Since entering office in January 2017, President Trump has relied heavily on financial penalties, especially sanctions and tariffs, to bolster his aggressive approach to international relations.
This, in itself, is not unusual. But Trump, said international trade lawyer Adam Smith of law firm Gibson, Dunn & Crutcher, “appears to be using these tools in a much more forceful and much more coordinated fashion than any president in the past.” In doing so, he has also blurred longstanding distinctions between trade policy and foreign policy, using tariffs as apparent political weapons in a way that could eventually backfire on Washington.
Sanctions are a favored Trump administration tool, and the easiest way to measure the spike in their use under Trump may be to look at the Treasury Department’s Specially Designated Nationals list. It’s effectively a blacklist of foreign nationals and organizations that U.S. citizens and residents are restricted from doing business with.
Both the Obama and George W. Bush administrations increasingly used these targeted sanctions — rather than broader sanctions like those imposed on Cuba — as a tool to punish foreign policy rivals, criminals, human-rights violators and terrorists. But the Trump administration brought the number of people on the list to its all-time high last year, and then broke its own record again this year, according to an analysis by Smith. The list now contains roughly 6,500 names in total.
The SDN list is the “sharp end of the spear,” said Smith, who previously worked at the White House and the Treasury Department’s Office of Foreign Assets Control (OFAC) during the Obama administration. The expansion of the list “demonstrates the desire to use this sanctions tool ever more creatively and in a forward leaning and unilateral manner" under Trump, he added.
Yet the Treasury Department has announced relatively few civil penalties or settlements with U.S. citizens or residents who were caught doing business with those on the list. So far in 2018, there has been only one settlement announced.
In theory, that could mean sanctions are being enforced less stringently than before — perhaps because they are successfully acting as a deterrent, or because the larger list is stretching the limits of enforcement. Richard Nephew, a former U.S. government specialist on sanctions and a research scholar at Columbia University, suggested in an e-mail that there could simply be a delay in announcing penalties because of staffing problems or senior-level departures at the State Department.
Tariffs as politics
Trump has also ramped up the use of tariffs in an attempt to fight what he considers unfair trade practices. “Before the Trump administration took office, 3.8 percent of US imports were already subject to special trade restrictions applied under US trade laws,” wrote Chad Bown of the Peterson Institute for International Economics in a research paper published last year. “But the major new actions that have already been undertaken in sectors like steel, aluminum, lumber, and solar cells could nearly double the share of imports covered by this sort of protection.” Trump has announced additional tariffs on steel and aluminium in 2018.
Of course, there have been plenty of moments in the past when the U.S. government imposed tariffs (or set quotas) upon a larger percentage of imports. But the way the Trump administration has imposed those tariffs is unprecedented.
Trump has made extensive use of Section 232 of the Trade Expansion Act of 1962, which gives the president authority to impose tariffs on national-security grounds if the Department of Commerce investigates and determines there are security concerns. A Section 232 investigation also allows the president to set such tariffs without a vote in Congress or review by the World Trade Organization.
Section 232 was rarely used, and investigations were often requested by aggrieved companies rather than initiated by the government itself. Until Trump took office, no president had acted under Section 232 since 1982 — and there had been no investigations whatsoever since 2001.
But, as Bown noted in his paper last year, “the administration has declared its intention to initiate its own investigations and actions rather than wait for companies to request them." Trump has since used Section 232 powers to unilaterally set tariffs on steel and aluminium; pending the results of another investigation, he may also be able to impose them on imported cars.
Trump has also made unusual use of Section 301 of the 1974 Trade Act to target China. That law allows the U.S. trade representative to designate unfair trade practices by other nations and retaliate against them.
Gary Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, said Trump had “weaponized” trade policy with the use of those sections, which were “never intended for the type of purpose he’s using them for."
Indeed, the motive behind some of the moves has seemed explicitly political. Earlier this month, amid a diplomatic spat with Turkey, Trump unexpectedly announced he would be doubling tariffs on metal imports from Turkey, an apparent retaliation for Turkey’s detention of an American pastor rather than any trade actions.
Nephew said that the change could set a dangerous precedent. “In the past, we could be clear that tariffs were for trade disputes and sanctions were for foreign policy," he said. Mixing them up could allow others to argue our sanctions are for trade disputes, diluting international support for them, and may ultimately incur penalties from the World Trade Organization, he added.
That the Trump administration is able to intertwine foreign policy and trade policy like this is a testament to the United States' vast financial clout on the world stage. But that dominance may not last forever: Some European politicians are already grumbling about ways they can change the current global financial system to remove the power Washington has over sanctions and tariffs it currently wields so happily.