always been very careful in how we invoke the national security exception, because we always had the concern that other countries would view this as an opening of a Pandora’s box. That they would say, oh, gee, our domestic food supply is a national security issue. So if the U.S. is going to use national security for protectionist purposes, we’ll use national security to keep out agricultural products from the U.S. or elsewhere. When we lose that moral high ground, we started opening up that Pandora’s box, or when we provide the WTO as the adjudicator of what’s in our national security, it’s a very dangerous situation.


MCMAHON: So I wanted to mention another process that’s playing out as it happens, while this—while everybody is focused on what’s next from the Trump administration, which is the NAFTA renegotiation talks, that they have kicked off another round in Mexico City. A huge cloud has obviously gathered over these talks because of the Trump administration announcements from last week.


Starting with you, Ted, could you talk a little bit about how these two processes could mingle together, or what’s—maybe there’s some signaling going on that could be influencing the NAFTA talks?


ALDEN: Well, they weren’t really linked until the president linked them this morning on Twitter. I’m being slightly facetious there. Obviously, the U.S. announcement last week has been a big concern to both Canada and Mexico. And my conversations with people who are down in Mexico City now for the seventh round of the NAFTA renegotiations which are going on—I think they conclude today or tomorrow—this was a big topic of conversation, concern. The general feeling is that it slowed down the negotiations somewhat. 


But then this morning the president explicitly linked the two issues, indicating that indeed Canada and Mexico would be targeted by the steel and aluminum tariffs. And normally the United States exempts its free trade partners from these sorts of actions. So that’s fairly provocative in and of itself. And then—and then he said, well, but the U.S. might be prepared to lift the tariffs if it can get a good deal on the NAFTA renegotiation. So he has linked the two quite explicitly. 


I mean, I happen to think, just as a bit of an aside, that that will serve to undermine the national security rationale for these actions. I mean, if these are truly necessary to protect national security, I’m not sure how you can then turn around, as the president has done, and put them on the table as a negotiating chip in the—in the NAFTA. So I just think that’s further confusing the whole situation.


FROMAN: Can I add one thing to that, Ted?


ALDEN: Yes.


FROMAN: Is it not only raises concerns on the national security side, but if your rationale for doing this is that we want to increase investment in these steel and aluminum sectors in the United States, if the president is offering the prospects of eliminating the tariffs in a few months when NAFTA’s renegotiated, or even a year or two if it takes that long to renegotiate NAFTA, suddenly the incentive to invest is no longer there. So it’s counterproductive, even for the purposes that the administration has laid out.


MCMAHON: Just to talk a little bit, while we’re on the NAFTA front, just for a moment because I think it leads into the broader trade issues that are at play here. The administration had gone into these talks with a pretty tough line, to say the least. But, Ted, could you talk a little bit about what has been the basis for the U>S. position on these talks? There’s been a great deal made of the dynamics between the U.S. trade representative, Mr. Lighthizer, and Chrystia Freeland of Canada in particular, but also the feeling from both Canada and Mexico that the U.S. is sort of not really providing any real negotiating posture, that in fact is just sort of laying out redlines.


ALDEN: Well, I mean, the problem is that the administration has gone into the NAFTA renegotiation laying out a position that is fundamentally at odds with how trade negotiations have always been done. I mean, the basic idea with a trade negotiation—and Mike can correct me if I get any of this wrong because he’s actually done it—but the basic idea in a trade negotiation is to find some balance of concessions. You know, we’ll eliminate our tariffs or other import restrictions on, say, textiles, if, you know, you do the same on automobiles, or whatever. And to try to come up with a final agreement in which all of the participating countries can see that they’ve received some advantage out of the final deal.


Well, the Trump administration and Ambassador Lighthizer’s been absolutely explicit about this, has gone into the NAFTA saying: No, the purpose of this negotiation is to rebalance an unfair agreement. NAFTA was unfair to the United States. You look at the U.S. trade deficit with Mexico in particular, that’s proof that it was unfair to the United States. And therefore, the purpose of this renegotiation is to rebalance the deal so that it favors the United States more than it does in its current form. I think politically that’s just impossible for the negotiators from any other country to operate from that premise, to sort of admit that, yes, they are making one-sided concessions to the United States. And so, I mean, basically the negotiation has been bogged down from the get-go because it can’t get beyond this fundamental issue of the way the talks have been framed.


MCMAHON: Ambassador Froman, before we continue, do you have anything you want to add to that?


