G20 leaders steel themselves for Trump's next trade move

Of all the issues testing the mettle of G20 leaders in Hamburg, Germany this weekend, U.S. President Donald Trump's threat to put new tariffs on steel imports to protect national security may be the strangest.

If the logic put forward by countries like Canada prevails, his threats may also be empty.

Ornot. Who can say these days, really?

"It doesn't seem as though economic logic is what's driving [the U.S.] decisions," said Chad Bown, a senior fellow with the Peterson Institute for International Economics.

On the campaign trail last year, Trump railed against the evil ofChinese steel being dumped into the U.S., robbing American steelworkers of jobs. But Bown's research finds duties already in place on Chinese steel are working; very few U.S. imports come from China.

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That means that if aU.S. Commerce Department investigation anticipatedlast week, but curiously not done ahead of the G20finds foreign steel imports a "national security threat," it's not really China that would be hit bynew import quotas or duties.

It's some of America'sbest trading partners: Japan, Germany, and yes, Canada barringa North American exemption.

European Commission President Jean-Claude Junckerrattled his sabre for a trade war at the G20 summit in Hamburg, Germany on Friday. The EUisin an "elevated battle mood," he said.

He hopes it won't be necessary.But, without providing details, Junckersaid the EU could react with countermeasures "within a few days we won't need two months for that."

That's how thisescalates, fast, into something major.

'The nuclear option'

"At these fora like the G20, the focus now, entirely, is on what the Trump administration is doing ...as opposed to the focus being on what the underlying source of the potential concern is, which is the global overcapacity of steel," Bown said.

Trump's threatis extremely dangerous, he said, calling it "the nuclear option" something that ignores international rules and doesn'tallowcounter-arguments.

Yes, countries could and would, the EU's trade commissioner, Cecilia Malmstrom, suggestedFriday appeal to the World Trade Organization.

"That to my mind gives the Trump administration the political ability to say ...'You're going to have some unaccountable judges in Geneva to tell us in the United States what's in our national security?'" Bown said.

"It really would give them the political motivation or excuse to not abide by legal rulings, or something as drastic as pulling the United States out of the [WTO]."

Fearing this, injured countriesmight hesitate to appeal steel tariffs, he said. "But then if we don't challenge this ... what kind of signal does that send?"

It's a Pandora's Box,Bownsaid.

Farmers don't wantcompetition from imports? Surely food sovereignty could be a national security concern, too.

A legitimate reason?

Is there a legitimate national security reason to restrict trade?

It'sfuzzy. And the U.S. hasn't done it since the oil crisis in the '70s.

SusanArielAaronsonfrom George WashingtonUniversity comparessteel to blacksmithing: demand willkeep dropping as alternative building materials emerge. But the Chinese haven't slowedproduction, so thatdepressesglobal prices.

"This has nothing to do with trade," she said."My gut is that this is more about keeping a [campaign] promise and they can't do it under WTO rules," she said. "National security allows you to do that, but it's just stupid."

"It's terrifying," she said. "It's beyond crazy."

What's more shocking, she said, is that the Americanbusiness community especially secondary manufacturers downstream from the steel jobs Trump's fixated on haven't come out harder against taxing their inputs.

Could Trumpwalk this back?

"As long as he looks like he tried to do something, that's what he's going to try to do. I do think they're more protectionist talk than action," Aaronsonsaid.

'They're bullies'

"They're bullies," she said. "He likes to threaten."

Simon Lester, a trade policy analyst with the Cato Institute, isn't sure whether the Trump administration is serious, or just softening up the other side.

"It's felt like since the campaign that there's a trade war coming. So, when's it coming? Is it really coming?" he said.

"I'm still kind of hopeful that they'll realize it and this is more about leverage than an actual measure that they're going to impose."

But given thepolitical fanfare over steel,the Commerce Department's findings may be a foregone conclusion, he said, especially since "national security" is self-judged.

"They will recommend some measure," he thinks. "They don't then need to take it, though."

Which brings us back to Canada.

Last month, Prime Minister Justin Trudeaupointed out Canada collaborates daily with the U.S. on security, intelligence and defence issues, so portraying itas "somehow not a trusted partner to sell steelis uh, a little bit silly,to be quite frank," he said.

Speaking to reporters on Saturday from Germany, Trudeau said he's spoken to Trump a number of times about steel.

"We are comfortable that the 232 provisions will not apply to the Canadian steel industry, which is extraordinarily well integrated into the American, U.S. steel industry as well," he said, referencingsection 232 of theTrade Expansion Act, which deals with threats to national security.

"The kind of back and forth. complementaritybetween Canada and the U.S., on steel is something that we both value tremendously as countries."

Canada'sembassy in Washingtonput out a fact sheet this week about how the balance of trade on steel favours the U.S. Both countries need to consider all the middle class jobs involved, the lobbying line goes.

Freeland's message

"This is a message [Foreign Affairs Minister Chrystia Freeland]has personally delivered to U.S. secretaries and senators in recent months. We think it is unwiseto look at Canada through a national security lens and hope this issue can be resolved," Freeland'spress secretary, Adam Austen, wrote CBC News.

NAFTAtalks maystart next month. Lester says that without an exemption for North America's heavily integrated industry, the Trump administration stands to mess up something inwhich they've put a lot of stock.

"Canada and Mexicowill be concerned enough about this to say, 'Look, how do you expect us to talk in good faith about redoing NAFTA when you're just blowing up the system and undermining NAFTA and the WTO?'" he said.

"That might be what they're struggling with."