Contents

• Introduction
• Overview of Section 232
• Key Provisions and Process
• Section 232 Investigations to Date
• Relationship to WTO
• Recent Section 232 Actions on Steel and Aluminum
• Commerce Findings and Recommendations
• Presidential Actions
• Country Exemptions
• Product Exclusions
• Tariffs Collected to Date
• U.S. Steel and Aluminum Industries and International Trade
Additional Trump Administration Investigations
• Automobiles and Parts
• Uranium
• Titanium Sponge
• U.S. Steel and Aluminum Industries and International Trade
• U.S. Steel and Aluminum Manufacturing and Employment
• Domestic Steel Manufacturing
• Domestic Aluminum Manufacturing
• Global Production Trends
• International Efforts to Address Overcapacity
• Policy and Economic Issues
• Retaliation
• Domestic Court Challenges
• WTO Cases
• Additional Section 232 Investigations
• Automobiles and Parts
• Uranium
• Titanium Sponge
• Potential Economic Impact
• EconomicProclamation Imposing Tariffs on Steel-Derivative Products
• WTO Cases
• Retaliation
• Economic Impacts
Industry-Level Dynamics of the Tariff Increase
• Assessing the Overall Economic Impact
Aggregate Effects on the U.S. Economy
• Issues for Congress
• Possible Long-Term Effects
Appropriate Delegation of Constitutional Authority
• Legislative Responses to Retaliatory Tariffs
• Establishing Threshold
• Interpreting National Security
• Establishing New International Rules
• Impact on the Multilateral Trading System
• Impact on Broader International Relationships

Summary

President Trump has used Section 232 authority to apply new tariffs to steel and aluminum imports and potentially on automobile and automobile parts and other sectors currently under investigation. These actions have raised a number of policy issues and some Members of Congress have introduced legislation to revise various Section 232 authoritiesto imports of automobiles and automobile parts. Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862) provides the President with the ability to impose restrictions on certain imports based on an affirmative determination by the Department of Commerce (Commerce) that the product under investigation "is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security." Section 232 actions are of interest to CongressCongress has interest in Section 232 actions because they are a delegation of Congress'sits constitutional authority over tariffs and commerce with foreign nations, and raise a number of economic and policy issues. Some Members have introduced legislation to revise Section 232 authorities. Global overcapacity in steel and aluminum production, mainly driven by China, has been an ongoing concern of Congress constitutional authority "To lay and collect … Duties" and "To regulate Commerce with foreign Nations."

Global overcapacity in steel and aluminum production, mainly driven by China, has been an ongoing concern of Congress. The George W. Bush, Obama, and Trump Administrations each engaged in multilateral discussions to address global steel capacity reduction through the Organisation for Economic Co-operation and Development (OECD). While the United States has extensive antidumping and countervailing duties on Chinese steel imports to counter China's unfair trade practices, steel industry and other experts argue that the magnitude of Chinese production acts to depress prices globally.

Effective March 23, 2018, President Trump applied 25% and 10% tariffs, respectively, on certain steel and aluminum imports. The President temporarily exempted several countries from the tariffs pending negotiations on potential alternative measures and, in February 2020, expanded the scope of products subject to the additional tariffs. Permanent tariff exemptions in exchange for quantitative limitations on U.S. imports were eventually announcednegotiated covering steel for Brazil and South Korea, and both steel and aluminum for Argentina. Australia was permanently exempted from both tariffs, with no quantitative restrictions. The United States removed tariffs on steel and aluminum imports from Mexico and Canada, in part to secure congressional support for the new United States-Mexico-Canada Agreement (USMCA) and after the three countries agreed to establish an import monitoring mechanism. USMCA includes side letters limiting potential Section 232 tariffs on autos and parts above a certain threshold of imports. Commerce is managing a process for exclusions of steel and aluminum products subject to Section 232 tariffs with no quantitative restrictions. In August 2018, President Trump raised the tariff to 50% on steel imports from Turkey. The proposed United States-Mexico-Canada Agreement (USMCA) would not resolve or address the Section 232 tariffs on imported steel and aluminum from Canada and Mexico.

Commerce is managing a process for potential product exclusions in order to limit potential negative domestic effects of the tariffs on U.S. businesses and consumers. OfAs of early December 2019, of the nearly 7094,000 steel exclusion requests, over 1647,000 havehad been granted, and about 46,000 have and over 13,000 had been denied to date. Commerce has also received about 10over 13,000 aluminum exclusion requests, with 3,000almost 6,500 exclusions granted and 500900 denied. Several MembersThe remaining requests are pending. Several Members of Congress and the Commerce Inspector General have raised issues and concerns about the exclusionaryexclusion process.

Several U.S. trading partners are challenging the tariffs under World Trade Organization (WTO) dispute settlement rules and have threatened or enacted retaliatory measures. Some analysts view the U.S. unilateral actions as potentially undermining WTO rules, which generally prohibit parties from acting unilaterally, but provide exceptions, including when parties act to protect "essential security interests."

Congress enacted Section 232 during the Cold War when national security issues were at the forefront of national debate. The Trade Expansion Act of 1962 sets clear steps and timelines for Section 232 investigations and actions, butand allows the President to make a final determination over the appropriate action to take following an affirmative finding by Commerce that the relevant imports threaten to impair national security. Prior to the Trump Administration, there were 26 Section 232 investigations, resulting in nine affirmative findings by Commerce. In six of those cases the President imposed a trade action.

The steel and aluminum tariffs are affecting various stakeholders in the U.S. economy, prompting reactions from several Members of Congress, some in support of the measures and others voicing concerns. In general, the tariffs are expected to benefit some domestic steel and aluminum manufacturers, leading to potentially higher domestic steel and aluminum prices and expansion in production in those sectors, while potentially negatively affecting consumers and many end users (e.g., auto manufacturing and construction) through higher costs

After imposing steel and aluminum tariffs, the Administration opened three additional Section 232 investigations, intensifying debate over potential legislation to revise the authority. The investigations covered

• automobile and automobile part imports, initiated May 23, 2018;
• uranium ore and product imports, initiated July 18, 2018; and
• titanium sponge imports, initiated March 4, 2019.

Commerce determined imports of each product threaten to impair national security in its final reports, which were submitted to the President, but have not been made public. The President chose not to impose restrictions on uranium and titanium, but potential import restrictions on autos remain pending.

Introduction

On March 8, 2018, President Trump issued twoThe Trump Administration has conducted five investigations, two of which have led to presidential proclamations imposing tariffs on U.S. imports of certain steel and aluminum products, respectively, using presidential powers granted under Section 232 of the Trade Expansion Act of 1962.¹ Section 232 authorizes the President to impose restrictions on certain imports based on an affirmative determination by the Department of Commerce (Commerce) that the targeted products are being imported into the United States "in such quantities or under such circumstances as to threaten to impair the national security." Section 232 investigations and actions are important for Congress, as theThe Constitution gives itCongress primary authority over international trade matters.² In the case of Section 232, Congress has delegated to the President broad authority to impose limits on imports in the interest of U.S. national security. The statute does not require congressional approval of any presidential actions that fall within its scope. In the Crude Oil Windfall Profit Tax Act of 1980, however, Congress amended Section 232 by creating a joint disapproval resolution provision under which Congress can override presidential actions in the case of adjustments to petroleum or petroleum product imports.²

Section 232 is one of several tools the United States has at its disposal to address trade barriers and other foreign trade practices. These includeAdditional tools include (1) investigations and actions to address import surges that are or threaten to be a "substantial cause of serious injury" or threat thereof to a U.S. industry (Section 201 of the Trade Act of 1974),; (2) those that address violations or denial of U.S. benefits under trade agreements (Section 301 of the Trade Act of 1974),; and (3) antidumping and countervailing duty laws (Title VII of the Tariff Act of 1930) to counter injurious unfair trade practices. International trade.

Trade is an important component of the U.S. economy, and Members often hear from constituents when factories and other businesses are hurt by competing imports, or if exporters face trade restrictions and other market access barriers overseas. Section 232 actions may affect industries, workers, farmers, and consumers in congressional districts and states (both positively and negatively). Following the steel and aluminum Section 232 actions, Commerce initiated Section 232 investigations into imports of automobiles and automobile parts in May 2018, uranium ore and product imports in July 2018, and titanium sponges in March 2019. Commerce submitted the auto investigation report to the President on February 17, 2019, but the report has not been made public or shared with Congress; the uranium report is expected by mid-April 2019, and the titanium sponges report is due in late November 2019. The current investigations have raised a number of economic and broader in February 2019, the uranium report in April, and the titanium sponges report in November, but none of the three reports has been made public or reportedly shared with Congress. All of the investigations potentially raise a number of economic and policy issues for Congress.

This report provides an overview of Section 232, analyzes the Trump Administration's Section 232 investigations and actions, and considers potentialselect policy and economic implications and issues for Congress. To provide context for the current debate, the report also includes a discussion of previous Section 232 investigations and a brief legislative history of the statute.

Overview of Section 232

Following an investigation by the Department of Commerce, Section 232 of the Trade Act of 1962 authorizes the President to impose imports restrictions on products, imported into the United States "in such quantities or under such circumstances as to threaten to impair the national security." The Trade Act of 1962, including Section 232, was enacted during the Cold War when national security issues were at the forefront. Section 232 has been used periodically in response to industry petitions, as well as through self-initiation by the executive branch. The Trade Expansion Act establishes a clear process and timelines for a Section 232 investigation, but the executive branch's interpretation of "national security" and the potential scope of any investigation can be expansive.

Key Provisions and Process

Upon request by the head of any U.S. department or agency, by applicationpetition by an interested party, or by self-initiation, the Secretary of Commerce must commence a Section 232 investigation. The Secretary of Commerce conducts the investigation in consultation with the Secretary of Defense and other U.S. officials, as appropriate, to determine the effects of the specified imports on national security. Public hearings and consultations may also be held in the course of the investigation. Commerce has 270 days from the initiation date to prepare a report advising the President as to whether or not the targeted product(s) is being imported "in such quantities or under such circumstances as to threaten to impair" U.S. national security, and to provide recommendations for action or inaction based on the findings. AnyAccording to the statute, any portion of the report that does not contain classified or proprietary information must be published in the Federal Register. See Figure 1 for the Section 232 process and timeline.

While there is no specific definition of national security in the statute, it states that the investigation must consider certain factors, such as domestic production needed for projected national defense requirements; domestic capacity; the availability of human resources and supplies essential to the national defense; and potential unemployment, loss of skills or investment, or decline in government revenues resulting from displacement of any domestic products by excessive imports.³4

Once the President receives the report, he has 90 days to decide whether or not he concurs with the Commerce Department's findings and recommendations, and to determine the nature and duration of the action he views as necessary to adjust the imports so they no longer threaten to impair the national security (generally, imposition of some trade-restrictive measure). The President may implement the recommendations suggested in the Commerce report, take other actions, or decide to take no action. After making a decision, the President has 15 days to implement the action and 30 days to submit a written statement to Congress explaining the action or inaction; he must also publish his findings in the Federal Register. Presidential actions may stay in place "for such time, as he deems necessary to adjust the imports of such article and its derivatives so that such imports will not so threaten to impair the national security."⁴

Figure 1. Section 232 Investigation Process

Source: CRS graphic based on 19 U.S.C. §1862.