FROMAN: No, I agree. I agree with what Ted said. And obviously this set of potential actions announced over the last few days doesn’t help the situation at all. So it turns out that other countries have politics too, including politics around trade. And they’re challenging, particularly heading into an election in Mexico. There’s provincial elections in Canada. And all of these issues play into that, where each country—well, whatever prospects there were that we were going to be able to wring some one-sided concessions out of Canada and Mexico have just been made more difficult by us now threatening them with tariffs. And so I think this is going to be a challenging set of negotiations.


MCMAHON: So that’s—we’re in this unusual situation. Obviously, you have the U.S. president himself sort of leading the charge on this. He’s tweeted about trade wars being good and the U.S. can benefit from them. You have spoken at past CFR trade symposiums and other places about how there’s this sort of disconnect in some members of the administration, the way they view—especially President Trump—the way they view deficits versus the way, you know, trade deficits need to be considered more broadly in the broader discourse of trade and how it’s not sort of a zero-sum game. How do you—how do you come back to that discussion, though, and make an argument that will be persuasive at this stage? It doesn’t seem like it’s going anywhere to talk about the U.S.—you know, if there’s a trade deficit on the U.S. side, it is seen as a fundamental problem in a trade negotiation, and they proceed from there.


FROMAN: Look, I think the challenge is, is that most economists—well, virtually every legitimate economist would tell you that the trade balance is the function of broad macroeconomic factors, like the savings and investment rate, differential growth rates, things of that sort, not trade policy or trade agreements per se. And with this recent tax cut, and if the Trump administration is successful at achieving the 3 to 4 percent growth that it’s seeking to achieve, the trade deficit is likely to widen, not narrow, regardless of what happens on renegotiating an agreement. And so it’s a bit of a counterproductive metric to hold out as the be-all and end-all of economic policy or trade policy, because it’s likely to be affected quite the opposite direction by the other policies that the administration is seeking.


You know, we had a wonderful trade surplus in the midst of the Great Depression. And we had a widening trade deficit in the 1990s when we added 22 million jobs. I don’t think anyone would trade one economy for the other. So hopefully over time there’s a realization that whether trade agreements need to be renegotiated or not is not so much an issue of the trade deficit. And the trade deficit shouldn’t be the measure of the success of your economic policy. 


MCMAHON: Thank you. Ted, another follow-up to an earlier point you made about the Section 232. So it’s part of the Trade Expansion Act of 1962. It was legislation. Is there a role for the U.S. Congress in this whole discussion right now? We heard earlier today from House Speaker Paul Ryan raising alarm about the threat in tariffs. Is there a role for Congress? Is it something that—where the president really is driving this and holds most of the cards?


ALDEN: Yeah, I mean, there’s only a role for the Congress if the Congress screws up the sort of courage that we haven’t seen in a long time. I mean, one of the ironies is that under the Constitution, trade us under the authority of Congress. And the powers that the president is exercising here were all authorities that were delegated to him by the Congress. You know, one of the ironies of this—and I think, you know, another former trade representative is Sue Schwab, who worked in the George W. Bush administration, pointed this out, that, you know, Congress over the years delegated a lot of authority to the president, in part because it never considered that a president would use them in this way. 


The executive branch was seen as generally the sort of pro-free trade part of the government. So now it’s turned around and Congress is finding that these powers are being used, I think in ways that a lot of members of Congress never envisioned. But to claw those powers back would, in effect, take veto-proof majorities coming out of the House and the Senate. And I just don’t see that as remotely likely under the current circumstances. So I think the president does hold all the cards here.


MCMAHON: We did—to add one more actor into this—essential actor—we also heard some alarm—some concerns, I should say, raised by members of the Federal Reserve over the weekend about the impact that such a move would have. Is there—is there any sort of looming, you know, issues between the Fed and the president over this, and how that could play out to advance this?


ALDEN: I mean, again, nothing that I think is likely to change his direction. I mean, you know, along with everybody else I’ve been watching the markets pretty closely. And there was certainly something of a negative market reaction last week, but probably not strong enough to dissuade the president. I mean, this will—along with a number of the administration’s other policies—the tax cuts, the generally weaker dollar—this will feed into inflation. And I think the Federal Reserve is concerned about that. And I think, you know, the net result of this could be a quicker tightening than many had anticipated from the Federal Reserve, and with the effects that that would have on the economy. But, you know, these are—these are sort of longer-term arguments. And everything we’ve heard from the president over the past few days indicates that he’s prepared to move pretty quickly.


