Administration steel investigation may be a dud, or it may invite retaliation.

Inside steelmaking plant in Pohang, South Korea
Inside steelmaking plant in Pohang, South Korea

On April 20, President Donald Trump signed an executive order directing the expedited completion of an existing investigation initiated by the Secretary of Commerce with respect to steel imports, under Section 232 of the Trade Expansion Act of 1962. The purpose of a Section 232 investigation is to determine the effect of imports on national security.
The president and the administration have a number of different avenues through which to investigate and take action against foreign imports. It is somewhat puzzling why the administration chose the Section 232 route in this case.

The only effect of the presidential memorandum in this instance is to hurry-up the investigation from its normal 270 days to 50 days, a circumstance which some observers regard as unrealistic. It’s worth noting, however, that the Commerce Department’s Bureau of Industry quickly posted a notice of a public hearing on the matter for May 24, 2017.

Section 232

Section 232 is rarely used and has only been pursued twice since the US joined the World Trade Organization (WTO) in 1995: in an investigation of crude oil in 1999, and iron and steel in 2001. In both cases, the Commerce Department recommended that the president not take action and the president concurred. In the 2001 case, the Secretary of Commerce found that “iron ore and semi-finished steel are important to US national security” and that “imports of iron ore and semi-finished steel could threaten to impair US national security” but that there is “no probative evidence” that those imports actually impair US national security.

A showing of a national security threat is not necessary in other forms of anti-import investigations. Under Section 201, a showing of damage to the domestic industry is required, while under Section 301, there would have to be an allegation of a violation of a trade agreement or some other unfair trade practice.

The presidential memorandum noted that “we must defend against unfair trade practices and other abuses” and that “global markets for steel products are distorted by large volumes of excess capacity.” The order went on to say that the US has placed “more than 150 antidumping and countervailing duty orders on steel products, but they have not substantially alleviated the negative effects that unfairly traded imports have had on the United States steel industry.”

A fact sheet circulated by the White House argued that “domestic steel makers are harmed where nations that export steel products to the United States unfairly subsidize their products or sell them at artificially low price.” The document concluded that the president “is taking action to ensure America’s steel industry comes first…”

The Case for Section 201 or Section 301?

The domestic steel industry was understandably elated by the president’s action, but some of them seem to have missed the point that the White House fails to make the case that steel imports threaten national security. The arguments put forward by the administration sound much more like they are making the case for a Section 201 or a Section 301 violation.

“Massive global steel overcapacity has resulted in record levels of dumped and subsidized foreign steel coming into the US and the loss of nearly 14,000 steel jobs,” said Thomas Gibson, president and CEO of the American Iron and Steel Institute. “The administration launching this investigation is an impactful way to help address the serious threat posed by these unfair foreign trade practices, and we applaud this bold action.”

AK Steel filled in some of the blanks that the White House missed when its CEO noted that the nation’s electrical grid is arguably a national security interest. AK claims to be the only North American company producing carbon, stainless, and electrical steels.

“We cannot allow our nation’s electrical grid, which is a critical part of the nation’s infrastructure and vital to America’s national security interests, to be dependent on foreign electrical steel, particularly in the event of a natural disaster or other crisis,” said Roger Newport, AK Steel’s CEO. Newport went on to say that “AK Steel particularly feels the ongoing impact of unfair electrical steel imports flooding our market,” which is not a national security argument.

Other Side of the Coin

National security considerations can cut both ways, noted Richard Chriss, president of the American Institute for International Steel, an importers’ trade group. “We hope that the secretary will consider the national security and economic implications of protectionist policies that would limit the availability of steel and drive up its price,” he said. “In addition, we should remember that it is quite likely that any trade restrictions imposed by the United States will invite retaliatory measures by other nations against exports from the United States, both steel related and non-steel related, which could have serious economic and security consequences of their own.”

That’s what happened in 2002, when President George W. Bush imposed extra tariffs on certain steel products under Section 201 of US trade law. Within six months, Bush lifted the tariffs to avoid over $2 billion in foreign retaliatory tariffs from the European Union.

Under Section 232, the president has substantial but not unlimited powers to adjust imports by raising tariffs, imposing quotas, or taking other steps. And it’s important to keep in mind that the initial investigation will be undertaken by the professionals at the Department of Commerce. It’s possible that they will find, as their counterparts did in 2001, that evidence is lacking to conclude that steel imports threaten national security. If that happens, the case will conclude with a loud thud.

On the other hand, if Commerce comes back with an affirmative conclusion and the president concurs—as he no doubt will—and the US places restrictions on steel imports, US exporters will face retaliatory actions as they did in 2002. If that happens, and the domestic price of steel spikes—as it no doubt will—Trump may have little choice but to undo the effects of his anti-import rhetoric.