Ordinarily, when I read a senior government official stating:

“We have other methods of addressing those who threaten us, and of addressing those who supply the threats. We have great capabilities in the area of trade.”

[US Ambassador to UN Nikki] Haley said she spoke at length to President Donald Trump on Wednesday morning about “countries that are allowing, even encouraging trade with North Korea, in violation of U.N. Security Council resolutions.”

“Such countries would also like to continue their trade arrangements with the United States,” she said. “That’s not going to happen. Our attitude on trade changes when countries do not take international security threats seriously.”

I discount such talk as constituting a non-credible threat. That’s because punishing China with effective trade sanctions would likely hurt America as much as the target (including through third channels as the global economy is hurt).

But the threat is truly non-credible if the agents are rational, as in the Rational Agent model of international relations (see alternatives, here). But using that model as a baseline is probably not correct for the Trump Administration. I think a better framework for analysis (if not a model) would be stumbling into conflict with a misapprehension of costs, benefits, and the workings of the world, as in this case.

Of course, that does not mean that China would accede to US demands even if we imposed sanctions.

In several recent pieces [1] [2] [3], I have worried about the economic implications of trade protection, particularly those moving forward in the guise of “national security”. In this post, I want to make a couple of observations on some non-economic implications.

From Politico:

President Donald Trump’s protectionist rhetoric on trade has already set the United States apart from its global allies, but the White House’s pending moves — sweeping new trade policies to protect the steel industry — could be the first major steps to reverberate across global economies and incite other countries to retaliate…

The pending Section 232 review, under which the administration is considering whether to limit imports of both steel and aluminum in the name of national security, would help Trump keep his campaign promise to crack down on unfair trade practices. The administration has been debating the issue behind closed doors for months, including in a high-level meeting this week with the president, and it finally appears to be moving toward a coherent path forward.

…“The president’s advisers are coalescing around a tailored approach that would target the steel imports of individual countries, rather than across-the-board measures against every nation that sends steel to the U.S., according to two sources familiar with the discussions.

Those who doubt we are heading toward implementation of some substantial protectionist measures should read this account, which characterizes the President as being “hell bent” on moving forward.

Chad Bown at Peterson IIE has outlined what countries would likely suffer the most – i.e., our traditional allies. That’s partly because imports of Chinese steel have already been reduced by conventionally used anti-dumping and countervailing duties. As for aluminum, see this NYT article.

However, to the extent that China is now again in the firing line – partly because of a perceived failure to rein in North Korea, I expect that a large amount of the rhetoric justifying the use of Section 232 will be aimed at China.

Not only is the use of Section 232 more likely to lead to retaliation by our trading partners. I think it might also be inflammatory with respect to certain minority groups within the United States. Almost exactly 35 years ago, Vincent Chin was beaten to death with a baseball bat in Detroit because he was blamed for the plight of two unemployed auto workers (who, obviously, mistook him for being Japanese, instead of American of Chinese descent). It does not take too much imagination to believe that, in the current political environment, commentary about the enemies of the people can be re-deployed against certain countries, and hence minority groups associated with those countries. While the President has recently spoken of the evils of Germany, I do not realistically believe there will be a surge of attacks on Americans of German descent, but should diplomatic and economic relations with China or other nations deteriorate, other groups may be targeted.

Count me worried.

From Politico’s Morning Trade:

RAPID PACE OF STEEL PROBE DISCONCERTING: Some Democratic lawmakers could soon press the administration over concerns that a potential Trump decision to restrict steel imports to protect national security could be challenged at the World Trade Organization if the Commerce Department does not provide a convincing basis for any action, Morning Trade has learned.

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That’s the title of my article at EconoFact today.

The Issue:

The Trump Administration has proposed a number of trade related measures purportedly on the basis of national security. The first involves invoking a seldom-used provision of the trade law to investigate whether imposing import restrictions for steel and aluminum is justified by national security reasons. The second is the creation of a new White House office, the Office of Trade and Manufacturing Policy, superseding and replacing the National Trade Council established at the outset of the Trump Administration.

The question is whether the threats posed to national security are genuine, or merely a means of protecting domestic industries under the guise of national security.

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