By Greg Ip 

Perhaps the biggest question hanging over Donald Trump's economic policy is whether, on trade, his actions as president match the bellicose rhetoric of his candidacy.

His inaugural address Friday suggested so. Mr. Trump echoed the same nationalist themes that carried him to victory in November. "For many decades, we've enriched foreign industry at the expense of American industry," he declared. "From this day forward, a new vision will govern our land. Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families."

However, in other forums last week he and his advisers emanated a subtler message that could be described as peace through strength: if the U.S. demonstrates it has the tools and will to punish unfair trade, it might deter the bad behavior of competitors without escalating into an all-out trade war.

If Mr. Trump succeeds in wringing concessions from other countries and showing working-class voters they are no longer roadkill for globalization, he may actually end up putting free trade on sounder footing. One of his advisers, Anthony Scaramucci, told a skeptical global elite gathered in Davos that Mr. Trump is in fact "one of the last great hopes for globalism."

Much depends on how Mr. Trump bargains. If he pushes the rest of the world too far or penalizes as unfair trade that clearly is not, the result will be a trade war.

The most illuminating comments on the new president's tactics came from Wilbur Ross, the bankruptcy-turnaround investor that Mr. Trump has nominated as secretary of commerce.

During his confirmation hearing Wednesday, Mr. Ross said he preferred to focus on boosting exports and using carrots to keep factory jobs in the U.S.

"Get the Toyotas and other companies like that to build their factories here...And I think with the right tax policies, regulatory policies, and other policies we can accomplish that," he said.

What about sticks? Mr. Trump threatens to hit trading partners with tariffs of 35% to 45%. Mr. Ross suggested he would pursue tariffs on a case-by-case basis, rather than the across-the-board approach used in the 1930 Smoot-Hawley Act, which many historians believe worsened the Great Depression.

"Tariffs do have a useful role...correcting inappropriate practices [and] as a negotiating tool," Mr. Ross told Congress. "I'm keenly aware of Smoot-Hawley...That kind of approach didn't work very well then, and it very likely wouldn't work very well now."

Mr. Ross's department is responsible for bringing cases against imports that are subsidized or dumped, meaning sold below cost or below home-country prices. Mr. Ross promised to "self-initiate" anti-dumping cases rather than wait for the affected industry to do so. He also wants to give alleged dumpers less time to respond and to do a better job collecting duties owed.

The U.S. would demand tougher concessions in current and future trade agreements and might move quickly to reopen the North American Free Trade Agreement. Canada's Globe and Mail reports Mr. Ross wants tighter rules of origin, which is how much non-North American content an import can have and still enter duty-free. Mr. Ross suggested Mexico could be asked to raise its minimum wage.

There were other hints last week of a less adversarial stance on trade than some expect. Mr. Trump told The Wall Street Journal he wouldn't, as originally promised, label China a currency manipulator on the first day of his presidency: "I'd talk to them first," he said.

He said a House Republican plan to tax all imports as part of corporate tax reform was too complicated. This doesn't mean he is against taxing imports. He may prefer to do it on a case-by-case basis.

"For certain companies that move jobs...there may be repercussions," Steven Mnuchin said at his Senate confirmation hearing for treasury secretary. "He has not suggested in any way an across-the-board 35% border tax."

Mr. Mnuchin played down Mr. Trump's earlier complaint about the negative competitive effects of dollar appreciation. He called a strong dollar a sign of an attractive investment environment.

Mr. Trump and Mr. Ross expect selective punishment to have broad benefits. Trade remedies work through an "actual curative effect, its preventive effect and the psychological effect on the cheaters," Mr. Ross said.

Mr. Trump told the Journal that telling just a few car companies not to outsource will make others pay attention. "I'm not going to even talk to the rest of the car companies. I don't have to."

Messaging can work, as long as the companies and countries in question believe there will be consequences if they don't comply. That means at some point Mr. Trump will have to back threats with actual tariffs or taxes. This will be more complicated than a tweet.

Actions against imports are covered by statutes administered through the Commerce Department and the International Trade Commission. Their decisions can be appealed to the World Trade Organization.

The president retains considerable discretion over whether to seek remedies in the first place. Robert Lighthizer, who will serve as U.S. Trade Representative, noted in 2010 that the terms under which China joined the WTO allowed the U.S. to impose safeguard tariffs against surges of imports.

President George W. Bush didn't use that discretion. "Companies stopped even applying," Mr. Lighthizer wrote.

Mr. Obama used it once, against Chinese tires. While that provision has expired, the administration can almost certainly bring more cases on the basis of current law.

It may only need a few to achieve the desired effect. If Mr. Trump overplays his hand, or U.S. trade partners punch back, the risk of a real trade war will grow.

Write to Greg Ip at greg.ip@wsj.com

(END) Dow Jones Newswires

January 22, 2017 07:14 ET (12:14 GMT)