Section 232 Investigations to Date

The Commerce Department (or the Department of the Treasury before it) initiated a total of 31 Section 232 investigations between 1962 and 2019, including three investigations that remain ongoing (see Table B-1). In 16 of these cases, Commerce determined that the targeted imports did not threaten to impair national security. In 1114 cases, Commerce determined that the targeted imports threatened to impair national security and made recommendations to the President (see Figure 2. The President took action eightnine times. One case was terminated at the petitioner's request before Commerce completed its investigation. Prior to the Trump Administration, 10 Section 232 investigations were self-initiated by the Administration. (For a full list of cases to date, see Appendix B.)

In eight investigations dealing with crude oil and petroleum products, Commerce decided that the subject imports threatened to impair national security. The President took action in five of these cases. In the first three cases on petroleum imports (1973-1978), the President imposed licensing fees and additional supplemental fees on imports, which are no longer in effect, rather than adjusting tariffs or instituting quotas. In two cases, the President imposed oil embargoes, once in 1979 (Iran) and once in 1982 (Libya). Both were superseded by broader economic sanctions in the following years.⁵7

In the three most recent crude oil and petroleum investigations (from 1987 to 1999), Commerce determined that the imports threatened to impair national security, but did not recommend that the President use his authoritypresidential action to adjust imports. In the first of these reports (1987), Commerce recommended a series of steps to increase domestic energy production and ensure adequate oil supplies rather than imposing quotas, fees, or tariffs because any such actions would not be "cost beneficial and, in the long run, impair rather than enhance national security."⁶8 In the latter two investigations (1994 and 1999), Commerce found that existing government programs and activities related to energy security would be more appropriate and cost effective than import adjustments. By not acting, the President in effect followed Commerce's recommendation.

Prior to the Trump Administration, a Presidentpresident arguably last acted under Section 232 in 1986. In that case, Commerce determined that imports of metal-cutting and metal-forming machine tools threatened to impair national security. In this case, the President sought voluntary export restraint agreements with leading foreign exporters, and developed domestic programs to revitalize the U.S. industry.⁷9 These agreements predate the founding of the World Trade Organization (WTO), which established multilateral rules prohibiting voluntary export restraints (see "WTO Cases ").

. The Trump Administration has initiated five Section 232 investigations to date. In addition to the two recent cases on steel and aluminum, on May 23, 2018, after consultations with President Trump, Commerce Secretary Wilbur Ross announced the initiation of a Section 232 investigation to determine whether imports of automobiles, including SUVs, vans and light trucks, and automotive parts threaten to impair national security on May 23, 2018.¹⁰.⁸ In January 2018, two U.S. mining companiesuranium producers petitioned for thean investigation into uranium imports.⁹11 On July 18, 2018, Commerce announced the initiation of a Section 232 investigation on these imports and informed the Secretary of Defense.¹⁰12 In September 2018, a U.S. titanium company petitioned for thean investigation into titanium sponge imports. In March 2019, Commerce announced the initiation of a Section 232 investigation on these imports and informed the Secretary of Defense.¹¹13

Figure 2. Section 232 Investigations

Source: CRS Graphic based on BIS data (https://www.bis.doc.gov/). NoteNotes: For a detailed list of cases, see Appendix B.

Relationship to WTO

While unilateral trade restrictions may appear to be counter to U.S. trade liberalization commitments under the WTO agreements, Article XXI of the General Agreement on Tariffs and Trade (GATT), which predates and was one of the foundational agreements of the WTO, allows WTO members to take measures to protect "essential security interests." Broad national security exceptions are also included in international trade obligations at the bilateral and regional levels, and could potentially limit the ability of countries to challenge such actions by trade partners. Historically, exceptions for national security have been rarely invoked and multiple trading partners have challenged recent U.S. actions under the WTO agreements (see "WTO Cases ").

Recent Section 232 Actions on Steel and Aluminum

In April 2017, two presidential memoranda instructed Commerce to give priority to two self-initiated investigations into the national security threats posed by imports of steel and aluminum.¹²14 In conducting its investigation, Commerce held public hearings and solicited public comments via the Federal Register and consulted with the Secretary of Defense and other agencies, as required by the statute.¹³15 In addition to the hearings, stakeholders submitted approximately 300 comments regarding the Section 232 investigation and potential actions. Some parties (mostly steel producers) supported broad actions to limit steel imports, while others (mostly users and consuming industries such as automakers) opposed any additional tariffs or quotas on imports. The U.S. aluminum industry held differing views of the global aluminum tariff, with most parties opposing it.¹⁴16 Some stakeholders in the steel and aluminum industries sought a middle ground, endorsing limited actions to target the underlying issues of overcapacity and unfair trade practices. Still others focused on the process, voicing caution in the use of Section 232 authority and warning against an overly broad definition of "national security" for protectionist purposes.¹⁵

The Commerce investigations analyzed the importance of certain steel and aluminum products to national security, using a relatively broad definition of "national security," defining it to include "the general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements, which are critical for minimum operations of the economy and government."¹⁶18 The scope of the investigations extended to current and future requirements for national defense and to 16 specific critical infrastructure sectors, such as electric transmission, transportation systems, food and agriculture, and critical manufacturing, including domestic production of machineryprimary metals (e.g., production of iron and steel and aluminum) machinery, transportation equipment, and electrical equipment.¹⁹ The reports also examined domestic production capacity and utilization, industry requirements, current quantities and circumstances of imports, international markets, and global overcapacity. Commerce based its definition of national security on a 2001 investigation on iron ore and semi-finished steel.¹⁷20 Section 232 investigations prior to 2001 generally used a narrower definition considering U.S. national defense needs or overreliance on foreign suppliers.

Commerce Findings and Recommendations

The final reports, submitted to the President on January 11 and January 22, 2018, respectively, concluded that imports of certain steel mill products¹⁸21 and of certain types of primary aluminum and unwrought aluminum¹⁹22 "threaten to impair the national security" of the United States. The Secretary of Commerce asserted that "the only effective means of removing the threat of impairment is to reduce imports to a level that should ... enable U.S. steel mills to operate at 80 percent or more of their rated production capacity" (the minimum rate the report found necessary for the long-term viability of the U.S. steel industry and, separately, for the aluminum industry). The Secretary further recommended the President "take immediate action to adjust the level of these imports through quotas or tariffs" and identified three potential courses of action for both steel and aluminum imports, including tariffs or quotas on all or some steel imports from specific countries.

The Secretary of Defense, while concurring with Commerce's "conclusion that imports of foreign steel and aluminum based on unfair trading practices impair the national security," recommended targeted tariffs and that "an inter-agency group further refine the targeted tariffs, so as to create incentives for trade partners to work with the U.S. on addressing the underlying issue of Chinese transshipment" in which Chinese producers ship goods to another country to reexport.²⁰23 He also noted, however, that "the U.S. military requirements for steel and aluminum each only represent about three percent of U.S. production."²¹

Presidential Actions

On March 8, 2018, President Trump issued two proclamations imposing duties on U.S. imports of certain steel and aluminum products, based on the Secretary of Commerce's findings.²²25 The proclamations outlined the President's decisions to impose tariffs of 25% on steel and 10% on aluminum imports effective March 23, 2018, but provided for flexibility in regard to country and product applicability of the tariffs (see below). The new tariffs were to be imposed in addition to any duties already in place, including antidumping and countervailing duties (AD/CVD).

In the proclamations, the President established a bifurcated approach, instructing Commerce to establish a process for domestic parties to request individual product exclusions and a U.S. Trade Representative (USTR)-led process to discuss "alternative ways" through diplomatic negotiations to address the threat with countries having a "security relationship" with the United States.

The President officially notified Congress of his actions in a letter dated April 6, 2018. Several Members actively engaged in voicinghave voiced their views since the investigations were launched, including through hearings and letters to the President.²³26 On January 24, 2020, after the steel and aluminum tariffs had been in effect for over 22 months, the President expanded the scope of products covered to include "derivative" products, effective February 8, 2020.²⁷ The President's proclamation stated that the additional tariffs were needed because the domestic steel and aluminum industries continued to be below the target capacity utilization identified in the initial Commerce investigations, and imports of certain finished, or derivative, products were undermining the purpose of the original proclamations.

With the increased costs of steel and aluminum inputs because of the Section 232 tariffs, some U.S. manufacturers had trouble competing with importers of finished, or derivative, products (e.g., steel wheels or metal filing cabinets). Thus, U.S. industries manufacturing similar products have sought AD/CVD protection from import competition. Thus, there has been a noticeable increase in AD/CVD investigations on finished products containing steel or aluminum. The additional AD/CVD cases as a result of the Section 232 tariffs are in addition to any AD/CVD duties already in place. Some economists have called this phenomenon "cascading protection."²⁸

According to the January 2020 proclamation, the countries that successfully negotiated exemptions from each of the steel and aluminum tariffs (see below) are also exempt from the additional tariffs on derivative products. The Commerce process for requesting product exclusions applies to derivative products (see below).

Some analysts have raised questions about the President's authority to impose the additional tariffs and some U.S. manufacturers have challenged the action (see "Proclamation Imposing Tariffs on Steel-Derivative Products"). The President's actions under the 2020 proclamation relies on the 2018 Section 232 investigations, although those investigations did not cover steel and aluminum derivative products. House Ways and Means Committee Member Representative Walorski sent a letter to Commerce questioning why a new investigation was not needed for the change in product scope, and how the change would help increase domestic industry capacity utilization, among other issues.²⁹ The Section 232 statute does not specifically allow for additional actions after the initial timeline or provide an expiration date of an investigation. Similar questions as to whether the President's authority to act is time-limited have been raised in relation to the Section 232 auto investigation (see "Automobiles and Parts").

Country Exemptions

Initially, the President temporarily excluded imports of steel and aluminum products from Mexico and Canada from the new tariffs, and the Administration implicitly and explicitly linked a successful outcome of the North American Free Trade Agreement (NAFTA) renegotiation to maintaining the exemptions. With regard to other countries, the President expressed a willingness to be flexible, stating that countries with which the United States has a "security relationship" may discuss "alternative ways" to address the national security threat and gain an exemption from the tariffs. TheInitially, the President temporarily excluded imports of steel and aluminum products from Mexico and Canada from the new tariffs, and the Administration implicitly and explicitly linked a successful outcome of the North American Free Trade Agreement (NAFTA) renegotiation to maintaining the exemptions. With regard to other countries, the President charged the USTR with negotiating bilaterally with trading partners on potential exemptions.

