Steel, Tariffs and National Security Under the Trump Administration

• Publication year: 2018
• Author: Robert Bowen*

STEEL, TARIFFS AND NATIONAL SECURITY UNDER THE TRUMP ADMINISTRATION

Robert Bowen*

I. INTRODUCTION

The Trump Administration has taken dramatic steps and made some significant decisions in the area of international trade, in particular on aluminum and steel tariffs. This article will explore certain of the Administration's recent trade-related decisions under the Trade Expansion Act of 1962 and the possible legal ramifications for California practitioners.

The article surveys the Trade Expansion Act and highlights its historical application by various Presidents. It then explores the reaction of key U.S. trading partners to the recent steel and aluminum measures, including claims rooted in World Trade Organization (WTO) commitments and jurisprudence. It closes with observations about the role that the WTO may play in future trade actions. In short, this article aspires to be a timely resource for California practitioners working to advance their clients' interests in a time of change.

II. ACTIONS BY THE TRUMP ADMINISTRATION

On April 20, 2017, President Donald J. Trump issued a Presidential Memorandum in which he directed the Secretary of Commerce to review whether the importation of certain steel mill products into the U.S. posed a threat to the national security of the U.S.¹ On April 27, 2017, the President issued a parallel Presidential Memorandum directing a similar review of the importation of certain aluminum products into the U.S.² For reasons that will be discussed, responsibility for these reviews fell to the Bureau of Industry and Security within the Department of Commerce (BIS).³ The legal ground cited for these investigations was a peculiar federal statute, the Trade Expansion Act of 1962 (Act), specifically Section 232 of the Act.⁴

The BIS subsequently issued its reports on steel and aluminum dated, respectively, January 11, 2018 and January 17, 2018.⁵ For steel, the BIS found, inter alia, that:⁶

1. steel is important to the national security of the U.S.;
2. imports of steel in such quantities as presently found adversely impact the economic welfare of the U.S. steel industry;
3. displacement of domestic steel by excessive quantities of imports has the serious effect of weakening the internal economy of the U.S.; and
4. a global excess in steel capacity is a circumstance that contributes to the weakening of the U.S. economy.

In its aluminum report, the BIS found, inter alia, that:⁷

1. aluminum is essential to the national security of the U.S.;
2. the U.S. Government does not maintain strategic stockpiles of bauxite, alumina, aluminum ingots, billets or any semi-finished aluminum products such as aluminum plate;
3. the present quantity of imports adversely impacts the economic welfare of the U.S. aluminum industry; and
4. a global excess of aluminum capacity is a circumstance that contributes to the weakening of the U.S. industry and the U.S. economy.

On March 8, 2018, President Trump issued a Presidential Proclamation in which he ordered the imposition of a 25% ad valorem tariff on certain steel articles and a 10% ad valorem tariff on certain aluminum articles.⁸ On May 31, 2018, President Trump issued a Presidential Proclamation imposing the steel tariffs on steel imported from all countries except Australia (which is exempt) and three countries subject to annual quotas (South Korea, Argentina and Brazil).⁹ On the same date, President Trump issued a Presidential Proclamation imposing the aluminum tariffs on aluminum imported from all countries except Australia (which is exempt) as well as Argentina (which is subject to an annual quota).¹⁰ These steel and aluminum tariffs became effective on June 1, 2018.

[Page 53]

In a subsequent move that received less attention than the steel and aluminum investigations, on May 23, 2018, the Department of Commerce announced that it was undertaking a Section 232 investigation into whether imports of automobiles (including SUVs, vans and light trucks) and automotive parts into the U.S. threaten the national security of the U.S. as defined in Section 232 of the Trade Expansion Act of 1962.¹¹

III. GOVERNMENT POWER TO EXECUTE TRADE POLICY

Constitutional and other legal questions about respective federal authorities to design and execute U.S. international trade policies enjoy a rich history. Article II, Section 2 of the U.S. Constitution confers upon the President the power to make treaties and to function as the Commander in Chief while Article I, Section 8 confers upon Congress the power to regulate commerce with foreign nations and to lay and collect taxes and duties.¹² The allocation of authority to these two branches of government is a robust example of the concept of separation of powers.

