President Bush announced plans Tuesday to impose tariffs of up to 30 percent on most foreign steel products. Why does the law allow him to do that?
Contrary to the protestations of the steel industry and many politicians (including President Bush and Robert Zoellick, the Bush administration’s trade representative), Bush’s decision wasn’t caused by “unfair” foreign trade practices such as “dumping” steel in the United States at below-market prices or propping up industries with illegal subsidies. Rather, Bush invoked an infrequently used U.S. law known as “Section 201” (named after the relevant portion of the 1974 trade act) that’s designed to protect U.S. industries from an onslaught of fair trade. The law, which is an accepted part of international trade agreements, allows the United States to protect a domestic industry that’s suffering from the competition caused by a wave of fairly traded foreign imports.
Why would free-trade agreements allow such a thing? Doesn’t it subvert the principle of trade liberalization? Not necessarily. Here are a few reasons (other than the simple protectionist impulse) why international trade agreements allow countries to protect themselves from fair trade:
1. It’s an “escape clause.” If trade agreements didn’t have a clause such as Section 201, some politicians would never agree to free trade in the first place. Escape clauses allow politicians a respite from the domestic pressure that can result when free trade displaces jobs. The Section 201 respite is temporary: Bush’s tariffs can last no longer than eight years—one four-year term followed by a four-year renewal.
2. It’s a political “safety valve.” There will always be some people whose lives are disrupted by free trade. Laws such as Section 201 give them an outlet for their political objections—they can channel their opposition into an effort to receive fairly narrow tariffs of limited duration. Otherwise, they may turn their energies toward mounting a broader campaign to oppose free trade in general. (In essence, this is the flip side of the escape clause argument. The “escape clause” assures politicians that they’ll have a way out of the agreement if their jobs are at stake, while the “safety valve” dissipates some of the political pressure that comes from the economic disruptions caused by free trade.)
3. It allows for “orderly contraction.” Basically, this is a humanitarian argument: Dying industries shouldn’t be allowed to vanish overnight. Temporary tariffs allow older workers a few years to finish their working years before retiring, while younger workers receive time to prepare for jobs in other industries.
4. It saves companies and jobs. The argument here is that the U.S. steel industry isn’t facing oblivion—it just needs time to reorganize and get back on its feet. The most famous success story here is Harley-Davidson, which feared in the early 1980s that a glut of Japanese motorcycles would put it out of business. The United States slapped a temporary 45 percent tariff on Japanese bikes, and Harley reorganized and recovered.
Of course, these arguments don’t mean that Bush’s decision was the right one, or a high-minded one, or that it will stand up over time. If foreign countries believe that Bush’s tariffs aren’t justified under international law, they can challenge his decision through the World Trade Organization.
Explainer thanks Raj Bhala, associate dean for international and comparative legal studies atGeorgeWashingtonUniversityLawSchool.
