President Trump Signs Proclamations for Section 232 Tariffs on Aluminum and Steel
International Trade Update
Date: March 13, 2018
On March 8, 2018, President Trump signed proclamations imposing a 25 percent tariff on imports of steel mill products and a 10 percent tariff on imports of wrought and unwrought aluminum. The president stated that these actions are necessary to address global overcapacity and unfair trade practices in the steel and aluminum industries and to protect national security. The tariffs are scheduled to be implemented on March 23, 2018.
Citing the need for “flexibility” and “cooperation” with U.S. allies, President Trump announced that Canada and Mexico present a “special case” and will be excluded from the tariffs pending ongoing renegotiations over the North American Free Trade Agreement (NAFTA). The president invited other U.S. allies that have a “security relationship” with the United States to discuss ways to address U.S. concerns over steel and aluminum imports, including global excess capacity, in exchange for possible exclusions from the tariffs.
Background on Commerce Section 232 Reports
Under Section 232 of the Trade Expansion Act of 1962, an investigation may be undertaken to determine the effect of imports on U.S. national security. Such investigations have been rare. On April 20, 2017, however, President Trump issued a memorandum to the Secretary of Commerce initiating an investigation into steel imports’ impact on national security. See Thompson Hine International Trade Update, April 26, 2017. Then, on April 27, 2017, the president issued another memorandum initiating an investigation into aluminum imports’ impact on national security. See Thompson Hine International Trade Update, May 1, 2017. In these memoranda, the president instructed the Department of Commerce (Commerce) to investigate whether steel and aluminum imports impair the ability of the domestic steel and aluminum industries to meet U.S. national defense needs; any negative effects on employment or government revenue caused by steel and aluminum imports; and any harm steel and aluminum imports cause to the United States’ economic welfare.
In February 2018, Commerce released its Section 232 reports, finding, as expected, that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security” and recommending remedies to address these problems.
According to the report, aluminum imports have increased to 90 percent of total demand for primary aluminum, up from 66 percent in 2012. From 2013 to 2016, aluminum industry employment fell by 58 percent, and six smelters shut down. To address these problems, the report suggests implementing a tariff of at least 7.7 percent on all aluminum exports from all countries; a 23.6 percent tariff on all products from China, Hong Kong, Russia, Venezuela and Vietnam, with all other countries subject to quotas equal to 100 percent of their 2017 exports to the United States; or a quota on all imports from all countries equal to a maximum of 86.7 percent of their 2017 exports to the United States. See Department of Commerce Aluminum Report.
According to the report, the United States is the world’s largest importer of steel, importing nearly four times what it exports. Recent global excess capacity is 700 million tons, almost seven times the annual total of U.S. steel consumption, with China the largest producer and exporter of steel and the largest source of excess steel capacity. To address these problems, the report suggests implementing a global tariff of at least 24 percent on all imports; a tariff of at least 53 percent on imports from Brazil, China, Costa Rica, Egypt, India, Malaysia, Russia, South Africa, South Korea, Thailand, Turkey and Vietnam, with all other countries subject to quotas by product on imports equal to 100 percent of their 2017 exports to the United States; or a quota on all steel products from all countries equal to 63 percent of each country’s 2017 exports to the United States. See Department of Commerce Steel Report.
Reaction to Section 232 Reports
In an undated memo released in February 2018, the Department of Defense (DoD) concurred with Commerce’s Section 232 reports on steel and aluminum, agreeing that “imports of foreign steel and aluminum based on unfair trading practices impair the national security.” The memo, however, notes that U.S. military requirements for steel and aluminum only represent approximately 3 percent of U.S. production and would not impact DoD’s ability to acquire necessary product to meet national defense demands. Overall, DoD focused on the potential “negative impact” of Commerce’s recommendations on key allies and recommended that the U.S. government “further refine the targeted tariffs, so as to create incentives for trade partners to work with the U.S. on addressing the underlying issue of Chinese transshipment.”
In the days leading up to the president’s Section 232 tariff announcement, the media reported that factions within the White House were “at war” over the imposition of tariffs, with National Economic Council Director Gary Cohn and White House National Trade Council Director Peter Navarro seeking vastly different remedies. Cohn wanted a more targeted approach to applying any tariffs, while Navarro pushed for global tariffs at rates higher than those recommended in Commerce’s reports. Chief of Staff John Kelly, Defense Secretary James Mattis and National Security Adviser H.R. McMaster reportedly sought a more nuanced response similar to Cohn’s.
