Leibowitz on Trade: Section 232—On the March or On the Way Out?

;A recent court decision strongly points to changes in Section 232 on steel. In a case decided on July 14, Transpacific Steel, the U.S. Court of International Trade decided that the doubling of tariffs on steel imports from Turkey was unlawful, because it imposed new restrictions more than 90 days after the president received the steel report on the Section 232 investigation in January 2018. As a result, the court ordered the government to pay back the tariffs that were paid from August 2018 to May 2019 (when the president rescinded the increased tariffs).

In the interest of full disclosure, I was counsel of record for one of the plaintiffs inTranspacific Steel. I am also representing plaintiffs in a case challenging the Section 232 import restrictions on steel in their entirety. That case is still pending.

Of perhaps greater interest are three new Section 232 investigations on transformers and components made of electrical steel, on mobile cranes and on vanadium alloys. Those investigations were initiated in May of this year. The comments from the public are now rolling in. Under the 232 statute, the Commerce Secretary has 270 days from the initiation of an investigation to complete it and report to the president on whether imports of an article “threaten to impair the national security.”

Again—full disclosure. I am working on one of those three new cases—transformers and their components. I can’t reveal all the details, but I have looked at the comments in all these new cases and there are recurring themes that also were present in the earlier steel and aluminum cases: downstream industries.

Downstream industries are customers of domestic producers seeking trade protection. The transformer industry is downstream from producers of electrical steel, which is a major component of transformers. In the case of mobile cranes, the downstream industry is construction of buildings, roads, bridges and the like. For vanadium, the downstream industries are metals producers for whom vanadium is an important alloying element.

The comments have just been submitted in these cases during July—but the downstream industries are opposing trade restrictions that will increase their costs and effectively encourage them to relocate their manufacturing to other countries to avoid the inconvenience and expense of living with new tariffs and other restrictions.

The vanadium investigation is still under way; however, the Aerospace Industries Association predicts significant harm to downstream U.S. companies in the aerospace industry. The products made with vanadium, they argue, are more important to national security than where the vanadium is made.

Similarly, in the mobile cranes case, suppliers of cranes, which are often leased for specific jobs, complain that numerous imported cranes are already here and that import restrictions would not help domestic crane producers’ profitability. Commenters tell a familiar story—leading domestic crane manufacturers once set the world standard for quality, reliability and efficiency, but not any longer. Their failure to innovate and improve their products let other international companies overtake them. Imposing tariffs without addressing the slow pace of adaptation and investment will not solve the problem.

In the transformer investigation, the comments echo cranes. Domestic production of electrical steel has fallen behind international companies. The imposition of steel tariffs and quotas led companies that make transformer components to relocate their production so that they could use steel that was not only considerably cheaper, but better for their operations than that which was available domestically. Apparently, only one company supplies electrical steel at present. Arguably, if the country must choose between protection of steel production and modernizing the electric grid, the choice is clear. The grid is more important to national security.

Just this past week, there was a congressional hearing about personal protective equipment, which has been in the news since the pandemic hit. While all the witnesses advocated increased production of PPE in the United States, there were powerful statements in favor of increasing trade, stockpiling PPE and getting ready for the next wave of the virus (or the next pandemic). Trade is part of the solution, if it’s handled correctly, these witnesses pointed out.

Opinions abound about whether manufacturing should be brought home. These issues are not simple either way. We all want better jobs here at home, and we also want our needs met. Imposing tariffs is not a particularly good way to achieve either objective. If people and companies are forced to buy products that are domestically produced, doesn’t it make sense to insist that the products they buy are of the highest quality? This requires innovation and investment in new production techniques, both features of all three of the new Section 232 cases. If import restraints cannot fix those problems, what else can we think of to address them?

Section 232 permits the president to impose measures to “adjust imports” to assure that those imports will no longer be a threat to national security. With these new cases, it appears that imports may actually enhance our national security in certain instances. The requirements of Section 232 do not give the president the legal authority to fix the inadequacies of domestic production; more is needed and it needs to be based on other legal authority. Perhaps the current election campaign will enlighten us.

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