Congress Should Aggressively Reform Section 232 Trade Rules

COMMENTARY Trade

Congress Should Aggressively Reform Section 232 Trade Rules

Jul 27th, 2020 3 min read
COMMENTARY BY
Tori K. Smith

Jay Van Andel Trade Economist

Smith provides the conservative true north on free trade through her research and writing.
Factory workers are seen as they work at a rolling mill plant in Izmir, Turkey on December 11, 2019. steel imports from Turkey

Key Takeaways

Turkish steel was first slapped with 25% tariffs in March 2018. The official rationale was to protect U.S. national security—the purpose of Section 232.

The CIT found that the president’s order doubling tariffs on Turkey “was issued far beyond this temporal window.”

Section 232 is an antiquated trade tool that gives the president virtually unchecked authority to impose or increase tariffs on U.S. imports.

Last week the U.S. Court of International Trade (CIT) ruled that certain tariffs imposed on steel imports from Turkey under Section 232 of the Trade Expansion Act were not permitted under the law. It was a big win for American companies and consumers who had been stuck with higher prices due to the tariffs.

But this ruling should not be the end of the story. Rather, it should prompt Congress to reform Section 232 to prevent further misuse of the law.

Turkish steel was first slapped with 25% tariffs in March 2018. The official rationale was to protect U.S. national security—the purpose of Section 232. These same tariffs were applied to nearly every country in the world at that time.

In August 2018, diplomatic tensions with Turkey were rising due to Ankara’s detention of an American pastor and the depreciation of the Turkish Lira. Some said the depreciation it artificially cheaper to import steel from Turkey. In response, President Trump elected to double the Section 232 tariffs on steel from Turkey.

Transpacific Steel LLC filed suit at the CIT eight months later. The company argued that the president’s actions were both unconstitutional—violating the Fifth Amendment—and in conflict with Section 232.  The constitutional arguments centered on equal protection under the law and due process. The rest held that that the president’s actions did not contain a national security reasoning and failed to follow the procedures laid out in Section 232.

The CIT, established under Article III of the Constitution to adjudicate cases regarding domestic trade law, ruled in Transpacific Steel’s favor. The court stated that doubling tariffs on Turkish steel had been done “in violation of mandated statutory procedures and in violation of the Fifth Amendment’s Equal Protection guarantees.”

The court pointed to procedures in Section 232 which require an investigation and report by the Secretary of Commerce. The CIT did not determine whether or not the President’s action was a justified interpretation of national security, but it did find that “he acted without a proper report and recommendation by the Secretary on the national security threat posed by imports of steel products from Turkey.”

The law also requires the president to act within 90 days of receiving the report and to implement his actions within 15 additional days. The CIT found that the president’s order doubling tariffs on Turkey “was issued far beyond this temporal window.”

While the Trump administration reversed the order on Turkish steel imports in May 2019, importers had paid higher rates for roughly nine months. The CIT decision means that those tariffs will be refunded to the importers.

Last week’s decision signals how the CIT might rule in similar cases regarding Section 232 tariffs imposed outside of the 90-day decision deadline. For example, PrimeSource Building Products has a case pending before the CIT that challenges additional tariffs imposed on steel and aluminum derivative products this January. The same procedural arguments made by Transpacific Steel could also prove successful for PrimeSource.

While CIT’s decision is an important victory for American consumers, it is only a Band-Aid solution. The core problem is that Section 232 is an antiquated trade tool that gives the president virtually unchecked authority to impose or increase tariffs on U.S. imports. Despite continued expansive use of this law, Congress has irresponsibly failed to review Section 232. Sens. Pat Toomey, R-Penn., and Rob Portman, R-Ohio, have each offered reform proposals, but neither were given a hearing in the Senate Finance Committee.

Congress should openly debate serious reform proposals. At a minimum, they should prioritize establishing a congressional approval resolution process, shift the focus of Section 232 from national security to national defense needs, and require cost-benefit analysis of any trade restrictions being considered. Such reforms would ensure that trade policies carried out under Section 232 focus not just on what is best for certain sectors of the economy, but on what is best for all Americans.

This piece originally appeared in RealClear Markets