Section 232: A splendid little trade war

Section 232: A splendid little trade war
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As then-Republican nominee for president Donald Trump railed against unfair trade practices and agreements at an aluminum recycling plant on the site of a former steel mill in Monessen, Pennsylvania, my thoughts went to Section 232 of the Trade Expansion Act of 1962. That section of the law was the topic of my major research and writing project in law school decades ago and, more recently, has become the very vehicle used by now President TrumpDonald John TrumpTed Cruz knocks New York Times for 'stunning' correction on Kavanaugh report US service member killed in Afghanistan Pro-Trump website edited British reality star's picture to show him wearing Trump hat MORE to begin imposing tariffs on steel and aluminum imports.

This previously obscure provision allows the president to take action against imports if an investigation determines that a threat to impair national security exists. Excluding these two most recent cases, only 26 such investigations have been made, the last one in 2002. In fact, it’s a safe bet that this is the most notoriety that Section 232 investigations have enjoyed since President Kennedy signed the Trade Expansion Act.

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Since the president announced the tariffs, most of the discussion has centered on the negative effect tariffs will have on domestic manufacturers who use these products (a far larger part of the workforce than are steelworkers), the allied nations that export steel and aluminum to the United States, the American exporters who will face retaliatory tariffs, and U.S. consumers.

 

But what exactly does Section 232 entail and how has it been used in the past?

Section 232 defines national security very broadly, with many factors taken into consideration in determining whether there’s a threat. These include:

  • The overall requirements for national defense;
  • The quantity, quality and reliability of imports;  
  • The impact of foreign competition;  
  • The effect on domestic products, government revenues and specialized skills; and
  • Anything unique to the particular case.  

By this measure, just about any import can be deemed a threat.

However, in only nine previous investigations were such threats found to exist, eight of which were related to petroleum imports. In three of those, the president decided that no action was warranted. In a tenth case, a decision was held in abeyance while voluntary restraint agreements were negotiated. Of the remaining 16 investigations, one was terminated by the petitioner before a final determination and the others found no threat to exist. All this happened largely during the height of the Cold War.

Clearly, aside from those involving petroleum-related imports, past investigations were far more likely to find no threat. Even in the cases in which a threat was found, the president can disagree with the determination and is afforded total discretion in whether to take action. Perhaps, past being prologue, this is just how the current situation is playing out.

Opposition by domestic industry and exporters, allied nations who are the main sources of imported steel and aluminum, and the legislators in the president’s own party might serve to moderate any decision to impose broad-based tariffs. In addition, Section 232 mandates that the commerce secretary notify the secretary of defense when an investigation is initiated and confer on defense needs. In this case, the secretary of defense stated that, while a threat was present, narrowly targeted restrictions exempting allied nations and aimed at China were preferred.   

On several occasions, a factor leading to a determination that no threat was present was that the imports were coming from allied countries and were felt to be secure. In the present cases,  Canada and Mexico have been issued temporary exemptions and other allies are requesting the same treatment. Of course, it’s  possible that continuing any of these exceptions will be tied to concessions on larger issues, such as the re-negotiation of NAFTA or, in the case of European Union nations, paying more for NATO.

In terms of using his discretion, President Trump is unlikely to decide no action is warranted if a threat is determined to exist, given the potential political backlash that would occur among his populist base, particularly in a year when the upcoming midterm elections are critical to the Republican Party holding onto control of both chambers of Congress.  

So, are these imports a threat to national security as intended under Section 232?  Given the history of Section 232 investigations and the ameliorating factors listed above, a strong case can be made that they aren’t. The “carrots and sticks” that are being dangled before allies indicate that not only are Section 232 tariffs being threatened for an entirely different purpose, but the ultimate target all along may have been China. But, while China subsidizes its steel industry to the point that it accounts for half of the world’s supply, it also is the source of a mere 2 percent of our imports.

Ironically, China also could prove to be a main beneficiary, becoming a de facto defender of the global trade system that was set up by, and has largely benefited, the United States, while the United States blows up this system along with the alliances that are the real lynchpin of national security.

As someone who witnessed firsthand the decimation of the domestic steel industry in the 1980s, and still sees the repercussions in and around western Pennsylvania, there can be no question that some relief is in order — but both domestic law and the World Trade Organization offer remedies to dumping, subsidies and import surges.

These are far more appropriate vehicles that the United States has successfully used in past trade disputes. Section 232 was never meant to address this situation.

David Wassel is an attorney and Democratic political consultant in McKeesport, Pennsylvania.