On Huawei and Autos, Trump Aligns Trade With U.S. Security

(Bloomberg) -- President Donald Trump is taking his trade wars into a new realm likely to both extend them and make them harder to resolve.

With his crackdown on Chinese telecom giant Huawei Technologies Co. and a new directive targeting European and Japanese carmakers, his administration is displaying its penchant to invoke U.S. national security in the broadest way possible. In doing so Trump is exploiting a loophole in global trading rules and doing what his predecessors spent years urging China and others not to at the risk of opening a protectionist Pandora’s box.

The administration’s willingness to bend the rules on national-security grounds is evident in a proclamation Trump issued on Friday that labeled imported cars a threat to U.S. national security and called for reducing imports. It also delays the imposition of auto tariffs for 180 days while U.S. officials negotiate with the EU and Japan to reduce their exports of automobiles and parts to the U.S.

Broad Definition

The proclamation invokes a broad justification of national security that trade experts say could be applied to almost any product imported into the U.S., arguing that the growing foreign competition from foreign automakers has hurt America’s ability to innovate.

The hit to sales of American-owned carmakers caused by competition from imported cars, it says, undermines domestic producers’ ability to invest in research and development “necessary for long-term automotive technological superiority.’’

“The lag in R&D expenditures by American-owned producers is weakening innovation and, accordingly, threatening to impair our national security,’’ the document says.

“That’s huge,’’ said Douglas Irwin, a trade historian at Dartmouth College. “That’s a very interesting train of logic that hasn’t been heard before and can justify stopping imports of anything.’’

On Huawei and Autos, Trump Aligns Trade With U.S. Security

The autos move is aimed largely at long-time allies in the EU and Japan. But with its emphasis on technological superiority it is not that different from the justifications the Trump administration is using in its trade war against China and the battle over key technologies embodied in its attack on Huawei.

In a diplomatic campaign that has stretched from Australia to Europe, U.S. officials have for months urged allies not to buy Huawei’s 5G equipment for new networks because of spying fears.

This week Trump issued an executive order that could effectively ban Huawei and Chinese sister firm ZTE Corp. from the U.S. market. The Commerce Department also placed Huawei on a blacklist that means U.S. suppliers will need licenses to sell the company components.

Bill Reinsch, who as undersecretary of Commerce in the Clinton administration headed the bureau responsible for both the Huawei and auto investigations, said the cases marked very different extremes of the Trump administration’s national security-driven trade policy.

While U.S. intelligence officials have pushed for a crackdown on Huawei for years based partly on what they claim are its links to the People’s Liberation Army, it is hard to find anyone outside the administration who believes imported cars pose a threat.

The sort of argument the administration is making about cars and research spending is one experts have made for decades about more sensitive industries such as semiconductors, Reinsch said. No one has ever seriously argued it should apply to cars, he said.

Behind both the Huawei and auto cases lies the argument that U.S. national security depends on the nation’s economic security that Trump has advanced since becoming president and employed to impose steel and aluminum tariffs last year. Trump invoked the same statute used to justify the metals tariffs -- Section 232 of the Trade Expansion Act of 1962 -- to order an investigation into imported cars last year.

Japan Trip

The auto tariffs are opposed by both domestic and international car companies. If imposed, they would likely blow up trade negotiations launched with the EU and Japan, which Trump is due to visit later this month.

Members of Congress from both parties also argue the president is abusing powers delegated to him by Congress to pursue a protectionist agenda. A group of steel importers are lobbying the Supreme Court to hear their constitutional challenge to Trump’s use of Section 232 with other business groups starting to join the fight.

The invocation of national security is designed to exploit a loophole in global trading rules that allows countries to restrict trade in times of war. It also has caused a brewing fight between the U.S. and other members at the World Trade Organization that is expected to escalate in the coming months.

Until the Trump administration the U.S. regularly lobbied other governments to adopt a narrow view of national security with regards to trade for fear that if everyone invoked the exemption it would render global rules useless.

U.S. officials used that message with counterparts in Beijing for years, said Jude Blanchette, a China expert at the Crumpton Group, a Washington consultancy. China has long invoked national security to justify censorship of the internet and limit access by foreign firms to industries it deems strategic.

“The U.S. now thinks in a maximalist way about national security,’’ Blanchette said. The Huawei escalation in recent days is just one reason why a recent breakdown in talks between the U.S. and China seemed unlikely to be resolved any time soon, he added.

The Trump administration has from its early days rejected trade orthodoxy, insisting it is finally addressing global economic injustices that have hurt the U.S. for too long.

In a speech to students at Harvard University last month, White House adviser Peter Navarro said Trump was rejecting “conventional fossilized wisdom’’ to take on China’s “deviant economic model’’ and other trade cheats such as Germany, which Trump has nominated as a target for auto restrictions.

“America should be comforted by having a president who wakes up every day thinking about how to grow the economy faster and create jobs for Americans while protecting national security,’’ Navarro said.

©2019 Bloomberg L.P.