MCMAHON: All right. Well, with that, let’s plan to open the floor for questions on this call. I just want to remind all participants this call is on the record.


So, Operator, could you please give instructions for asking questions?


OPERATOR: Yes, sir. At this time, we’ll open the floor for questions.


(Gives queuing instructions.)


MCMAHON: And while we’re waiting, I’m going to step in with one more, which is: There’s a sentiment that’s playing out given the so-far absence of follow-on details about the tariffs, that maybe this is a political show. There are—everything from maybe it can influence, you know, some of the NAFTA talks, as we discussed, to there’s a special election coming up in a former manufacturing hub of Pennsylvania on March 13th. There’s a special election for a congressional district there. And maybe this is all a way of sort of, you know, indicating an administration posture, without having to get into the nitty-gritty of an actual policy—rolling out a policy or a tariff—corresponding tariffs. 


Ted, what do you make of that kind of—that line of argument? You talked a little bit about the messaging on NAFTA as being effective in some ways in an op-ed you wrote earlier last week.


ALDEN: Yeah, you would—you would throw that one to me. (Laughter.) You know, I mean, the honest answer is I don’t know. And I don’t think anybody else really knows. I mean, I think the president has walked out very far on a limb here by not just announcing the tariffs but actually announcing the numbers—you know, 25 percent on steel and 10 percent on aluminum. You know, I think the more explicit you are, the harder it is to walk it back. So you know, I wouldn’t argue that I think Trump is perfectly prepared to bluff at times to gain negotiating advantage. But this just doesn’t look like a bluff to me. This looks like—and you look at the talk shows over the weekend, what Peter Navarro and Wilbur Ross have to say. They seem pretty determined to go down this road.


FROMAN: Yeah, well, I think Commerce Secretary Ross did say, but the president could decide to go another direction, and we’ll see that when it comes.


ALDEN: Yeah, no, he could. That is a statement of fact. (Laughter.)


MCMAHON: OK. Just checking back. Operator, are there any questions on the call before we continue?


OPERATOR: Yes, sir. Our first question will be from Shawn Donnan with Financial Times.


Q: Hi, both. Thanks so much for organizing this call. Great to talk to you both, Ted and Ambassador Froman.


Just two questions. Just to follow up on the Republican reaction question, do you think that there could be any move afoot to hold back trade promotion authority extension? Is that a realistic threat? We’re hearing from Republicans that they are mulling action, although they won’t talk about what it is exactly. The second question for you, Ambassador Froman, is where do you think the Democrats are on this? And do you think—and how do you think this—or how should they be approaching this? How should they be playing this with an eye towards the midterm elections?


MCMAHON: So starting with Ted maybe on trade promotion?


ALDEN: Let me just put out, I don’t—I don’t really see that as a credible threat, both because I don’t actually think the votes are going to be there for it, and secondly because I don’t see why that would dissuade this administration particularly. I mean, they’ve talked about wanting to do new deals, but there are no bilateral trading partners on the horizon at the moment. So there’s no deal that they’re looking to bring back under TPA. They would need it in theory, I guess, for a revised NAFTA. But it’s just hard for me to think that the threat of having TPA denied would provide particularly effective leverage against this administration, even if the Congress could muster it, which I don’t think they can.


MCMAHON: Thanks, Ted. Ambassador Froman, on the Democrat side?


FROMAN: Yeah. Look, I think it’s a little tricky to figure out which way to play this because, of course, you’ve got broad swaths of the manufacturing sector quite concerned about these measures—including the auto industry, the auto parts industry. You know, many of the same unionized workers who work for steel mills work for the auto companies and auto parts companies. And they could end up being adversely affected by this. So I think Democrat on one hand, of course, want a strong aluminum and steel industry. On the other hand, they don’t want to see manufacturing broadly—more broadly defined adversely affected here. And I think that’s going to make this an interesting area for them to opine on.


You’ve seen a pretty broad range of opinions. Some Democrats have come out strongly in support of this. Others are a bit more cautious, wanting to make sure that the workers in downstream industries are not adversely affected.


MCMAHON: Thank you so much for those questions.


Operator, do we have another question on the line, please?


OPERATOR: Yes, sir. Our next question will be from Rick Niu with Starr Strategic Holdings.


Q: Thank you, gentlemen. Very insightful remarks.


