Manufacture This

The blog of the Alliance for American Manufacturing

It allows the Commerce Secretary to investigate if imports threaten national security.

President Trump has taken some bigly action at the White House. 

Joined by steel executives and United Steelworkers President Leo Gerard, the president signed an executive memorandum on Thursday to initiate a Section 232 investigation into steel imports. Section 232 isn’t used very often, but it gives the administration power to determine whether the imports are having an adverse impact on national security — and if so, could lead to new tariffs or quotas in response. 

Let’s break it down. 

O.K., start with the basics. What is a Section 232 investigation? 

The Trade Expansion Act of 1962, Section 232(b) gives the Commerce Secretary the ability to investigate whether certain imports, or high levels of certain imports, pose a threat to national security. The Commerce Secretary has 270 days to prevent the investigation’s findings to the president. And, if those findings show that imports threaten national security, the president has 90 days to decide whether to take action to restrict imports, including through tariffs. 

Notably, the statute places no limit on the nature of those restrictions or height of the tariffs. 

How has Section 232 been used before? 

Since the U.S. joined the World Trade Organization (WTO) in 1995, it’s only been used twice, on crude oil in 1999 and on iron and steel in 2001. But the Commerce Secretary declined in both cases to recommend the president take action. 

President Nixon used Section 232 to impose a 10 percent surcharge program in 1971 on all imports. And President Ford invoked Section 232 in a presidential proclamation in 1975 to raise licensing fees on petroleum products (although Congress passed legislation that year to prohibit the president for using Section 232 to establish minimum prices for crude oil without congressional authority).  

Let's get into the specifics. Is there a Section 232 case here? 

There is absolutely no doubt that there is a global steel crisis, and it is because China’s steel overcapacity is out of control. For years now, the United States and other nations have been pushing China to reduce its steel production, and China — which has admitted it has a steel capacity problem — has repeatedly promised to do something. China has repeatedly broken its promises; its steel production even increased in 2016. 

China’s steel overcapacity has led to tens of thousands of U.S. layoffs and dozens of steel facility closures nationwide. That has serious ramifications for America’s national security. Steel is used in everything from tanks to tactical vehicles to aircraft carriers to other military supplies.

If America loses its ability to manufacture steel, it loses a vital component of its national security infrastructure. 

If China’s steel overcapacity continues to go unchecked, America’s domestic steel industry will continue to suffer, and the U.S. military likely would find itself relying on potentially hostile nations — like Russia, or say China — for its steel needs.  

Is this move by the Trump administration expected? 

While one can never fully predict what President Trump will do, he has repeatedly pledged to stand up for steelworkers and steelmakers. And he did mention using Section 232 in his big trade speech in Monessen, Pa., in June 2016. 

Trump softened his language quite a bit after meeting with Chinese President Xi Jinping. But this might be a signal that he isn’t all talk – he also is willing to act when warranted. 

What are some of the constraints to Section 232? 

If the Commerce Department recommends action and Trump does so, other nations could file a complaint with the WTO. The United States would likely cite a security exemption in response. 

Is this starting a trade war? 

Let’s be clear about this: When it comes to steel, we’re already in a trade war. We just haven’t been fighting back, at least not effectively.

China heavily subsidizes its steel industry, and then dumps all that steel into the U.S. market at prices far below fair market value. The Chinese are doing this for a reason — they want to capture market share and put American steelmakers out of business. 

The United States has issued a series of tariffs on specific steel products in response — most of which, we note, went into effect under the Obama administration. But China’s overcapacity continues, including because China is shipping its steel through places like Vietnam to avoid those tariffs.  

It’s time to get tougher. 

If there is a Section 232 case, what comes next? 

Commerce Secretary Wilbur Ross will lead the investigation, and present his findings to Trump within 270 days. Then it will be up to the president to decide within 90 days what action to take, if any.