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The Danger of Invoking National Security to Rationalize Protectionism

Daniel J. Ikenson

President Trump recently initiated two separate investigations
into whether the U.S. national security is threatened by
artificially inflated global supplies of steel and aluminum, which
he attributes to excessive Chinese production. Affirmative findings
would give the president statutory authority to raise import
barriers to protect domestic sources. But invoking national
security to justify protectionism is an extreme measure — the
“nuclear option” of international trade law — that would
generate some undesirable consequences for U.S.-China relations, as
well as for the rules-based trading system itself.

Since the founding of the General Agreement on Tariffs and Trade
(GATT) in 1947, governments have acknowledged the perils of
protectionism and the importance of reducing trade barriers to
create sustainable conditions for economic growth. Yet, to this
day, most governments remain unwilling to dispense with
protectionism entirely. Under GATT and World Trade Organization
(WTO) rules, governments are permitted to raise tariffs,
conditionally, in response to things like “unfair” trade practices
or unexpected import surges that injure or threaten to injure
domestic industries, public health or safety concerns, or national
security threats.

As compelling as the economic and moral arguments for free trade
are, governments would never consider tariff reduction a higher
priority than their obligations to protect national security. So,
in 1947, a massive — but necessary — loophole was born
with the GATT. Article XXI of the GATT is known as the “National
Security Exception.” It permits members to impose trade
restrictions for purposes of national security without obligating
them to demonstrate that their rationale conforms with some agreed
definition of national security or national security threats. The
key to this loophole not being abused is recognition by all parties
that prudence — not political expediency — must inform
any government’s decision to invoke national security as its reason
for raising trade barriers.

Legal scholar Roger Alford put it this way in a 2011 law review
article:

The security exception is an anomaly, a unique
provision in international trade law that grants the Member States
freedom to avoid trade rules to protect national security. In the
long history of GATT and the short history of the WTO, that freedom
has never been challenged seriously. Member States understand the
exception to be self-judging, and presume that it will be
exercised with wisdom and in good faith. Thus far, the
record has been impressive. While no doubt there have been
departures, the self-judging security exception has worked
reasonably well. It certainly has not undermined the effective
functioning of the WTO (Emphasis added).

But that could very well change if the Trump administration
determines that imported steel or aluminum presents a national
security threat, and raises tariffs as a result. The argument that
national security is threatened by an abundance of the very raw
materials allegedly needed to protect national security is so
flimsy that it would be an open invitation to every other WTO
member to invoke national security to bestow protectionist favors
on their own politically important domestic interests.

Of course, the protectionist argument is that the bounty of
low-priced steel and aluminum would disappear once U.S. producers
were run out of business, and foreign “adversaries” put the squeeze
on U.S. buyers by withholding supply. In other words, products so
important to U.S. national security — the argument goes
— would not be supplied by non-adversarial foreign or
domestic producers, even with supply shrinking and prices rising.
That frequently invoked, threadbare, protectionist hypothetical has
virtually zero likelihood of coming to pass. However, in the spirit
of “we can never be too sure,” the U.S. government should take
measures that could lead to the destruction of the trading system,
the cost of which would present a real and significant national
security threat.

If the United States were
to get away with such rogue protectionism through this loophole, it
is highly likely that other governments would follow
suit.

Even if this U.S. action were formally challenged by another WTO
member, the Dispute Settlement Body (if it came to adjudication)
would accord great deference to the United States as to what it
considers a national security threat. It is simply implausible that
international trade jurists would seriously question a member
government’s interpretation of a threat to its own national
security. So, if the United States were to get away with such rogue
protectionism through this loophole, it is highly likely that other
governments would follow suit.

Since 2006, the United States and China have been engaged in a
low-grade trade war over semiconductors and information and
communications technology (ICT) products. The Chinese government
has made it quite clear that it considers the attainment of
technological preeminence one of its main economic objectives and
that developing a self-sufficient, home-grown semiconductor
industry through protectionist measures is the way to realize that
goal. In various manifestations, China has been employing
indigenous innovation policies for over a decade.

The United States has responded by essentially blocking China’s
most successful ICT companies from participating in or supplying
U.S. telecommunication infrastructure projects under the guise of
cybersecurity policy. China has responded by implementing a set of
new policies, including the National Security Law and the
Cybersecurity Law, which essentially raise the costs for U.S. and
other foreign technology companies to access China’s market.
Meanwhile, over the past several months, U.S. policymakers have
begun turning up the heat to make it more difficult for Chinese
buyers to acquire U.S. technology companies and serious
consideration is being given to the idea of making it easier for
the U.S. Committee on Foreign Investment in the United States
(CFIUS) to recommend that the president block such
acquisitions.

If the United States invokes national security to raise tariffs
on steel or aluminum, China would be less inhibited from declaring
its dependency on foreign semiconductors a national security crisis
and formally imposing tariffs. Likewise, India, which worries
deeply about food security, might justify new restrictions on
agricultural imports as a national security imperative. Pandora’s
Box will have been opened wide, and the trading system will be
burdened under the weight of the troubles that escaped.

Daniel Ikenson is the director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute.