Leibowitz on Trade: ITC Mulls Future of Section 232, 301 Tariffs

Congress provided such a requirement in the Appropriations Act passed in March of this year, indicating concern that any extension or change to Section 232 remedies be backed up with facts.

The ITC announced the fact-finding proceeding in May 2022. Late in July, the Commission heard testimony from interested parties on the costs and benefits of these import measures. In going through the statements, I was struck by how familiar the arguments were. The expected witnesses (companies, trade associations, attorneys) made the expected arguments – on the impact of the tariffs on businesses that rely on imports, on inflation, on climate, and on the welfare of domestic producers.

Patrick Bloom, vice President of government relations at Cleveland-Cliffs Inc., gave testimony stating long-advanced arguments about excess global capacity in steel, major investments by Cliffs, and the successful reduction in import volumes into the United States. Cliffs took a shot at the “misguided, disastrous trend of globalization.” The clogged ports and shortages of components are “undeniable evidence that the practice of outsourcing manufacturing to China and other countries is a fundamentally flawed model.”

Bloom did not explain that parts shortages and other disruptions were not solely caused by globalization. The pandemic, war and other causes helped too.

The testimony by Steel Manufacturers Association president Philip Bell claimed that Section 232 tariffs were an unalloyed boon to the country. No doubt they have done some good things. But those benefits have not been free. Bell noted the large price increases in 2018, shortly after the 232 tariffs went into effect. He did not mention the inflationary steel price increases in 2021, which the Section 232 tariffs helped make possible. Steel prices have declined significantly since last year’s peak. But they are still much higher than they were before the tariffs took effect in 2018. Import competition, as always, moderates prices.

American Iron and Steel Institute (AISI) president Kevin Dempsey took a more cautious tone about Section 232 import restrictions, asserting in his testimony that “the available evidence suggests there has been no significant broad negative impact to the economy as a whole.” Citing a report from the Economic Policy Institute, a Washington think tank supported extensively by domestic steel producers, Dempsey asserted that steel price increases had “no meaningful real-world impact on prices of steel-consuming products.” That is far from self-evident.

Prices paid by consumers are, as noted above, affected by the level of import competition. Rather than noting the competitive impact of the tariffs on US companies making downstream products, Dempsey noted that consumer prices increased only a little. Foreign competitors do not face a 25% tariff on their steel inputs, and so they can export their products to the United States at lower cost than their US rivals – leading to lost jobs here at home. The longer these effects persist, the more US jobs will be lost.

On the consuming industries side of the ledger, major trade associations representing businesses that use steel in manufacturing weighed in, again using familiar arguments (with the addition of inflation, which has only appeared as a major issue in the last year or so). Steel users and traders emphasized, as they always do, the costs to their companies. But they failed to acknowledge that domestic producers were faced with similar pressures in the years before 2018.

The American Metals Supply Chain Institute (AMSCI) testified that steel and aluminum tariffs, coupled with the Section 301 tariffs on Chinese components, contributed significantly to supply chain disruption because of insufficient availability of components (including steel) from domestic sources. Companies have reduced production in the US as a result, and some have announced the closure of operations in the United States because of international competitive pressure. US producers of materials for the construction industry experienced inflation of 36% in fabricated structural metal used in construction in April 2022 compared to year-ago levels. Other construction-related steel products suffered from even higher inflation.

The Auto Care Association argued that the Section 232 and 301 tariffs put tremendous pressure on participants in the automotive aftermarket industry. Organization president and CEO Bill Hanvey said that industry employs 4.5 million workers, more than 20 times the employment in today’s steel industry. The costs imposed by the tariffs impose “a significant strain” on businesses that cannot pass these costs on to their customers. For the Section 301 tariffs, the only solution is to relocate sourcing outside of China. But that is not feasible yet. It requires start-up investments in new facilities that impose financing costs and regulatory compliance that the generally small companies in the aftermarket sector cannot afford.

A similar story was told by the Precision Metalforming Association (PMA) president David Klotz. Composed largely of small- to medium-sized companies fabricating metals for thousands of applications, PMA members rely on steel and aluminum costs remaining competitive with their international competitors. The Section 232 and 301 tariffs, imposed by their own government, make that impossible.

These are a few examples of nearly one hundred statements delivered to ITC commissioners over three days in July. Written comments are due by August 12. The ITC is scheduled to report its findings on Section 232 and 301 import restrictions by March 2023.

The points raised by all witnesses make good reading for their constituencies. But rarely do they attempt to acknowledge the other side’s points or weigh benefits against costs. Thus, they do not help the ITC do its job. In Section 301 reviews, the ITC must find facts to assist the office of the United States Trade Representative (USTR) in determining the “effectiveness” of continuing the remedies to achieve the statutory objective of eliminating the offending foreign practice.

Under Section 232, the ITC must find facts regarding the impact of the remedies on all major sectors of the economy, including consumers. Ultimately, President Biden must decide whether the continuation of the remedies, with or without modification, is necessary to adjust imports such that the national security of the United States is not threatened with impairment.

Only by balancing the points made by all sides (net costs and benefits to the economy and the industry affected) can a rational determination be made. This will be hard—but the parties so far have not engaged the points made by the other side. Thus, the president and his advisors will have to balance the benefits and hardships on their own—unless the parties in their written comments rise to the occasion.

I have my own ideas on how to balance the costs and benefits. Others do too. As the ITC proceeding continues, with final comments during August, I hope the that weighing costs and benefits of long-term government protection will get more attention. It cannot come too soon.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz
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