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May 28, 2018

Trump’s fluid approach to national and economic security is leaving his allies baffled - May 28, 2018. Business | The Washington Post

 
 
 
washingtonpost.com

Trump’s fluid approach to national and economic security is leaving his allies baffled

by David J. Lynch and Damian Paletta

President Trump is merging his national security and trade goals in a blur of tactical improvisation that risks alienating U.S. allies and opening American businesses to costly retaliation, according to several Republican lawmakers, business executives and former U.S. officials.
The president last week initiated a Commerce Department investigation that could lead to tariffs of up to 25 percent on foreign cars, arguing that a flood of imports had eroded the nation’s manufacturing base and threatened the nation’s security.
The potential auto tariffs — which would hit Mexico, Canada, Japan and Germany hardest — are the latest sign of the president’s fluid approach to national and economic security that has left allies and adversaries baffled over U.S. intentions, according to foreign diplomats.
The proposal has irritated close allies such as Germany and Britain while inviting demands for similar protection from an ever-expanding list of U.S. industries.
The president holds an expansive view of national security, describing imported products like steel or passenger sedans as worrisome threats to the United States. Yet he also engages in freewheeling bargaining that treats vital strategic considerations as the equivalent of commercial factors, leaving negotiating partners unsure of his true priorities.
“Past presidents generally tried to keep national security issues in one lane and trade policy in another lane,” said Peter Harrell, a former official in the State Department’s bureau of economic and business affairs. “Trump is just more willing to make trade-offs between the two.”

