29: After Trump's Tariffs: Retaliation, Negotiation, and Litigation

Episode Summary

Executive Summary: The episode analyzes Trump’s March 2018 steel and aluminum tariffs amid major uncertainty over exemptions, legal challenges, and retaliation. The hosts argue the policy is less a clean “trade war” than a messy negotiation strategy led by USTR Robert Lighthizer, with Canada and Mexico temporarily exempt, the EU preparing countermeasures, and WTO law likely to become the key battleground.

Main Topics: Trump’s tariff announcement and unresolved scope (Priority: 5/5): The hosts react to the newly announced 25% steel and 10% aluminum tariffs, emphasizing that the true scope remained unclear because exemptions and country-specific outcomes had not yet been finalized. Internal Trump administration power struggle (Priority: 4/5): The episode frames the announcement as the result of competing factions: nationalists and globalists, but suggests USTR Robert Lighthizer’s negotiation-focused approach ultimately prevailed. Canada and Mexico carve-outs and NAFTA complications (Priority: 5/5): Canada and Mexico are temporarily exempt, but the hosts warn this may complicate NAFTA talks by making concessions politically harder for Ottawa and Mexico City to defend at home. Impact on trade flows and supply chains (Priority: 4/5): The discussion highlights how exemptions and possible further carve-outs could significantly alter how much metal trade is actually affected, and how North American supply chains may be disrupted. EU response: safeguards, rebalancing, and retaliation (Priority: 5/5): The EU signals it may use safeguard measures and WTO-based rebalancing to counter trade deflection, with a proposed retaliation list targeting politically sensitive U.S. exports. WTO legality and the national security defense (Priority: 5/5): Legal expert Jennifer Hillman explains that the U.S. national security justification under Section 232 and GATT Article 21 is legally risky and could destabilize WTO rules if accepted broadly.

Key Arguments: The tariffs were announced, but the actual trade-war impact was still uncertain because exemptions could change and additional countries might be carved out later. Canada and Mexico were excluded for now, removing roughly one-third of the affected import value from immediate tariff exposure. Lighthizer’s role suggests the policy is also a bargaining tool, not just a protectionist measure, which may explain the 15-day negotiation window. The tariff threat complicates NAFTA negotiations because concessions made under coercion are politically hard to sell and may be unstable over time. The EU is likely to respond not as retaliation alone but to prevent trade deflection from steel diverted away from the U.S. market. Under WTO safeguards rules, if the measure is treated as a safeguard rather than true national security action, the EU could rebalance quickly against U.S. exports. The U.S. national security defense is legally tenuous because Article 21 has little precedent and traditionally relates to war, arms, or emergency conditions, not ordinary import competition. If the U.S. succeeds in making Article 21 effectively self-judging without scrutiny, it could weaken the WTO’s authority over tariffs and trade disputes.

Data Points: Steel tariff rate: 25% - Trump’s announced tariff on imported steel Aluminum tariff rate: 10% - Trump’s announced tariff on imported aluminum Negotiation window: 15 days - Deadline for countries to negotiate possible exemptions Date of recording: March 9, 2018 - One day after the tariff announcement Canada exports to U.S. of aluminum and steel: $12 billion - Canada’s combined exports of the two metals to the U.S. Total U.S. imports of aluminum and steel: $46 billion - Combined imports from all countries Share exempted by Canada and Mexico carve-out: About one-third - Approximate portion of total import value removed from tariff coverage EU steel and aluminum exports to U.S.: About $7 billion a year - Combined EU exports of steel and aluminum to the U.S. market China’s share already subject to other duties: Over 90% - Most Chinese steel and aluminum exports already face anti-dumping/countervailing duties China’s share of U.S. steel and aluminum imports in 2017: 6% - Only a small fraction of U.S. imports came directly from China EU proposed rebalancing amount: 2.8 billion euros - EU estimate of U.S. exports it could target immediately under safeguard rules Approximate dollar equivalent of EU rebalancing: $3.4 billion - Dollar equivalent of the EU’s proposed retaliation amount Bush-era safeguard reference: 2002 - Historical example of U.S. steel safeguards prompting foreign retaliation Time since U.S. last used Section 232: More than 30 years - Jennifer Hillman notes the lack of recent precedent for Section 232 import restraints

Pivotal Quotes: "Steel is steel. You don't have steel, you don't have a country." — Donald Trump: Trump framing the steel tariffs as essential to national strength "The proclamation says that countries are welcome to discuss alternative ways to address the threatened impairment of the national security caused by imports from that country." — Sumaya Keynes: Explaining the conditional nature of possible exemptions "The EU's contention is likely to be: since this looks like a safeguard, sounds like a safeguard, behaves like a safeguard, it's appropriate for them to treat it as a safeguard." — Jennifer Hillman: Legal rationale for EU rebalancing and retaliation under WTO rules

Implications: The episode suggests the tariffs could reshape North American and transatlantic trade, trigger WTO litigation, and weaken trust in U.S. trade commitments. Businesses should expect uncertainty, possible retaliation, and supply-chain disruption while legal and political battles play out.