On March 22, 2018, after discussions with multiple countries, the President issued proclamations temporarily excluding Australia, Argentina, Brazil, South Korea, the European Union (EU), Canada and Mexico, from the Section 232 tariffs.²⁴30 The President gave a deadline of May 1, 2018, by which time each trading partner had to negotiate "a satisfactory alternative means to remove the threatened impairment to the national security by imports" for steel and aluminum in order to maintain the exemption. On April 30, 2018, the White House extended negotiations and tariff exemptions with Canada, Mexico, and the EU for an additional 30 days, until June 1, 2018, and exempted Argentina, Australia, and Brazil from the tariffs indefinitely pending final agreements.²⁵31 South Korea, which pursued a resolution over the tariffs in the context of discussions to modify the U.S.-South Korea (KORUS) Free Trade Agreement, agreed to an absolute annual quota for 54 separate subcategories of steel and was exempted from the steel tariffs.²⁶32 South Korea did not negotiate an agreement on aluminum and its exports to the United States have been subject to the aluminum tariffs since May 1, 2018.

On May 31, 2018, the President proclaimed Argentina and Brazil, in addition to South Korea, permanently exempt from the steel tariffs, having reached final quota agreements with the United States on steel imports.²⁷33 Brazil, like South Korea, did not negotiate an agreement on aluminum and is subject to the aluminum tariffs. The Administration also proclaimed aluminum imports from Argentina permanently exempt from the aluminum tariffs subject to an absolute quota.²⁸34 The Administration proclaimed imports of steel and aluminum from Australia permanently exempt from the tariffs as well, but did not set any quantitative restrictions on Australian imports.

As of June 1, 2018, imports of steel and aluminum from Canada, Mexico, and the European Union are subject to the Section 232 tariffs. These countries are among the largest suppliers of U.S. imports of the targeted goods, accounting for nearly 50% by value in 2018 (see Appendix D). The imposition of tariffs on these major trading partners increasesall other countries were subject to the Section 232 tariffs. The imposition of tariffs on major trading partners such as Canada, Mexico, and the European Union increased the economic significance of the tariffs and prompted criticism from several Members of Congress, including the chairs of the House Ways and Means and Senate Finance Committees.²⁹

The Trump Administration completed negotiations on the proposed United States-Mexico-Canada Agreement (USMCA) on September 30, 2018, to replace the NAFTA. The USMCA did not resolve or address the Section 232 tariffs on imported steel and aluminum from Canada and Mexico, but it includes a requirement that motor vehicles contain 70% or more of North American steel and aluminum content to qualify for duty-free treatment.³⁰ The three parties continue to discuss the steel and aluminum tariffs, which some analysts speculate could result in quotas on imports of Mexican and Canadian steel and aluminum. Some U.S., Canadian, and Mexican policymakers have suggested that the parties will not ratify the new agreement until the Section 232 tariffs are removed; the White House economic adviser stated that the Administration continues to negotiate the tariffs as "part of the bigger legislative picture discussion" for passage of USMCA.³¹

With respect to the EU, on July 27, 2018, after meeting with EU President Juncker, President Trump announced plans for "high-level trade negotiations" to eliminate tariffs, including those on steel and aluminum, among other objectives. The36 The parties also signed side letters in case of Section 232 action on autos and auto parts, to exclude certain amounts of Canadian and Mexican exports of these products and provide a 60-day period to reach a negotiated outcome.³⁷ Separately, on May 17, 2019, the three parties announced a new monitoring mechanism to prevent surges in imports of steel and aluminum, and agreed to withdraw all Section 232 steel and aluminum tariffs and related retaliatory tariffs.³⁸ On October 16, 2018, the Trump Administration notified Congress under TPA of new broad-based U.S. trade agreement negotiations with the EU to address ongoing trade frictions including Section 232 tariffs. The Administration seeks a "fairer, more balanced" U.S.-EU relationship. The TPA notification followed the July 2018 Joint Statement (agreed between President Trump and European Commission President Jean-Claude Juncker) that aimed to de-escalate trade tensions in which the two sides agreed to not impose further tariffs on each other's trade products while negotiations are active.³² It is unclear what those negotiations may seek in terms of alternative measures, but the United States could seek some type of quantitative restriction given the agreements the Administration has negotiated to date with most exempted countries.³³ In addition to seeking quantitative restrictions, the Trump Administration may also pursue increasing traceability and reporting requirements, which may help limit transshipments of steel or aluminum originating from nonexempt countries.

Product Exclusions

To limit potential negative domestic impacts of the tariffs on U.S. consumers and consuming industries, Commerce published an interim final rule for how parties located in the United States may request exclusions for items that are not "produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality."³⁷45 Requests for exclusions and objections to requests have been and will continue to bewere initially posted on regulations.gov.³⁸46 The rule went into effect the same day as publication to allow for immediate submissions.

Exclusion determinations areCommerce reviews exclusion requests and makes determinations based upon national security considerations. To minimize the impact of any exclusionsingle exclusion on the Section 232 action, the rule allows only "individuals or organizations using steel articles ... in business activities ... in the United States to submit exclusion requests," eliminating the ability of larger umbrella groups or trade associations to submit petitions on behalf of member companies.³⁹47 Any approved product exclusion is limited to the individual or organization that submitted the specific exclusion request. Parties may also submit objections to any exclusion within 30 days after the exclusion request is posted. The review of exclusion requests and objections will not exceed 90 days, creating a period of uncertainty for petitioners. Exclusions will generally last for one year from the date of signature.⁴⁰48

As of March 4December 6, 2019, Commerce received almost 7094,000 steel product exclusion requests, with 16,50047,140 exclusions granted and 50013,262 denied.⁴¹49 As of the same date, Commerce received 10,00013,249 aluminum exclusion requests, with 3,0006,443 exclusions granted and 500862 denied.⁴²

Companies have complained (see Figure 3).⁵⁰ Some Members have advocated for or against specific exclusions in support of constituents that represent different parts of the supply chain, in some cases putting Members on opposing sides of an exclusion request.⁵¹

Source: CRS based on data gathered by Mercatus.

Notes: Exclusion requests through December 6, 2019.

Several Members of Congress have raised concerns about the exclusion process. A bipartisan group of House Members, for example, raised concerns about the speed of the review process and the significant burden it places on manufacturers, especially small businesses.⁴⁶54 The Members included specific recommendations, such as allowing for broader product ranges to be included in a single request, allowing trade associations to petition, grandfathering in existing contracts to avoid disruptions, and regularly reviewing the tariffs' effects and sunsetting them if they have a "significant negative impact."⁴⁷55

Commerce asserts it has taken several steps to improve the exclusion process, including increasing and organizing its staff "to efficiently process exclusion requests," and "expediting the grant of properly filed exclusion requests that receive no objections." Commerce's Bureau of Industry and Security (BIS) is the lead agency involved in making final decisions regarding whether the requests are granted or denied. The agency's International Trade Administration (ITA) also became involved in the exclusion process by analyzing exclusion requests and objections to determine whether there is sufficient domestic production available to meet the requestor's product needs.⁴⁸ BIS remains the lead agency involved in making final decisions regarding whether the requests are granted or denied.

Some Members have questioned the Administration's processes and ability to pick winners and losers through granting or denying exclusion requests. On August 9, 2018For example, Senator Ron Johnson requested that Commerce provide specific statistics and information on the exclusion requests and process and provide a briefing to the Committee on Homeland Security and Governmental Affairs. House Ways and Means Committee Member Representative Walorski sent the Commerce Secretary multiple letters seeking further data on the exclusion process. Senator Elizabeth Warren requested that the Commerce Inspector General investigate the implementation of the exclusion process, including a review of the processes and procedures Commerce has established; how they are being followed; and if exclusion decisions are made on a transparent, individual basis, free from political interference. SheSenator Warren also requested evidence that the exclusions granted meet Commerce's stated goal of "protecting national security while also minimizing undue impact on downstream American industries," and that the exclusions granted to date strengthen the national security of the United States.⁴⁹60 Pending legislation to revise Section 232 also addresses the process for excluding products (e.g., S. 287, H.R. 940, S. 2362).

On September 6October 29, 2018, the Commerce Inspector General's office (IG) initiated an audit of the agency's processes and procedures for reviewing and adjudicating product exclusion requests.⁶¹ In July 2019, the Commerce IG determined that BIS had a large backlog of exclusion requests and that requests with objections had lower completion rates.⁶² In October 2019, the IG issued a Management Alert regarding "a lack of transparency that contributes to the appearance of improper influence in decision-making for tariff exclusion requests."⁶³ The IG recommended that BIS take specific actions to ensure transparency. Commerce has not announced any new changes to the exemption process or policy to further address the concerns noted in the IG report and by some Members.⁶⁴ Commerce announced a new rule to allow companies to rebut objections to petitions.⁵⁰ The new rule, published September 11, 2018, includes new rebuttal and counter-rebuttal procedures, more information about the exclusion submission requirements and process, the criteria Commerce uses in deciding whether to grant an exclusion request, and revised estimates of the total number of exclusion requests and objections that Commerce expects to receive.⁵¹ On October 29, 2018, the Commerce Inspector General's office (IG) initiated an audit of the agency's processes and procedures for reviewing and adjudicating product exclusion requests.⁵² The audit is ongoing.

To ensure that Commerce follows through with improving the exclusion process, in the Consolidated Appropriations Act, 2019 (P.L. 116-6), signed on February 15, 2019, Congress provided funding for "contractor support to implement the productproduct exclusion process for articles covered by actions taken under section 232."⁵³65 To ensure improvements to the exclusion process, Congress indicated that the additional money is to be "devoted to an effective Section 232 exclusion process" and required that Commerce submit quarterly reports to Congress.⁵⁴66 Congress mandated that the reports identify:

• the number of exclusion requests received;
• the number of exclusion requests approved and denied;
• the status of efforts to assist small- and medium-sized businesses in navigating the exclusion process;
• Commerce-wide staffing levels for the exclusion process, including information on any staff detailed to complete this task; and
• Commerce-wide funding by source appropriation and object class for costs undertaken to process the exclusions.

Tariffs Collected to Date

As of March 28, 2019, U.S. Customs and Border Protection assessed $4.7 billion and $1.5 billion from the Section 232 tariffs on steel and aluminum, respectively. The tariffs collected are put in the general fund of the U.S. Treasury and are not allocated to a specific fund. Based on 2017 U.S. import values, annual tariff revenue from the Section 232 tariffs could be as high as $5.8 billion and $1.7 billion for steel and aluminum, respectively, but such estimates do not account for dynamic effects that may impact import flows.

U.S. Steel and Aluminum Industries and International Trade

In 2018, U.S. imports of steel and aluminum products covered by the Section 232 tariffs totaled $29.5 billion and $17.6 billion, respectively (see Appendix D).⁵⁶ Over the past decade, steel imports have fluctuated significantly, by value and quantity, while imports of aluminum have generally increased. U.S. imports of both metals increased slightly by value from 2017 to 2018 (Section 232 tariffs became effective at different times for different countries), but imports of both decreased by more than 10% in quantity terms (-3.8 million metric tons for steel and -0.9 million metric tons for aluminum).⁵⁷ U.S. imports from individual countries fluctuated to an even greater degree over the past year (Figure 3). The largest declines in U.S. steel imports, by value, were from South Korea (-$430 million, -15%), Turkey (-$413 million, -35%), and India (-$372 million, -49%), with significant increases from the EU (+$567 million, +22%), Mexico (+$508 million, +20%), and Canada (+$404 million, +19%). The largest declines in aluminum imports were from China (-$729 million, -40%), Russia (-$676 million, -42%), and Canada (-$294 million, -4%), with major increases from the EU (+$395 million, 9%), India (+$221 million, 58%), and Oman ($186 million, +200%). The countries with permanent exclusions from the tariffs (all except Australia are instead subject to quotas) accounted for 18.4% of U.S. steel imports in 2018 and 4.4% of U.S. aluminum imports.

