Overview
President Trump recently announced a Section 232 investigation into imports of foreign steel that may be adversely affecting United States core interests. The results of this investigation could lead to increased trade restrictions on certain steel and aluminum goods that are harming U.S. national security and economic interests. Since 1980, the Department of Commerce conducted fourteen Section 232 investigations. Countries investigated include, but are not limited to, China, Russia, Brazil, Turkey, and Germany. [1]
Consequences of the Trade Deficit
U.S. consumption imports of all steel mill products increased from 2.46 million metric tons in February 2017 to 3.1 million metric tons in March 2017. Steel imports from China generally declined throughout the first half of 2016 and remained stagnant the duration of the year. However, the U.S. noticed a 30.4 percent increase of steel mill imports from China in the first quarter of 2017. [2] The Department of Commerce found that the American steel capacity utilization rate was 71 percent in 2016, a 6.5 percent decrease since 2014 due to an influx of these imports. Yet, how important are these statistics to the economy and national security of our country? Steel products are used daily by every American. To disrupt imports of specialty metals, including certain types of steel and aluminum, may have significant effects on the U.S. economy and national security.
The most prominent U.S. steel trade deficit debates led to the Trade Acts of 1962 and 1974, despite the fact that trade and navigation acts have been a part of U.S. policy for nearly 200 years. In the early 1980s, the U.S. Congress discussed investigations under Section 201 and Section 301 regarding specialty metals and imports of steel. Ronald Reagan proclaimed verbatim during a memorandum on subsidy practices in 1982, “The injury to the domestic industry is clear. The specialty steel industry is an efficient, technologically up-to-date and export oriented branch of the steel industry…. Nevertheless, the industry is facing an unprecedented challenge to its continued prosperity, and several member firms are fighting for survival.” [3] The trade deficit is an economic problem that could affect thousands of U.S. manufacturing jobs, which in turn affects national security in wartime. Specialty metals and certain types of steel and aluminum are highly sought as military assets since they are used to produce various aircrafts, ships, and cargo. During wartime, the U.S. would be disadvantaged to rely on imports needed to manufacture military equipment.
Balancing the influx of steel imports is vital to multiple sectors of the U.S. economy. Direct steel manufacturing not only employs thousands of workers but also establishes thousands of companies who refine products sent upstream to other manufacturers. This in turn has an affect on U.S. national security. Maintaining a balance is crucial, although tenuous at times.
Benefits of Steel Imports
By the end of the Second World War, American steel industries produced roughly 60 million net tons of steel per year on average. In 2016, the United States manufactured approximately 87 million net tons of steel, making it one of the largest steel producers in the world. While imports of iron and steel may affect the United States industry in some ways, there are geo-political repercussions to imposing harsh trade restrictions against allies and adversaries alike. If the U.S. chooses protectionist measures, then an expectation of backlash from those affected is warranted. U.S. finance and tech companies along with economic drivers like China, Germany, and the U.K., would be affected. [4]
A contemporary example of how globally reliant our own national security is can be seen through the government contract process during the Iraq War. During this time the Defense Department only approved two “domestic” suppliers for steel projects: International Steel Group, which is a subsidiary of Netherlands-owned Arcelor Mittal; and Oregon Steel Mills, a subsidiary of Evraz Group from the United Kingdom. Both international companies supported the war and maintained relations with the U.S. by providing foreign-produced steel. [5] David Heebner, president of General Dynamics, stated “SvenskaStal AB (SSAB), a Swedish specialty steel manufacturer well-known for armor plate, had already supplied two MRAP producers, including Force Protection.” [6] Even today, specialty steel only makes up less than 0.2 percent of all steel products. Nonetheless, the European and Japanese steel producers still agreed to adhere by Section 724 of Buy American Act limiting exports of specialty steel products to the United States.
Conclusion
Countries such as the United Kingdom, Germany, Netherlands, and Japan support the U.S. with steel and specialty metals during a time of war. The Defense Department does receive sufficient amounts of specialty metals from American subsidiaries of foreign-owned steel corporations. In our globalized economy it is arduous to know which domestic steel companies receive unfinished goods from other foreign companies, or to what extent increased trade restrictions will be effective.
The steel trade deficit is still an alarming issue when it deals with economics and employment. The steel industry has been a cornerstone in the U.S. economy and the vast majority of our products contain some form of steel. Should we wage a trade war on all countries that may threaten the American steel industry? Not necessarily, but there are many reasons why protecting domestic manufacturing companies and American blue-collar workers are important for economic and national security reasons. President Trump’s plan to increase tariffs may have merit, but the unknown ripple effects of trade restrictions may have alarming unintended consequences.
Key Terms: Department of Commerce, U.S. International Trade Commission, American Iron and Steel Institute, Trade Act of 1962, Trade Act of 1974, Steel Section 201, Section 232, Section 301, Buy American Section 724.
Analyst Bio
Cherie Walterman – Trade and Policy Anaylst
Cherie Walterman is a frequent contributor to FAO Global Articles and special projects. She focuses on International Trade & Policy and has worked with some of Washington, DC’s most prestigious Law Firms. She has a B.A. in International Affairs and is currently working towards a Masters of Public Policy at George Mason University.
References
[1] Department of Commerce, Fact Sheet: Section 232 Investigations: The Effect of Imports on National Security, April 20, 2017, accessed May 31, 2017.
[2] U.S. International Trade Commission, Steel Industry Executive Summary: May 2017, http://enforcement.trade.gov/steel/license/documents/execsumm.pdf, accessed May 30, 2017.
[3] Ronald Reagan, Memorandum on Subsidy Practices Relating to Specialty Steel Imports, http://www.presidency.ucsb.edu/ws/?pid=42007, November 16, 1982, accessed May 30, 2017.
[4] Business Insider, The Threat of a US-China Trade War over Steel Imports Keeps Growing, April 24, 2017, accessed May 30, 2017.
[5] Tom Cross, Mine Resistant Ambush Protected (MRAP) Vehicle, The University of Virginia Darden School of Business, case no. UVA-OM-1375, January 21, 2009, accessed May 30, 2017.
[6] David Heebner, President of General Dynamics Land Systems, House of Representatives Defense Subcommittees, November 8, 2007, accessed May 30, 2017.