I watched “Meet the Press” yesterday, and Secretary Ross was asked a question: Trade wars are good, per president of the United States. What does it mean? He explained that by saying the president views that the cumulative, you know, deficit of the United States against the rest of the world has been roughly at the same level as the cumulative surplus gained against the United States by the rest of the world. So if that’s the case, trade wars would be good because we can only go up, and others can only go down. Now, what is your view of this viewpoint? Do you agree or disagree, and why? 


And secondly, when you look at the U.S.-China economic relationship, you have the Liu He visit to D.C. last week; you have the premier of China announcing half a day ago at the National People’s Congress that China will be a supporter for a new free trade area for the Asia-Pacific, no details explained; and then you obviously are aware of the potential muscular 301 that would be dropped against China anytime in the coming weeks. What is your prediction of the U.S.-China economic relationship for the rest of this year? Thank you very much.


MCMAHON: Ambassador Froman, do you want to start off with that, and then I’ll go to Ted?


FROMAN: Yeah. Look, I don’t know what it means to be in a trade war. I think if we look historically most effort has gone into trying to figure out how to exit trade wars and deescalate the conflict on both sides. You know, the goal of trade actions here should be to change the unfair trade practice causing the problem. And as we’ve talked about, this trade action doesn’t really address the most significant cause of that, which is overcapacity in China. So it goes to your second question. 


I think on the second question, we’ll have to see what the 301 produces. There is—there does seem to be a lot of emphasis on the 301. It is China focused. Whether it results in increased tariffs, restrictions on investment, changes to visa policy, whatever the range of possible sanctions are I think will have an effect on the overall relationship. China thus far has been, I think, quite moderate and pragmatic in its response to U.S. rhetoric and actions. I don’t think China wants to engage or find itself in a trade war, per se. It has a lot to lose in the context of a trade war. So I imagine it will be quite measured and proportional in its response. But I’m not sure it can afford, from its perspective, to sit on the sidelines and not respond in the face of what it views as illegitimate U.S. unilateral action as well. So I think—I think we’re likely to see more tension going forward, at least in the short and medium term.


MCMAHON: Thanks. Ted, anything to add to that?


ALDEN: Just one thing. I mean, the reports out of the Liu He visit suggested that he came with various proposals to try to restart economic dialogue talks between the United States and China. And these were rejected by the administration, amidst statements of the sort that there’s no value in negotiating with China. We—you know, it’s been shown that—it’s been shown that these negotiations are not effective. I’m very troubled by that. I mean, if you look at the U.S.-Japan negotiations of the—if you look at—


FROMAN: Hello?


MCMAHON: Yeah, hello, Ted, are you there? I think we might have lost Ted. We’ll wait for him to get back to us but let me ask the operator if she’s got another question in the queue.


ALDEN: I’m sorry. I got cut off there. My apologies.


MCMAHON: Oh, good. You’re back. Great. You were talking about Japan, Ted, when you got cut off.


ALDEN: Yeah, I was just saying that in the U.S.-Japan negotiations in the ’80s there were many threats. And in fact, the U.S. on several occasions implemented tariffs on Japanese imports. But there was always an ongoing negotiation try to solve the issues. And so I’m very troubled by the notion that the United States is not going to be negotiating with China over this whole set of issues. I think the only resolutions here are going to involve some combination of threats and negotiations.


MCMAHON: Thanks, Ted. Operator, do we have another question in the queue?


OPERATOR: Yes, sir. Our next question will be from Chris Banks with ITOCHU International.


Q: Hello. Wondering if you can talk a bit about the threat of retaliation. And we see that—you know, the EU has already come out against Section 232. And Trump has already responded by looking to the next round of tit for tat and putting tariffs on auto imports. So do you really think this administration is going to go down that road? Or is this just a negotiating tactic? And then secondly, are either the EU or China or other countries going to follow the WTO path for retaliation? Or are they going to move quickly and impose their own sort of retaliatory tariffs short term? And if so, on which—what type of products do you expect them to target? Thank you.


MCMAHON: Thank you. Ted, do you want to start off with retaliation?


ALDEN: Yeah, sure. So I think retaliation is both possible and likely in this case, if the U.S. goes ahead as the president has announced. I mean, the Europeans have been very quick, A, in announcing that they have a retaliation list which has got, you know, iconic American products like Harley-Davidson motorcycles and Kentucky bourbon, and Levi jeans and other things on the list. They’ve announced an amount, 2.8 billion—I can’t remember whether it was dollars or euros—but they’ve announced an amount. 