Figure 3. U.S. Steel and Aluminum Imports Subject to Section 232 Tariffs

Source: Created by CRS using data from Census Bureau on HTS products included in the Section 232 proclamations. Domestic Steel and Aluminum Manufacturing and Employment

In 2018, U.S. steelmakers employed 140,100 workers (Figure 4), accounting for 1.1% of the nation's 12.7 million factory jobs. Employment in the steel industry has declined for many years as new technology, particularly the increased use of electric arc furnaces to make steel, has reduced the demand for workers.⁵⁸ According to the Bureau of Labor Statistics, labor productivity in steelmaking nearly tripled since 1987 and rose 20% over the past decade.⁵⁹ Hence, even a significant increase in domestic steel production is likely to result in a relatively small number of additional jobs. In 2018, for the first time since 2014, steel manufacturers added 2,700 jobs, a rise of 2% from a year earlier.

Figure 4. Steel and Aluminum Manufacturing Employment

Source: Bureau of Labor Statistics, Current Employment Survey for North American Industry Classification System (NAICS) 3311 (iron and steel mills), 3312 (steel products), and NAICS 3313 (aluminum).

Global Production Trends

No OECD or other multinational forum has been established to monitor global aluminum overcapacity, though aluminum industry groups have called for such a forum.⁶⁸ Although China accounted for more than half of the world's primary aluminum production in 20174, 2020, two full years since the Section 232 tariffs took effect, U.S. Customs and Border Protection assessed $6.8 billion and $2.0 billion from the tariffs on steel and aluminum, respectively. Roughly $4.5 billion and $1.5 billion of these duties on steel and aluminum, respectively, were collected the first year the tariffs were in effect, highlighting that revenue from the Section 232 actions has been declining. This reflects both the exemptions to Canada and Mexico in May 2019, top suppliers of both metals, and declining imports in response to the relatively higher import prices, an objective of the Administration's actions.⁶⁷ The tariffs collected are put in the general fund of the U.S. Treasury and are not allocated to a specific fund. Additional Trump Administration Investigations Automobiles and Parts⁶⁸

Subsequent to the steel and aluminum investigations, the Trump Administration in May 2018 initiated a third Section 232 investigation into the import of passenger cars, SUVs, vans, light trucks, and automotive parts.⁶⁹ Commerce held a public hearing to hear from stakeholders on the potential impact of these imports on national security, identifying a broad set of factors related to national defense and the national economy for consideration.⁷⁰ As many foreign auto manufacturers have established facilities in the United States—accounting for 45% of employment in U.S. auto assembly and parts plants⁷¹—Commerce specifically requested information on how the impact of auto imports on U.S. national security may differ when "U.S. production by majority U.S.-owned firms is considered separately from U.S. production by majority foreign-owned firms."⁷²

The value of U.S. imports potentially covered under the new investigation is significantly greater than that of steel and aluminum imports. In 2019, the United States imported more than eight million vehicles, with a value of $197 billion, and more than $155 billion in auto parts.⁷³ With complex global supply chains, industry dynamics such as the large number of foreign-owned auto manufacturing facilities in the United States, and the potential for further retaliation by trading partners if tariffs are imposed as a result of the investigation, the economic consequences could be substantial.⁷⁴ For example, the 1.9 million vehicles exported from the United States in 2019—with a value of $59 billion—and $85 billion in parts exports could be targeted for retaliation by some trading partners, as could the vehicle assembly plants of U.S. controlled companies in overseas markets such as China and Europe.⁷⁵ The Center for Automotive Research (CAR), a research and analysis group that studies issues affecting the automotive industry, estimated that a 25% tariff added to all imported vehicles and parts (including from Canada and Mexico) could raise the cost of U.S. vehicle assembly by 6%; if levied only against the post-Brexit European Union, those costs would increase by less than 1%.⁷⁶

In its 2019 annual report, Ford Motor Company asserts that "steps taken by the U.S. government to apply or consider applying tariffs on automobiles, parts, and other products and materials have the potential to disrupt existing supply chains, impose additional costs on our business, affect the demand for our products, and make us less competitive. Further, other countries attempting to retaliate by imposing tariffs would increase the cost for us to import our vehicles into such countries."⁷⁷

The automotive supply chain has already been affected by steel and aluminum tariffs. According to CAR, U.S. vehicles and parts manufacturers account for 26% of U.S. steel consumption and 31% of aluminum consumption.⁷⁸ The American Automotive Policy Council, an industry trade group that represents the policy interests of Fiat Chrysler Automobiles (FCA US), Ford, and General Motors, has estimated that the Section 232 steel and aluminum tariffs have added $400 to the price of a new vehicle.⁷⁹

Some Members and auto industry representatives spoke out in opposition to any tariffs during the auto industry Section 232 investigation. The Driving American Jobs Coalition, created to oppose the potential tariffs, is comprised of industry groups representing auto manufacturers, parts suppliers, auto dealers, parts distributors, retailers, and vehicle service providers.⁸⁰ Others view the use of this investigation and potential tariffs as a tactical move by the Administration to pressure trade negotiating partners as the President continues to threaten auto tariffs.⁸¹ For example, since the initiation of trade negotiations with the EU, the President has repeatedly threatened to impose tariffs on U.S. auto imports in the absence of progress on the negotiations.⁸² As mentioned, the EU has reportedly drafted a list of targets for retaliatory tariffs if the Administration moves forward with auto tariffs under Section 232.⁸³ Three groups voiced support for at least limited measures to address auto imports: the United Automobile Workers, the United Steelworkers, and the Forging Industry Association.⁸⁴

Commerce submitted the final Section 232 report to the President on February 17, 2019, but the report has not been publicly released.⁸⁵ Some experts and Members have suggested that the deadline expired in November 2019, by which President Trump may act under the current Section 232 report;⁸⁶ the Administration disagrees.⁸⁷ Some Members have asked for the report to be made public, and the Cause of Action Institute sued Commerce to release the report after an unsuccessful Freedom of Information Act request.⁸⁸ On March 6, 2020, Senator Toomey and other Members of Congress filed an amicus brief with the district court arguing, among other things, that (1) Congress needed the report in order to exercise oversight over the authority it had granted to the executive branch in Section 232; and (2) the President could not invoke executive privilege to withhold disclosure of the document.⁸⁹ The court has not issued a decision in the case.

To compel the Administration to release the report, Congress included an amendment in the Consolidated Appropriations Act, 2020 (H.R. 1158; P.L. 116-93) mandating that Commerce publish the report in the Federal Register and that it submit to Congress any portion of the report that contains classified information.⁹⁰ The Administration has yet to release the report. A legal opinion by the Department of Justice cited executive privilege, noting that disclosure of the report "would risk impairing ongoing diplomatic efforts to address a national-security threat and would risk interfering with executive branch deliberations," in apparent reference to ongoing negotiations with the EU and others.⁹¹ Several Members, including Senate Finance Chair Senator Grassley have pushed back against the Administration's refusal to release the report.⁹²

Bills introduced in the House and Senate would require a report by the U.S. International Trade Commission (USITC) on the economic importance of domestic automotive manufacturing before the President could impose import restrictions on the sector (S. 121, H.R. 1710).

Unlike the self-initiated investigations into steel, aluminum, and auto imports, the Trump Administration opened two additional Section 232 investigations in response to industry petitions. In July 2018, Commerce launched a Section 232 investigation into uranium imports in response to a petition from two uranium producers (uranium mining and milling companies), and after consulting with industry, government officials, and a public comment period.⁹³ The petitioners, the uranium producers Energy Fuels and Ur-Energy, requested limiting imports to guarantee 25% of the U.S. nuclear fuel market for U.S. uranium producers, and "Buy American" provisions for government purchases of uranium to bolster the industry.⁹⁴

Compared to historical production, current uranium mining has become a relatively small-scale industry in the United States. The Energy Information Administration (EIA) reports U.S. production of uranium shrank to 1.6 million pounds in 2018, 33% less than 2017, and declined to 173,875 pounds in 2019.⁹⁵ Kazakhstan accounted for 41% of the world's production of uranium; Canada and Australia supplied roughly a quarter of the world's production in 2017.⁹⁶ China made up 3.5% of worldwide uranium production in 2018.⁹⁷

In April, 2019, Commerce submitted its report to the President, determining affirmatively that uranium imports threaten to impair U.S. national security.⁹⁸ In July, the President expressed concerns regarding national security, calling for a "fuller analysis of national security considerations with respect to the entire nuclear fuel supply chain." The White House memorandum established a Nuclear Fuel Working Group, co-chaired by the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy, with representatives from other executive branch agencies. The working group was directed to "examine the current state of domestic nuclear fuel production to reinvigorate the entire nuclear fuel supply chain," and provide a report to the President within 90 days of the memorandum.⁹⁹ To date, the Nuclear Fuel Working Group has not publicly announced the completion of their report or recommendations to the President.¹⁰⁰

In March 2019, Commerce launched another Section 232 investigation in response to a petition from a U.S. titanium firm.¹⁰¹ In explaining the investigation, the Commerce Secretary stated, "Titanium sponge has uses in a wide range of defense applications, from helicopter blades and tank armor to fighter jet airframes and engines."¹⁰²

Titanium Metals Corporation (known as Timet) is currently the only producer of titanium sponge in the United States; U.S. Geological Survey (USGS) estimates that titanium sponge manufacturing employed 150 workers in 2019.¹⁰³ In 2016, there were three such producers.¹⁰⁴ For 2019, and the United States was 86% import reliant for titanium sponge, up from 73% the previous year.¹⁰⁵ In 2019, Japan was the biggest supplier of titanium sponge to the United States, accounting for more than 90% of sponge imports; Kazakhstan was the second-leading supplier, making up 8% of imported titanium sponge.¹⁰⁶ Although China was the world's largest producer of titanium sponge, producing 84 thousand tons in 2019, it is not an important source of sponge imports for the United States.¹⁰⁷ In its 232 petition, Timet voiced concern that without protection, the U.S. defense and aerospace industries could become dependent on titanium sponge imports from "risky" sources such as China or Russia. Furthermore, the company noted that China is not certified as a producer of premium grade titanium sponge used in rotating parts of jet engines.¹⁰⁸

Commerce submitted its report to the President in November 2019, but has not released it to Congress or to the public.¹⁰⁹ On February 27, 2020, the President announced that he agreed with the Commerce finding that titanium sponge imports threaten to impair national security and also with the Commerce recommendation not to adjust imports.¹¹⁰ Similar to the uranium case, the White House memorandum established a working group, in this case co-chaired by the Secretary of Defense and the Secretary of Commerce with heads from other executive branch agencies. The working group is to meet with counterpart agencies in Japan to "agree upon measures to ensure access to titanium sponge in the United States for use for national defense and critical industries in an emergency."¹¹¹ Furthermore, the President instructed the Secretary of Defense "to take all appropriate action… to increase access to titanium sponge for use for national defense and critical industries and to support domestic production capacity for the production of titanium sponge to meet national defense requirements."¹¹² Timet is reportedly satisfied with the result of the investigation.¹¹³

The countries with permanent exclusions from the tariffs accounted for 52.5% of U.S. steel imports in 2019 and 43.1% of U.S. aluminum imports.

