President Trump orders broad tariffs on steel and aluminum imports

On March 8, 2018, President Donald Trump signed two proclamations¹ putting in place a 25 percent tariff on steel and a 10 percent tariff on aluminum. The orders explicitly carved out Canadian and Mexican shipments and left the door open for other US allies to receive tariff exemptions if they are willing to enter into a dialogue with the administration. The tariffs are set to take effect on March 23, 2018.

President Trump invoked a rarely used provision of the Trade Expansion Act of 1962 (the “Act”) to support imposing restrictions on steel² and aluminuma ³ imports. Section 232 of the Act, as amended, authorizes the President to take actions he deems necessary to adjust imports into the United States in quantities or under circumstances that threaten to impair national security. This provision gives the executive branch the ability to conduct investigations to “determine the effects on the national security of imports.” Within 270 days of initiating any investigation, the US Department of Commerce issues a report to the President with the investigation’s findings, including whether certain imports threaten to impair US national security. The President has 90 days to determine whether he concurs with the findings and, if so, to use his statutory authority under Section 232 “to adjust the imports” as necessary, including through tariffs or quotas.

In January 2018, the Commerce Department delivered the Section 232 reports on steel and aluminum to the President and, a month later, publicly released the reports. The reports concluded that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security,” as defined by Section 232. The reports found that US steel imports were nearly four times its exports, and that aluminum imports had risen to 90% of total demand for primary aluminum. The Commerce Department recommended that President Trump take action to protect the long-term viability of America’s steel and aluminum industries, offering President Trump several options to address it.

President Trump elected to impose a flat tariff on all shipments of each metal, the most aggressive option offered by the Commerce Department. The stated goals include protecting domestic industry by boosting American steel and aluminum manufacturers, and addressing the practice of “dumping” excess steel into the global market at artificially low prices. Rather than an across-the-board tariff regime, however, the tariff orders provide major US trading partners with some latitude. Canada and Mexico are explicitly carved out from the two tariff orders, at least while talks are underway to revise the North American Free Trade Agreement (“NAFTA”). The orders also leave the door open for other countries to have the tariffs modified or removed if alternative means are agreed upon to ensure imports from those countries no longer threaten to impair US national security. The orders do not, however, set forth specific criteria that countries must meet in order to get their own exemptions. Rather, the orders simply state that a country with which the United States has a “security relationship” can open a dialogue with the administration to discuss “alternative” ways to address the apparent security threat posed by that country’s shipments.

In addition, once the duties take effect, companies will be allowed to petition the Commerce Department for product-specific exemptions. There will be a mechanism for an “affected party located in the United States” to apply for exclusion of specific products based on demand that is not met by domestic production or on specific national security considerations. Exclusions may be granted (1) for "any aluminum [or steel] article determined not to be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality" or (2) "based upon specific national security considerations."The procedures for exemption requests are expected to be issued by March 19.

The potential ripple effects from the tariffs could be significant. While American steel and aluminum manufacturers could get a boost, other sectors of American manufacturing might have to contend with the rising cost of importing raw materials if there is not enough domestic supply to meet surging demands. The cost of products incorporating steel and aluminum could increase if manufacturers decide to shift the rising cost of steel and aluminum to consumers. Fears have been stoked that other countries may respond with retaliatory measures, imposing their own tariffs or quotas on American goods, resulting in a trade war. Other countries could face declining sales and job losses if the tariffs cause a decrease in the volume of their trade with the United States. According to press reports, Brazil, Canada, China, Germany, Japan, Mexico, Russia, South Korea, Taiwan, and Turkey were the largest suppliers of steel to the United States in 2017, while Canada, Russia, and the United Arab Emirates shipped the largest share of aluminum imports in 2016.

Turkey, in particular, is the eighth largest steel producer in the world and accounts for 5.7 percent of American steel imports, according to press reports. Turkey's exports to the United States were around $1.2 billion in 2017 ⁴, accounting for 10 percent of Turkey's total steel exports. The exports are likely to drop more than 30 percent because 25 percent tariffs will render competition with domestic producers prohibitive for Turkish companies in the US market.

Given this uncertainty, steel and aluminum manufacturers and exporters should monitor the developments closely so they can prepare for any consequences that may ensue from the tariff orders.