The US president’s powers to set trade policy are vast and unlikely to be checked. Therefore, Brussels should try to influence Trump’s cost-benefit calculus rather than targeting other actors.
The United States’ trade policy has taken a dramatic protectionist turn, increasing the risk of a broader transatlantic trade conflict. If current EU-US trade negotiations over the removal of “reciprocal” tariffs fail, the European Union will adopt retaliatory measures targeting US imports. (US President Donald Trump imposed these tariffs on April 2, but then suspended them for 90 days, before threatening the EU with 50 percent tariffs by June 1, again deferred after a telephone call with European Commission President Ursula von der Leyen last weekend.)
But even if a transatlantic trade conflict can be averted, the EU needs to review its trade defense and deterrence policies. Instead of simply adopting proportionate retaliatory tariffs, Brussels should consider devising a policy that more directly and immediately affect the cost-benefit calculus of the institutionally dominant American trade policymaker: the president.
Wide-Ranging Powers
The Trump administration’s policies have been made possible by the president’s extensive trade authority. Article I, Section 8 of the US Constitution confers the power to collect taxes and duties and to regulate commerce to Congress. However, starting in the 1930s, Congress began to delegate some of its trade-related prerogatives to the executive.
Several laws give the US president wide-ranging, if not unlimited, powers to impose trade restrictions. Under Section 201 of the 1974 Trade Act, the president can impose trade restrictions if imports are found to cause serious injury. Under Section 301 of the same act, the president can also impose restrictions in case a foreign government is found to be violating an existing trade agreement or discriminates against US companies. And under Section 232 of the 1962 Trade Expansion Act, the president can impose trade restrictions on national security grounds. Finally, and crucially, the International Economic Emergency Act (IEEPA), enacted in 1977, allows the president to impose wide-ranging economic restrictions on another country following a presidential declaration of a national emergency.
Other, if partially older, trade legislation exists but, unlike Section 201, 301, and 232, trade-restricting measures under these laws have never been imposed. Nonetheless, the acts indicate how extensive the US president’s trade authority is.
Section 338 of the Tariff Act of 1930, for example, authorizes the president to impose 50 percent tariffs in case US commerce is found to be discriminated against by another country. Section 122 of the 1974 Trade Act allows the president to impose 15 percent tariffs on the imports of another country of up to 150 days in the event of persistent and large balance-of-payments imbalances. Section 891 of the Internal Revenue Code of 1934 allows the president to double domestic taxes on companies and individuals from countries that have been found to be discriminating against US companies in terms of their domestic taxation regimes.
Significant Flexibility
The trade instruments available to the president differ in terms of the extent, target, and the duration that trade-restricting measures can be imposed. IPEEA gives the president maximum flexibility without having to undergo time-consuming investigations or face restrictions in terms of proportionality, duration, or sector-specific restrictions. The president can simply declare a national emergency and take a wide array of measures aimed at restricting cross-border exchange. (Or at least this is how extensively the Trump administration has interpreted the law.)
By comparison, Sections 201, 232, and 301 tariffs typically require time-consuming prior investigations before trade-restricting measures can be imposed. Moreover, Section 201 only provides for time-bound, product-specific or sectoral safeguards. Measures taken under Section 232 are not time-limited, but they typically affect specific sectors, while measures under Section 301 require separate investigations and determination on an individual country basis. However, where individual instruments do limit policy flexibility, the president can simply activate, though more cumbersome, different instruments to maximize trade-related leverage vis-à-vis other countries.
Both the US Congress and the courts can, in principle, act to restrict or restrain presidential trade authority. Congress has delegated significant trade-related powers to the president but can reclaim the authority it has delegated. It can also restrict the president’s ability to impose trade-related measures under IPEEA by declaring an end to a national emergency through a joint resolution adopted by both the House of Representatives and the Senate.
However, if the president vetoes the resolution, a two-thirds majority in both chambers is required to overrule the veto. Under current political conditions characterized by a high degree of partisanship and polarization, Congress is highly unlikely to restrict the president’s trade-related authority. Reclaiming delegated trade authority faces similar, high hurdles. Courts, too, might be able to constrain the Trump administration by rejecting its extensive interpretation of its statutory authority in trade matters. But courts have historically shown deference to the executive on questions of international trade, national security, and national emergencies.
