What makes these actions especially obnoxious to free trade advocates is the legal basis of the tariffs. Under Section 201 of the Trade Act of 1974 (19 U.S.C. § 2251), the president is authorized to impose temporary measures, known as global safeguards, to protect domestic producers from foreign imports that are “in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry.”
Notably, this protectionist framework doesn’t require any finding of unfair trade practices. A U.S. industry can receive trade protections from foreign firms simply because the foreign firms offer a superior product at a lower price to consumers. Can’t keep up with the competition? Declare bankruptcy, file a Section 201 petition with the U.S. International Trade Commission, and hope to find a president sympathetic to your sad story.
This was the case of domestic solar panel producer Suniva, which oddly enough is majority-owned by Chinese conglomerate Shunfeng International Clean Energy Limited. In short, President Trump was convinced by a bankrupt Chinese solar panel company, which is domiciled in the U.S. to take advantage of protectionist “Buy American” regulations, to force American consumers to pay more for imported Chinese solar panels.
Section 201 often sits dormant, as historical case data show. The sore loser trade law was infamously invoked in 2002 by President George W. Bush against steel imports. The temporary tariffs were supposed to last three years, but the U.S. lifted them after only a year when the European Union threatened to impose more than $2 billion in retaliatory tariffs against the U.S.
This embarrassing international incident likely soured President Obama on Section 201 and he declined to invoke it. This was wise, as the U.S. has a history of losing safeguards cases before the World Trade Organization. Unfortunately, the current U.S. Trade Representative is Robert Lighthizer, a longtime steel industry trade lawyer and enthusiastic supporter of the sore loser trade law. Tariffs on washing machines and solar panels, and the responses from trade partners, may be just a taste of what is to come from the Trump administration.
Supporters of free trade ought to pressure Congress to repeal Section 201. While it is true that the U.S. is not unique in global safeguards and they are explicitly allowed under Article 19 of the General Agreement on Tariffs and Trade and the World Trade Organization’s Agreement on Safeguards, it doesn’t mean the U.S. is required to have such a law on the books. Section 201 is an affront to consumer choice and a competitive marketplace and should be repealed. Just as the government ought to have no role in picking winners and losers, it should not be protecting sore losers.