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A Quiz On International Trade And National Security

BloombergQuintOpinion

As candidate for President of the United States, in June 2016, Donald J Trump said this about international trade and national security:

Today, we import nearly $800 billion more in goods than we export. We can’t continue to do that. This is not some natural disaster, it’s a political and politician-made disaster. Very simple. And it can be corrected and we can correct it fast when we have people with the right thinking. … It is the consequence of a leadership class that worships globalism over Americanism. This is a direct affront to our founding fathers…. They wanted this country to be strong. They wanted to be independent and they wanted it to be free. Our founding fathers understood trade much better than our current politicians, believe me.

As President, in April, Trump launched national security investigations of steel and aluminum imports from around the world. All countries that supply goods to America are affected by this move.

The law the President invoked is rarely used. It is Section 232 of the United States Trade Expansion Act of 1962. Like his speech last year, this 55-year old law posits a relationship between national security and international trade.

Is there really such a relationship? If so, what is it? Let’s study these questions with... a quiz!

The first question is multiple choice, the second is an essay, and there is opportunity for extra credit.

Don’t worry, an Answer Key is provided, and no silly grade curve is imposed, so don’t scroll to another BloombergQuint article yet!

A Quiz On International Trade And National Security

The Answer Key

Multiple Choice Answer

The correct answer is (E). The sound justifications for answers (A) through (D) are as follows.

Short Essay Answer

First, the theory of “Peace through Trade” justifies answer A (enhances national security, for economic reasons).

America’s longest-standing Secretary of State, Cordell Hull, who served from 1933-44 under President Franklin D Roosevelt, argued that international trade causes people in different countries to realize their dependence on one another for goods, services, IP, and labor.

This interdependence helps them enhance their comparative advantages, and get more goods at cheaper prices.

These production and consumption gains from trade are standard Comparative Advantage Theory from David Ricardo, but Hull took Ricardo a step further.

Hull claimed these gains give people in different countries a stake in a stable, prosperous, world political economy, so (assuming they are rational) they will not blow up the system with war or terrorism. Why would India and America fight, if India can provide America with steel and engineers, and America can ship poultry and solar panels to India? Even when India and America “fight” about trade, as they did in 2015 and 2016 at the World Trade Organization (WTO) over chickens and solar panels, the combat is non-violent. Their armies are lawyers, their bullets are words. (More about these cases below.)

Second, the ancient Greek philosopher Plutarch of Delphi (46-127 A.D.) gave the justification for answer B (enhances national security, for cultural reasons).

In his book, Moralia, Plutarch postulated that without trade, humanity would be “savage and destitute.” Indeed, the gods created the seas, spreading bounties in different lands, not bestowing everything to one tribe, so that different tribes would learn about each other as they traded their divine gifts for human necessities. Through face-to-face transactions, the tribes would spot common ethnic, linguistic, racial, and religious bonds, and realize that the ways in which they are diverse are not existential threats.

Today, Americans know India is not a land of corrupt, curry-breathed, other-worldly, snake charmers. Indians know Americans are not all obese, gun-crazed, climate-change skeptics driving pickups headed to Walmart. Americans import Bollywood hits. Indians consider cutting trade barriers against California Cabernets and Oregon Pinots. Good movies. Good wine. Good deal.

A worker harvests cabernet grapes at a vineyard in Healdsburg, California, U.S. (Photographer: Tim Rue/Bloomberg)
A worker harvests cabernet grapes at a vineyard in Healdsburg, California, U.S. (Photographer: Tim Rue/Bloomberg)

Third, President Trump and the Section 232 investigations justify answer C (undermines national security, for economic reasons).

International trade shocks people into realizing they must not rely on foreigners for goods, services, or IP that they need for their army, navy, and air force. For instance, military procurements should not rely on foreign labor, hence granting too many H-1B visas to Indian engineers might create dependence on skilled talent that should be home grown. That is why President Trump launched the Section 232 cases on steel and aluminum imports from India, China, and everywhere else.

The Defense Department needs steel and aluminum, possibly a lot of it fast if there is a(nother) conflict.

Yet, unfair trade practices across decades by foreign suppliers has weakened the ability of American manufacturers to supply the Pentagon’s needs.

At issue under Section 232 is whether steel and aluminum are “being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security….” If the answer is “yes,” then Trump can “adjust” those imports.

Historically, a “yes” answer is a longshot, but with the Trump Administration, who knows? Despite 26 previous Section 232 investigations (from the first in 1963 through February 2001), a threat to national security was found, and trade remedy deployed, only twice.

  • In 1975, President Gerald R Ford restricted imports of petroleum products (e.g., from Iran and Libya), which he argued imperiled national security. President Ford boosted oil import license fees.
  • In 1979, President James Earl Carter used Section 232 to embargo oil from Iran, dependence on which was thought to impair U.S. national security.

