Zero Dark Tariffs

How Section 232 Became National Economic Policy

The business news cycle is filled with angry rhetoric surrounding the stiff tariffs recently imposed by President Trump. Numerous pundits on both sides of the political aisle kept referring to some obscure directive called “Section 232” as the motivation for Trump’s action. Since my knowledge of Section 232 is limited to tickets I can barely afford on StubHub, I decided to conduct some research and find out what all the hubbub surrounding Section 232 was all about.

What Happened?

On March 8, 2018, President Trump exercised his authority under Section 232 of the Trade Expansion Act of 1962 and issued Proclamations 9704 and 9705, imposing a 25 percent tariff on certain steel imports and a 10 percent tariff on certain aluminum imports in order to protect U.S. national security.[1] Pursuant to this action, the following actions toward these tariffs ensued;

  • On March 22, The White House announced that, pending negotiations, exempted from the order until May 1, 2018 were Argentina, Australia, Brazil, Canada, Mexico, South Korea, and the member countries of the European Union.[2]
  • On March 23, the United States began applying the tariffs.
  • On March 28, the U.S. Trade Representative announced that instead of a tariff, South Korea will be assigned an annual U.S. steel import quota of 2.68 million tons, which is approximately 70% of South Korea’s annual export volume to the U.S. between 2015 and 2017.
  • On April 30, President Trump extended for 30 days the temporary exemption for Canada, Mexico, and the European Union to allow for further negotiation, and at the same time granted indefinite exemptions to Argentina, Australia, and Brazil.[3]
  • On June 1, President Trump suspended tariff exemptions for Canada, Mexico, and the European Union.[4]
  • On June 4, Mexico announced it would challenge the U.S. Section 232 tariffs on steel and aluminum via the World Trade Organization’s (WTO) Dispute Settlement Body.[5]
  • On June 6, Canada and the European Union formally requested dispute consultations with the World Trade Organization regarding the U.S Section 232 tariffs on steel and aluminum.[6]

So, other than that, Mr. President, how was North Korea?

What is Section 232?

Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of Commerce to conduct comprehensive investigations to determine the effects of imports on any article on the national security of the United States. Section 232 investigations include consideration of:

  • Domestic production needed for projected national defense requirements
  • Domestic industry’s capacity to meet those requirements
  • Related human and material resources
  • The importation of goods in terms of their quantities and use
  • The close relation of national economic welfare to U.S. national security
  • Loss of skills or investment, substantial unemployment and decrease in government revenue
  • The impact of foreign competition on specific domestic industries and the impact of displacement of any domestic products by excessive imports.

Section 232 requires that the Secretary of Commerce notify the Secretary of Defense that an investigation has been initiated. Investigations may be initiated based on;

  • An application from an interested party
  • A request from the head of any department or agency
  • Self-initiated by the Secretary of Commerce.

Within 270 days of initiating any investigation, the Commerce Secretary issues a report to the President with the investigation’s findings, including whether certain imports threaten to impair America’s national security. The President has 90 days to determine whether he concurs with the findings and, if so, to use his statutory authority under Section 232 to “adjust the imports of an article and its derivatives” as necessary, including the use of tariffs or quotas.[7]

And for those keeping score at home, there is no Congressional oversight.

Since 1980, excluding the recent investigation of steel and aluminum, the Commerce Department has conducted fourteen Section 232 investigations:[8]

  • Iron Ore and Semi-Finished Steel- 2001
  • The Effect of Imports of Crude Oil on National Security- 1999
  • Crude Oil and Petroleum Products- 1994
  • Ceramic Semiconductor Packaging- 1993
  • Gears and Gearing Products- 1992
  • Crude Oil and Petroleum Products- 1989
  • Plastic Injection Molding- 1989
  • Uranium- 1989
  • Antifriction Barings- 1988
  • Crude Oil from Libya- 1982
  • Chromium, Manganese and Silicon Ferroalloys and Related Materials- 1981
  • The Effect of Imports of Nuts, Bolts, and Large Screws on the National Security- 1983
  • Metal-Cutting and Metal-Forming Machine Tools- 1983
  • Glass-Lined Chemical Processing Equipment- 1981

As noted above, the case of steel and aluminum imports is the first Section 232 investigation since 2001. So, there’s that.

Why Initiate a Section 232 Investigation on Steel?

A January 2017 Commerce Department report titled “2017 Steel Industry Executive Summary” found that overall U.S. capacity utilization was 71% in 2016, a drop from 77.5% in 2014. Moreover, per the Commerce Department, in March 2016 import penetration of steel mill products was 25.5%. By March 2017, steel imports to the U.S. were 34% higher than those in March 2016.[9]

According to a Commerce Department report, on April 19, 2017, Secretary of Commerce Wilbur Ross initiated an investigation on steel imports in light of the large volumes of excess global steel production and capacity- much of which results from foreign government subsidies and other unfair practices- which “distorted the U.S. and global steel markets.

What’s Next?

In January 2018, Secretary Ross delivered the Section 232 report to the President. In February 2018, the Commerce Department publicly released the report. The report concluded that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security,” as defined by Section 232. The report found that U.S. Steel imports were nearly four times our exports, and that aluminum imports had risen to 90% of total demand for primary aluminum.

Secretary Ross recommended that President Trump act to protect the long-term viability of our nation’s steel and aluminum industries.

And just in case you were wondering what might happen next, on May 23, 2018, the Commerce Department announced it had initiated an investigation to determine whether imports of automobiles, including SUV’s, vans and light trucks, and automotive parts into the United States threaten to impair the national security as defined in Section 232.[10]

Stay tuned.

[1] “Section 232 Tariffs on Aluminum and Steel,” U.S. Customs and Border Protections.

[2] “President Trump Approves Section 232 Tariff Modifications,” Whitehouse.gov, March 22, 2018

[3] “Presidential Proclamation Adjusting Imports of Steel into the United States,” The White House, April 30, 2018

[4] “President Donald J. Trump Approves Section 232 Tariff Modifications,” The White House, May 31, 2018

[5] “Mexico challenges Section 232 tariffs at WTO; others join India’s case,” World Trade Online, June 13, 2018

[6] “Canada, EU submit formal complaint to WTO over metals tariffs,” S&P Global Platts, June 6, 2018

[7] “Fact Sheet: Section 232 Investigations: The Effect of Imports on the National Security,” Commerce.gov., April 20, 2017

[8] “Section 232 Investigations: The Effect of Imports on the National Security,” Bureau of Industry and Security.

[9] “Frequently Asked Questions: Section 232 Investigations: The Effect of Steel Imports on the National Security,” Commerce.gov, April 21, 2017.

[10] “U.S. Department of Commerce Initiates Section 232 Investigation into Auto Imports,” Commerce. Gov, May 23, 2018.

Share This