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International trade brief: Trump administration investigates impact of steel imports on U.S. national security

Author(s): Margaret Kim, Peter Glossop, Riyaz Dattu

Apr 28, 2017

In our last international trade brief, we talked about U.S. President Donald Trump’s “Buy American, Hire American” Executive Order. This week, in two articles, we discuss the softwood lumber dispute — which is now into the fifth round of ongoing trade policy differences between Canada and the United States — and President Trump’s invocation of a rarely used U.S. trade law provision to  investigate the effect of steel imports on national security. 

On April 20, 2017, U.S. President Donald Trump signed an executive memorandum directing the Secretary of Commerce, Wilbur Ross, to investigate whether steel imports pose a threat to U.S. national security. The investigation has been initiated under Section 232(B) of the Trade Expansion Act of 1962 [PDF] (the Act) — a rarely used provision —  which allows for an examination of the effect of particular imports on national security. The purpose of this provision is to allow the U.S. government to assess whether there is excessive reliance on imports from unreliable sources, or if there is the potential for damage to a domestic industry such that it cannot satisfy U.S. defence needs.

1.Scope and timeline of Section 232 investigations

The Act confers broad presidential discretion to impose tariffs on imports that injure U.S. national security. Under Section 232(B) of the Act, if Commerce Secretary Ross determines that steel imports “threaten to impair” U.S. national security, the president can negotiate agreements to limit or restrict imports, or to “take such other actions as he deems necessary to adjust the imports of such article so that such imports will not threaten to impair the national security.” Section 232(B) of the Act therefore allows action to be taken against “fairly traded” products that are imported to the U.S., and supplements the usual trade remedy provisions dealing with dumped or subsidized products that target “unfairly” traded imports.

The U.S. Department of Commerce (Commerce) is mandated by Section 232(B) of the Act to complete its investigation and issue a report within 270 days (i.e., nine months), during which it must consult the Department of Defense and may provide the public with an opportunity to comment. Notwithstanding the 270-day statutory timeline, President Trump has indicated that he is pressing for an expedited process that may conclude in as little as 30 to 50 days. Commerce Secretary Ross has stated that at least one public hearing will be held and comments will be called for. If the Commerce Secretary finds that imports threaten to impair national security, the president has 90 days during which to accept or reject the Commerce Secretary’s findings and to decide on possible remedies (i.e. tariffs) or take non-trade-related measures. Commerce is thereafter required to take appropriate action no later than 15 days after the president determines a response is warranted.

2. Implication of the Section 232 investigation

The effect of the Section 232 investigation will likely be immediate and has the potential to severely strain trade relations with countries that export steel into the U.S., including Canada, China, Brazil, South Korea, Mexico, Germany and Turkey.[1]

The launch of the Section 232 investigation also signals the Trump administration’s willingness to take an aggressive approach as part of the “Buy America” strategies, including by using procedures that are special or unusual. Section 232 has been rarely invoked to resolve trade import issues in the past; it was last used in 2001 for investigating iron ore and semi-finished steel. However, even then it was driven by a petition from U.S. companies, that, in normal course, along with their workers or industry association, are expected to request the government to initiate investigations. Commerce ultimately concluded in that investigation that the imports did not pose a threat to national security. The current investigation, on the other hand, has been self-initiated by Commerce which is unprecedented.

Although this investigation clearly is a protectionist step, it is far from a foregone conclusion that steel imports threaten to impair U.S. national security. Most of the imports originate from Canada, a close ally of the U.S,  and typically do not involve technically advanced steels such as those used in defence applications.

Should the U.S. impose tariffs on imported steel, the risk of major protests from affected countries and potentially retaliatory measures on U.S. exports cannot be ruled out. In addition, affected countries may also challenge U.S. actions by requesting adjudication by a World Trade Organization (WTO) dispute panel.

3. Launching a Section 232 investigation into aluminum

The Trump administration seems intent on expanding the use of Section 232, launching another investigation under the provision on April 26, 2017, with respect to the impact of aluminum imports on national security. In a press conference, Commerce Secretary Ross justified the probe by stating that imported aluminum has left the U.S. with only one domestic producer capable of meeting the military’s needs, which include fighter jets and next generation military vehicles. More details on this investigation will follow in next week’s international trade brief.

[1] See International Trade Administration, “Global Steel Trade Monitor” [PDF],  Steel Imports Report – Imports by Top Source, December 2016, at p.3.