Key Notes:

  • On April 20, 2017, President Trump issued a Presidential Memorandum initiating a Section 232 investigation into steel imports.
  • Section 232 is a rarely-used trade enforcement mechanism under the Trade Expansion Act of 1962 that provides the president broad enforcement authority to address the threat of imports on national security grounds.
  • The Department of Commerce has 270 days to issue its findings, concluding a process that includes a public comment period and hearing.

Overview

On April 20, 2017, President Trump issued a Presidential Memorandum to Secretary of Commerce Wilbur L. Ross, Jr. directing Commerce to initiate a rare Section 232 investigation into the impact of steel imports on national security. Commerce will investigate:

  • Whether steel imports cause U.S. workers to lose jobs required to meet the security requirements of the domestic steel industry.
  • Any negative effects of steel imports on government revenue.
  • Any harm steel imports cause to the economic welfare of the United States, recognizing the close relationship between economic prosperity and national security.

By law, Commerce must conclude the investigation and submit a report to the president within 270 days. If the report concludes that steel imports threaten U.S. national security, the president then has 90 days to accept or reject the secretary’s recommendations. If the president concurs, he may take several actions to “adjust imports,” including raising import tariffs. Within 30 days of the president’s determination to make adjustments, the president must submit a written statement to Congress outlining the reasons for the decision.

According to a Department of Commerce fact sheet released with the Presidential Memorandum, U.S. steel imports have increased 19.6 percent between February 2016 and February 2017. Secretary Ross, in remarks upon the issuance of the Memorandum, stated, “For years, we have simply reacted to … improper imports of foreign steel into this country. With our investigation … the federal government will finally become proactive.”

What Is a Section 232 Investigation?

A Section 232 investigation is undertaken to determine the effect of imports on U.S. national security. The investigation is conducted under the authority of the Trade Expansion Act of 1962 and may be initiated based on an application from an interested party, a request from the head of any department or agency, or may be self-initiated by the secretary of Commerce. During the investigation, Commerce gathers information from various sources such as surveys of producers, importers and end-users; on-the-record meetings with interested parties; site visits; and a review of public literature. It considers specific regulatory criteria, such as:

  • the requirements of the defense and essential civilian sectors;
  • the growth requirements of domestic industries to meet national defense requirements;
  • the quantity, quality and availability of imports;
  • the impact of foreign competition on the economic welfare of the essential domestic industry;
  • the displacement of any domestic products causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity; and
  • other factors relevant to the unique circumstances of the specific case.

In this steel investigation, Commerce has emphasized that it will consider “production and capacity, workforce, investment, research and development, and other factors to determine whether steel imports threaten American security.” Secretary Ross added that the investigation will examine what level of domestic steel production is necessary to meet national defense requirements and whether the domestic industry has the capacity to meet that demand. Industry representatives have stated that steel production is necessary for armor plating on tanks, high-tech alloys for aircraft, and naval vessel hulls.

Section 232 Investigations Are Rare

There have been only 26 Section 232 investigations total, and this is the first one since 2001. Only two have resulted in affirmative trade actions: the oil embargo against Iran in 1979 and the oil embargo against Libya in 1982. In all others, Commerce declined to recommend that the president take action. The most recent finding of a national security threat through a Section 232 investigation occurred in 1989. That investigation also concerned imports of crude oil and refined petroleum products, and Commerce found that, despite improvements in U.S. energy security since the last Section 232 petroleum affirmative finding in 1982, imports still threatened U.S. national security. In its recommendation, however, Commerce cautioned that “{a}n action to adjust imports by way of quotas, fees or tariffs, under the authority of Section 232, is not recommended because such actions are not cost beneficial and, in the long run, impair rather than enhance national security.” Commerce argued that any import fee or restriction would actually raise the price of oil and result in only a small temporary increase in U.S. production and cause increased economic costs and adverse competitive impacts throughout the U.S. economy. Some trade analysts argue that these concerns should be considered by the Trump administration with this current investigation.

President Trump and the Steel Industry

As a candidate during the presidential campaign, Trump argued that foreign nations are “dumping vast amounts of steel all over the United States, which essentially is killing our steelworkers and steel companies.” He promised that, if elected, he would “put new American steel into the spine of this country.”

In his Presidential Memorandum, Trump stated that steel imports have created artificially low prices in the United States and that the 150-odd antidumping and countervailing duty orders on steel products have not substantially alleviated the negative effects of unfairly traded imports on the U.S. steel industry. Commerce’s January 2017 Steel Industry Executive Summary found that overall U.S. capacity utilization was 71 percent in 2016, a drop from 77.5 percent in 2014. Import penetration of steel mill products was 25.5 percent in 2016, and U.S. steel imports were 34 percent higher in March 2017 than those in March 2016.

Analysts argue that Trump’s use of Section 232 could have severe economic repercussions. A targeted country such as China could retaliate with similar import restrictions on U.S. products. Further, it could be argued that the Trump administration is misapplying the definition of the World Trade Organization’s exemption for national security-related trade restrictions.

Investigation – Submitting Comments and Public Hearing

The investigation will be conducted by the Bureau of Industry and Security (BIS), Office of Technology Evaluation, within Commerce. Interested parties may submit written comments, data, analyses, or information pertinent to this investigation to the BIS no later than May 31, 2017. Commerce will host the public hearing on May 24, 2017. BIS has indicated that it is particularly interested in comments and information regarding:

  • the quantity of steel or other circumstances related to the importation of steel;
  • domestic production and productive capacity needed for steel to meet projected national defense requirements;
  • existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce steel;
  • growth requirements of the steel industry to meet national defense requirements and/or requirements to assure such growth;
  • the impact of foreign competition on the economic welfare of the steel industry;
  • the displacement of any domestic steel causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
  • relevant factors that are causing or will cause a weakening of our national economy; and
  • any other relevant factors.