Source: CRS compiled from U.S. Census Bureau data, based on the HTS codes listed in the 2018 Section 232 proclamations.

Notes: Data does not include derivative products.

Source: CRS compiled from U.S. Census Bureau data for HTS codes listed in Presidential Proclamation 9980 (Jan.24, 2020) on steel and aluminum derivative products.

Notes: Illustrates total U.S. imports of the steel and aluminum derivative products identified in the Presidential Proclamation 9980. Steel nails consist of HTS codes: 73170030, 7317005503, 7317005505, 7317005507, 7317005560, 7317005580, and 7317006560. Bumpers consist of HTS 87081030. Body stamping for tractors consist of HTS 87082921, and Aluminum wire consists of HTS 76141050, 76149020, 76149040, and 76149050.

As discussed earlier (see "Commerce Findings and Recommendations"), a stated goal of the metal tariffs is to spur U.S. producers of steel and aluminum to operate at an average of 80% or more of their production capacity. Commerce's Section 232 reports deemed this as necessary to sustain adequate profitability, to reopen idled capacity, and to continue capital investment in both manufacturing sectors.¹¹⁶ Currently, domestic steel producers operate at 80% or less of production capacity (it was 77.1% in 2019 and about the same in 2018).¹¹⁷ Domestic producers of primary aluminum operated at an estimated 60% of production capacity in 2019, a rise from about 55% of capacity in 2018.¹¹⁸

U.S. raw steel production increased to 87 million metric tons in 2019, compared to 82 million metric tons in 2017, the year before the Section 232 trade action took effect.¹¹⁹ According to the USGS, nationwide in 2019 three companies in nine locations operated large integrated steel mills—once the chief method of producing steel in the United States—and 50 companies operated 98 minimills—with lower capital and energy costs and a largely nonunion workforce.¹²⁰

One effect of the steel tariff is that U.S. hot-rolled band steel prices initially rose, registering a 10-year high of more than $1,000 per metric ton at the beginning of July 2018. Since then, the domestic price of steel has been dropping, reaching around $650 per metric ton in February 2020, which was lower than before the United States applied the steel tariff.¹²¹ U.S. downstream industries that use steel have had to contend, at least for a time, with higher costs of inputs into production. Any price increases may put U.S. exporters of products made of steel at a disadvantage as they compete against foreign rivals who may pay a lower price for steel in the global market when buying materials for production.

Beyond the various U.S. tariff actions over the years meant to protect the industry from foreign competition, employment in the steel industry has been affected by new technology, particularly the increased use of electric arc furnaces to make steel, which has reduced the demand for workers.¹²⁴ According to the Bureau of Labor Statistics, labor productivity in steelmaking nearly tripled since 1987 and rose 10% over the past decade.¹²⁵ Hence, even a significant increase in domestic steel production is likely to result in a relatively small number of additional jobs.

In the past two years, a few steel plant expansions have been realized or announced, and some blast furnaces have reopened.¹²⁶ Nevertheless, industry experts are skeptical domestic steelmakers will make long-term capital expenditures solely on the basis of trade and tariff policy that could change or be eliminated in the future at the President's discretion. Some analysts argue the uncertainty associated with the tariff actions could discourage steelmakers from adding new capacity.¹²⁷ Over the same period, other steelmakers have closed mills, idled employees, or cut back on work hours.¹²⁸

Source: Bureau of Labor Statistics, Current Employment Survey for North American Industry Classification System (NAICS) 3311 (iron and steel mills), 3312 (steel products), and NAICS 3313 (aluminum).

Figures from the USGS indicate that domestic production of raw aluminum has risen over the past two years, reaching 1.1 million metric tons in 2019, up from 741,000 metric tons in 2017, the lowest level since 1951. Three companies operated eight primary aluminum smelters in the United States in 2019, compared with five companies that operated nine primary aluminum smelters in 2010.¹²⁹ U.S. production of aluminum accounted for a tiny fraction of the world's primary aluminum production at 1.7% in 2019, whereas China constituted more than half.¹³⁰ A main source of imported aluminum for the United States is Canada, which was exempted from the aluminum tariff in mid-May 2019.¹³¹

One aim of the 10% tariff was to raise the price of imported aluminum as a way to encourage domestic manufacturers to restart idled capacity. In October 2019, the average spot price of primary aluminum ingot produced in the United States was $2,123 per metric ton, or 24% higher than the London price (the global price of aluminum). However, in the first 10 months of 2019, the average price of primary aluminum in the United States fell by 7%, according to USGS.¹³²

Another development affecting aluminum is that the President's Commerce budget request for FY2021 published in February 2020 seeks funds to create a formal aluminum import monitoring system "to track imports of aluminum products and provide an early warning system for import surges."¹³⁷ The aluminum program would be similar to the import monitoring and analysis system for steel administered by ITA's Enforcement and Compliance unit.¹³⁸

Tariffs to protect the domestic steel industry do not address the underlying issue of global overcapacity. The steel committee of the Organisation for Economic Co-operation and Development (OECD) estimates global steel overcapacity was at 440 million metric tons in 2019.¹³⁹ Although China is the world's largest steel producer, accounting for roughly 45% of global capacity in 2018, relatively little Chinese steel enters the U.S. market directly, due to extensive U.S. AD/CVD duties, but the large amount of Chinese production depresses prices globally. China has indicated that it plans to reduce its crude steelmaking capacity by 100-150 million metric tons over the five-year period from 2016 to 2020.¹⁴⁰ According to the Chinese government, the country's crude steel capacity has fallen by more than 120 million metric tons since it announced its steel reduction goal in 2016.¹⁴¹

Metals imports should be put in the context of U.S. production. In 20182019, the United States produced more than twicethree times the amount of steel it imported.¹⁴⁵ According to ITACommerce, import penetration—the share of U.S. demand met by steel imports—reached 33% in 2016, compared to 23% in 2006.⁷⁰rose to 28.3% in 2018, from 23% in 2009.¹⁴⁶ Some segments of the domestic steel industry, such as slab converters, import a sizable share of their semi-finished feedstock from foreign suppliers, totaling nearly 7.56.1 million tons in 2018.⁷¹2019.¹⁴⁷ In the primary aluminum market, U.S. net import reliance rose to 50% in 2018 from 33% in 2014, according to the U.S. Geological Survey.⁷²fell to 22% in 2019 from 41% in 2015, according to USGS.¹⁴⁸ Most U.S. foreign trade in steel and aluminum is with Canada (see Appendix CD).

International Efforts to Address Overcapacity

OECD analysis has found that ongoing global steel overcapacity and excess production are largely caused by government intervention, subsidization, and other market-distorting practices, although these are not the only factors.⁷³149 Other reasons for excess capacity include cyclical market downturns. The situation is similar in the aluminum industry, where government financial support for large aluminum stockpiles has delayed the response to lower demand.

Past Administrations worked to address the issue of steel overcapacity. President George W. Bush, for example, initiated international discussions on global capacity reduction and improved trade disciplinedisciplines in the steel industry as part of his general steel announcement of 2001.⁷⁴150 Other governments agreed to join the Bush Administration in discussing overcapacity and trade issues at the OECD in a process that started in mid-2001. The industrial, steel-producing members of the OECD were joined by major non-OECD steel producers, such as India, Russia, and, during later stages of the talks, China. Negotiations were suspended indefinitely in 2004, and by 2005, the OECD had abandoned this effort to negotiate an agreement among all major steel-producing countries to ban domestic subsidies for steel mills.

The Obama Administration also participated in international efforts to curb steel imports, including the launch of the G-20 Global Forum on Steel Excess Capacity in 2016, another venue that sought to address the challenges of excess capacity in steel worldwide.⁷⁵151 In December 2016, the G-20 convened its first meeting of more than 30 economies—all G-20 members plus interested OECD members—as a global platform to discuss steel issues among the world's major producers.⁷⁶152 The same year, as part of the U.S.-China Strategic and Economic Dialogue (SE&D) established in 2009, the Obama Administration agreed to address excess steel production and also to communicate and exchange information on surplus production in the aluminum sector.⁷⁷153

In September 2018, the OECD Forum agreed on a process to identify and remove subsidies and take other measures to reduce the global steel overcapacity. The OECD issued a consensus report outlining six principles and specific policy recommendations to address excess steel capacity.⁷⁸154 The USTR, while supportive of the recommendations, questioned the Forum's ability to pursue effective implementation and did not rule out unilateral action.⁷⁹

The aluminum industry argues it is also suffering because of China's excess production of primary aluminum. According to the aluminum associations of Japan, Europe, Canada, and the United States, global overcapacity amounted to 11 million metric tons in 2017. Akin to the global steel industry, aluminum producers contend that excess production has been largely caused by government intervention, subsidization, and other market-distorting practices, among other factors.⁸⁰ A June 2019 OECD report found that subsidies, especially in China and the countries of the Gulf Cooperation Council, and other market-distorting practices impact global competition in the aluminum industry.¹⁵⁹As noted, the U.S. Aluminum Association and some of its international counterparts seek to establish a global forum to address aluminum excess capacity.

The Trump Administration's Section 232 actions have led multiple U.S. trading partners, such as the EU, the UK, and Canada, to initiate their own safeguard investigations and quota restrictions to prevent dumping of steel and aluminum exports and protect domestic industries. Unlike the OECD efforts, the individual country safeguard actions are uncoordinated.

In addition to the Section 232 action, the Trump Administration is pursuing joint action on industrial overcapacity in other forums. The USTR, Ambassador Lighthizer, met with his began meeting with EU and Japanese counterparts in May 2018, and the three countries agreed to concrete steps to address "nonmarket-oriented policies and practices that lead to severe overcapacity, create unfair competitive conditions for our workers and businesses, hinder the development and use of innovative technologies, and undermine the proper functioning of international trade."⁸¹ The ministers agreed to work toward negotiation of new international rules on subsidies and state-owned enterprises and improved compliance with WTO transparency commitments.⁸²160 The parties also agreed to cooperate on their concerns with third parties' technology transfer policies and practices⁸³161 and issued a joint statement containing a list of factors that identify if market conditions for competition exist.⁸⁴ The parties have met multiple times and continue to work together, aiming to identify signals for nonmarket policies, enhance information sharing, and work with third parties to ensure market economy conditions exist and discuss potential new rules and means of enforcement.⁸⁵162 In January 2020, the three parties issued a statement with specific recommendations and proposed reforms to strengthen the existing WTO Agreement on Subsidies and Countervailing Measures (ASCM) rules.¹⁶³ In addition, in November 2018, the United States, the EU, Japan, Argentina, and Costa Rica put forward a joint proposal in the WTO to increase transparency, proposing incentives for compliance or penalties for noncompliance with WTO notification reporting requirements regarding subsidies.⁸⁶164 U.S. unilateral tariff actions, however, may limit other countries' willingness to participate or support U.S. reform proposals in multilateral forums.

