National Security Import Threats – the Latest Trade Tool
By William Reinsch
The new hot issue in the trade world is the imminent arrival on the president's desk of recommendations for action in the pending national security (section 232 of the Trade Expansion Act of 1962) investigation involving steel. While the speed with which this investigation is apparently being done has led to suggestions that the "fix is in" and the outcome has been predetermined, I'm inclined to think it will be a bit more complicated than that. While President Trump has clearly implied some help is on the way for the steel industry, he did not say what it is going to be, and experience suggests that figuring out what to do will be more difficult than deciding something needs to be done.
The Commerce Department investigators working on the case are charged with recommending whether the president should determine that steel imports constitute a national security threat. But which imports? All of the thousands of products that vary by composition, shape, and size or just selected products that go directly into defense products or something in between? The case for selected products is easy to make, but the broader the net is cast the more difficult the argument becomes. I know some of the people working on this investigation — it's being done by the bureau I used to head. They are competent professionals and people of integrity who will not want to draw conclusions they cannot support with evidence (whether they are overruled by political leaders less concerned with the facts is, of course, another matter). But the breadth of the product mix does not make their job easy. Hopefully they are looking at the actual level of foreign steel in defense goods and making a judgment about what the actual security risks are.
Once they have decided what imports constitute a threat, they must then decide whether they are worried about these imports from all countries or just some countries. Intellectually it would be hard to say a particular product is threatened by imports from one place but not another, but a decision to include all imports of a particular product could well would affect imports from Canada, something the steelworkers union has opposed and something that strikes a blow at the integrated North American market and would cause (another) trade crisis with Canada.
Choosing imports from only selected countries might allow the administration to take on the country widely (and correctly) regarded as the cause of the problem — China — but imports of many Chinese products have declined thanks to the numerous dumping and subsidy cases brought against them. A recommendation for action against Chinese imports when imports from other countries have a larger share of the market would be hard to explain. In addition, those “other countries” will likely include Japan, South Korea, and various EU nations — all friends and allies with whom we have extensive and complex trade and political relations. In other words, there will be consequences, just as there will be for domestic non-defense users of steel. That is never in my view a sufficient reason not to do something, but it is certainly something wise leadership thinks about in advance and prepares for before deciding to take action. There are rumors that Treasury Secretary Mnuchin and NEC Director Cohn have figured that out, but it remains to be seen whether that will have any impact on the president’s final decision.
Finally, once you have decided what products and what countries constitute a security threat, then you still have to come up with an effective remedy. Secretary Ross already addressed that, although he did not narrow the field very much. He suggested tariffs, quotas, or a combination of the two, which pretty much covered the waterfront. Interestingly, he did not suggest non-trade remedies such as support for the domestic industry or indirect remedies such as a DOD decision to purchase items with a high proportion of domestic steel content, although those may rise to the top as part of the interagency process that tries to come to a consensus on these things.
Some of these remedies may work, although I’m not smart enough to suggest which ones. I hope, however, that in its determination to move quickly and take some action, the administration will not lose sight of and abandon what would be the most effective remedy, and the only one that is win-win for everybody — an agreement to reduce global overcapacity in steel now being negotiated by the OECD at the request of the G20 nations. Success at that will not be easy. All the participants know it is the right and necessary thing to do, but actually doing it will cause political pain for all of them, and some more than others. Pursuing such an agreement does not mean the administration must abandon its search for immediate remedies, but it does mean that we have not sacrificed the long-term to short-term politics.
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.