Section 232 Tariffs on Imported Steel and Aluminum: What You Need to Know (Part I)

Last week, the President unexpectedly announced that, acting under authority of Section 232 of the Trade Expansion Act of 1962, as amended [19 U.S.C. §1862], he would impose significant new tariffs on a wide range of steel and aluminum imports from all foreign countries.  He indicated that there would be a 25% ad valorem tariff imposed on imported steel articles, and a 10% ad valorem tariff imposed on imported aluminum.  The White House indicated that the new tariffs would be proclaimed by March 8, 2018, although no proclamation has apparently yet been drafted.

The announcement came as a shock not only to the public, but to Administration officials who were conducting, and had not concluded, a review of the Section 232 reports and recommendations issued by Commerce Secretary Wilbur Ross.

The proposed tariffs were higher than those proposed by the Commerce Department. Despite outcries and threats of retaliation from trading partners – including many with whom the United States has free trade agreements – White House officials have suggested that no countries would be excluded from the scope of the new tariffs. The President also suggested that, if other nations retaliated against the United States for the new tariffs, he would raise the stakes in a global trade war, and mentioned imposing high tariffs on automobiles from the European Union. The European Union (EU) has suggested that it will retaliate against U.S. bourbon, motorcycles and blue jeans, while China has suggested that American soybean exports could be targeted.

While the situation is evolving, this memorandum attempts to provide some information regarding Section 232 tariffs and how international traders might deal with them.

               

What are Section 232 Tariffs?

Section 232 of the Trade Expansion Act of 1962 is a little-used provision of law which empowers the President to impose measures to limit imports which threaten national security interests. Remedies available under Section 232 include the imposition of increased tariffs, import quotas, “tariff-rate quotas” and the provision of special assistance to the domestic industries concerned.  Section 232 does not require that the imports be traded by means of unfair practices[1], nor does it require that there be a current threat to the national security or to any domestic industry.

Section 232 measures are imposed by the President, following receipt of a “comprehensive report” from the Secretary of Commerce. 

Section 232 has been invoked sparingly, and before the current investigations of steel and aluminum, not since 1988.  Measures imposed under Section 232 have typically been short-lived, and rarely successful. More often than not, they injure industries which consume the products in question, rather than helping the producing industries.

The Commerce Secretary’s report in the Section 232 investigation of steel unsurprisingly concluded that steel imports posed a threat to national security (the Secretary of Defense apparently does not agree). He set out three recommendations, each designed with the goal of having the United States steel industry operate at 80% capacity utilization. The Secretary offered three options:

1.       A 24% across-the-board additional tariff on steel products;

2.       A rollback quota allowing 63% of current imports to be entered; or

3.       A 53% additional import tariff on steel products from certain countries (Brazil, South Korea, Russia, Turkey, India, Vietnam, China, Thailand, South Africa, Egypt, Malaysia, and Costa Rica.

With respect to aluminum, the Secretary recommended imposition of a 7.7% ad valorem tariff.  Thus, in both cases, the remedy selected by the President exceeded the measures recommended by the Secretary.

 

[1] Unfair trade practices are addressed through the antidumping and countervailing duty laws. There are currently over 100 antidumping and countervailing duty orders in place against steel products, including many from China. Recently, antidumping and countervailing duties were imposed on imports of Aluminum Foil from China. The Section 232 Tariffs are expected to be in addition to other existing tariffs.