The national security nasties Biden will leave behind

Welcome to the penultimate Trade Secrets newsletter of 2024. There will be a final Trade Secrets column this week and a newsletter with a greatest hits round-up of the year on December 30, plus your answers to various questions I’ve put in here over the past few months.

This week, I’m looking at national security and trade and, if you can believe this, two different manifestations of wrongheadedness and/or ineptitude from the US on the subject in a single week, plus more evidence of Donald Trump’s fundamental irrational unpredictability. Charted Waters is on container ships. Question: what have you liked most about the newsletter this year, and what could I do more of or less of? Email me at alan.beattie@ft.com.

Biden’s natsec proposal is too little, too late

So NOW you’re telling us? Throughout the Biden administration (and the Trump administration before it), the US treated appeals to national security as a kind of get-out-of-jail-free card, enabling it to break trade rules at will.

The use of the World Trade Organization’s Article XXI loophole had generally been regarded as being a matter for the country invoking it, but that only held as long as there was a norm of voluntary restraint. After Trump started using it willy-nilly — and especially for his Section 232 tariffs on steel and aluminium (aluminum, whatever) — the WTO dispute settlement system made rulings against it, which only hardened US disdain.

Some countries sympathise with some of the US’s complaints against the over-reach of dispute settlement rulings, or at least would welcome a clarification of what they are and how they might be fixed. But it’s typical of the disingenuousness or incompetence (hard to tell which from outside) of the Biden administration that it endlessly moaned about the status quo without ever specifying publicly what it wanted instead.

Last week, the US circulated a proposal for addressing the national security issue. It suggested that governments believing their benefits under WTO rules had been taken away by a natsec-related trade measure had the right to ask an arbitrator to give them compensating market access or other benefits elsewhere, without making a judgment on the natsec issue itself.

It’s not the worst idea and it’s in line with the general principle (the general principle, I said, before pedantic trade lawyers write in) of compensating for restraints on trade with liberalisation elsewhere. But seriously, it took four years to come up with a two-page proposal, and they released it when Biden was a lame-duck president? It’s hardly worth debating, as there’s little chance of Trump believing in any principle of compensation.

There was some belief (including, in one or two of my rare optimistic moments, by me) that Biden might be serious about reviving WTO dispute settlement if he could get the reform he wanted and thought it might help to restrain Chinese subsidies and protectionism. But his administration equivocated year after year about what that reform was. Faith in the US’s good intentions evaporated. This proposal is too little, too late to fix that.

That’s national security spelt S-T-E-E-L

In reality, of course, the tariffs we’re arguing about have nothing to do with national security at all, under either Trump or Biden. When Trump first introduced the Section 232s, Jim Mattis, then secretary of defence, said that steel and aluminium needed for military purposes was just 3 per cent of national production, and that broad-brush tariffs risked damaging relations with allies.

But some know better. The Financial Times had a great story last week out of Washington that US trade representative Katherine Tai was blocking a decision to allow the Nippon Steel takeover of US Steel on national security grounds. Given that government agencies that actually have responsibility for national security, including the Pentagon and state department, were in favour of letting the deal go ahead, it’s quite surreal for the USTR to be second-guessing them and opposing it.

Then again, Tai’s always been obsessed with steel. She told counterparts in other governments that backing the industry was essential to winning Pennsylvania in the election and that they had to join in. It would appear that since the head of the steelworkers’ labour union — though not union officials or workers on the ground — is against the Nippon Steel deal, so is she. (Many thanks to eminent Canadian trade scholar Robert Wolfe for alerting me to the views of the grassroots.)

Thing is, the election’s over and the Democrats lost Pennsylvania and, indeed, the White House. But the obsession with the steel industry that employs just 80,000 people, 0.06 per cent of the US workforce, goes on.

As I’ve said before, the Biden administration’s “worker-centred” trade policy is comically misnamed. It’s a policy dictated by union leaders representing a small number of relatively well-paid employees in a small number of declining sectors. Among other things, it’s hurt steel-using industries, trashed international law, angered allies and had a shot (fortunately failed) at destroying the only real chance we have for an international carbon tax. Apart from that, it’s been a roaring success. I’m not saying I’m going to be welcoming Trump’s trade policy, but I’m glad I don’t have to listen to this worker-centred thing any more.

Nobody knows anything — latest instalment

In a piece on chief executives’ bafflement over Trump’s intransigence on trade, the Wall Street Journal reports that Trump’s pronouncements on tariffs (specifically the threats of 25 per cent duties on Mexico and Canada) were made with little warning to advisers, including secretary of state nominee Marco Rubio and Treasury secretary nominee Scott Bessent. The latter, apparently financial markets’ representative on earth, or at least in Washington, is supposedly a voice of moderation who will restrain self-destructive trade and financial policy. He doesn’t seem to have had much impact yet:

So far, executives are facing setbacks as they canvass Trump’s aides for advice on how to influence the president-elect’s next steps. Trump is largely acting on his own, leaving his incoming team of advisers with few opportunities to shape his thinking. His recent late-night social-media statements about tariffs have come with little warning even to some of his closest allies, according to people familiar with the matter.

I may have said this one or two million times before but I’m going to keep saying it. You won’t be able to predict trade policy under Trump by analysing different camps or contrasting strands of thinking in the administration based on an assumption of rationality or consistency. It will be driven by whim from the top. Anyone who claims to be able to forecast what’s going to happen is deluding themselves, or whichever clients may be paying them for their insights — or both. Nobody knows anything. Nobody knows anything.

Charted waters

The number of container ships being built continues to rise, and freight rates have fallen back to levels similar to those at the beginning of the year. But it’s mid-size rather than megaships which are dominating the order books.

Trade links

Paul Krugman, newly freed from the opinion pages of the New York Times, suggests that the US dominance in tech might simply reflect the clustering effect in Silicon Valley.

Writing for the FT’s Alphaville, Karthik Sankaran, senior research fellow at the Quincy Institute for Responsible Statecraft, argues that disputes over the dollar reflect the fact that there are three different roles it has in the global economy — trade, national security and financial stability.

Charlie Robertson, head of macro strategy at FIM Partners, takes aim at the common belief that Trump’s economic nationalism will end up with more FDI into the US and less into emerging markets.

A Peterson Institute paper breaks down exactly which sectors will be hit by Trump tariffs on China.

David Henig, adviser to the UK Trade and Business Commission, argues that Britain needs to make positive demands in its post-Brexit talks with the EU rather than letting Brussels set the agenda.

Trade Secrets is edited by Harvey Nriapia