President Trump may be targeting U.S. trading partners with steep new tariffs, but it could be the international body tasked with adjudicating the dispute that suffers long-term damage.
Trump’s late May decision to impose new tariffs—25 percent for steel and 10 percent for aluminium imports—on Canada, Mexico and the European Union have sparked complaints by those countries to the World Trade Organization, an intergovernmental organization that regulates trade and settles trade disputes.
The countries are striking at the Trump administration’s justification for imposing the tariffs: that the domestic steel and aluminium industries are a national security priority in need of protection. Experts differ on how the WTO will decide the challenges, and a judgement could take years. In the meantime, the target countries have announced retaliatory tariffs on U.S. goods.
But because of the unique nature of the dispute, a decision on the challenges either way could have a negative impact on the WTO’s relevance on the world stage, and the Trump administration’s reaction could set off a political fight domestically, experts say.
“This is a complete time bomb for the WTO, whichever way it goes, it threatens disaster,” said Philip Levy, a senior trade economist for the Bush administration’s Council of Economic Advisers. “I think the best hope for those that value the institution is if somehow these cases get resolved or reversed.”
Article 21 of the WTO’s 1994 General Agreement on Tariffs and Trade spells out the conditions for invoking a national security exception, saying that it covers the trade of fissile material for nuclear reactions, the traffic of arms and ammunition and tariffs levied during a time of war or national emergency. That’s a limited scope, but the rules also state that every country must be its own judge on questions relating to its own security, essentially making the national security provision a “self-judging” rule.
The ramifications of a favorable ruling for the U.S. are immense. If the WTO agreed that the U.S. national security defense was valid, it could open the floodgates for other countries to adopt the otherwise rarely-used provision in their own cases, undermining the broader trade regime.
The national security exception will be a tough defense for the U.S., though, said Mickey Kantor, a secretary of Commerce and U.S trade representative in the Clinton administration.
“Our position at the WTO with regard to the tariffs is very weak, and I believe that we will be found wanting in what we’ve done,” Kantor said.
If the WTO rules against the U.S., that could prove equally problematic, Levy said.
“If they rule against the U.S., we’re going to have a political situation in the United States where people are going to get very upset about third-country judges ruling on U.S. national security issues,” Levy said. “No matter how justifiable it is, that politically is going to be a very tough sell.”
The administration could ignore the ruling and simply absorb whatever retaliatory tariffs the WTO allows affected countries to impose on the U.S., undercutting the authority of the trade body.
The administration can also then appeal the decision, which opens up yet another issue.
For nearly two years, the U.S. has vetoed new appointments to the seven-member WTO Appellate Body, essentially the Supreme Court of world trade. It’s the final stop for trade disagreements brought to the international body. Attrition has brought the number of judges down to four, close to the minimum quorum of three members needed to hear an appeal. Another judge’s term expires in September. If one more judge leaves or must recuse themselves, the appellate panel would be unable to issue a decision.
Trump, who has in the past called the WTO a “catastrophe,” has blamed the trade body’s enforcement for “making it impossible for us to do good business.”
“We lose the cases, we don’t have the judges,” said Trump in February. “We have a minority of judges. It’s almost as bad as the 9th Circuit.”
No country has a majority of judges at the WTO, however, and the U.S. has won more cases than it has lost over the years since the group’s inception in 1995.
The backlog in cases and the shortage of judges could mean that the tariff cases drag on for years. And leaving the appellate body to wither may be by design, said Steve Charnovitz an international trade law professor at The George Washington University Law School.
“I think the long-term planning in this administration might be to simply shut down the dispute settlement part of the WTO,” said Charnovitz.
Another option analysts have considered is that Trump uses an unfavorable ruling by the WTO as justification for attempting to leave the group altogether.
“The danger would be if you get this outcry of ‘how could they sit in judgement of our national security,’ and then that serves as a pretext for the president doing something that he suggested he wants to do anyway,” Levy said.
Trying to leave the WTO would have its own host of issues, and it’s also unclear among experts how far the president can decouple the U.S. from the organization on his own. Similar to other trade agreements like the North American Free Trade Agreement, the WTO is comprised of an executive decision to enter into the pact, and legislation passed by Congress implementing the rules. If Congress isn’t on board with leaving the WTO, reconciling those two powers could be difficult.
“The only thing I come away with a great deal of confidence about is that you would have a great deal of lawsuits,” Levy said.
Congress has so far not taken action toward limiting the president’s ability to levy tariffs or exit trade pacts, but lawmakers are beginning to take notice.
Senate Foreign Relations Chairman Bob Corker is pushing an amendment to a defense bill that would require congressional approval before the president invokes the national security exception for tariffs, but has so far met pushback from leadership. Corker hit back at his Republican colleagues Tuesday, saying most would back the amendment but are afraid to rile the president.
“But no, no, no, gosh, we might poke the bear, is the language I’ve been hearing in the hallways,” Corker said on the Senate floor. “We might poke the bear, the president might get upset with us as United States senators if we vote on the Corker amendment, so we’re going to do everything we can to block it.”
Trump may get more resistance on Capitol Hill if he were to dump the WTO all together, however. Senate Finance Committee Chairman Orrin Hatch said that it would be “smart for him to consider a green light as a necessity.”
“He needs to work with Congress, and I’m a supporter of the president, but the more he works with Congress the better his life’s going to be,” said Senate Finance Committee Chairman Orrin Hatch, whose panel oversees trade policy.