US Trade Policymaking
For all these reasons, it’s safe to predict that Trump’s trade authority will remain extensive and his ability to set policies will remain largely unconstrained. A high degree of policy flexibility allows the president to use tariffs as an all-purpose instrument to opportunistically gain economic leverage in pursuit of varying economic and geopolitical goals.
A trade policy characterized by what may be called a transactionally-focused, coercive protectionism accounts for the capricious nature of policies. US trade policy is not informed by intellectually coherent strategy guided by a more predictable inter-agency process. All this is made possible by the president’s substantial authority to impose trade restrictions.
Relatedly, the administration has been as quick to announce and impose protectionist measures as it has been to retract them, often in the context of increasing economic and financial costs risks stemming from these measures.
The President’s Cost-Benefit Calculus
This fact should inform a rethink of EU trade policy vis-à-vis the United States. Instead of simply opting for proportionate trade retaliation—holding trade proportionate retaliation in reserve to facilitate successful negotiations—the EU should at least consider ways to strengthen the political effectiveness of its trade defense and deterrence policies by more directly taking into account the president’s cost-benefit calculus.
No doubt, such an approach is risky because it can quickly lead to escalation, as the recent US-China tariff tit-for-tat has shown—and in this case China only retaliated proportionately. It also requires a solid understanding of what the president’s cost-benefit calculus is. But it makes more sense to want to shift the president’s calculus more directly rather than take measures that seek to target other US political actors with little or no influence over the trade policy process. In this context, the EU should also consider pre-emptively activating its newly created anti-coercion instrument to provide it with greater policy flexibility.
Seeking to influence other senior officials at the State Department, the Commerce Department, the Treasury, or the Office of the United States Trade Representative, for example, will only have a limited effect. Senior officials have already made up their mind as to the desirability of policies and are simply waiting for the politically opportune moment to move policy in their preferred direction. Appeals to or policies seeking to mobilize Congress against protectionist trade policies would be similarly ineffective. Things would have to become a lot worse economically for Republican members of Congress to gang up with Democrats to subvert the president’s trade policies.
Traditional trade retaliation that disproportionately targets the electoral base of the president and his party would not be very effective, either. EU trade retaliation that is supposed to hit Republican-dominated states would not represent much of a threat to Republicans’ electoral base. Retaliation that targets swing states could increase the willingness of electorally vulnerable Republican members of Congress to speak out against the president’s protectionist trade policies. But would be highly unlikely to mobilize sufficient Republicans, as there are too few competitive states and districts to have much of an effect on US trade policy—not least because Republican members of Congress are afraid of antagonizing the president and being subsequently “primaried” in non-competitive electoral districts.
As long as the president dominates the trade policy process, the EU should consider devising trade defense and deterrent policies that affect the president’s cost-benefit calculus more directly. Judging by the recent twists and turns of trade policy, the president appears responsive to the risk of broader financial market instability, as evidenced by his decision to suspend the reciprocal tariffs following a major bout of treasury market volatility. And even though the president was initially willing to massively escalate measures targeting China, the significant equity market selloff that ensued led to an equally rapid reduction in bilateral tariffs to levels seen as less damaging to the economic outlook.
Forceful rhetoric notwithstanding, the president’s “revealed preferences” suggest that his trade policy is responsive in the face of increasing economic costs and heightened financial risks. The EU should consider adopting a strategy that credibly and effectively threatens to retaliate and escalate in response to unfriendly, protectionist measures while accepting the risk of broader instability. As the economist and nuclear theorist Thomas Schelling pointed out, such retaliatory threats should leave something to chance, including the risk of a potentially, difficult-to-control escalation, as the risk of such an escalation would not be in the president’s interest.It is obvious that such an approach would be risky because it could prove escalatory. That any such policy needs be evaluated very carefully is clear. But Trump’s trade policy has proven responsive in the face of broader economic costs and financial instability. With extensive trade policy authority vested in the president, the risk of a volatile and unpredictable US trade policy will remain high. Putting in place an effective and credible trade defense and deterrence policy would be highly desirable if European interests are to be safeguarded and transatlantic trade relations stabilized.