Limiting US Steel Imports Under Section 232

US President Donald Trump has ordered an investigation under Section 232(B) of the 1962 Trade Expansion Act, to look into the national security implications of imported steel.  While this may appear to be a purely domestic legal issue within the United States, it may have significant implications for Asian producers of steel and, indeed, for manufacturers of all types.  

If the Trump trade team implements Section 232 for steel, it may use the same tool for other products in the future (and a similar investigation for aluminum is already underway).  The Department of Commerce has been tasked to conduct the investigation, and to prepare a report for Trump within 270 days from the investigation’s initiation.

Upon the submission of the Department of Commerce’s findings and recommendations, Trump will have up to 90 days to decide if he concurs, and to take action to ‘’adjust the imports of an article and its derivatives.’’  Commerce officials are expected to brief members of Congress on recommendations later this week.

This Talking Trade post examines the 1,598 pages of public comments received by the Commerce Department in relation to the steel case from three key groups - domestic steel producers, downstream manufacturers reliant on steel inputs, and steel producers from other countries including Brazil, Canada and China.

Domestic steel mills, particularly those producing steel products with some sort of nexus to national security, such as armor plate used in tanks, argued strongly in favour of Section 232 action against steel imports. In their view, protection from steel imports is necessary to ensure their commercial viability, which is needed for them to continue developing steel for use in defense and critical infrastructure applications.

These domestic steel mills see anti-dumping (AD) and countervailing duty (CVD) orders as helpful but insufficient in addressing unfair trading practices, thus necessitating broad-based import remedies that can be taken through the Section 232 mechanism.

Conversely, downstream manufacturers reliant on steel inputs argued against unilateral, broad-based action on all steel imports. They urged that if action were to be taken, restrictions on steel imports should narrowly target specific products that directly threaten national security.

While many of them have tried to procure their steel inputs from domestic suppliers, they have encountered difficulty in finding domestic suppliers that can provide the specific type and quality of steel that they require. Furthermore, they see steel imports as an important supplemental source of supply, particularly given the tendency of domestic steel mills to be unreliable.

Restrictions on steel imports will fundamentally threaten their viability and competitiveness, and potentially prompt them to offshore their manufacturing.

Steel producers from other countries also weighed in on the issue, positing that steel imports from their countries do not constitute a threat to US national security. They argued that the demand for steel by US national defense and other critical sectors can be readily satisfied by American domestic production, and imported steel does not threaten their ability to meet existing demand.

Additionally, the US is neither overly reliant on nor threatened by one specific country’s steel imports, since the United States imports steel from a diverse group of suppliers. Furthermore, given that the US government already has recourse to trade remedies such as AD and CVD orders, further action to restrict steel imports is unnecessary.

These concerns point towards two fundamental conundrums in implementing any restrictions on steel imports under Section 232.

First, how broadly or narrowly should ‘’national security’’ be defined, and by implication, which steel products should be included in or excluded from the scope of action?

As it stands, US Secretary of Commerce Wilbur Ross has justified the initiation of a Section 232 investigation by asserting that the limited scope of AD and CVD remedies has rendered them insufficient to address ‘’the broader structural economic harm to the US steel industry caused by massive global overcapacity and unfair foreign competition.’’ 

This suggests that a broad-based, rather than product-specific, approach should be taken in restricting steel imports. However, this would necessarily implicate downstream American manufacturers that are highly reliant on steel inputs, such as automotive manufacturers, who presumably would prefer to use domestically produced steel if not for difficulties in finding suitable, reliable suppliers.

Broad-based action in restricting steel imports may protect American steel producers, but only at the expense of every American manufacturer that requires steel inputs in their production process.

Conversely, if Commerce opts for a highly product-specific approach, they run into the challenge of distinguishing between steel products that have a direct nexus to national security, and those with largely commercial applications.

Since the majority of steel products do not fall neatly into one of the two categories, it means that many steel products will likely be included within import restrictions because they are deemed to have national defense implications.  But these are also the same steel products that downstream American manufacturers need.

Furthermore, if Commerce adopts a highly product-specific import restriction, it will, in effect, be subject to the same limitations that America’s extensive suite of AD and CVD orders have, and do little to address the supposed problem of global steel overcapacity.

Second, which countries should be included or excluded from the scope of action? While the Section 232 investigation has not specified particular countries under investigation, Trump has repeatedly singled out China as the source of the American steel industry’s woes.

However, are Chinese steel imports really a threat to American steel mills? It turns out that steel imports from China constitute less than 1% of the American steel imports, according to data from the IHS Global Trade Atlas.  This is largely because Chinese steel is already kept out of the American market by a series of successful anti-dumping and countervailing duty cases.

It is unclear if any restrictions on steel imports will be targeted at China, but what can be said is that Trump’s accusations towards Chinese steel seem to be more of a myth than a reality. Even if they do not intend to target China specifically, how might Commerce go about distinguishing between countries whose steel imports threaten American national security, and countries whose steel imports do not?

Commerce could also choose to go without any distinction and simply restrict steel imports from all countries, but this would spark retaliatory action, and come at huge expense to all American manufacturers who need steel inputs in their production process.

Politico is now reporting that three options may be on the table at this point:

- A 25 percent tariff that would apply to any steel imports that fall in the scope of the investigation. The tariff would also apply to all existing anti-dumping and countervailing duty orders.

- A tariff-rate quota that would hit imports with a tariff once they exceed a certain volume. There is also discussion of an alternative that would apply tariffs if imports dip below a certain price, or

- A straight quota that would apply strict limits on imports of certain types of steel products from certain countries.

Under the Section 232 process, it may be much easier for Trump to unilaterally decide to restrict steel imports in order to protect the American steel industry, even if the facts do not exactly align with what he thinks. But how he should go about implementing these restrictions is definitely less straightforward than it seems. 

***This Talking Trade post was written by Jia Hui Quek, Asian Trade Centre, Singapore***