Policy and Economic Issues

Section 232 tariffs on steel and aluminum imports into the United States raise a number of issues for Congress. The economic repercussions of U.S. and foreign actions may be felt not only by domestic steel and aluminum producers, but by downstream manufacturers or other industries targeted for retaliation, and consumers. Some companies have challenged the president's actions through domestic litigation,¹⁶⁵ and may also seek alternative markets for their own products to avoid U.S. tariffs. The response by other countries can have implications for the U.S. economy and multilateral world trading system. Also, other countries may be hesitant in the future to cooperate with the United States to address broader global issues, including steel and aluminum overcapacity, if their exports are subject to U.S. tariffs.

U.S. trading partners' responses to Section 232 actions have varied based on the country's relationship with the United States. Some countries are pursuing direct negotiations, while keeping other countermeasures in reserve, and raising actions at the WTO (see below). Others have proposed or pursued retaliation with their own tariffs. Some companies have pursued litigation,⁸⁷ and may also seek alternative markets for their own products to avoid U.S. tariffs.

Retaliation

Several major U.S. trading partners have proposed or are imposing retaliatory tariffs in in response to the U.S. actions (see Figure 5 below).⁸⁸ In total, retaliatory tariffs are in effect on products accounting for approximately $23.2 billion of U.S. exports in 2018. The process of retaliation is complex given multiple layers of relevant international rules and the potential for unilateral action, which may or may not adhere to those existing rules. Both through agreements at the WTO and in bilateral and regional free trade agreements (FTAs), the United States and its trading partners have agreed to maintain certain tariff levels. Those same agreements include rules on potential responses, including formal dispute settlement procedures and in some cases commensurate tariffs, when one party increases its tariffs above agreed-upon limits.⁸⁹ In addition to the national security considerations the Trump Administration has cited as justification for its Section 232 actions, increased tariffs are permitted under these agreements, under specific circumstances, including for example, antidumping tariffs, countervailing duties, and safeguard tariffs.⁹⁰

Figure 5. Retaliatory Actions by U.S. Trading Partners

Source: CRS analysis of Global Trade Atlas IHS Markit trade data. Retaliatory tariff lists sourced from WTO notifications and partner country notifications. See footnote footnote 88 for complete sourcing. Notes: U.S. exports approximated by using partner country import data. U.S. Section 232 actions target steel and aluminum imports, and steel and aluminum are among the top exports facing retaliation by several U.S. trading partners as highlighted above. (*) June 5, 2018, for the majority of products, with remaining effective July 5, 2018. (**) Turkey announced on August 18, 2018, an increase in its retaliatory tariff rates, in response to the Trump Administration's decision to increase the U.S. tariffs on Turkish steel to 50%. It is unclear from the notice when these additional tariff rates went fully into effect. (***) Russia published its list of retaliatory tariffs rates and products on July 6, 2018. The tariffs appear to have gone into effect within 30 days of the publication.

Domestic Court Challenges

The President's actions under Section 232 have resulted in legal challenges in the U.S. domestic court system. Specifically, the Section 232 actions on steel and aluminum have been challenged in cases before the U.S. Court of International Trade (CIT). In one case, Severstal Export GmbhGmbH, a U.S. subsidiary of a Russian steel producer, sought a preliminary injunction from the United States Court of International TradeCIT to prevent the United States from collecting the import tariffs on certain steel products.⁹⁶166 The company and its Swiss affiliate argued that the President acted outside of the authority that Congress had delegated to himdelegated by Congress because the tariffs were not truly imposed for national security purposes.⁹⁷167 The court denied the motion, determining that the plaintiffs were unlikely to prevail on the merits of their challenge.⁹⁸168 According to the case docket, the parties agreed to dismiss the case in May 2018.

In another case, which was heard by a three-judge panel of the courtCIT, the American Institute for International Steel (AIIS), a trade association, challenged the constitutionality of Congress's delegation of authority to the President under Section 232.⁹⁹169 The plaintiffs in the case argued that "Congress created an unconstitutional regime in section 232, in which there are essentially no limits or guidelines on the trigger or the remedies available to the President, and no alternative protections to assure that the President stays within the law, instead of making the law himself."¹⁰⁰

On March 25, 2019, the courtCIT issued an opinion rejecting the plaintiffs' arguments that Congress delegated too much of its legislative power to the President in Section 232, in violation of the separation of powers established in the Constitution.¹⁰¹171 In granting the United States' motion for judgment on the pleadings, the courtCIT held that it was bound by a 1976 Supreme Court precedent determining that Section 232 did not amount to an unconstitutional delegation because it established an "intelligible principle" to guide presidential action.¹⁰²

172 One member of the three-judge panel, Judge Katzmann, wrote separately to express his significant concerns about the ruling without openly dissenting.¹⁰³ 173 Judge Katzmann wrote that he was bound to follow Supreme Court precedent and uphold the delegation, but questioned whether the nondelegation doctrine retained any significant meaning if a delegation as broad as that in Section 232 was permissible.¹⁰⁴ The case is currently under appeal.

Most recently, U.S. importers of Turkish steel have initiated a case arguing174 On appeal, the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) affirmed the case, agreeing with the CIT that the case was controlled by the Supreme Court precedent that "declare[d] section 232 not to violate the nondelegation doctrine."¹⁷⁵ AIIS has asked the Supreme Court to review the Federal Circuit's decision.¹⁷⁶ More recently, the CIT issued a preliminary decision in a case in which U.S. importers of Turkish steel alleged that the President's increase of the Section 232 steel tariffs from 25% to 50% on U.S. imports from Turkey did not have a sufficient national security rationale, did not follow statutory procedural mandates, and violates the plaintiffs' Fifth Amendment Due Process rights because the action "creates an arbitrary distinction between importers of steel products from Turkey and importers of steel products from all other sources."¹⁰⁵ The case remains pending before the CIT.

WTO Cases

The President's imposition of tariffs on certain imports of steel and aluminum products,¹⁰⁶177 In a decision denying the United States' motion to dismiss the company's complaint in Transpacific Steel LLC v. United States, the CIT indicated that the President's power to impose tariffs under Section 232, while broad, is not unlimited.¹⁷⁸ Specifically, the court suggested that the President must closely adhere to the procedural requirements of the statute when exercising such authority.¹⁷⁹ The court also determined that the company raised a plausible argument that the Executive violated constitutional guarantees of equal protection protected by the Fifth Amendment's Due Process Clause when imposing, without a rational basis, the additional steel tariffs only on imports from Turkey.¹⁸⁰

The decision in Transpacific Steel indicates that courts might scrutinize whether the executive branch has followed the proper procedures, including meeting statutory deadlines, when exercising Section 232 authority.¹⁸¹ Presidential action that does not follow these statutory procedures may be deemed in excess of the President's authority.¹⁸²

As noted, in a January 2020 proclamation, President Trump expanded the steel and aluminum tariffs to cover derivative products (e.g., steel nails, tacks, drawing pins, and stranded wire).¹⁸³ On February 4, 2020, a U.S. importer of steel-derivative products sued the United States in the CIT, seeking a temporary restraining order preventing U.S. Customs and Border Protection (CBP) from collecting the additional duties.¹⁸⁴ The company argues that the President's imposition of the tariffs failed to follow required statutory procedures; occurred after the statutory deadline for action; and violated the company's constitutional rights, among other things.¹⁸⁵ On February 13, with the consent of both parties, a judge issued an order enjoining CBP from collecting the additional duties and requiring the plaintiff-company to post a bond for the duties until the CIT reaches a final judgment on the merits of the plaintiff's complaint.¹⁸⁶ The case remains pending before the CIT.¹⁸⁷

In its request, China alleged that the U.S. tariff measures and exemptions are contrary to U.S. obligations under several provisions of the GATT, the foundational WTO agreement that sets forth binding international rules on international trade in goods.¹¹⁰192 In particular, China alleged that the measure violatesmeasures violate GATT Article II, which generally prohibits members from imposing duties on imported goods in excess of upper limits to which they agreed in their Schedules of Concessions and Commitments.¹¹¹193 It further alleged that Commerce's granting of exemptions from the import tariffs to some WTO member countries, but not to China, violates GATT Article I, which obligates the United States to treat China's goods no less favorably than the goods of other WTO members (i.e., the so-called most-favored-nation treatment principle).¹⁹⁴).¹¹² China also maintained that the Section 232 tariff measures are "in substance" a safeguardssafeguard measure intended to alleviate injury to a domestic industry from increased quantities of imported steel that competescompete with domestic steel, but that the United States did not make the proper findings and follow the proper procedures for imposing such a measure, as required by the GATT and WTO Safeguards Agreement.¹¹³

Figure 6. WTO Cases Regarding Section 232 Actions

Source: CRS based on WTO filings.

The United States has invoked the so-called national security exception in GATT Article XXI in defense of the steel and aluminum tariffs. GATT Article XXI states, in relevant part, that the GATT¹¹⁴ 196 will not

be construed . . .. (b) to prevent any [member country] from taking any action which it considers necessary for the protection of its essential security interests

(i) relating to fissionable materials or the materials from which they are derived; (ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; [or]

(iii) taken in time of war or other emergency in international relations. . .

While some analysts argue that a WTO panel may evaluate whether a WTO member's use of the national security exception falls within one of the three provisions listed above, historically, the United States has taken the position that this exception is self-judging—or, in other words, once a WTO member has invoked the exception to justify a measure potentially inconsistent with its WTO obligations, a WTO panel may not proceed to the merits of the dispute and cannotto evaluate whether the WTO member's use of the exception is proper.¹¹⁵ Though this exception has been invoked several times throughout the history of the WTO and its predecessor agreement, the GATT 1947, it has yet to be interpreted by a WTO dispute settlement panel.¹¹⁶ Accordingly, there is little guidance as to (1) whether a WTO panel would decide, as a threshold matter, that it had the authority to evaluate whether the United States' invocation of the exception was proper; and (2) how a panel might apply the national security exception, if invoked, in any dispute before the WTO involving the new steel and aluminum tariffs.¹¹⁷ In the past, however, WTO members have expressed concern that overuse of the exception will undermine the world trading system because countries might enact a multitude of protectionist measures under the guise of national security.¹¹⁸

If one of the WTO panels renders197 In the past, however, WTO members have expressed concern that overuse of the exception will undermine the world trading system because countries might enact a multitude of protectionist measures under the guise of national security.¹⁹⁸

In April 2019, a WTO panel interpreted the national security exception in Article XXI of the GATT for the first time. In Russia—Measures Concerning Traffic in Transit, the panel determined that it had jurisdiction to review whether a member's actions were justified under Article XXI's national security exception and whether the member satisfied the requirements for invoking the exception.¹⁹⁹ As of December 11, 2019, however, the WTO's Appellate Body lost its quorum of three members necessary for the Body to decide appeals of WTO dispute settlement panel decisions and issue final reports.²⁰⁰ Because of this, the Dispute Settlement Body (DSB) (i.e., the committee composed of all WTO members that oversees the dispute settlement mechanism) can no longer adopt panel reports in line with the WTO's Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).²⁰¹ Consequently, unless WTO members agree to consider unadopted dispute reports as final, the DSB cannot oversee the losing member's implementation of a panel ruling or authorize the prevailing member to engage in trade retaliation if the losing member ignores the dispute panel's recommendations. Thus, even if the United States or one of its trading partners prevails in a dispute over the Section 232 or retaliatory tariffs, there are significant doubts as to whether the ruling would be enforceable under WTO procedures.