Numerous Republican members of Congress vocally disagreed with Commerce’s tariff recommendations. Senate Finance Committee Chairman Orrin Hatch stated, “Simply put: This is a tax hike on American manufacturers, workers and consumers. Slapping aluminum and steel imports with tariffs of this magnitude is misguided.” House Speaker Paul Ryan commented that Republicans in the House were “extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan.”
On March 1, 2018, at what was supposed to be a “listening session” with U.S. steel and aluminum manufacturing executives, President Trump stated, “We’re going to take care of the situation, okay? So steel and aluminum will see a lot of good things happen. We’re going to have new jobs popping up. We’re going to have much more vibrant companies.” Then, in response to a reporter’s question, he seemingly off-the-cuff announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports.
In signing the formal proclamations on March 8, the president indicated that the global tariffs on steel and aluminum would “reduce imports to levels needed for these industries to achieve long-term viability.” As a result, “these industries will be able to re-open closed mills, sustain a skilled workforce, and maintain or increase production” while reducing U.S. reliance on foreign producers.
In the proclamation on steel, “steel articles” for which tariffs will be levied are defined at the Harmonized Tariff Schedule (HTS) six-digit level as: 7206.10 through 7216.50; 7216.99 through 7301.10; 7302.10; 7302.40 through 7302.90; and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.
In the proclamation on aluminum, “aluminum articles” are defined in the HTS as: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 76184.108.40.206 and 76220.127.116.11), including any subsequent revisions to these HTS classifications.
These tariffs will cover steel and aluminum products entered or withdrawn from warehouses for consumption on or after 12:01 a.m. on March 23, 2018. The president has initially exempted Canada and Mexico from the tariffs due to the U.S. government’s special security relationship with these countries and while the NAFTA renegotiations continue. Assuming the United States gets a “fair deal” for workers, farmers and manufacturers in the revised NAFTA, President Trump indicated that these two countries would be permanently exempt.
The Trump administration will also consider exclusion requests from any country that has a security relationship with the United States and is willing to discuss alternative ways to address U.S. concerns. This supposedly includes modifying or removing a tariff for a country if it can ensure that its steel and/or aluminum exports to the United States no longer threaten to impair U.S. national security. In his comments, the president indicated that the United States would examine whether allies are fully satisfying their obligations under various security agreements, such as the North Atlantic Treaty Organization, in determining if those allies should pay the full tariffs. President Trump stated that U.S. Trade Representative Robert Lighthizer will be responsible for negotiations with countries that seek alternative means to the steel and aluminum tariffs. Japan, the European Union, South Korea, France and Argentina have already contacted Lighthizer, and Australia’s prime minister indicated that he has already reached an agreement with President Trump for his country to be exempt.
Requests for Exclusion
The White House announced that Commerce will oversee a product exclusion request process for U.S. parties. The proclamations make clear that such relief will be provided only after a request for exclusion is made “by a directly affected party located in the United States.” Specific exclusion request procedures are scheduled to be issued by March 18, 2018.
Notably, in its February 2018 Section 232 steel and aluminum reports, Commerce recommends that parties be permitted to seek an exclusion from the tariffs by demonstrating a lack of sufficient U.S. production capacity of comparable products or specific national security-based considerations. This appeal process would include a public comment period for each exclusion request, and, in general, would be completed within 90 days after a completed application is filed with Commerce. The reports indicate that an exclusion may be granted for a period to be determined by the Secretary of Commerce and may be terminated if the conditions that gave rise to the exclusion change.
Potential Challenges to Tariffs
These tariffs have the potential of triggering challenges both domestically and abroad due to their broad scope. Members of Congress have expressed concern over the economic damage the tariffs could cause U.S. taxpayers and industries that use these imports. Several senators have proposed legislation to narrow or even nullify the tariffs.
It has been argued that both U.S. and foreign parties could potentially challenge the tariffs in U.S. courts, claiming that these actions were not taken for national security concerns, given the DoD memo and President Trump’s comments tying the tariffs to economic issues.
Other countries have already announced their intention to retaliate by imposing their own tariffs on U.S. goods. In addition, it is expected that WTO member countries will challenge these tariffs through the WTO’s dispute settlement process.
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