Threat of U.S. Steel Probe Looms Over G-20 Summit

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By Bryce Baschuk

President Donald Trump’s threat to impose new steel tariffs is unnerving U.S. allies and could create a toxic negotiating environment at the Group of 20 summit in Hamburg, Germany.

On July 7 and 8, leaders from China, Canada, Japan, and Germany are all expected to press Trump on his Section 232 investigation to determine whether cheap international imports of steel pose a threat to U.S. national security.

The rarely used provision of the 1962 Trade Expansion Act is considered controversial because it exploits a national security exemption in international trade rules that could encourage tit-for-tat trade retaliation with U.S. trade partners.

The Trump administration is not expected to make its final decision in the Section 232 probe before the G-20 summit, but it may prove to be a distraction at the annual gathering for leaders of the world’s top 20 economies.

“There is no doubt that this entire line of trade remedy actions regarding national security matters is going to be an issue,” said Jacob Kirkegaard, a senior fellow with the Peterson Institute for International Economics. “The Trump administration will be told in no uncertain terms that if they do this, retaliation will be swift and painful.”

Overcapacity Problem

When Trump launched the Section 232 steel probe in April, he said it had “nothing to do with China.” However, his administration has made it clear that it will use any and all tools to rein in China’s manipulation of global steel markets.

“We start with the proposition that we have a global, extraordinary, excess amount of capacity that is basically created by China,” U.S. Trade Representative Robert Lighthizer told members of the House Ways and Means Committee during a June 22 hearing in Washington.

The U.S. has often criticized China for illegally subsidizing the steel and aluminum industries and contributing to a global glut of the metals. The U.S. also has accused China of shipping steel and aluminum to the U.S. through countries such as Vietnam and South Korea.

U.S. trade officials claim that Beijing increased its steel production capacity by more than 160 percent since 2009 and current Chinese steel production exceeds the total capacity of the U.S., Japan, India, and Brazil combined.

China pledged to reduce the country’s annual steel capacity by as much as 150 million tons before 2020, but the country remains the world’s largest steel producer and accounts for nearly half of the globe’s total steel production.

Last week China panned the Trump administration’s proposed approach, which would impose new hurdles for Chinese steel producers that are already subject to more than 100 U.S. antidumping and countervailing duties.

Global Steel Forum

At the 2016 G-20 summit in Hangzhou, China, world leaders agreed to coordinate their efforts to reduce excess capacity in global steel markets through the Organization for Economic Cooperation and Development’s global forum for steel.

The Sept. 5 communique urged the OECD to help countries “enhance communication and cooperation,” take “effective steps to address the challenges,” and “encourage adjustment.”

The effort has not produced a noticeable dent in the global overcapacity problem, and some members of the Trump administration—President Donald Trump included—argue that Section 232 tariffs are necessary to protect America’s ability to manufacture steel in times of war.

“The OECD multilateral approach to this was in some ways the face-saving measure that was enacted last year in China,” Kirkegaard told Bloomberg BNA in a phone interview. “It hasn’t gone far because the Chinese have not done what the U.S. or the [European Union] wanted.”

“Unless the Chinese come forth with something they haven’t offered—which I’m skeptical about—then, yeah, I think this will be a point of conflict,” he said.

Allies Concerned

U.S. allies complain that the result of Trump’s national security probes could harm their domestic industries both by imposing direct tariffs and by diverting the overcapacity of global steel and aluminum products into their markets.

European Trade Commissioner Cecilia Malmstroem said at the end of June that Brussels would quickly retaliate against the U.S. if Europe became collateral damage in Trump’s war on cheap steel.

“If the Trump administration finds that steel imports are disrupting national security and import tariffs are needed, those could hit many members of the G-20,” said Matthew Goodman, a senior adviser at the Washington-based Center for Strategic and International Studies. “That could really poison the atmosphere in the room and distract from all the other issues on the agenda.”

According to the U.S. International Trade Administration, Canada supplies 20 percent of America’s overall steel imports, followed by Brazil, which supplies 13 percent. South Korea supplies 12 percent of U.S. steel imports, while Mexico supplies 9 percent, Turkey and Japan supply 7 percent, respectively, Russia supplies 6 percent to the U.S., and Germany is responsible for 4 percent of all U.S. steel imports.

“A number of EU countries may be affected by a U.S. measure, certainly more than countries such as China for which steel exports to the U.S. have mostly been blocked by massive anti-dumping actions,” the European Steel Association, known as Eurofer, said. “Section 232 measures could target a significant part of the 3.7 million [metric tons] of U.S. imports from EU member states.”

Several of those exporters—Canada, Turkey, and Germany—are members of the North Atlantic Treaty Organization (NATO) and as such the Trump administration may have to show that their strategic partners in the military alliance are somehow threatening U.S. national security interests.

It’s noteworthy that Trump administration officials are mulling a scenario where they grant waivers or tariff quotas to ensure U.S. allies and NATO partners aren’t unfairly targeted by any across-the-board tariffs.

“The EU is a traditional and reliable steel supplier of the U.S., the EU member states concerned are NATO partners of the U.S. There is therefore no justification for targeting any steel supplies from the EU,” Eurofer said.

Systemic Implications

Trade analysts expect G-20 leaders to persuade Trump to eschew national security tariffs on steel and aluminum because of the blow-back effect they could have on the stability of the international trading system.

“We are going to see probably more private conversations about the Section 232 process under way in the U.S.,” said Joshua Meltzer, a senior fellow at the Brookings Institution in Washington. “I think that there are some concerns about the systemic implications about going down that route for the international trading system.”

World Trade Organization members are already reeling from the dangerous precedent being set by a growing preoccupation with national security measures at the Geneva-based trade body.

Just last week, Saudi Arabia, Bahrain, and the United Arab Emirates said their decision to close all land, sea, and airport links to Qatar was done to protect their national security and therefore complied with the WTO’s national security exemption.

The unprecedented move marks the first time any WTO member has ever cited Article 21 of the General Agreement on Tariffs and Trade as a justification for their actions in a WTO meeting.

Though WTO rules permit its members broad leeway to enact policies that ensure national security, such measures are rarely deployed due to a long-standing belief that the WTO exemptions should be used only for exceptional cases.

To contact the reporter on this story: Bryce Baschuk in Geneva at correspondents@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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