In turn, the United States has argued that unilateral imposition of tariffs in response to the U.S. Section 232 measures cannot be justified under WTO rules.¹²³205 On July 16, 2018, the United States filed its own WTO complaints over the retaliatory tariffs imposed by five countries (Canada, China, the EU, Mexico, and Turkey) in response to U.S. actions, and; in late August 2018, it filed a similar case against Russia;²⁰⁶ and in July 2019, it filed a similar case against India.²⁰⁷ Canada, Mexico, and the United States withdrew their cases regarding the Section 232 tariffs and corresponding retaliatory measures in May 2019 when the parties agreed to settle the disputes.²⁰⁸ Dispute settlement panels have been composed to hear the other cases, but, as noted, there are questions about the viability of the WTO's dispute settlement system because the Appellate Body has suspended its operations.

Source: CRS based on WTO filings.

Notes: The UK is included as a member of the EU for cases filed prior to January 31, 2020. Independent of the EU, the UK has not been a complainant or third party in the WTO Section 232 disputes.

Source: CRS analysis of Global Trade Atlas IHS Markit trade data. Retaliatory tariff lists sourced from WTO notifications and partner country notifications. See footnote 209 for complete sourcing.

Notes: U.S. exports approximated by using partner country import data. Steel and aluminum are among the top exports facing retaliation by several U.S. trading partners as highlighted above.

(*) Turkey temporarily increased its retaliatory tariffs up to 140% in August 2018 in response to the Trump Administration's tariff increase on Turkish steel to 50%, but in May 2019 both countries withdrew the additional increases.

(**) India's retaliatory tariffs were first announced in June 2018, but were repeatedly postponed until June 2019.

(***) Russia published its list of retaliatory tariffs rates and products on July 6, 2018. The tariffs appear to have gone into effect within 30 days of the publication.

The process of retaliation is complex given multiple layers of relevant international rules and the potential for unilateral action, which may or may not adhere to those existing rules. Both through agreements at the WTO and in bilateral and regional free trade agreements (FTAs), the United States and its trading partners have agreed to maintain certain tariff levels. Those same agreements include rules on potential responses, including formal dispute settlement procedures and in some cases commensurate tariffs, when one party increases its tariffs above agreed-upon limits.²¹¹ In addition to the national security considerations the Trump Administration has cited as justification for its Section 232 actions, increased tariffs are permitted under these agreements, under specific circumstances, including for example, antidumping tariffs, countervailing duties, and safeguard tariffs.²¹²

Retaliatory actions have magnified the effects of U.S. Section 232 tariffs. From an economic perspective, retaliation increases the scope of industries affected by the tariffs. U.S. agricultural exports, for example, are among the largest categories of U.S. exports targeted for retaliation, which may have contributed to reduced sales of certain U.S. farm products.²¹³ Given the scale of U.S. motor vehicle and parts imports, if the Trump Administration moves forward with Section 232 tariffs on that sector, and U.S. trading partners respond with retaliation of a similar magnitude, it could have significant negative effects on U.S. exporters. For example, the United States imported roughly $50 billion of motor vehicles and parts from the EU in 2019,²¹⁴ and the EU has announced potential retaliatory tariffs on nearly $40 billion of U.S. exports should the United States decide to impose Section 232 auto tariffs.²¹⁵

Retaliatory actions may also heighten concerns over the potential strain the Section 232 tariffs place on the international trading system. Many U.S. trading partners view the Section 232 actions as protectionist and in violation of U.S. commitments at the WTO and have initiated WTO dispute settlement proceedings against the United States, while the Trump Administration views the actions within its rights under those same commitments (see "WTO Cases").²¹⁶ The retaliating countries notified their retaliation to the WTO pursuant to the WTO Agreement on Safeguards, arguing that U.S. steel and aluminum tariffs are intended to protect U.S. industry and therefore are effectively safeguard tariffs, the tariffs have not been authorized by a WTO dispute settlement panel.²¹⁷ The Trump Administration argues, in turn, that the retaliation violates WTO rules and has responded by initiating additional WTO disputes. If the WTO dispute settlement process cannot satisfactorily resolve this conflict, it could lead to further unilateral actions and increasing retaliation.

Most studies attempting to measure the overall economic effects of the tariffs estimate a negative impact on U.S. gross domestic product (GDP) as a result of the tariffs. Some groups supporting the tariff actions, however, argue that potential negative effects on the broader economy are exaggerated and that such effects are outweighed by the benefits to the domestic steel and aluminum industries in any case.²²⁰ President Trump's May 2019 decision to exempt Canada and Mexico, which accounted for more than 30% of affected steel and aluminum imports, have likely lessened the effects of the Section 232 tariffs. On the other hand, academic studies suggest that the Administration's broader tariff actions—including Section 301 tariffs on imports from China and China's subsequent retaliation—and increased uncertainty from the Administration's various tariff actions may further depress U.S. and global economic growth, which would have negative implications for U.S. steel and aluminum producers as well as downstream industries.

Additional Section 232 Investigations

Automobiles and Parts

Uranium

Titanium Sponge

Potential Economic Impact

The Section 232 tariffs affect various stakeholders in the U.S. economy, prompting reactions from several Members of Congress, some in support and others voicing concern. Congress has also held a number of hearings to examine the issue. For example, the tariffs and their effects on U.S. stakeholders were a focus of Members' questions during recent House Ways and Means and Senate Finance hearings on U.S. trade policy with USTR Robert Lighthizer.¹⁴⁹ In general, the tariffs are expected to benefit domestic steel and aluminum producers by restricting imports, thereby putting upward pressure on U.S. steel and aluminum prices and expanding production in those sectors, while potentially negatively affecting consumers and downstream domestic industries (e.g., manufacturing and construction) due to higher costs of input materials. In addition, retaliatory tariffs by other countries raise the price of U.S. exports, potentially leading to fewer sales of U.S. products abroad, magnifying the possible negative impact of the Section 232 tariffs.

Economic Dynamics of the Tariff Increase

Changes in tariffs affect economic activity directly by influencing the price of imported goods and indirectly through changes in exchange rates and real incomes. The extent of the price change and its impact on trade flows, employment, and production in the United States and abroad depend on resource constraints and how various economic actors (foreign producers of the goods subject to the tariffs, producers of domestic substitutes, producers in downstream industries, and consumers) respond as the effects of the increased tariffs reverberate throughout the economy. The following outcomes are generally expected at the level of individual firms and consumers:

• The price of the imported goods subject to the tariff is likely to increase. The magnitude of the price increase will depend on a number of factors, including the extent to which foreign producers lower their own prices and absorb a portion of the tariff increase. Known as the tariff "pass-through" rate, recent economic studies find that the tariffs have been nearly completely passed through to downstream industries and consumers with little effect on foreign export prices.¹⁵¹
  
  Anecdotal reports suggest U.S. firms are paying increased prices for steel and aluminum purchased from abroad. For example, CP Industries, a maker of steel cylinders based in McKeesport, PA, is paying tariffs on imports of certain Chinese steel pipes it asserts cannot be produced in sufficient quantity in the United States to meet its demands.¹⁵² The company claims this raises the costs of its production by roughly 10%. The higher input costs potentially give foreign competitors an advantage in the U.S. market and abroad.
• Demand for the imported goods facing the tariffs is likely to decrease, while demand for those goods produced domestically is likely to increase. Consumers and downstream firms' sensitivity to the price increase (their price elasticity of demand) will depend in large part on the degree to which the steel and aluminum products produced domestically are sufficient substitutes for the products facing the tariffs.
  
  In 2018, the year the tariffs went into effect, U.S. imports of steel and aluminum subject to higher tariffs decreased by more than 10% in quantity terms, although both increased slightly in value terms (Figure 3). Annual domestic U.S. steel production meanwhile increased by 6% from 2017 to 2018,¹⁵³ while primary U.S. aluminum production increased by 18% (January-November, latest data available).¹⁵⁴
• The price and output of goods subject to the tariff produced domestically are likely to increase. As consumers of the products facing the tariffs shift their demand to lower- or zero-tariff substitutes, domestic producers are likely to respond with a combination of increased output and prices. Resource constraints that may limit or slow an expansion of output could cause prices to increase more rapidly. The low U.S. unemployment rate suggests such constraints may include frictions in shifting labor from other domestic industries into steel and aluminum production.¹⁵⁵ In addition to reacting to higher-cost production and supply constraints, domestic steel and aluminum producers may also increase prices simply as a strategic response to the higher prices charged by their foreign competitors subject to the tariffs.¹⁵⁶
  
  In an anticipation of higher domestic demand and the ability to charge higher prices on U.S. steel and aluminum, some producers have announced investment and production increases. For example, U.S. Steel Corporation announced plans to increase capacity through a number of new or expanded facilities, including most recently a new furnace near Birmingham, AL.¹⁵⁷ Similarly, three U.S. aluminum smelters are being restarted, including a Century Aluminum facility in Kentucky.¹⁵⁸ Broad indices of U.S. steel and aluminum producer prices were up 14% and 5% between 2017 and 2018, respectively.¹⁵⁹
• Input costs for downstream domestic producers are likely to increase. As prices likely rise in the United States for the goods subject to the tariffs, domestic industries that use steel and aluminum in their products ("downstream" industries, such as auto manufacturers and oil producers) face higher input costs. Higher input costs for downstream domestic producers are likely to lead to some combination of lower profits for producers and higher prices for consumers, which in turn could dampen demand for downstream products and result in a reduction of output in these sectors, and possibly employment declines. For example, Ford CEO James Hacket suggested the metal tariffs are expected to cost the auto manufacturer roughly $1 billion.¹⁶⁰
• U.S. exports from the industries subject to retaliatory tariffs are likely to decline. Six U.S. trading partners (Canada, Mexico, EU, China, Turkey, and Russia) have imposed retaliatory tariffs in response to U.S. Section 232 tariffs affecting approximately $23 billion of U.S. exports in 2018, including many U.S. agricultural goods such as pork and dairy products. The retaliatory tariffs may have led to decreased demand for U.S. exports and given U.S. exporters an incentive to manufacture abroad to avoid the tariffs. For example, according to U.S. Department of Agriculture, Chinese tariffs on soybeans caused overall U.S. agricultural and food exports to China to decline in 2018, and China increased its purchases of soybeans from Brazil and elsewhere.¹⁶¹
  
  Canada, Mexico, and the EU account for 80% of U.S. exports subject to retaliatory tariffs in response to Section 232 actions. Since the retaliatory tariffs took effect, U.S. exports to these trading partners have decreased on average by 25%, 10%, and 38%, respectively. Facing retaliatory tariffs on U.S. motorcycle exports to the EU, Harley Davidson has announced its intent to shift some of its production out of the United States in order to remain competitive in the EU market.¹⁶²

Figure 7. U.S. Exports to EU, Canada, and Mexico subject to Section 232 Retaliation

Source: CRS analysis with data from the U.S. Census Bureau. Note: Exports subject to retaliation at 6-digit HTS classification.

