Trump Administration Launches National-Security Probe on Steel Imports -- Update

By Jacob M. Schlesinger, Rebecca Ballhaus and William Mauldin Features Dow Jones Newswires

The Trump administration said it had launched an investigation into whether steel imports posed a national security threat, a probe that could lead to new tariffs against China and other manufacturers.

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"One steel mill after another has been shut down, abandoned and closed," President Donald Trump said at a White House event Thursday held to highlight the probe, which he vowed to complete within two months.

"Steel is critical to both our economy and our military," he added, surrounded by more than a dozen top executives from U.S. steel companies, and the head of the steelworkers union. "This is not an area where we can afford to become dependent on foreign countries."

While the U.S. president has broad powers to invoke national security to limit imports, American leaders have rarely done so in recent decades, particularly after the 1995 creation of the World Trade Organization, which has discouraged such unilateral actions.

Commerce Secretary Wilbur Ross, whose department will run the investigation, cited a recent increase in steel imports and a rise in Chinese steel overcapacity depressing global prices as reasons for the investigation, which is being launched under a little-used 1962 law that gives the U.S. government broad powers to curb imports without requiring the same detailed economic analysis tied to other more commonly used provisions.

Mr. Ross said the widely invoked laws aimed at preventing "dumping" -- or foreign manufacturers selling products in the U.S. below production cost or sales prices at home -- were too narrow and too "porous," easily skirted by foreign producers.

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"We're hoping to see whether the facts warrant a more comprehensive solution to deal with a very wide range of steel products and very wide range of countries," Mr. Ross said. "This could conceivably result in a recommendation to take action on all steel imports."

While antidumping laws are usually "limited to one set of products or a limited group of countries, this could be broader both geographically and product-wise," he added.

Asked by a reporter if the potential penalties were aimed at China, Mr. Trump responded: "This has nothing to do with China. This has to do with world-wide, what's happening."

The commerce secretary -- who as a private businessman invested heavily in distressed steel companies battling cheaper imports -- said no decision has been made on whether to impose penalties, and, if so, how broadly. "We're still in the research stage," he added.

This week's steel probe is the latest in a series of studies the administration has undertaken after Mr. Trump's campaign pledge to rewrite American trade policy to focus much more on enforcement actions, cutting the trade deficit, rewriting or abandoning trade agreements and threatening to impose new limits on imports. But so far, the administration has taken no significant action along those lines.

"So far Trump trade policy has been a lot of bark," said Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, a pro-free-trade Washington think tank. "But this is a little bit stronger bark," he said of the steel probe, which was begun under a law that hasn't been touched in 16 years and was used by President Richard Nixon in 1971 as part of his justification for a broad 10% import surcharge.

If the Commerce Department and Mr. Trump follow through with curbs on imports, the combination of tariff protection, Buy American provisions and a possible infrastructure-building program could be a boon for the U.S. steel industry, with economic benefits outweighing the impact of higher prices, according to a lawyer close to the Trump administration.

The case likely will hinge on what the administration defines as national security and whether a flood of steel imports reduces U.S. ability to make products important for defense. Most economists see steel as readily available and easily traded among allies, but the president has wide authority to make national security judgments under U.S. law, and national security arguments also can keep international trade challenges at bay, such as in the case of sanctions.

Indeed, the Trump administration appeared ready to embrace a fairly expansive definition of national security, saying in its investigation announcement that the country's economic welfare has a "close relationship to national security."

Foreign steelmakers criticized the U.S. investigation. Tadaaki Yamaguchi, chairman of the Japan Steel Information Center, the U.S. voice of the Japanese industry, said it "will be very bad for the U.S. economy, very bad for steel-consuming industries -- such as construction and manufacturing, which depend on a reliable supply of steel imports -- and bad for foreign steel producers, such as the Japanese industry."

He added: "There are far more American jobs at stake in the steel-consuming sector than there are in domestic steel production, and this action will put many American jobs at risk."

The U.S. steel industry has long been at the forefront of pushing for tougher limits on import competition, and Mr. Trump talked extensively about reviving the industry and steel jobs during the campaign, pledges that helped him garner surprise victories in states like Pennsylvania.

He is also filling his administration with steel-industry veterans, including Mr. Ross, and industry lawyers, including his nominee for U.S. Trade Representative, Robert Lighthizer.

The steel industry has frequently sought and achieved help from Congress or U.S. presidents in blocking imports, which they say benefit from unfair subsidies, lax regulation or centralized economic planning that dumps product abroad. Chinese steel imports have recently fallen due to a range of smaller cases that impose tariffs on allegedly dumped and subsidized steel.

But previous presidents have tended to curb such limits when they were deemed in violation of international trading rules, a practice Mr. Trump has scorned.

Former President George W. Bush brought a similar type of case involving steel in 2001, a move that upset U.S. trading partners and was ultimately withdrawn after the WTO issued a ruling challenging the limits.

Washington regularly files cases at the WTO against trading partners, but these typically have a smaller impact than the broad type of unilateral cases that use decades-old U.S. law.

Even if Mr. Trump eventually restricts steel imports, it is unclear the move will have a broad effect on growth. With a rise of technology and services industries, as well as more advanced traditional manufacturing, the U.S. steel industry is a significantly smaller part of the economy than previously. Steel-related imports make up less than 2% of the total $2.2 trillion in U.S. imports, according to the Census Bureau.

Still, import tariffs or other barriers could raise prices for steel consumers, including the U.S. auto industry.

The case could bring lobbying efforts from other American manufacturers seeking protection from imports from China or other countries, resulting in other trade cases.

Another pending trade action from Mr. Trump is a call to renegotiate the North American Free Trade Agreement with Mexico and Canada, which he has branded a "disaster." While an early draft of administration goals circulating on Capitol Hill suggested the White House would seek only modest changes to the trade pact, Mr. Trump in recent days has hardened his rhetoric, suggesting he will seek a broad overhaul.

During the Oval Office event Thursday, he departed from his prepared remarks on the steel investigation to ratchet up his attacks on Canada, saying he would try to force changes to their dairy market and lumber and timber sectors.

"What they've done to our dairy farmworkers is a disgrace," Mr. Trump said of the northern neighbors "We'll be reporting back some time over the next two weeks as to Nafta and what we're going to do about it," he added.

Write to Jacob M. Schlesinger at jacob.schlesinger@wsj.com, Rebecca Ballhaus at Rebecca.Ballhaus@wsj.com and William Mauldin at william.mauldin@wsj.com

(END) Dow Jones Newswires

April 20, 2017 16:24 ET (20:24 GMT)