The World Trade Organization’s (WTO) Committee on Balance of Payments Restrictions (BOP) on Monday held consultations to discuss the Trump administration’s soon-to-expire 10 percent global duties.
Levied under Section 122 of the Trade Act of 1974 in the days following the Supreme Court decision that invalidated President Donald Trump’s International Emergency Economic Powers Act (IEEPA) tariffs, the duties, which will sunset on July 24 without a Congressional authorization of renewal, have also been the subject of legal scrutiny within the United States.
At Monday’s meeting, the BOP heard a statement from the U.S. in defense of the trade action, which was deemed illegal by a New York-based Court of International Trade last month.
The administration has justified imposing the duties through an assertion that America’s prolific trade imbalance with the rest of the world amounts to a balance-of-payments problem, which the law addresses.
The U.S. notified the U.S. of its tariffs under Article XII of the General Agreement on Tariffs and Trade (GATT). The BOP Chair this week said the objective of the meeting was to “enable a full exchange of views to better understand the challenges facing the United States and to explore possible avenues for further progress in the dialogue between the United States and members.”
Under GATT Article XII, WTO members can impose trade restrictions like tariffs only to address an “imminent threat” or serious decline to its monetary reserves or to increase those reserves in the case that they are “very low.”
The U.S. made a “comprehensive” statement on the issue, the WTO wrote. Some WTO members questioned the extent of the U.S. balance-of-payments deficit and the methodology used to calculate it. They asked about the need to impose the temporary tariffs and about the nature of the exemptions granted to certain products from specific markets.
According to the WTO, which did not publicize the U.S. response to these questions, several WTO members also urged the U.S. to consider the broad impact of these tariffs on global trade and to consider rolling them back.
The BOP invited the International Monetary Fund (IMF), the 191-member independent global organization that endeavors to ensure the stability of the monetary system, to present its perspective on the U.S. trade action.
Headquartered in Washington, D.C., the U.S. is the IMF’s largest shareholder, contributing the most money and owning more than 16 percent of the vote. According to the Library of Congress, because of its stature within the organization, “the United States can unilaterally veto major policy decisions. Most day-to-day decisions at the IMF, such as approving individual programs, require 50 percent of the voting share.”
The WTO also presented some reporting on the matter, based on a filing from the U.S. government, that was first released in early June.
“The U.S. economy has remained comparatively resilient despite a cooling labor market and lingering inflation. This resilience has managed to persist in spite of widening fiscal deficits, rising public debt, low national savings, and a growing reliance on foreign capital, which have contributed to external imbalances, including trade deficits,” it concluded.
In response to that document, independent think tank the Cato Institute wrote that there was no evidence that U.S. monetary reserves are on thin ice—a requirement under GATT Article XII to impose tariffs on other nations.
“U.S. official reserves are neither in ‘serious’ decline nor is there a reason for them to precipitously decrease in the foreseeable future,” the group wrote. “The United States does not struggle to attract private capital from abroad, and it does not peg the value of the dollar against another currency or monetary asset.”
“By openly and deliberately flouting the GATT, the administration is also exposing its use of Section 122 in a way that undermines the congressional intent when the provision passed,” the Cato Institute wrote.
If the WTO finds that the U.S. violated GATT, it can issue a ruling that the U.S. comply with global trade rules—and if the U.S. refuses to do so, the WTO could authorize impacted nations to retaliate with their own duties.
