Trump's trade policy rests on a little-known national security provision
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While the president’s recent actions on steel and aluminum imports certainly were expected — part and parcel of the robust trade enforcement program he promised during the campaign — what is novel and unexpected is the Trump administration’s repeated use of the rarely invoked section 232 of the Trade Expansion Act, which focuses on the effect of imports on national security. The administration apparently plans to rely on the very same authority to address semiconductor trade and other economic sectors.

A core set of questions is why the Trump administration has elected to rely on section 232 on a sustained basis among the broad range of other available trade law remedies, what we can expect from these proceedings, and what the implications are of repeatedly playing the “national security” card in connection with U.S. trade policy and the international trading system.

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There is no doubt that the domestic steel and aluminum industries have faced challenges due to global overcapacity, foreign subsidies, and other trade-distorting practices, which have put pressures on prices, jobs, and profitability for competitive suppliers worldwide. China figures prominently in these challenges.

 

But why use a little-invoked national security-based law for traditional global economic and trade challenges? After all, 232 has been used less than 20 times, mostly to address our reliance on foreign oil during energy crises. Imports have only been restricted twice under the law — both times for oil.

The answer is that 232 offers what other trade laws do not. It is more flexible and elastic in scope, affords the Commerce Department more discretion and, therefore, offers an easier road to an affirmative finding and a broad range of import remedies that the president can impose. There is no need to prove that unfair practices (dumping or subsidies) exist or to meet rigorous standards of “injury” or “causation” in other laws.

Indeed, there is little doubt this was a strategic choice made by the Trump administration with an assist from trade-savvy industries.

Moreover, a 232 proceeding can be brought, and remedies shaped, for a broad industry — steel or aluminum — while proceedings under other laws must be brought on a narrower set of product categories. Indeed, in invoking 232, the president noted that there are more than 150 antidumping or countervailing duty orders on steel products which have not “substantially alleviated” the adverse effects of unfair trade.

Thus, unlike most other trade laws, 232 affords the president broad discretion to take remedial action to “adjust imports” in order to address the national security problem, which can include duties, quotas, the negotiation of international arrangements, or other creative measures the Trump administration can develop.

Going forward, the Commerce Department now has up to 270 days to make its findings in these cases, although indications are that it may act in as little as 50 days. Hearings are also likely but not required.

Whether Commerce makes affirmative findings remains uncertain. However, it is a fair assumption, based on history, that an administration that has self-initiated a trade proceeding and has stated its belief that national security concerns exist is likely to take action.

Nevertheless, in the steel case, it is not easy to see a problem under traditional 232 standards. First, the excessive reliance on imports from unreliable sources of supply does not appear to exist. Steel comes from a broad range of sources, including close allies, and Chinese steel cannot be used in defense programs.

Second, it also is highly doubtful that Commerce could, to justify a remedy, find that imports are damaging the domestic industry to the point that it can’t meet national security requirements for steel. In 2001, during the last steel 232 inquiry, Commerce found no national security problem based on the Department of Defense’s finding that the steel needs of the DoD only accounted for 0.3 percent of domestic steel output.

To render an affirmative finding and get to yes, Commerce could change the traditional national security standards and focus more on economic issues. Certainly, 232 allows Commerce to take a broader view of national security that will be difficult to judicially challenge.

In the aluminum 232 proceeding, there certainly are security issues that warrant inquiry: only one U.S. firm today produces high purity aluminum for jet fighters and other defense needs. A key question is whether any security risks can be mitigated without restricting imports by either qualifying other large U.S. producers to make high purity aluminum products as back up, procuring supply from other friendly countries, or stockpiling. Generally, autarky is no longer the prevailing U.S. national security strategy, and we have and continue to rely on allies for key needs.

Finally, the question is how the US imposition of import restrictions under 232 on a sustained basis would square with global trading rules. The World Trade Organization (WTO) gives the United States and other member states the freedom to take actions, even if trade restrictive, to protect their “essential security interests” in time of war or other international emergencies.

While there is recognition that countries should have this right, there has long been concern over the potential misuse for political or commercial purposes.

Thus, if our trading partners come to believe that the United States has adopted a policy of utilizing section 232 on a sustained basis to restrict imports for economic rather than true security reasons, they very well may seek to do likewise in response. This could result in a “tit for tat” approach to managing trade disputes outside of WTO disciplines, which could potentially destabilize the global trading system.

In short, the Trump administration needs to carefully consider the relative importance of the WTO to U.S. and global prosperity as it moves forward with its national 232 strategy. While there is logic in utilizing the prospect of unilateral remedies as potential leverage for negotiated solutions for particular industries, the actual imposition of such restrictions can result in significant costs and risks to the United States, and its industries and workers broadly.

Jeffrey P. Bialos is a partner resident in the Washington office of Eversheds Sutherland, a global law firm. He previously served as deputy undersecretary for industrial affairs at the U.S. Department of Defense and deputy assistant secretary for import administration at the U.S. Department of Commerce.

The views expressed by contributors are their own and are not the views of The Hill.