America will not tolerate foreign-trade cheating in steel and also aluminum
Commerce Department Investigation Is A Big Deal For Global Steel
By KEVIN L. KEARNS
Steel is the backbone of a modern industrial nation. Without a healthy steel industry, a country will suffer disproportionately as jobs, R&D and technological know-how move offshore, and profits are no longer available for investment in new products and processes.
Severe damage to the American steel industry would lead inevitably to decline as the country becomes dependent on foreign producers for the basic building blocks — not just commercial but also military — of an advanced society.
Can America afford to be at the mercy of foreign producers for its steel needs? Would that be wise in the current, unstable global environment — one in which we might have to ramp up steel production quickly for military use?
The answer is clear: No, it is not wise economically, commercially, or militarily to be foreign-dependent for critical products.
This is why the recent Commerce Department hearing on the state of our steel industry under the little-used Section 232 of the Trade Expansion Act of 1962 is so significant. The U.S. government, under an April 20 memorandum from President Trump, is finally looking at survival of U.S.-sited steel companies from a national security point of view — not just a commercial point of view.
Here’s the problem: The world is awash in steel overcapacity and overproduction. Foreign nations have built up their steel industries — very often through the use of large government subsidies — to a point far beyond what is needed to supply their home markets. In order to keep their steel facilities humming and their domestic workforces employed, these foreign steel companies send their excess production abroad, selling it for cut-rate prices.
Additionally, countries such as China use a method of cheating called transshipment — that is, they ship their steel to third countries to make it look as if it were domestically produced there. Then it’s sold forward into the U.S. market with its true Chinese origin obscured.
President Trump came to power promising new policies to address our annual $500 billion-plus trade deficit. With his Section 232 memorandum, he has taken specific action and indicated that foreign-trade cheating in steel (and also aluminum) will no longer be tolerated.
U.S. companies are under multiple attacks. An iconic company such as U.S. Steel has to contend not only with underpriced foreign steel flooding the U.S. market, but also with the theft of its trade secrets through Chinese government hacking.
U.S. Steel is one of America’s leading R&D companies and it has developed a proprietary process to make a particular type of steel lighter and stronger. After investing considerable time and money, U.S. Steel anticipated great success — only to find that Chinese government hackers had stolen the «formula» for the new product.
The Chinese government passed the stolen information to one of its «national champion» companies, Baosteel, which now sells the product in the American market cheaper than U.S. Steel can make if here at home.
Usually, an American firm in such a position must pursue a case under U.S. trade law, which U.S. Steel is doing. Such cases are time-consuming and expensive. Worse, the foreign competitor, as the Chinese have done in the U.S. Steel case, can play games and just be uncooperative. So American companies founder while these trade cases drag on.
The beauty of a 232 investigation is that it can be done quickly — a maximum of 270 days after it is initiated, which is far more quickly than yearslong trade cases. Commerce Secretary Wilbur Ross had said that he intended to be finished by the end of June, a little over two months after President Trump ordered the investigation, but the decision has been delayed. Still, it’s expected to be acted on soon.
Further, in a 232 case, the affected industry does not have to jump through multiple legal hoops. The perspective is broader with the fate of an industry considered through the prism of national security.
Finally, the president has substantial power in ordering a remedy. He can adjust the level and type of imports by imposing tariffs, setting numerical limits (quotas), or take other types of appropriate action — such as allowing entry of some types of steel not produced domestically while barring most others.
As might be expected, the Chinese and other major steel producers are dead set against any U.S. action. So are American companies who buy steel products and are only too happy to get them at the lower, «dumped» price.
Buying subsidized steel fattens a company’s profits for a time, but over the longer term, damage done to a leading American industry and the overall economy means slower growth, lower profits, and potentially dangerous foreign dependency.
President Trump tweeted after the public hearing that he’s looking forward to receiving the results of the Section 232 investigation, and that he will «take major action if necessary.» Consultations with the Chinese, the Europeans and others have produced little relief.
Even casual observers know there is a massive steel overproduction problem that is not being addressed. Hopefully, the Commerce Department will document irrefutably the impact of the problem on U.S. national security and recommend effective remedies to President Trump, who will then act decisively in the national interest.
- Kearns is president of the U.S. Business and Industry Council, an organization representing domestic manufacturers since 1933.