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In the Name of National Security?

According to the Trump administration, U.S. trade policy should place greater emphasis on the national and security interests of the United States. One example is the increased use of Section 232 of the Trade Expansion Act of 1962. This has led to many conflicts internationally. Will this scare be over under the new President Joe Biden?

Section 232 is a relic of the Cold War, hardly used before President Trump’s term. Since the Trade Expansion Act of 1962 came into force, only 28 investigations based on Section 232 have been conducted – the last time in 2001 under then U.S. President George W. Bush. In 19 cases, no action was taken. This course changed drastically under President Trump, who imposed 232 duties on steel and aluminum imports and initiated investigations on imports of vehicles and vehicle parts as well as uranium ores or other (reprocessed) uranium products, titanium sponge, cranes, and electrical parts.

Opaque Procedure

With a 232 investigation, the United States analyses whether imports endanger national security. If the result is positive, the U.S. president can restrict the import of the product in question. The U.S. Department of Commerce (DOC) has a maximum of 270 days for the investigation. The subordinate Bureau of Industry and Security draws up a corresponding report. This report is then submitted to Congress. The President then decides within 90 days whether to follow the Secretary of Commerce’s assessment and whether to take import restriction measures. He must then justify his decision to Congress within 30 days. These deadlines can be extended by an additional 180 days if the President orders negotiations with the trading partner concerned to avert the threat to domestic security.

The United States Code (19 USC §1862 c 3 A & B) provides that the relevant decision to impose or refrain from imposing tariffs must be published in the Federal Register. In November 2019, the U.S. Court of International Trade (CIT) also confirmed in a ruling in the Transpacific Steel LLC v. United States case that Section 232 is not a “carte blanche”. The Trump administration viewed this differently. According to the Trump administration, the President can continue or amend all tariffs under Section 232 at will as long as he has previously agreed with the Secretary of Commerce that imports threaten national security. CIT strongly disagreed: the clear and unambiguous steps of Section 232 – investigation, consultation, reporting, review, and action – required timely action by the Secretary of Commerce and the President. CIT reiterated the specific deadlines.

The driving force was the unpublished 232 report on the threat to national security from imports of vehicles and vehicle parts. The U.S. Congress took up this issue in the Consolidated Appropriations Act of 2020 (dated December 2019). The law stipulates that the report should be published in the Federal Register within 30 days. In addition, parts of the report that are subject to secrecy should be submitted to the members of Congress. As a result, the U.S. Department of Justice published an assessment in January 2020 justifying the continued confidentiality of the investigation report. According to the doctrine of Executive Privilege of the President, the U.S. government may, in the interest of national security, prohibit the publication of the investigation report.

Tariffs on Steel and Aluminium

In March 2018, U.S. President Trump signed into law the introduction of tariffs on imports of steel (25 percent) and aluminium (ten percent). In his electoral campaign, Trump already announced that he intended to protect domestic industrial sectors against unfair foreign competition and to correct disadvantageous trade relationships. The Trump administration justifies the steel and aluminum tariffs with national security considerations.

The European Union (EU), as well as other allies (above all, the United States’ neighbors and NAFTA partners Canada and Mexico) were initially exempted from these tariffs. A few hours before the expiration of the “grace period” at the end of April, Trump extended the exemption for the EU, Canada, and Mexico once more until the beginning of June 2018. According to the White House, the United States had reached agreements with Argentina, Australia, and Brazil by that time, meaning that these countries will be exempted permanently on the basis of soft import quotas. South Korea reached an agreement on the basis of their KORUS free trade agreement after making concessions to the United States. Since June 2018, U.S. tariffs on steel and aluminum also apply to the EU for national security reasons.

The Trump administration announced at the beginning of 2020 that it would extend the 232 tariffs on steel and aluminum to products containing a high proportion of these metals, such as nails, cables, and certain automotive parts. The reason given was that imports of these products had risen sharply after the introduction of the steel and aluminum tariffs, undermining the objectives of the original tariffs. In fact, such a market reaction is natural, as the duties have increased the cost of production of the products concerned in the United States. Domestic products are subsequently substituted by cheaper imported products.

EU Responses to Steel and Aluminum Tariffs

In March 2018, the EU initiated an investigation (under Article XIX of the GATT and the WTO Agreement on Safeguards and Countervailing Measures, SCM Agreement) to determine if a significant increase in steel imports had taken place, thereby causing or threatening to cause serious injury to EU steel producers. Since July 2018, provisional EU steel safeguard measures have been in force: if the volume of imports exceeds the average of the last three years, tariffs of 25 percent take effect. In February 2019, the provisional safeguard measures were changed to definitive measures. They are expected to remain in force for three years.

At the end of June 2018, the EU imposed countervailing duties to compensate for the damage caused by the U.S. duties. Finally, at the beginning of June 2018, the EU requested WTO consultations with the United States as the first step in a dispute settlement procedure. In October 2018, the EU, Norway, and other countries requested the WTO to establish a dispute settlement panel. The WTO agreed to the establishment of seven dispute settlement panels in November 2018.

The EU relied on Article XIX of the GATT (General Agreement on Tariffs and Trade) and on the SCM Agreement. The United States, on the other hand, argued in reference to Article XXI of the GATT, which allows protective tariffs if a country’s national security is threatened, and filed a complaint against the EU.

Further 232 Investigations

The report on titanium sponge was delivered to President Trump in late November 2019, with the finding that imports accounting for 68 percent of all U.S. consumption indeed impaired U.S. national security. However, in an unexpected move, President Trump announced in a memorandum in late February 2020 that he would not impose Section 232 tariffs on titanium sponge imports. Rather, he ordered the creation of a working group to intensify discussions with Japan, the supplier of almost 95 percent of U.S. imports. 

The Trump administration also initiated a 232 proceeding investigation whether imports of mobile cranes into the U.S. violate public safety. It also examined whether U.S. imports of electrical steel posed a security risk to the United States. The case against the import of mobile cranes was dropped at the request of the involved U.S. company. In the case of U.S. imports of electrical steel, the Department of Commerce report was delivered to the White House in October 2020.

Where Do We Go From Here?

Joe Biden has repeatedly been critical of Trump's trade policy. He plans to critically review existing tariffs. Where necessary to build up the economy, however, he also wants to rely on tariffs. Unlike Trump, he wants to carefully examine their benefits and not use them “to fake toughness”. Biden is expected to review the 232 tariffs as well. However, the hope of Europeans that he will quickly abolish tariffs could be disappointed. For example, they are supported not only by the unions but also by many Democrats in Congress.