Amidst the pandemic, global trade declined due to lockdown measures, impeding the flow of people and goods and hindering trade growth. According to the United Nations Conference on Trade and Development, the outlook for global trade in the second half of 2023 is pessimistic, with negative factors dominating the positive. There has been a notable deceleration in economic growth in the past two years. During the first three months of 2023, trade in goods experienced a modest increase of one point nine percent relative to the last quarter of 2022.[1] Compared with 2022, “trade in goods grew ten percent.” [2] One of the factors leading to the slowdown in global trade growth is the government’s increased implementation of trade barriers. This trend is further reflected in the growing stockpile of import restrictions that remain in force, exacerbating the challenges faced by international trade. By mid-October 2022, some nine-point three percent of global imports will continue to be affected by import restrictions implemented since 2009. [3] Notably, the heightened attention countries have given to domestic supply chains and national security, driven by the need to bolster self-reliance in critical industries, particularly following vulnerabilities exposed by disruptions like the pandemic and geopolitical tensions, has led to a significant increase in tariffs and quotas in recent years. This shift prompts governments to safeguard essential sectors and resources, contributing to the implementation of trade barriers, an action rooted in three main reasons. 

Trade barriers are set to safeguard national security. Certain products or technologies may be relevant to national security, and governments may erect trade barriers to restrict imports. This measure ensures supply chain resilience and safeguards against the transfer of sensitive technologies to unsafe countries. For instance, tariffs and quotas were imposed for the semiconductor industry in the 1980s and '90s. Government support was primarily implemented through the 1986 Semiconductor Trade Agreement (STA) between the U.S. and Japan and contemporaneous subsidies to support domestic semiconductor research and production.[4]

Trade barriers are set to adjust the domestic trade balance. Some countries may resort to tariffs and quotas in response to trade deficits. They hope to reduce the trade deficit and improve export competitiveness at home by increasing tariffs and quotas. The imposition of tariffs and quotas can impact imports of textiles and apparel. For example, the US has imposed tariffs on China’s textile and apparel products. This led to decreased imports of those specific products from China, and some production has shifted to countries like Bangladesh or Vietnam. Therefore, the U.S. trade deficit with China is reduced.

Governments impose trade barriers to protect domestic industries and markets, and be used to protect them from foreign competition. When domestic industries face intense or unfair competition, governments may implement trade barriers such as tariffs and quotas to reduce competitive pressure on imported goods, thereby giving domestic producers a more competitive edge in their home market and supporting their economic growth. “The Reagan administration concluded in 1986 five-year “voluntary restraint agreements” (VRAs) with Japan and Taiwan to limit their exports of certain machine tools and requested that nine other countries limit their U.S. machine tool market shares to certain levels.[5]” This trade policy aims to support, encourage, and provide financial incentives for various research and development initiatives to modernize U.S. machine tools and manufacturing technology.

However, the failure of government-imposed trade barriers calls for a reassessment of their effectiveness and impact on trade dynamics. Negative consequences were experienced due to the restrictions imposed by the United States on Japanese semiconductors in the 1980s and 1990s, particularly under the Semiconductor Trade Agreement (STA). A 1994 Peterson Institute analysis found that in 1989, the STA generated a net national welfare loss of $974 million.[6] After the STA took effect, domestic semiconductor prices “skyrocketed,” and a “full-fledged shortage of dynamic random-access memories (DRAMs) was widely felt in the United States and Europe by early 1998.”[7] As a result, U.S. semiconductor users, particularly up-and-coming computer manufacturers such as Apple that depended on DRAMs, could not compete with Asian and European producers that could obtain cheaper DRAMs.[8] Consequently, the computer manufacturing industry shed one job for every U.S. semiconductor job supposedly gained from the STA.[9] Increased DRAM prices also added almost $100 to a personal computer selling for $600 or $700 in 1988.[10] Following the surge in DRAM prices due to the Semiconductor Trade Agreement (STA), public reaction was palpable as consumers faced the marked increase in personal computer costs. This price hike drew public scrutiny and dissatisfaction, eliciting concerns about affordability and accessibility of technological goods among the populace.