President Trump, seen May 16 in the Oval Office, last week initiated a Commerce Department investigation that could lead to tariffs of up to 25 percent on foreign cars. (Evan Vucci/Associated Press)
The auto tariffs are the second time in less than three months that the president has cited national security as a justification for protectionism. Yet his recent call for leniency for ZTE, a Chinese telecom company crippled by its punishment for violating U.S. sanctions on Iran and North Korea, showed that he would bend on a genuine security threat, analysts said.
Chinese leaders had demanded an easing of ZTE’s punishment in return for progress in trade talks that are scheduled to continue June 2 in Beijing with the arrival of Commerce Secretary Wilbur Ross.
On Friday, Trump announced on Twitter that he was allowing ZTE to “reopen” in return for management changes, payment of a $1.3 billion fine and a promise to buy American parts. The reversal on U.S. policy toward a company that had equipped two avowed U.S. enemies prompted bipartisan opposition in Congress.
“The striking feature of Trump’s use of national security is the inconsistent and haphazard use of the term, so as to render it meaningless,” said George Magnus, an associate at Oxford University’s China Center. “. . . What I see is Trump using national security as a blanket to obfuscate simple trade protectionism.”
Given Trump’s dealmaker persona, many analysts saw the proposed auto tariffs as a bargaining chip in talks aimed at a new North American trade deal. Higher import levies on foreign cars could push Mexico to accept U.S. proposals to require more auto content from American factories, they said.
But the experience from an earlier round of tariffs on steel and aluminum has dulled the threat. The metals tariffs were also billed as an essential measure to cope with a national security threat, only for Trump days later to grant waivers affecting almost two-thirds of imported steel.
The autos proposal reflected Trump’s “America First” philosophy, which cheers his supporters with promises to reclaim lost manufacturing jobs and represents a sharp break from the party’s Reaganite orthodoxy on trade.
Administration officials contend that a flood of auto imports has crushed the U.S. manufacturing sector, leaving the United States unable to produce material needed for national defense.
“National security is broadly defined to include the economy, to include the impact on employment, to include a very big variety of things,” Ross told CNBC on Thursday. “Economic security is military security. And without economic security, you can’t have military security.”
Ross said the low 2.5 percent tariff on automobiles entering the United States is a primary reason so many foreign cars are imported.
Trump’s attempt to stretch a 1962 trade law — which permits higher tariffs when imports “threaten to impair the national security” — to cover routine sales of foreign-made cars drew strong opposition from within his own party.
“Raising taxes on Americans who choose to buy imported cars or trucks is a bad idea. Doing it under the false pretense of national security — Section 232 — is an even worse idea, as it invites retaliation and weakens our credibility on actual trade disputes,” said Sen. Patrick J. Toomey (R-Pa.).
Sen. Bob Corker of Tennessee, the Republican chairman of the Senate Foreign Relations Committee, called the proposal “dangerous and destabilizing” and said it should be withdrawn.
Republican allies in the business community also objected. “This isn’t about national security,” said Thomas Donohue, president of the U.S. Chamber of Commerce. “The administration has already signaled its true objective is to leverage this tariff threat in trade negotiations with Mexico, Canada, Japan, the European Union, and South Korea.”
The opposition may have little practical effect, because Trump doesn’t need congressional approval. The authority to impose tariffs in the name of national security without congressional interference has made these Section 232 reviews a favorite tool for the Trump administration.
Even if the tariffs are challenged in court or at the World Trade Organization, that process can take months or years, providing ample short-term leverage to seek unrelated concessions from trading partners including the European Union, Mexico, and Japan.
The autos proposal highlights two noteworthy aspects of Trump’s attempt to use national security concerns as a trade war weapon. He is threatening to hurt close U.S. allies as much, if not more so, as countries such as China. The United States imports roughly 98 percent of its cars from the countries Donohue cited.
The aggressive approach to trade risks alienating potential partners the United States will need in confronting Iran or North Korea. “In the process of damaging our economy, they’re alienating all our allies,” said Phil Levy, a former White House economist under George W. Bush.
Plus, if the United States uses national security as a rationale for protectionism, other countries are sure to follow suit. In 1975, Sweden cited a national security exemption under global trading rules to justify its imposition of limits on footwear imports, which it said posed “a critical threat” to defense planning.
The auto tariffs would mark a dramatic escalation in Trump’s war-against-all on trade. The United States last year imported $335 billion in automobiles and auto parts, 11 times the value of total steel imports, according to the Commerce Department.
“This widens the trade war tenfold. It’s a major mistake,” said Rufus Yerxa, president of the National Foreign Trade Council, an association of multinational corporations.
Trump’s latest tariff bid would promote “retaliation against American-made products that will undermine manufacturing and jeopardize the jobs of manufacturing workers in the United States,” said Jay Timmons, chief executive of the National Association of Manufacturers.
“While US trading partners have been fairly measured in responding to the steel and aluminum tariffs, they will have no choice but to exhaust every option in opposing tariffs on autos,” John Veroneau, a trade official in the George W. Bush administration, wrote in an email. “Also, unlike steel and aluminum tariffs which hit US consumers indirectly, tariffs on cars will be right there on the window sticker.”
From the outset of his presidency, Trump’s dealmaker mentality has been especially visible in his dealings with China. In April 2017, the president offered to go easy on China in trade talks in return for diplomatic help with North Korea, a striking contrast to his repeated campaign promises to put the needs of American workers first.
“I explained to the President of China that a trade deal with the U.S. will be far better for them if they solve the North Korean problem!” Trump tweeted.
Likewise, Trump’s decision to direct the Commerce Department to review its order banning ZTE from buying U.S.-made parts for seven years, after violating the terms of its settlement of U.S. charges, sparked an uprising among fellow Republicans outraged at what they saw as cavalier treatment of a national security danger.
In 2017, ZTE pleaded guilty to charges related to illegally trading with Iran and North Korea and obstructing justice, was fined $1.2 billion and promised to punish several executives.
On Sunday, following Trump’s announcement that he was softening ZTE’s penalty, Sen. Marco Rubio (R-Fla.) predicted that Congress would pass by a veto-proof majority legislation prohibiting any Chinese telecom company from operating in the United States.
“It’s not just ZTE. It’s Huawei, all of them depend on the U.S. semiconductors,” Rubio said on “Face the Nation” on CBS. “None of these companies should be operating in this country. None of them.”
Dan DiMicco, former chief executive of the steel company Nucor and a former trade adviser to Trump during the 2016 campaign, said the Section 232 automotive review is one of several that the White House is planning in the coming months. Others, he said, are likely to include imports of semiconductors and technology related to artificial intelligence.
“The overall strategy is not going to happen overnight,” said DiMicco. “It’s being implemented. That’s what you see. You see all these moving parts because we have that many moving parts to deal with.”