The National Security Tariff Ruse
Conservatives rightly criticized President Obama for stretching the law to issue executive edicts. The same scrutiny should attend the Trump Administration’s dubious use of national security and Section 232 to justify its new tariffs on steel and aluminum.
Section 232 is part of the Trade Expansion Act of 1962 but has been rarely used—once each by Presidents Nixon, Ford and Carter against foreign oil imports. George W. Bush considered using it in 2001 to justify his steel tariffs but rejected the case as too flimsy. No President has used 232 since the World Trade Organization was created in 1995.
The Trump Commerce Department tried to justify its 232 play in two January reports, but its evidence is so weak that it bears dissecting. Start with its claim that steel and aluminum imports make the U.S. military vulnerable. Not even the Pentagon buys that one.
In an undated memo released to the media, Defense Secretary Jim Mattis wrote that “imports of foreign steel and aluminum based on unfair trading practices impair the national security.” But he added that, “As noted in both Section 232 reports, however, the U.S. military requirements for steel and aluminum each only represent about three percent of U.S. production. Therefore, DoD does not believe that the findings in the reports impact the ability of DoD programs to acquire the steel·or aluminum necessary to meet national defense requirements.”
Mr. Mattis also warned about “the negative impact on our key allies” from tariffs. That’s hardly a ringing endorsement for Commerce from America’s war fighters.
Commerce next resorts to a dubious argument about capacity utilization. The claim is that U.S. steel producers must be able to run their plants at 80% of capacity to sustain an adequate domestic steel supply, but current U.S. capacity is about 70%.
One problem is how to measure capacity. Is it defined as short-, medium- or long-term, and what about the impact of labor availability? A Commerce official told us in an email on Saturday that “unless the furnace was fully shuttered and dissembled it is still counted as capacity.” In other words, Commerce counts as capacity even idle plants that are fully depreciated and not expected to reopen.
The Commerce data alleging a “declining steel capacity utilization rate” come from 2016. But the American Iron and Steel Institute reports that for the week ending March 3 of this year, domestic raw steel production had a capacity utilization rate of almost 79%.
The report fails to break out capacity utilization of plants that make “long products”—such as wire rods, rebar and rails for track—and those that make flat-rolled steel for things like the armored plate in ship hulls. Some industry experts say that plants making flat products are well above 80% capacity, while plants that make long products may be lower. But Commerce supplies no such information in its report, and in any case “long” steel is tangential to national defense.
Then there’s the failure to distinguish capacity use for blast furnaces compared to the electric-arc furnaces used by mini-mills. This is a key weakness because mini-mills can throttle back when demand slows without losing a lot of money, and thus can endure lower capacity use. This is one reason mini-mills have captured two-thirds of domestic production. Nucor , the largest U.S. mini-mill operator, turned in its largest quarterly profit in eight years in the first three months of 2017. Net income was up more than 300% year-over-year.
The Trump Administration has pulled the 232 stunt because it gives the President power to act unilaterally. But its own analysis shows how weak its case is. Steel users should challenge this in court as the unlawful ruse it is.
Appeared in the March 13, 2018, print edition.