[The Editors' Verdict] Will the U.S. Invoke Section 232 of the Trade Expansion Act Again?

On the 8th of last month, U.S. President Donald Trump and Mexican President L?pez Obrador held a press conference at the White House to celebrate the enactment of the United States-Mexico-Canada Agreement (USMCA), which revised the North American Free Trade Agreement (NAFTA). However, Canadian Prime Minister Justin Trudeau did not attend. A month later, on the 7th, the United States announced a 10% additional tariff on Canadian aluminum. During a campaign visit to the Whirlpool plant in Clyde, Ohio, President Trump stated that he had signed a proclamation imposing tariffs on Canada based on Section 232 of the Trade Expansion Act of 1962 to protect the aluminum industry. It is rare to find examples of member countries imposing retaliatory tariffs on each other before the ink on an agreement has even dried.

Unlike other countries, trade policy in the United States is constitutionally vested in Congress. Historically, tariffs have been a representative trade policy tool, and the U.S. Congress has adjusted tariffs as needed. However, in the 20th century, as international tariff negotiations progressed, Congress delegated trade policy authority, including tariffs, to the executive branch under certain conditions. During the Cold War in 1962, following the Cuban Missile Crisis, Congress added the national security provision in Section 232 of the Trade Expansion Act, allowing the president to impose tariff measures if trade is deemed to threaten national security.

Section 232 was introduced at a time when the General Agreement on Tariffs and Trade (GATT) functioned as a multilateral trade norm but was far less developed than the current World Trade Organization (WTO) trade rules. However, fearing potential violations of multilateral norms, the United States has invoked this provision only in extremely exceptional cases against Syria and Iran.

Shortly after entering the White House, the Trump administration found Section 232 of the Trade Expansion Act as a legal basis to raise tariffs without congressional approval. While Section 301, widely used previously, requires certain conditions to be met before invocation, Section 232 requires no conditions other than national security concerns. Article 21 of GATT, which allows for 'security exceptions,' is also interpreted favorably toward the invoking country. The Trump administration has never transparently presented the grounds for its national security concerns.

The Trump administration designated steel and aluminum as subjects for Section 232 and began negotiations with exporting countries in early 2018. South Korea accepted steel quotas and concluded negotiations. In May of the same year, tariffs of 25% and 10% were imposed on Canadian steel and aluminum, respectively. Imposing additional tariffs on allies under the pretext of national security sparked backlash not only from exporting countries but also within the United States. When lawmakers unanimously raised concerns that this would seriously hinder the congressional ratification of USMCA a year later, the plan to impose tariffs on Canadian aluminum was withdrawn.

As the presidential election approached, President Trump’s tariff measures flared up again. Although the USMCA negotiation process included an agreement allowing tariffs if imports surged, and the tariffs are limited to non-alloyed unwrought aluminum whose imports have surged over the past year, imposing aluminum tariffs undermines the USMCA, which came into effect on the 1st of last month after much difficulty. As expected, Canada vowed to take corresponding retaliatory measures.

Canada is the largest aluminum exporter to the United States. Compared to Canada, other exporting countries must pay additional tariffs to export, so Canada’s export competitiveness inevitably increases. Since exports from other countries were blocked, it is natural that Canadian exports increase.

There are concerns that the invocation of Section 232 may expand to other products amid the export difficulties caused by the COVID-19 pandemic. In particular, automobiles, which have already been investigated but set aside, could become a target again. It is regrettable that the domestic automobile industry, hit hard by the pandemic, may face another major adverse factor.

Jung In-gyo, Professor, Department of International Trade, Inha University