The Commerce Department’s much-anticipated report on the national security threat posed by auto imports has reportedly arrived at the White House. The contents have not been disclosed, but it seems a safe bet they provide the President with the excuse he has wanted to slap tariffs on auto trade.
Whether or not President Trump decides to proceed with protection, he thinks the potential serves an important purpose. Per Axios, “Trump tells everyone who’ll listen that the threat of car tariffs is his best source of leverage in negotiations with foreign leaders.”
Setting aside for a moment the wisdom of applying car tariffs (deeply unwise), it is not at all clear that the threat will even give the President leverage. Here are four reasons to be skeptical:
- How many times can you sell that bridge?
Last summer President Trump used the threat of these auto tariffs as a means to draw Europe and Japan to the negotiating table. This seemed to be evidence of their value as leverage.
Yet that accomplishment comes with important caveats. First, the European Union and Japan had not been fundamentally opposed to negotiating trade deals with the United States; they were doing so throughout the Obama administration’s last term. Second, the agreements struck during Summer 2018 were remarkably devoid of content. The U.S. promised to hold off on auto tariffs, while Europe promised to let its citizens keep buying U.S. soybeans. They agreed to start new trade talks as well, but that just means President Trump persuaded bureaucrats to issue position papers and attend meetings – not a remarkable feat. And it quickly developed that the European position papers were generally at odds with the U.S. conception of the upcoming talks.
As soon as Japan realized the easy deal on offer – just agree to talk in exchange for avoiding a tariff threat – it signed up too.
So the car tariff ploy did not buy much the first time around, when it was meant to compel participation in talks. If the same threat is then used to compel particular trade offers, countries may balk at “paying” for auto peace several times over.
- What is the value proposition?
Beyond the President’s unfortunate tendency to use the same threat multiple times, the national security rationale raises a deeper question. The underlying reasoning – “economic security is national security” – is so expansive that it implies complete freedom for the United States to deviate from any trade agreement whenever it likes.
If that is the Trump administration’s stance, then what is the value of reaching trade agreements at all? Normally such agreements involve countries each agreeing to constrain their baser protectionist instincts in a mutually beneficial way. But if the Trump administration refuses to recognize any such constraints from past agreements, why should it respect future agreements? And if it won’t, then what’s the point of striking agreements?
- Countries may retaliate rather than capitulate.
While it may have seemed harmless to accommodate President Trump’s demand for negotiations last summer, even that gave the European Union pause. There were some voices that argued against talks with the United States until U.S. “national security” tariffs on steel and aluminum were lifted and until the U.S. rejoined the Paris climate agreement. The relevant European parliament committee just this week backed the start of trade talks, but the text calls for talks to be suspended if President Trump imposes auto tariffs.
The European Commission, meanwhile, threatened “swift and adequate” retaliation, should the U.S. apply auto tariffs. Appeasement looks less appealing when it clearly will not buy peace, so it is more palatable to strike back instead.
- To be effective, a threat has to be credible.
President Trump is encouraged in his enthusiasm for auto tariffs by the ease with which he was able to indulge in steel and aluminum protection last year. In that case, a transparently flimsy national security argument was put forward and it went largely unchallenged. So why should autos be any different?
To start, autos trade is roughly nine times as big as steel and aluminum trade. Protection would hit consumers directly, rather than indirectly through industrial users.
Further, the last time around, there was a sense among the public and members of Congress that protection might be temporary. Yet dismay has grown as the protection and the ensuing retaliation have both lasted – even with Canada and Mexico after a new NAFTA deal was concluded. This frustration has prompted new bipartisan legislative proposals to limit the President’s authority to pose tariffs under the guise of national security.
In the context of negotiating leverage, a threatened measure that is increasingly unpopular at home may not appear credible to foreign countries.
If the President pursues this path, it would hardly be the first time he has misread the international trade negotiation landscape. He predicted that he would get U.S. farmers better access to the Japanese market than the TPP offered. His team assured the public that China would not retaliate against U.S. tariffs. His negotiators anticipated that Canada would quickly sign on to a fait accompli deal between the United States and Mexico.
The President’s misguided devotion to auto tariffs as a source of negotiating leverage could be an important addition to his growing list of international policy misjudgments.
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