Pentagon warns of 'negative impact' of Section 232 remedies

By   / February 23, 2018

While the Pentagon agrees that imports of steel and aluminum "impair" national security, it has warned that trade restrictions stemming from the Commerce Department Section 232 investigations could harm relationships with key allies.

The Defense Department "continues to be concerned about the negative impact on our key allies regarding the recommended options within the [Section 232] reports," DOD said in an undated memo released by Commerce this week. "However, DOD recognizes that among these reports' alternatives, targeted tariffs are more preferable than a global quota or global tariff."

Moreover, the Pentagon argues, "It is critical that we reinforce to our key allies that these [Section 232] actions are focused on correcting Chinese overproduction and countering their attempts to circumvent existing antidumping tariffs -- not the bilateral U.S. relationship."

The Commerce Department, which submitted the reports to the Pentagon for review in December and to President Trump in late January, suggested the imposition of global quotas and tariffs as high as 24 percent and 7.7 percent on steel and aluminum imports, respectively, in addition to outlining country-specific remedy options that would hit a selected group of countries with steeper tariffs. The reports were released last week.

Trump has until April 11 and April 19 to decide which remedies, if any, to impose on imports of steel and aluminum. He will then have to implement the actions within 15 days of his decision, according to the Trade Act of 1962.

Overall, the Pentagon says it concurs with Commerce that "imports of foreign steel and aluminum based on unfair trading practices impair the national security," though it cites the reports' findings in noting that "U.S. military requirements for steel and aluminum each only represent about 3 percent of U.S. production."

Targeted tariffs or quotas, the Pentagon says, should be conditional and "refined" by an interagency group "so as to create incentives for trade partners to work with the U.S. on addressing the underlying issue of Chinese transshipment."

"If the Administration moves forward with the targeted tariffs or quotas on steel, DOD recommends that the management and labor leaders of the respective industries be convened by the President, so that they may understand that these tariffs and quotas are conditional," the memo adds.

The Defense Department urges the administration to wait before taking further steps on aluminum imports if it takes action on steel, because the prospect of trade action alone "may be sufficient to coerce improved behavior of bad actors" in that industry.

"In either case, it remains important for the President to continue to communicate the negative consequences of unfair trade practices," the memo states.

The memo was also sent to U.S. Trade Representative Robert Lighthizer, Secretary of State Rex Tillerson, Treasury Secretary Steven Mnuchin, White House Chief of Staff John Kelly, National Security Adviser H.R. McMaster and the chairman of the National Economic Council, Gary Cohn.

Inside U.S. Trade reported in December that Defense Department objections, based on concerns about impacts on allies, were holding up the release of the Section 232 reports. Under the 1962 Trade Expansion Act, Commerce is required to consult with DOD on "methodological and policy questions that arise during a Section 232 investigation." -- Isabelle Hoagland