Thou Shalt Not Steel
The Trump Administration is considering possible tariffs on steel imports in response to the Section 232 investigation into imported steel. The results of the Section 232 investigation should be revealed soon. The investigation was set to conclude in June, however, President Trump said in a recent The Wall Street Journal interview that “we don’t want to do it at this moment” and he would respond “very soon—fairly soon.”
Section 232 of the Trade Expansion Act of 1962 allows the Secretary of Commerce to investigate the effects of specific imports on U.S. national security. The investigation can take up to 270 days before it is submitted to the President, after which the President can accept or ignore the recommendations of the investigation and take whatever actions deemed necessary.
The current Section 232 investigation, though only initiated in April, will likely be released soon. After the investigation’s results are submitted, the President will have 90 days to respond. In the past, Donald Trump has been supportive of imposing tariffs on steel imports, particularly on Chinese steel but also on American allies like Germany and Canada.
Tariffs are typically bad trade policy. Though they can help specific industries (stocks in domestic steel producers have risen with speculation about steel tariffs), they hurt the overall economy. Tariffs would increase costs for consumers of a number of products that use steel including cars. Companies that import steel then finish it in the United States employ large numbers of Americans and would be negatively affected by this tariff, which could result in layoffs. Companies that import scrap or pig iron then melt it into steel in the U.S. are essentially importing steel but would be unaffected by the tariff—lessening the purported positive impact of the tariff on national security.
Of course, steel imports are not actually a threat to national security. Only three percent of steel in the U.S. is used for national security or defense purposes. Especially since the U.S. imposed a 500 percent tariff on Chinese steel as an anti-dumping measure in 2016, most steel is imported from close strategic partners like Canada. Steel imports are not a threat to national security; steel tariffs, however, could pose a threat to the economy.
Aside from increased consumer costs and higher prices for businesses that import steel, the international backlash to American steel tariffs could also harm the economy. In response, other countries could retaliate with tariffs on American exports. This could spark a damaging trade war and could even lead to a global recession. Further, the flimsy reasoning behind the “national security threat” of imported steel makes it less likely that the World Trade Organization (WTO) will carve out a national security exemption to the U.S. tariff. This could leave the United States vulnerable to lawsuits from other countries. Though a ruling would be impossible to enforce without American compliance, the U.S. would suffer severe damage to its reputation by ignoring WTO rules.
Steel imports pose no threat to national security and steel tariffs could have major negative economic consequences. As the conclusion of the Section 232 investigation nears, American consumers should keep their fingers crossed that the Trump administration decides not to pursue a protectionist policy on steel.