President Trump's steel import tariffs under Section 232 illustrate the risks of American security-focused economic policies, shedding light on trade protectionism dynamics. Prior to the tariffs, the U.S. steel industry had already received billions in government subsidies. Additionally, it had obtained import protection through dozens of U.S. trade remedy measures. These measures covered nearly 61 percent of all steel product imports in 2017, the year before the Section 232 tariffs came into effect.[11] Moreover, in the months leading up to the Section 232 investigation, domestic crude steel output and shipments of steel mill products also remained stable.[12] Five of the six largest domestic steelmakers were profitable, posting a combined net income of $491 million in the first quarter of 2017. Standard and Poor’s credit ratings showed eight major U.S. producers to be financially viable.[13] President Trump, surrounded by U.S. steel company chief executive officers and union leaders at a March 2018 White House press event, announced blanket twenty -five percent tariffs.[14] Multiple studies have extensively documented the substantial economic burdens imposed on U.S. consumers, particularly manufacturing firms, as due to the tariffs. Specifically, the tariffs led to increased steel prices, subsequently impacting other domestic manufacturers through higher input costs, reduced exports, and diminished domestic and international competitiveness. Furthermore, the tariffs gave rise to a complex, expensive, and unpredictable "exclusion" bureaucracy, leading to over 100,000 requests for relief from U.S. manufacturers. The repercussions of the tariffs were significant. They included a loss of approximately 75,000 manufacturing jobs that would have otherwise existed without the tariffs. The tariffs also led to a decline in global steel demand, lowering prices. Furthermore, they heightened global market uncertainty, adversely affecting manufacturing investments. Additionally, numerous U.S. trading partners retaliated against American exporters. [15] The steel tariffs had little impact on U.S. steel industry employment and failed to address the underlying issue of global steel overcapacity, which caused the industry's financial decline in 2018. [16] Given these and other market dynamics (e.g., steelmakers bringing back inefficient capacity to capture rents and flooding the U.S. market), industry stocks plummeted in late 2018 and early 2019, and steel companies were laying off workers and curtailing inventments by the end of 2019. [17] The U.S. steel industry policy had the opposite effect, resulting in increased prices within the industry, rendering enterprises inefficient and uncompetitive. Consequently, unemployment rates rose, stock prices fell, and investments fled the sector.

Implementing Trump's tariffs on the upstream and downstream sectors of steel failed to accomplish the intended objective, leading to unintended consequences and counterproductive outcomes. According to a report from the Los Angeles Times, “Trump’s steel tariffs were supposed to save the industry, but made things worse.” [19] Invoking national security in Section 232 cases, including this one, will likely have significant adverse effects on U.S. national security in various ways. These consequences include the potential alienation of allies, which undermines U.S. credibility and complicates efforts to form international coalitions against legitimate security challenges. Additionally, this action undermines the rule of law within the United States. It exploits constitutional trade powers delegated to the executive branch by Congress. Moreover, it undermines U.S. leadership within the World Trade Organization (WTO) by taking advantage of rarely invoked exceptions. These exceptions are designed to protect "essential security interests." [20] These two instances indicate the government's failure to achieve national security objectives through protectionist measures and industrial policies, as well as the frequent exploitation of national security for other purposes.

Embracing openness and fair competition are crucial for achieving national supply chain development and security objectives, given the limited effectiveness of trade barriers. Indeed, in numerous instances, embracing openness can reduce a nation’s vulnerability to shocks in demand or supply and facilitate the economy’s post-recovery. For instance, following the 2008 global financial crisis, countries like South Korea and Germany, which had more open economies with diverse export markets, demonstrated quicker economic rebounds compared to nations with more protectionist trade policies. This resilience stemmed from their ability to access multiple markets and adapt their production to varying demands, thereby lessening the blow of any singular market downturn. Greater trade and investment exposure may expose an economy to external supply or demand shocks. Yet, it also diminishes a nation's vulnerability to and enhances its recovery from domestic shocks, as supported by academic research. [21] In light of the significant increase in tariffs and quotas driven by concerns over domestic supply chains and national security, developing national supply chains and meeting security objectives necessitates a comprehensive approach that extends beyond trade protectionism. This approach should emphasize broader strategies promoting fair competition and the establishment of equitable rules, enabling companies and industries from different countries to engage in meaningful and unrestricted competition. By embracing such an approach, governments can strike a balance between safeguarding national interests and reaping the benefits of a globally interconnected economy. 

