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Wednesday, February 6, 2019

After State of the Union, Republicans Face a Crucial Choice on Trade

By Eric Boehm - February 06, 2019 at 03:30PM

For the first two years of President Donald Trump's tenure, his administration has been the sole driver of federal trade policy. Whether setting tariffs or negotiating trade deals—like the rewrite of the North American Free Trade Agreement (NAFTA) last year—Trump has been the one doing things and Congress has been mostly content to let it happen, with a few performative grumbles here and there.

Now, for a variety of reasons, Congress is set to play a bigger role on the trade front, whether it wants to or not. Doing so likely will expose a deep divide within the Republican Party—where one faction is trying to claw back congressional control in the trade sphere, while another seeks to hand yet more authority to the chief executive to write the rules for how America participates in the global economy.

Trump asked for the latter during Tuesday's State of the Union address, calling specifically for Congress to pass the United States Reciprocal Trade Act. "If another country places an unfair tariff on an American product, we can charge them the exact same tariff on the exact same product that they sell to us," Trump said.

As that explanation suggests, the bill would effectively give the president more excuses to raise trade barriers and impose tariffs, which are really just taxes paid by American importers. For example, the European Union currently charges 10 percent tariffs on cars imported from America but America charges only 2.5 percent on car imports from Europe. If the Reciprocal Trade Act were to become law, Trump could circumvent Congress and raise car tariffs to 10 percent—something that he's already threatened to do via a different mechanism, and something that would be disastrous for American auto dealers and car-buyers.

The bill has other shortcomings too. It grants authority for the president to respond to "significantly higher tariffs" imposed by other countries, but does not define exactly how high those foreign tariffs must be—which would effectively give Trump and future presidents a blank check to crank up protectionism.

"You could drive a Mack truck through that loophole," says Scott Lincicome, a trade lawyer and a scholar for the libertarian Cato Institute. "It seems pretty unlikely that, given recent events, the president wouldn't exploit that authority if it was given to him."

Indeed, Trump has already made use of the massive loophole in Section 232 of the Trade Expansion Act of 1962. That law gave presidents the authority to impose tariffs for national security purposes but, importantly, did not define what counts as a matter of national security. Trump has used Section 232 to impose tariffs on steel and aluminum imports—including imports from close U.S. allies like Canada and Europe—under the gossamer-thin rationale that national security is served by increasing the price of imported metals.

Restricting Trump's ability to continue abusing Section 232 is the aim of the other trade bill now circulating in Congress. As I detailed last week, a bipartisan group of lawmakers from the House and Senate have joined together to sponsor the Bicameral Congressional Trade Authority Act, which would give Congress the ability to block future Section 232 tariff proposals and would limit the definition of "national security" in the law.

The dueling bills are a telling representation of the Republican Party's Janus-like stance on free trade at the moment. Aside from the "R" that appears next to their name, there is no overlap between the 18 Republicans who have sponsored the Reciprocal Trade Act, sponsored by Rep. Matt Duffy (R–Wis.), and the free-traders, like Sen. Pat Toomey (R–Pa.), backing the Bicameral Congressional Trade Authority Act.

"Senate Republicans are overwhelmingly in favor of free trade," Toomey said last week. "I am very doubtful that [Duffy's bill] will work, and fundamentally I think it's a mistake to just grant this authority to the president. That's the central problem."

There's plenty of other internal disagreements over policy within the Republican Party, on everything from fiscal policy to immigration, and from entitlements to foreign interventions. On trade, however, Republicans are faced with a difference of kind—not of degree. There is effectively no middle ground to be had between those who want to give the president greater power to levy tariffs and those who want to claw back the power he already has. Nor could there be, as the two opinions are not merely opposite policy prescriptions but are based on diametrically opposed views about how the power in Washington should be shared.

"You've got the principled, practical guys on the one side who want to limit tariff authority, and then on the other side it's a group of hardcore Trump supporters who may be looking at this a matter of politics and not policy," Lincicome says.

This deep division within the Republican Party will likely come to a head not over the tariff bills themselves, but in the upcoming debate over ratifying the United States-Mexico-Canada Agreement (USMCA), the new NAFTA.

Though Trump often talks about the USMCA as if it is a done deal, it must be approved by Congress before taking effect. Its chances to pass have already been complicated by Democrats' takeover of the House, but there is no indication that even a Republican-controlled Congress would pass the USMCA in its current form. Toomey, for example, is on the record as a "no" vote unless changes are made to do away with some of the deal's protectionist elements, like the stringent barriers for importing automobiles built in Mexico.

Whichever trade bill emerges victorious is likely to be attached to the USMCA, assuming that the trade deal manages to get through Congress. And if either is going to pass this year, one half the GOP will have to prevail over the other.

Asked Wednesday what it would take for pro-trade Republicans to support Trump's call for the passage of the Reciprocal Trade Act, Sen. Ron Johnson (R–Wisc.) tried to find the largely nonexistent middle ground.

"I certainly would like to see these things approved by Congress," he said.

Told that the bill Trump wants passed seems designed specifically to circumvent Congress, he paused.

"Well," Johnson said, "then I'd have a problem with that."


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