Senior Vice President for International Policy
July 14, 2017
President Trump is considering imposing potentially far-reaching tariffs or other restrictions on steel imports under Section 232 of the Trade Expansion Act of 1962. This little-used provision authorizes trade restrictions when imports endanger U.S. national security.
As the administration considers the path forward, the following questions deserve close scrutiny.
1. Do all steel imports raise national security questions?
No. Steel is a key input used throughout the U.S. manufacturing sector, but just 3% of U.S. steel production is consumed by defense industries. As a result, a broad tariff or quota scheme covering all steel imports would have its biggest impact on steel-consuming industries with no connection to national security.
In fact, the vast majority of steel imports are used in products far removed from defense industries. As one commenter pointed out to the Department of Commerce, “domestic can manufacturers stated that only a portion of their needs for tin plate, used to make cans, can be met by US production. Without imported tin plate, these manufacturers would have difficulty continuing in operation.”
The comments continue: “Similarly, the Air Distribution Institute stated that thin-gauge galvanized steel for air ducts must be imported because the product is not available from domestic sources.”
Takeaway: Imposing tariffs or other barriers against all steel imports would mostly hit products and manufacturers that have nothing to do with national security.
2. Do steel imports from allies threaten U.S. national security?
Certainly representatives of many U.S. allies have answered this question with a loud “no!” U.S. allies in the North Atlantic Treaty Organization (NATO) have pledged that an attack on one is an attack on all; the same holds for U.S. defense treaty partners such as Japan and the Republic of Korea. When U.S. manufacturers purchase steel from these countries, it does nothing to undermine U.S. security.
Further, U.S. law and treaties consider Canada, Australia, and Britain to be integral parts of our “national defense technology and industrial base,” a consortium engaged in research, development, and production of defense technology. This status shows that we have forged an integrated defense industry committed to our common defense.
Similarly, the U.S. steel industry has become closely integrated with that of Canada and Mexico. Introducing trade barriers against imports from our North American neighbors would harm—not help—the U.S. steel industry.
The top sources of U.S. steel imports last year were Canada, Brazil, Korea, Mexico, Turkey, and Japan—all allies and friends of the United States.
Takeaway: Imposing uniform tariffs or other barriers against steel imports would mostly affect close allies that actively contribute to America’s national security.
3. Could broad steel tariffs or quotas harm U.S. competitiveness?
Yes. Just as the Trump Administration should oppose heavy-handed taxes or regulations that would make it more costly to manufacture in the United States, officials should be leery of a far-reaching tax on steel imports, which would sap U.S. industry’s competitiveness and cede an advantage to foreign competitors.
As the American Automotive Policy Council (AAPC) commented, “the imposition of across the board higher tariffs or other restrictions on imports of steel into the United States would only widen the existing price gap by increasing the price of U.S. steel and thus the cost of U.S.-built vehicles… sales of domestically-built cars and trucks would fall, U.S. auto exports would shrink, and American auto sector jobs would be lost. In the end, this contraction could actually reduce the amount of U.S. steel consumed by U.S. automakers, jeopardizing the very industry the remedy was intended to assist.”
At present, U.S. manufacturers that consume steel employ an estimated 40 to 60 times more U.S. workers than do steel producing facilities. Some of these jobs would be put at risk by broad tariffs or other barriers against imports.
The Section 201 “safeguard” tariffs imposed in 2002-2004 on certain steel products offer a window on the real world impact of such actions. Those tariffs boosted costs for American companies that use steel to produce goods in the United States, costing 200,000 Americans their jobs, according to one study. That figure was greater than the total number of Americans employed by the U.S. steel industry itself at the time.
Takeaway: Imposing broad tariffs or other barriers against steel imports would undermine the competitiveness of U.S. manufacturers, incentivize offshoring, and endanger more American jobs than it would protect.
4. Will tariffs invite a counterpunch from abroad?
Yes, and quickly. Consider the words of European Commission President Jean-Claude Juncker, last week: “Within a few days — we won’t need two months for that — we could react with counter-measures. I am telling you this in the hope that all of this won’t be necessary. But we are in an elevated battle mood.”
Among the U.S. products the EU is rumored to be targeting for possible retaliation are Kentucky bourbon, Florida orange juice, and Wisconsin dairy products.
The knock-on effects could play out in costly ways over many years. As the Financial Times reports, a U.S. tariff or quota scheme under Section 232 would be “the first real test of the WTO’s national security exception. Were the WTO to find against the U.S. and the Trump administration to ignore that decision, it would be a huge blow to the WTO’s credibility. Were the WTO to find in the U.S.’s favor experts fear it could give carte blanche to all WTO members to invoke national security more often, leading to a new protectionist free-for-all.”
Takeaway: Imposing tariffs or other barriers against steel imports would invite retaliation against other U.S. exports and lead other countries to cite national security as a pretext to raise barriers against U.S.-made goods and services.
5. Would this arrow hit the target?
Not really. The real problem in the global steel market is widely recognized: Overcapacity in China’s steel sector has roiled global markets, and governments have been slow to address it.
However, U.S. leverage is limited: Imports account for about 30% of U.S. steel consumption, and China is the source of just 2% of U.S. steel imports. This underscores the need to forge a common front with like-minded partners across Europe, Asia, and the Americas to address overcapacity.
On July 8 in Hamburg, Germany, the G20 heads of state and government took a step toward doing so. They unanimously called for “the removal of market-distorting subsidies and other types of support by governments and related entities… to deliver the collective solutions that foster a truly level playing field.” The leaders called on the Global Forum on Steel Excess Capacity, which was created by G20 members last year, “to rapidly develop concrete policy solutions that reduce steel excess capacity” by August, with “concrete policy solutions” to be submitted by November.
It’s no panacea, but it goes to the heart of the matter. In the end, we do know this: The archer who doesn’t take careful aim risks shooting his allies—or even shooting himself in the foot.