Footnotes

1. Global trade growth returns but outlook for 2023 is poor n.p: 21 June 2023

2. Global trade set to hit record $32 trillion in 2022, but outlook increasingly gloomy for 2023 n.p: 13 December 2022

3. WTO-53-findings n.p: n.d, 2

4. Lincicome, Scott. Manufactured Crisis: “Deindustrialization,” Free Markets, and National Security. Cato Institute, 2021. JSTOR, jstor.org/stable/resrep28730. Accessed 24 June 2023.

5. The other countries are Brazil, Italy, South Korea, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and West Germany. General Accounting Office, “International Trade: Revitalizing the U.S. Machine Tool Industry,” GAO NSIAD-90-182, July 1990, gao.gov/assets/150/149299.pdf.

6. T. R. Reid, “Semiconductor Agreement Disastrous Excursion into Protectionism,”Washington Post, March 4, 1991; and Kenneth Flamm, “Semiconductor Dependency and Strategic Trade Policy,” Brookings Papers on Economic Activity: Microeconomics 1993, no. 1(1993).

7. Reid, “Semiconductor Agreement Disastrous Excursion into Protectionism,” “Semiconductor Dependency and Strategic Trade Policy,” 29.

8. Dorinda G. Dallmeyer, “The United States-Japan Semiconductor Accord of 1986: The Shortcomings of High-Tech Protectionism,” Maryland Journal of International Law 13, no.2 (1989): 197.

9. Douglas Irwin, “Trade Politics and the Semiconductor Industry,” National Bureau of Economic Research Working Paper no.4745, May 1994, p. 60; and Claude E. Barfield, High-Tech Protectionism: The Irrationality of Antidumping Laws (Washington: AEI Press, 2003).

10. Kenneth Flamm, “U.S. Memory Chip Makers in a Fix,” Washington Post, March 1, 1988.

11. Lincicome, “Doomed to Repeat It,” p. 23; and Gary Clyde Hufbauer and Eujin Jung, “Steel Profits Gain, but Steel Users Pay, under Trump’s Protectionism,” Trade and Investment Policy Watch (blog), Peterson Institute for International Economics, December 20, 2018.

12. “Monthly Production 2017–2016,” World Steel Association, worldsteel.org/steel-by-topic/statistics/steelstatistical-yearbook.html;World Steel Association, Steel Statistical Yearbook 2016 (Brussels: World Steel Association, October 2016); and U.S. Geological Survey, “Mineral Commodity Summary 2017,” Department of the Interior, January 19, 2017, pp. 84–85.

13. The healthy financial position of U.S. steel was summarized in a European Steel Association’s written submission: Karl Tachelet (director of International Affairs, EUROFER), “Re: Section 232 National Security Investigation of Imports of Steel,” email to Brad Botwin (director of industrial studies, Office of Technology Evaluation, Bureau of Industry and Security, U.S. Department of Commerce), May 31, 2017, pp. 21–23, bis.doc.gov/index.php/232-steel-public-comments/1787-eurofer-written submission-public-version/file

14. Ana Swanson, “Trump to Impose Sweeping Steel and Aluminum Tariffs,” New York Times, March 1, 2018.

15. Cox and Russ, “Steel Tariffs and U.S. Jobs Revisited.”

16. Cox and Russ.

17. Chris Isidore, “Why American Steel Stocks Plummeted in the Past Year, Despite Tariffs,” CNN Business, May 21, 2019; and Don Lee, “Trump’s Steel Tariffs Were Supposed to Save the Industry. They Made Things Worse,” Los Angeles Times, October 29, 2019.

18. Proclamation No. 9980, 85 Fed. Reg. 5281 (January 29, 2020).

19. Lee, “Trump’s Steel Tariffs Were Supposed to Save the Industry.”

20. Scott, Manufactured Crisis, 26

21. Scott, Manufactured Crisis, 35

Works Cited

"Global Trade Growth Returns but Outlook for 2023 Is Poor." United Nations Conference on Trade and Development. Last modified June 21, 2023. Accessed July 1, 2023. unctad.org/news/global-trade-growth-returns-outlook-2023-poor.

Lincicome, Scott. "Manufactured Crisis: 'Deindustrialization,' Free Markets, and National Security." JSTOR. Last modified January 27, 2021. Accessed July 1, 2023. jstor.org/stable/resrep28730.

United Nations Conference on Trade and Development. Last modified December 13, 2022. Accessed July 3, 2023. unctad.org/news/global-trade-set-hit-record-32-trillion-2022-outlook-increasingly-gloomy-2023.