Assessing the Overall Economic Impact

Issues for Congress

Appropriate Delegation of Constitutional Authority

In enacting Section 232 of the Trade Expansion Act, Congress delegated aspects of its authority to regulate international commerce to the executive branch. Use of the statute to restrict imports does not require any formal approval by Congress or an affirmative finding by an independent agency, such as the USITC, granting the President broad discretion in applying this authority. Should Congress disapprove of the President's use of the statute, its current recourse is limited to passing new legislation or using informal tools to pressure the Administration (e.g., putting holds on presidential nominee confirmations in the Senate). Some Members and observers have suggested that Congress should require additional steps in the Section 232 process. In the 116^th Congress, a variety of proposals have been introduced to amend Section 232, in various ways, such as by

• requiring an economic impact study by the USITC, congressional consultation, or approval of any new tariffs,
• allowing for a resolution of disapproval of trade actions, or
• revisiting the delegation of its constitutional authority more broadly, such as by requiring congressional approval of executive branch trade actions more generally.

Some Members, including Senate Finance Chair Grassley, seek to draft a consensus bill to restore mandating a transparent exclusion process to limit potential negative domestic effects.

In addition, the 2020 expansion of the steel and aluminum tariffs, initially imposed in 2018, has raised questions about Section 232 authority expiration. Some stakeholders have suggested that Section 232 reform should include new or clarified timelines, deadlines, or expiration dates for any tariffs or quotas imposed or on the authority to impose new or expanded trade actions.

Legislative Responses to Retaliatory Tariffs

Several major U.S. trading partners have proposed or are currently imposing retaliatory tariffs in response to the U.S. actions. In the 115^116th Congress, some Members of Congress proposed legislation to respond to the potential economic impact of these foreign retaliatory tariffs. Some proposals expand programs like trade adjustment assistance to include assistance for workers, firms, and farmers harmed by foreign retaliation.¹⁶⁷ Other measures propose increased funding and programming for certain agricultural export programs to help farmers find new markets for their exports.¹⁶⁸ For a list of proposals from the 115^{249 The Administration announced an assistance program for farmers harmed by foreign retaliation to Section 232 and other tariffs through the U.S. Department of Agriculture.250 Others have suggested broader trade adjustment assistance reform to help U.S. workers and firms harmed by globalization, supply chain shifts, and global over-capacity in certain sectors. For a list of proposals from the 116th} Congress, see Appendix C.

Establishing Threshold

It is relatively easy for a stakeholder to prompt the Section 232 investigation process. The statute states that "Upon request of the head of any department or agency, upon application of an interested party, or upon his own motion, the Secretary of Commerce ... shall immediately initiate an appropriate investigation." To limit the volume of Section 232 petitions and ensure that any requests are sufficiently justified, Congress may consider establishing criteria or a threshold that a request must meet before Commerce and Defense agencies invest resources in conducting a Section 232 investigation. Similarly, Congress may consider limiting the types of imported articles that may be considered under Section 232 (e.g., S. 287, H.R. 940).

Interpreting National Security

Congress created the Section 232 process to try to ensure that U.S. imports do not cause undue harm to U.S. national security. Some observers have raised concerns that restrictions on U.S. imports under Section 232, however, may harm U.S. allies, which could also have negative implications for U.S. national security. For example, Canada is considered part of the U.S. defense industrial base according to U.S. law and is also a top source of U.S. imports of steel and aluminum.¹⁶⁹251

National security is not clearly defined in the statute, allowing for ambiguity and alternative interpretations by an Administration. International trade commitments both at the multilateral and FTA level generally include broad exceptions on the basis of national security. The Trump Administration argues its Section 232 actions are permissible under these exceptions, while many U.S. trading partners claim the actions are unrelated to national security. If the United States invokes the national security exemption in what may be perceived to be an arbitrary way, it could similarly encourage other countries to use national security as a rationale to enact protectionist measures and limit the scope of potential U.S. responses to such actions.

Congress may consider amending Section 232 to address these concerns. For example, some Members have proposed to narrowly define "national security" under Section 232 and the factors to be considered in a Section 232 investigation. One bill limits it to protection against foreign aggression (S. 287), H.R. 940). Congress could also consider changing the investigative authority from Commerce to Defense to provide more weight to the military perspective or interpretation as to what constitutes a national security threat.

Establishing New International Rules

Addressing the specific market-distorting practices that are the root causes of steel and aluminum overcapacity (e.g., government intervention, subsidization) may require updating or amending existing trade agreements. Broad WTO negotiations for new multilateral rules, which may have offered opportunity to address some of these issues, have stalled.¹⁷⁰ RecentIn addition to the international efforts discussed, recent U.S. FTA negotiations, including the recently -concluded USMCA, include related disciplines (e.g., by establishing rules on state-owned enterprises or anticorruption), and the United States is engaged in negotiations with China on overcapacity and other trade barriers. To address these issues, Congress could consider establishing specific or enhanced new negotiating objectives for trade agreement negotiations, potentially through new or modified Trade Promotion Authority (TPA) legislation. Congress could also consider directing the executive branch to prioritize engagement in such negotiations, by, for example, endorsing the currentcontinuation of the OECD discussions or the trilateral negotiations announcedproposals by USTR with the EU and Japan to address nonmarket practices, including subsidies, state-owned enterprises, and technology transfer requirements, mostly aimed at China.

Impact on the Multilateral Trading System

Some analysts argue that the United States risks undermining the international system it helped create when it invokes unilateral trade actions that may violate core commitments and with regard to broad use of national security exemptions. These observers fear that disagreements at the WTO on these issues may be difficult to resolve through the existing dispute settlement procedures given the concerns over national sovereignty that would likely be raised if a WTO dispute settlement panel issued a ruling relating to the U.S. use of national security. Furthermore, actions by the United States that do not make use of the multilateral system's dispute settlement process may open the United States to criticism and could impede U.S. efforts to use the multilateral system for its own enforcement purposes. For example, China called on other parties such as the EU to join it in opposition to the U.S. actions on Section 232, while simultaneously promoting domestic policies often seen as undermining WTO rules.¹⁷¹252 Congress could potentially address these concerns by conducting increased oversight of the Administration's actions by inviting testimony from multiple parties, considering legislation to establish more stringent criteria for Section 232 investigations, or requiring congressional approval of any use of Section 232, among other possible actions.

Impact on Broader International Relationships

The U.S. unilateral actions under Section 232 have raised the level of tension with U.S. trading partners and could pose risks to broader international economic cooperation. For example, trade tensions between the United States and its traditional allies contributed to the lack of consensus at the conclusion of the G-7 summit in June 2018.¹⁷² The strain on international trading relationships also could have broader policy implications, including for cooperation between the United States and allies on foreign policy issues and U.S. credibility in future trade negotiations.

Appendix A. Amendments to and Past Uses of Section 232 (19 U.S.C. §1862)

Concern over national security, trade, and domestic industry was first raised by the Trade Agreements Extension Act of 1954 (P.L. 83-464 §2). The 1954 act prohibited the President from decreasing duties on any article if the President determined that such a reduction might threaten domestic production needed for national defense.¹⁷³253 In 1955, the provision was amended to also allow the President to increase trade restrictions, in cases where national security may be threatened.¹⁷⁴

The Trade Agreements Extension Act of 1958 (P.L. 85-686 §8) expanded the 1955 provisions, by outlining specific factors to be considered during an investigation, allowing the private sector to petition for relief, and requiring the President to publish a report on each petition.¹⁷⁵255 The factors to be considered during an investigation included (1) the domestic production capacity needed for U.S. national security requirements, (2) the effect of imports on domestic production needed for national security requirements, and (3) "the impact of foreign competition on the economic welfare of individual domestic industries."

Section 232 of the Trade Expansion Act of 1962 (P.L. 87-794) continued the provisions of the 1958 Act. Section 232 has been amended multiple times over the years, including (1) to change the time limits for investigations and actions; (2) to change the advisory responsibility from the Secretary of the Treasury to the Secretary of Commerce; and (3) to limit presidential authority to adjust petroleum imports.¹⁷⁶

In 1980, Congress amended Section 232 to create a joint disapproval resolution provision under which Congress could override presidential actions to adjust petroleum or petroleum product imports.¹⁷⁷ 257 Congress included the joint disapproval resolution provision in the Crude Oil Windfall Profit Tax Act of 1980. The bill was signed into law on April 2, 1980, the same day that President Carter proclaimed a license fee on crude oil and gasoline pursuant to Section 232 in Proclamation 4744.¹⁷⁸

On April 15, 1980, two weeks after the President's proclamation on the crude oil and gasoline license fee, Representative James Shannon introduced House Joint Resolution 531 to disapprove and effectively nullify the presidential action. The House Ways and Means Subcommittee on Trade voted 14 to 4 to disapprove the presidential action; the resolution was favorably reported out of the full committee on a 27 to 7 vote. Dissenting views were voiced by Members who supported the fee program and were concerned about U.S. dependence on foreign oil. While the measure passed the House, it was indefinitely postponed in the Senate.¹⁷⁹259 Multiple joint resolutions of disapproval were introduced in Congress in 1980, but none passed both chambers.

In addition to the disapproval mechanism created in the Crude Oil Windfall Profit Tax Act of 1980, President Carter's action in Proclamation 4744 was also challenged in court and through separate legislation in Congress. On May 13, 1980, a federal district court struck down the President's action on petroleum imports as unlawful, thereby preventing the government from implementing the program. The court's decision, however, was appealable to the higher courts.¹⁸⁰260 Before a court could consider an appeal, Congress enacted an amendment to a bill to extend the public debt limit (P.L. 96-264, Section 2) on June 6, 1980, which terminated Proclamation 4744's petroleum import program. Section 2 of P.L. 96-264 did not use the disapproval mechanism established in the Crude Oil Windfall Profit Tax Act of 1980; it was a separate piece of legislation that was attached as an amendment to an unrelated bill.¹⁸¹

On June 19, 1980, the President formally rescinded Proclamation 4744 "in its entirety, effective March 15, 1980."¹⁸²262

Appendix B. Section 232 Investigations

Appendix C. Proposals Concerning Section 232

Appendix D. 2018 U.S. Steel and Aluminum Imports