National Security Tariffs: Section 232

KEY TAKEAWAYS

• President Trump’s tariffs on steel and aluminum are based on section 232 of the Trade Expansion Act of 1962, a broad legal authority to impose tariffs on goods in the interest of national security.
• National security-based tariffs are exempt from important trade treaties like the General Agreement on Tariffs and Trade, and they are not reviewable by the World Trade Organization.
• Congress did not intend for section 232 to be used for domestic policy purposes, which because of its broad applicability could subject it to abuse.

National security tariffs occupy a special place in international law. Under both the North American Free Trade Agreement and General Agreement on Tariffs and Trade, member countries may impose national security tariffs at any time without triggering a legal challenge from any other member. This broad exception allows free trade to coexist with security, but can undermine free trade if it is abused by imposing tariffs for reasons other than national security. In setting a global 25 percent tariff on steel and 10 percent tariff on aluminum, the Trump administration invoked national security by drawing on its authority in section 232 of the Trade Expansion Act of 1962.

Original Purposes of National Security Tariffs

the original rationale for section 232 tariffs

The Trade Expansion Act of 1962 aimed to increase overseas trade, primarily by giving the president broad authority to cut tariffs. By placing the responsibility for national security tariffs with the executive branch, Congress intended to make the process of imposing tariffs less political and better informed.

The drafters of section 232 were particularly concerned about increased oil imports damaging domestic production. They worried that the United States would not be able to meet the tremendous need for jet fuel if a war against the Soviet Union disrupted overseas supplies. At the same time, they recognized that tariffs on oil imports could damage the economy.

To ensure this authority would only be used in the right circumstances, Congress required a deliberative process within executive agencies. The drafters envisioned the Commerce Department conducting a detailed formal investigation and informing the president that a threat to national security exists. After considering the findings of the investigation, the president would consult with the Department of Defense and other agencies, then act to remove the threat.

The drafters knew from their experience in World War II that the lack of a domestic source for virtually any product could damage a war effort. They had lived through conservation drives for products as diverse as waste fats from cooking, nylon, paper, and sliced bread. For that reason, they designed section 232 to apply to any imports that damaged domestic producers in any part of the economy.

Congress intended this broad new authority to be counterbalanced by the care and thoughtfulness of the executive branch’s investigation. Early section 232 investigations typically focused on specific items with particular defense uses. Reagan-era investigations into glass-lined chemical processing equipment, antifriction bearings, chromium, manganese, and silicon ferroalloys ended without tariffs being implemented. Sometimes no threat was found, and sometimes simple stockpiling of the relevant items solved the problem.   

THE SECTION 232 PROCESS

The secretary of commerce may at any time initiate an investigation into whether an import threatens national security. Once started, the secretary has 270 days to investigate “the effects on the national security of imports of any article” and report findings and recommendations to the president.

During the investigation, the Commerce Department must consult the Department of Defense regarding methodology and policy questions. Once the investigation concludes, the secretary can recommend action or inaction, and the president can take the recommended action or one of his own preference to “adjust imports” of the item. 

In determining whether an import threatens national security, the secretary is directed to consider almost any possible effect. By design, this is focused on whether the import threatens domestic sources for war goods. The secretary can also consider, among other things, whether an import affects federal tax revenue or the training level of the domestic workforce. The near infinite number of considerations gives the secretary wide discretion to find a national security threat.

Trade Treaties and National Security Tariffs

Further underscoring the need for deliberation is the unique position of national security tariffs in international trade law. All national security tariffs fall outside of the World Trade Organization’s jurisdiction and cannot be reviewed. Whether a tariff counts as a national security tariff is policed only by traditions and norms between members of the WTO. Since every party knows that abuse is possible, arbitrary use of the loophole undermines mutual trust in a way that signatories cannot protect against.

NAFTA also excepts national security tariffs from general restrictions on tariffs. Article 1018(1) of NAFTA indicates that the governments of the United States, Canada, and Mexico have sole discretion to determine the need for a national security tariff.

the STEEL AND ALUMINUM TARIFFS

Secretary of Commerce Wilbur Ross’ January 2018 investigation reports on steel and aluminum imports found that both metals are used throughout the armed forces and in critical transportation and manufacturing industries. Those reports further found that U.S. steel and aluminum production has declined substantially in recent years. The steel report noted that “U.S. steel production has been stagnant and production has decreased.” These findings were used to support the secretary’s conclusion that steel and aluminum imports threaten national security.

The reports contained no analysis of whether foreign supply would likely be interrupted in case of war so as to damage national security. Testimony included with the reports indicate the Department of Defense and other federal security agencies use 3 percent of domestic steel produced annually. National security accounts for about 20 percent of domestic high-purity aluminum production.

On March 8, President Trump announced a global tariff of 25 percent on steel imports and 10 percent on aluminum, which took effect on March 23. Tariffs were delayed until June 1 for Canada, Mexico, and the European Union. Argentina and Australia have been exempted from aluminum tariffs; Argentina, Australia, Brazil, and South Korea have been exempted from steel tariffs. Steel prices are now more than 50 percent higher in the United States than they are in China.