And they’ve also come up—from, you know, my conversations with Europeans—they’ve come up with the legal justification for it. So they are going to make the claim that this is not in fact a national security action by the United States. It is rather what is known as a safeguards action. It’s protection for the steel industry in particular. And that under certain economic circumstances, which appear to apply in this case, in safeguard actions countries are free to respond quickly with equivalent measures. So I think if this keeps going, I think the Europeans may well retaliate, and retaliate quickly.


Now, obviously they want to get that message out to try to dissuade the Trump administration from going down this road. And, you know, at the end of the day, you don’t know how long they may play that out for. But I think the threat of retaliation, and particularly counter-retaliation by the U.S., is very real in this case.


MCMAHON: Thank you. Ambassador Froman, anything to add to that?


FROMAN: No, look, I agree with that. I think other countries know our politics and our system very well. And so you’ll see them targeting iconic brands or products that are associated with leading members in Congress, or targets of key areas of support for President Trump. And certainly, the agriculture community is worried about this, because it’s not just the downstream users of aluminum and steel who might be affected, but it could be corn, and wheat, and diary, and beef, and pork, and citrus, and a variety of other products in areas that are very important politically to the president. So that’s, I think, where they’ll focus. And they’ll want to put as much pressure on the president to either not follow through on the commitment to impose these tariffs, or to eliminate them as soon as possible.


MCMAHON: Thank you. Operator, do we have another question in the queue, please?


OPERATOR: Yes, sir. Our next question will be from Jennifer Hillman with Georgetown Law.


Q: Thank you very much. My question focuses on what could happen at the WTO, particularly with respect to a potential Article 21 defense—the security exception defense to the WTO. If, again, as you all know, this has been rarely if ever invoked since the WTO has come into existence, but has come into play in the recent dispute between Qatar, claiming that everybody isolating Qatar is a violation. And in the case involving Qatar versus the United Arab Emirates, the United States asserted both at the DSB and within the confines of that particular litigation that the WTO is basically not appropriate as a forum to adjudicate WTO dispute—to adjudicate national security defenses. And therefore, the panel should say that it does not have jurisdiction to hear the case the moment Article 21 is invoked. I just wondered whether you could comment on how you would see that playing out if, as I assume there will be, also a WTO challenge to these tariffs, and the potential for the U.S. invoking Article 21.


MCMAHON: So, Ambassador, starting with you on this response, please.


FROMAN: Well, Jennifer is one of the world’s experts on this, so I’m going to throw the question back in your—(laughter)—back in your direction. 


ALDEN: That’s what I was going to do too. (Laughter.)


FROMAN: I think this is a real issue. And I think one reason why the U.S. and others have been so reluctant and so careful about not invoking the national security exception is precisely because we don’t want the WTO necessarily adjudicating on what’s—how do define essential national security. And if you take the administration—the current administration, which is already WTO, critical of it, including in its dispute settlement procedures, this is in some ways setting up a potential confrontation. 


So I would assume that the U.S. would make that same argument in this case, and that that the others would bring a change, and that it could very much put the WTO sort of at the center of a crucible here of whether it is going to opine on how to define the essential national security interests of a member state. You know, one view of this is that it’s a—it’s a way of bringing the WTO to a moment of crisis, such that it justifies, potentially, the U.S. withdrawing from the dispute settlement procedures. And, but I think it’s not good for the organization to be put in that position. 


MCMAHON: Anything to add to that, Ted?


ALDEN: I mean, I would agree with all of that. Just one kind of interesting aside. If I were going to challenge this in the WTO, I would use the president’s tweet of this morning—where he’s now linked it to the NAFTA negotiations. I mean, if in fact this is being done on national security grounds, then you can’t also be using it as a bargaining chip in NAFTA. It undermines, to my reading, the legal basis for this action. The parallels with the travel ban that was announced right at the beginning of the Trump administration are, I think, quite noteworthy here, in which the president’s own words were used by the courts against him. The difference, of course, is that it’s not clear that the United States is going to recognize the authority of the WTO in a case like this, whereas it had no choice but to recognize the authority of domestic courts.


MCMAHON: Great. Thank you. Operator, is there another call—is there a question on the line, please?


OPERATOR: Yes, sir. Our next question will be from Eric Biel with Fair Labor Association.


