Now that the White House seeks to turn China’s steel and aluminum overcapacity into a national security matter, America’s new protectionism risks international trade discord.
Following a trade investigation of imports, U.S. Department of Commerce recently recommended imposing heavy tariffs or quotas on foreign producers of steel and aluminum in the interest of national security. Armed with steel and aluminum reports, Commerce Secretary Wilbur Ross stated that steel is vital to U.S. national security and current import flows are adversely impacting the steel industry.
Ross urged President Trump to take immediate action by adjusting the level of imports through quotas or tariffs. Trump is likely to invoke the Section 232 of the 1962 Trade Act, which allows the president to impose tariffs without congressional approval. He must respond to the reports by April 11 and 19 for steel and aluminum, respectively.
China, the main target of the proposals (though a minor steel importer in the U.S.), contends the U.S. already has excessive protections on domestic iron and steel products and it reserves the right to retaliate.
The proposed policy instruments suggest that the Trump administration is willing to subsidize American steel and aluminum, even at the expense of far bigger and more consequential U.S. industries – and the world trade.
From Trade Expansion to Trade Contraction
While the proposed measures extend from broad adjustments that involve many countries to targeted adjustments that focus on a few countries, the rationale of the suggested figures is fuzzy and ultimately undermined by geopolitical considerations.
In steel industries, the Commerce Department recommends that the U.S. could introduce a global tariff of at least 24 percent on steel imports from all countries. Another option would be a tariff of 53 percent on all steel imports from 12 countries (none are advanced economies, except for South Korea), with a quota on steel imports from all other countries equal to 100 percent of their 2017 exports to the U.S. In the third option, a quota could be enacted on steel products from equal to 63 percent of each country’s 2017 exports to the U.S.
In aluminum, the Commerce Department recommends a 7.7 percent tariff on imports from all exporter countries. The second option is a 23.5 percent tariff on aluminum products from China, Hong Kong, Russia, Venezuela, and Vietnam, with a cap for all countries at 2017 import levels. A third option would be an aluminum import quota on all countries of 86.7 percent of their 2017 imports.