Leibowitz on Trade: Section 232 Investigations

In 2017, the Commerce Department initiated several investigations (on steel, aluminum, autos and auto parts, and uranium). Trade restrictions ensued on steel and aluminum, but not the others. In 2019, Commerce initiated an investigation under Section 232 on imports of titanium sponge. The Commerce Department determined that the imports of all the above products were “under such circumstances, and in such quantities” as to threaten to impair the national security of the United States. However, the president only took action to limit imports with respect to steel and aluminum.

In the last month, Commerce has announced three new investigations. The first, on transformer components and electric transformers themselves, was initiated by the department in a May 19 announcement. The other two were started by private industry petitions—one on mobile cranes (announced on May 26), and the other on vanadium (June 3), a metal used as an alloying material in certain steel products, such as high-strength steels. Given the relationship between the three new cases and steel, it is worth exploring whether new concepts of national security are being spawned by new investigations.

I’ve reported previously on the transformer-related Section 232, which was self-initiated by Commerce as is authorized by statute. To review, when AK Steel was acquired earlier this year by Cleveland-Cliffs, Inc., the CEO of the new parent company voiced his intention to cease production of grain-oriented electrical steel at AK Steel if imports of downstream products were not curtailed. The CEO secured a letter from members of Congress from Pennsylvania and Ohio, where AK has production facilities, asking the president to impose tariffs on downstream transformer-related products (laminations and cores). Those products are made almost entirely from grain-oriented electrical steel. The members of Congress wanted to protect AK Steel from competition by restricting imports of these “downstream” materials, keeping those facilities open and the workers employed. In apparent response, the president signed an Executive Order on May 1 placing in doubt transactions for “bulk power system electric equipment” from a foreign corporation or national if the Secretary of Energy, in consultation with other Cabinet Departments, finds the equipment is being sold by a “foreign adversary.”

The Section 232 announcement on transformer components followed shortly after the Executive Order. The notice of investigation announced a 21-day period for comments, which is unusually short (June 9). Several trade associations asked for an extension of the comment deadline, which the department granted on June 8. The new comment deadline is now July 3. It’s hard to know what the short deadline meant, or what the extension meant, but comments will come in early July. No public hearing has yet been scheduled.

The transformer investigation was not accompanied by any analysis of why the importation of transformer components or transformers was a threat to impair the national security. We have seen in previous Section 232 cases that Commerce claims nearly unlimited authority to relate almost any imports to national security. The connection to defense readiness of using imported transformers rather than domestic ones is not clear; but if we are in a war and an enemy succeeds in destroying our electrical grid, we may need domestic transformer production. That could be said of many goods and services as well.

There is a bit more information about mobile cranes and vanadium, because those cases were started by industry petitions, which tried to connect national security with their own welfare. Manitowoc, a leading manufacturer of mobile cranes, filed a Section 232 petition in December 2019. Mobile cranes are purchased by the military for construction needs. Imports of these cranes has, Manitowoc alleges, surged since 2014, jeopardizing the company’s competitive position in the United States.

As for vanadium, the link to national security is tenuous. Vanadium is not currently produced in the United States—all supplies are imported, and a large portion of those imports comes from China. Vanadium is used as an alloying element in steel, but it is also important to new electric vehicle batteries currently under development. There are vanadium deposits in the United States; a few companies are exploring the possibility of starting production in this country. So, this new investigation raises the question whether national security is threatened if a new industry cannot get started.

Section 232 has also taken a favored place in trade policy—international trade disputes often go to the World Trade Organization; but national security, according to the United States, is off limits for international trade disputes. This argument, if successful, would blow a hole in the world trading system. Some argue that the world trading system needs a reset; so maybe the U.S. is doing the system a favor.

For transformers, cranes and vanadium, the arguments for protection have more to do with economic injury than with national security. The current administration, as I reported before, has seized on this argument to support companies like steel and aluminum producers and to launch new investigations concerning transformers and components, cranes and vanadium.

The remaking of U.S. trade and economic policy embarks on a new chapter with these investigations. It is hard to predict right now where it will end, but it could be a rough ride.

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