Q: Thanks very much. Good to hear from you, Ted and Mike.


I want to kind of take this in a slightly different direction and ask both of you if there’s a way to recapture the high ground on some of this? By which I mean—and without asking Ted to kind of summarize all the interesting things in Failure to Adjust—whether if, not in places like Monessen, Pennsylvania and Bob Lighthizer’s hometown of Ashtabula, Ohio, but elsewhere whether there’s a message to reach manufacturing workers, other than the response we’ve heard from Speaker Ryan and Chairman Hatch, which is more of a traditional free trade response. Are there things that can be—in some ways, you know, as was mentioned at the beginning, none of this is a surprise, given the campaign promises, even if the implementation and the process of the last few days may be. And so is there—is there a message to take to the manufacturing sector, to workers, other than to either fall back on, you know, the way that Speaker Ryan and Chairman Hatch have responded, or to—or to affirm the approach of President Trump? Thanks.


MCMAHON: Ted, you want to kick that off?


ALDEN: I mean, the answer is yes, I think. I mean, you know, Eric has been working on these issues as well. But they tend to be long-term answers, you know? They’re about, you know, overhauling our social safety net in some reasonable ways that provide, you know, a cushion for workers, so they don’t all end up on Social Security Disability or other inadequate kinds of programs. It involves regional development and actually trying to find ways to build investments in these communities and to improve job creation. It involves education and retraining and skills. 


It’s all complicated stuff. It’s hard to put into a soundbite. It’s a lot easier to say, you know, the foreigners are dumping products and they’re taking your jobs. Even though we know—I mean, just looking at the example of the steel industry—I don’t doubt for a second that China’s increased production has had a negative impact on the U.S. steel industry. But the big thing that’s happened to steel employment is just massively increased productivity. The average steel worker today is producing five times a much steel as he or she did back in 1980. So these are big forces that are not going to be reversed just by trade sanctions.


MCMAHON: Ambassador Froman, something to add to that?


FROMAN: Yeah, and, again, Eric is a—is a great expert in this. You know, one thing that I find surprising coming out of the 2016 election, is that there hasn’t been more energy—political energy around addressing the kinds of domestic policies we need to prepare people to succeed in a rapidly changing economy and to help individuals and communities that are adversely affected by change—whether that change is coming from technology, or immigration, or globalization. And this is—this is particularly important as we look ahead to see what the potential impact of technology is on the workforce going forward, where trade will be of minimal impact compared to what technology might do to wages and jobs across broad sectors of the economy, potentially. 


But there’s almost no conversation about this going on in the political sphere. And, you know, I think Speaker Ryan and Chairman Hatch, and Leader McConnell and others would be well-placed to put as much emphasis on this being the time to finally address those issues as they are on defending free trade because I think, to Eric’s point, that’s not only the message, but the substantive policy that we need to be able to go out to manufacturing workers around the country to show them that we do get that they are affected by change, that they face wage stagnation, they’re facing widening income inequality. And that there does need to be an approach that addresses that.


MCMAHON: So in terms of concrete steps in that direction, like boosting trade adjustment assistance?


FROMAN: Well, look, we have a trade adjustment assistance program. I would say it’s necessary, but certainly far from sufficient. There’s just a lot more that needs to be done, whether it’s on—as Ted alluded to, on education, on lifelong learning, on free community colleges, on relocation assistance, and training. And by the way, not all of it necessarily falls into the sole responsibility of the federal government. There’s a role for companies. There’s potentially a role for unions, as they’ve played in other countries in terms of retraining workers. It’s something that we need a broad approach on. 


There’s a lot of focus right now on UBI, on universal basic income. You know, that may be or may not be a good idea. It may or may not be part of a solution. But there are lots of other things that need to be addressed if we’re going to prepare people for the kind of changes that they’re likely to see in their lifetime with or without trade agreements—having nothing to do with trade. And, of course, if we address it correctly, I think there’s also support there for—or, more support there for international engagement. But we need to address it anyway.


MCMAHON: Well, I think on that note of taking the matter into our domestic hands is a good place to end on. We are at the closing point of this call. I want to remind everyone on the call this is an on-the-record conference call from CFR. And we were privileged to have Ted Alden and Michael Froman speaking to us about the Trump administration’s announced trade tariffs on aluminum and steel imports.


Thanks. Thank you everyone on the call. Thanks very much to our experts, Ted Alden and Ambassador Mike Froman.

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