In a landmark ruling on August 16, 2023, the World Trade Organization (WTO) determined that the retaliatory tariffs imposed by China on U.S. imports in response to U.S. steel and aluminum tariffs were inconsistent with international trade rules. The decision marks a significant moment in the long-standing trade dispute between the two major economic powers. A full text of the decision is available here.

The trade dispute began in 2018 when the United States imposed a 25% tariff on steel and a 10% tariff on aluminum from China under Section 232 of the Trade Expansion Act of 1962. The tariffs were declared as a necessity to protect the U.S. steel and aluminum industries for national security purposes. In response, China retaliated with additional import duties on 128 U.S. items worth $3 billion, including agricultural goods.

The WTO handed down its ruling on August 16, 2023, focusing on two main aspects:

  • U.S. Tariffs Justified: The WTO panel upheld the U.S. tariffs on steel and aluminum, imposed under Section 232.  These tariffs were justified as necessary for national security purposes, with the U.S. arguing that protecting its steel and aluminum industries was vital to its security interests.
  • China’s Retaliation Violated Trade Rules: The WTO dispute panel stated that China’s retaliatory tariffs were “inconsistent” with various articles of the General Agreement on Tariffs and Trade (GATT). The panel rejected China’s claim that the tariffs were legitimate safeguards and that the U.S.’s actions were safeguard measures that could be “rebalanced.”

The Office of the U.S. Trade Representative (USTR), in response to the ruling, stated it was pleased the WTO upheld the Section 232 tariffs, declaring that China “illegally retaliated with sham ‘safeguard’ tariffs.” According to the USTR, “The WTO does not have the authority to second-guess a WTO member’s response to threats to its security, and WTO reform must ensure that issues of national security cannot be reviewed in WTO dispute settlement.”

China’s response was critical of the ruling. While the country’s Commerce Ministry stated it was studying the case, it also argued that the root of the problem “lies in the unilateralism and protectionism of the U.S.” China called for the removal of the U.S. Section 232 tariffs and emphasized that its actions were a legitimate move to safeguard its rights and interests.

The ruling may have implications on future trade relations between the two countries and the overall global trade landscape. The case brings attention to the complexity of international trade law and the ongoing debates around national security, unilateral actions, and the role of the WTO in settling such disputes.