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Import Restrictions on Steel, Aluminum Debated at White House Meeting

Thursday, February 15, 2018
Sandler, Travis & Rosenberg Trade Report

President Trump heard arguments for and against import restrictions on steel and aluminum at a Feb. 13 White House meeting with a bipartisan group of 19 lawmakers and several senior administration officials. The president said he convened the meeting “to hear from both sides” before deciding how to respond to the Commerce Department’s recent reports in its section 232 investigations of the national security implications of steel and aluminum imports. Trump appeared to favor taking some sort of action, a position supported by some of those present, but also seemed to acknowledge others’ warnings that doing so could have negative impacts on downstream users.

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Trump said the U.S. steel and aluminum industries are “being decimated by dumping from many countries” and that he is “considering all options” for responding, particularly “tariffs and/or quotas.” He said he wants to “keep prices down” for users of these products but also wants to “make sure that we have a steel industry and aluminum industry” because “we do need that for national defense.” He also emphasized the jobs that would be preserved by import restrictions, suggesting these would be worth the “higher price” those restrictions would cause.

Lawmakers disagreed on whether steel imports are a national security threat. Sens. Robert Casey, D-Pa., and Rob Portman, R-Ohio, said they are, citing as an example the fact that the sole remaining U.S. manufacturer of electrical steel has said it will “pull out of this business” unless it gets relief. Rep. Bill Johnson, R-Ohio, said if that were to happen the U.S. could be held “hostage by the Chinese for management and maintenance of our electrical grid.” Rep. Rick Crawford, R-Ark., added that the issue is “not just addressing the needs of the defense industry, but our ability to produce for our own consumption as we take on infrastructure projects.”

However, Sens. Pat Toomey, R-Pa., and Mike Lee, R-Utah, said defense needs consume only about three percent of domestic steel consumption, which Toomey said makes it “implausible to believe that we’re not able to meet the needs of our defense industry.” He added that in 2016 imports accounted for only 16 percent of domestic steel consumption, illustrating that “the vast majority of the steel we consume, we in fact produce ourselves.”

Toomey also rejected the argument that steel imports from China have been particularly harmful, noting that in 2016 only two percent of U.S. steel consumption came from that country. Trump asserted that this figure is misleading because China transships its steel production to the U.S. through third countries, largely to avoid the raft of antidumping and countervailing duty orders the U.S. has imposed on Chinese steel products over the years. Trump added that his administration is talking to China “right now, very strongly,” and has “something coming up in the very near future,” though this was likely an allusion to penalties in an unrelated Section 301 investigation of intellectual property theft.

Several lawmakers all but said the president should not impose import restrictions under section 232, a provision that House Ways and Means Chairman Kevin Brady, R-Texas, said “is a little like old-fashioned chemotherapy” because “it can often do as much damage as good.” For example, Trump claimed such measures would “create a lot of jobs” for domestic manufacturers but Lee said he strongly suspects that “as has at times been the case in the past, you would end up with net job losses” because of the negative impact on downstream users. Sen. Lamar Alexander, R-Tenn., said that was one lesson to be learned from the steel tariffs President Bush imposed on China in 2002, which covered only five percent of steel imports but “raised the price of almost all steel in the United States” and resulted in lost jobs among steel users. Trump acknowledged that tariffs “didn’t work for Bush” but asserted that they “did work for others.”

The potential for reciprocal action by U.S. trading partners was another reason given for avoiding trade restrictions. Toomey said it would be “really hard to make the case” that steel imports are threatening U.S. national security if challenged by trading partners and that a loss in any such case could result in “retaliation that will be problematic for us.” Even in the absence of a formal dispute, said Sen. Roy Blunt, R-Mo., section 232 measures could start “a reciprocal battle on tariffs.”

Others said that if Trump does elect to impose restrictions he should do so very carefully, taking a balanced approach that gives equal consideration to domestic steel and aluminum manufacturers as well as those that use imports of those products in further manufacturing. Portman and Brady said any response needs to be targeted, for example against products such as electrical steel or oil country tubular goods. Commerce Secretary Wilbur Ross said section 232 measures can in fact “be applied in a much more surgical way” and that the alternatives presented to Trump range from “a big tariff on everything from everywhere to very selective tariffs from a very selective group of countries.”

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