Those cases are old, but from more recent investigations in 1999 and 2001 it’s clear the criteria that could Get Trump to “Yes” are open-ended. They include

(1) America’s production capacity and labor supply to meet anticipated defense requirements,

(2) the level of imports and their impact on American economic welfare (e.g., job loss and displacement of domestic goods), and – that lawyer’s infamous catch-all category,

(3) any other relevant factor.

Notice that the goal of some degree of self-reliance in strategic goods is not uniquely American. India’s Jawaharlal Nehru National Solar Mission (JNNSM) program aims for a self-reliant, vertically integrated Indian solar power industry, and energy is all about national security. Too bad for India it lost the 2016 WTO case when the Americans challenged India’s domestic content requirements (DCRs) on solar cells and panels.

Still, there is an irony about Section 232. The statute is part of the 1962 Act which President John F Kennedy signed at the height of the Cold War, the same month as the Cuban Missile Crisis. It’s a different Russia today. Or is it?. The legislative antecedents of Section 232 are in the Eisenhower-era Trade Agreements Extension Act of 1955. As a thoughtful article by David Knoll on Section 232 published in 1986 in the Maryland Journal of International Law pointed out, Congress “did not consider the protection of domestic industries which are essential to the national security to be in any way inconsistent with its policy of trade liberalization.”

Rather, Congress knew that boosting exports strengthens America’s industrial base. Plus, JFK wrote a book in 1958 entitled A Nation of Immigrants. He liked them.

Fourth, the Roman lyric poet Horace (65-08 B.C.) gave the justification for answer D (Undermines national security, for cultural reasons).

In Odes, Horace says commercial intercourse across the seas is unsettling, because with their merchandise, aliens bring dangerously uncivilized behaviors. Putting one’s own nation first protects against foreign-induced sloth, decadence, and corruption. Those vices erode character and resolve, which soldiers need in battle, and which society needs to back up its soldiers. Remember the Roman asset of severitas? Remember what British raj extolled as the “stiff upper lip”? Without these virtues, there goes national security. It’s no accident Horace was Roman and Plutarch was Greek. Any serious Roman held the Greeks as impractical theorists.

Then, and ever since then, the threat from trade includes disease.

Imported products carry pests that attack human, animal, or plant life or health – what international trade lawyers fancily call “sanitary or phytosanitary” (SPS) threats. India sees them. That’s why it banned imports of poultry from America, though in 2015 it could not persuade the WTO Appellate Body that its SPS measures, of which Horace would have approved, were justified.

To sum up:

The post-Second World War history of the Asia-Pacific region is evidence for all four answers:

  • For (A), the United States opened its markets to Japanese, Korean, and Taiwanese products after that War, thereby helping them rebuild with revenues they generated from exports sold to American consumers. With America’s military engagement and its nuclear umbrella, they kept the Communist menace at bay.
  • For (B), Americans forgave the horrors of the 1942 Bataan Death March, and brutality of the Battles of Chosin Reservoir in 1950 and Khe Sanh in 1968. They started to enjoy sushi, kimchee, and pho, import baseball pitchers with last names like “Nomo” and “Kim,” and holiday in Bali.
  • For (C), many Americans blamed East Asia for losing their jobs. High tariffs, non-transparent non-tariff barriers, dumping, and subsidization kept the cars they made in Detroit off roads in cities from Bangkok to Busan, and Saigon to Singapore. The American industrial base, in which they worked and that supplied the troops, was offshored.
  • For (D), American companies lose billions thanks to rampant theft of IP and trade secrets in cultures across East Asia that tolerate immoral business practices. And, as most hikers know, beetles imported in cargo and wood pallets from China blighted forests across the United States.

Therefore, E – all of the above – must be the correct answer.

A sushi chef puts final touches on his creative sushi dish  in Tokyo, Japan. (Photographer: Yuriko Nakao/Bloomberg)
A sushi chef puts final touches on his creative sushi dish in Tokyo, Japan. (Photographer: Yuriko Nakao/Bloomberg)

Extra Credit Answer

Instead of (E), a sixth answer that arguably is correct is:

(F) None of the above. The relationship between international trade and national security is uncertain and unpredictable, because it depends on who the Director of the FBI is.

A BloombergQuint On Point column published in April identified six officials in the Trump Raj responsible for international trade. The FBI Director was not among them. But, who knows, that could change. It’s best to be prepared for all eventualities with NAFTA renegotiations looming, especially if the FBI is needed to help police the wall with Mexico, or investigate softwood lumber smugglers from Canada.

Raj Bhala is Associate Dean for International and Comparative Law and Rice Distinguished Professor, The University of Kansas, School of Law. The views expressed here are his and do not necessarily represent the views of the State of Kansas or the University.

The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.