Given their crucial role in trade relations between states, tariffs and other import impediments have frequently been the venue of constitutional and legal questions. At the same time, tariffs have also been the impetus for pragmatic decisions between the executive and legislative branches. For example, the Reciprocal Trade Agreements Act of 1934 effectively functioned as a delegation of Congressional authority to the President to negotiate tariff reductions with U.S. trading partners.¹³ Although an acknowledgement that Congress lacks the constitutional standing—let alone the practical ability—to negotiate tariff reductions, this delegation proved to be unsatisfactory to Congress and in 1948 it refused further extensions of the Reciprocal Trade Agreements Act. This, however, was not before Presidents Roosevelt and Truman used it as a legal authority on the basis of which they negotiated tariff reductions with key trading partners. These, in turn, played no small part in laying the foundation for the launching of the General Agreement on Tariffs and Trade in 1948 (the precursor to today's WTO). This example confirms an early precedent that Congress can and does delegate its authorities on tariff matters to the President.

Indeed, the Act was (and is) such a delegation of authorities to the President. President John F. Kennedy signed the Act on October 11, 1962, and commented upon doing so that:

This act recognizes, fully and completely, that we cannot protect our economy by stagnating behind tariff walls, but that the best protection possible is a mutual lowering of tariff barriers among friendly nations so that all may benefit from a free flow of goods. Increased economic activity resulting from increased trade will provide more job opportunities for our workers.¹⁴

It is important to underscore that the Trade Expansion Act was regarded by both Congress and President Kennedy as a delegation of Congressional authority to the President to negotiate tariff reductions with trading partners. But whereas the text and legislative history of the Act point to the overall mission of reducing tariffs, the Act also provided for various exceptions to this charge. National security is one such exception, codified in Section 232 (under the subtitle "Prohibition on decrease or elimination of duties or other import restrictions if such reduction or elimination would threaten to impair national security") as follows:

No action shall be taken pursuant to section 1821(a) of this title or pursuant to section 1351 of this title to decrease or eliminate the duty or other import restrictions on any article if the President determines that such reduction or elimination would threaten to impair the national security.¹⁵

By way of explanation, 19 U.S.C. § 1821(a) empowers the President to enter into trade agreements to address duties or import restrictions when the President "determines that any existing duties or other import restrictions . are unduly burdening and restricting the foreign trade of the United States."¹⁶ Similarly, under this authority the President may also "proclaim such modification or continuance of any existing duty or other import restriction, such continuance of existing duty-free or excise treatment, or such additional import restrictions, as he determines to be required or appropriate to carry out any such trade agreement."¹⁷

Initially found in the Reciprocal Trade Agreement Act of 1934 (see supra), 19 U.S.C. § 1351 articulates when the President may enter into foreign trade agreements, or modify/continue existing duties or import restrictions, "for the purpose of expanding foreign markets for the products of the United States (as a means of assisting in establishing and maintaining a better relationship and maintaining a better relationship among various branches of American agriculture, industry, mining, and commerce)."¹⁸ Providing the pivotal linkage between the expansion of foreign markets and imports into the United States, Congress further provided that the President may pursue that purpose:

[Page 54]

by regulating the admission of foreign goods in the United States in accordance with the characteristics and needs of various branches of American production so that foreign markets will be made available to those branches of American production which require and are capable of developing such outlets by affording corresponding market opportunities for foreign products in the United States.¹⁹

This provision articulates the manner in which a statute designed to open foreign markets to U.S. exports transitions into a basis for restricting imports into the U.S. as a means of leverage. Though not explicit, there is a sense of proportionality and reciprocity (if not forced) in the above statutory authority.

When the President finds "as a fact that any existing duties or other import restrictions of the United States or any foreign country are unduly burdening and restricting the foreign trade of the United States," the President is authorized to:

(a) enter into foreign trade agreements with foreign governments or instrumentalities thereof and, (b) to proclaim such modifications of existing duties and other import restrictions, or such additional import restrictions, or such continuance, and for such minimum periods, of

...