According to various news reports, Congress is preparing a package of legislative updates to U.S. trade and economic policy in order to address China’s growing economic and geopolitical influence. The resulting “China Package” will, like the Strategic Competition Act of 2021, be a bipartisan effort that includes a mix of diplomatic and strategic policies seeking to bolster U.S. companies’ competitiveness and rein in perceived Chinese abuse. One area ripe for reform – yet unfortunately missing thus far from congressional discussions – is Section 232 of the Trade Expansion Act of 1962, which authorizes the president to impose tariffs on “national security” grounds. As we explained in a recent paper, President Donald Trump routinely abused Section 232 to impose tariffs on steel and aluminum, and threatened them on several other products – abuse that the vague and poorly-conceived law makes all too easy and that has harmed the U.S. economy, including vis a vis China.
Indeed, we count at least five reasons why Section 232 reform should be part of any China Package that Congress will ultimately consider:
The Geopolitics. One of the major lessons from the Trump administration’s use of Section 232 was that unilateralism rarely works. A primary goal of the steel and aluminum tariffs, for example, was to counter overcapacity, particularly in the Chinese steel industry, caused by government policies that untether domestic production from market fundamentals. Both Congress and the Biden administration share this goal, which U.S. Trade Representative Katherine Tai recently acknowledged in congressional testimony. However, Tai also claimed that tariffs imposed under Section 232 had been effective in curtailing steel overcapacity – a claim that, as we’ve noted, is belied by data showing both global and Chinese steel production continued to expand after the tariffs were imposed.
In fact, the tariffs have actually hurt U.S. efforts to rein in China’s behavior by offending close allies who were also subject to the measures, yet are necessary for any global solution to the global overcapacity problem. The European Union, for example, retaliated against U.S. exports after being hit with the metals tariffs, and is set to increase that retaliation on June 1st – even as Commerce Secretary Gina Raimondo recently acknowledged that “Europe of course is not a threat to American national security.” As long as these tensions (and others) persist, multilateral levers that have in the past altered Chinese policy will be less effective than they’d be without the tariffs (which Biden could eliminate with the stroke of a pen).
The Economics. Various studies and numerous current news reports show that the 232 tariffs hurt the U.S. manufacturing sector, making these companies less competitive globally (and versus Chinese competitors). As we’ve noted in a recent policy analysis:
[T]he tariffs caused higher steel prices that in turn hurt other U.S. manufacturers in terms of higher input costs, lower exports, and lost competitiveness at home and abroad; created an opaque, costly, and uncertain “exclusion” bureaucracy, under which more than 100,000 requests have been filed by U.S. manufacturers seeking relief; resulted in approximately 75,000 fewer manufacturing jobs than would have otherwise existed in the absence of the tariffs; depressed global demand for steel (thereby dampening prices); bred global market uncertainty, which hurt investment in manufacturing; and caused numerous U.S. trading partners to retaliate against American exporters.
In fact, existing 232 tariffs on steel and aluminum continue to threaten U.S. manufacturing recovery even as the situation with the pandemic has improved. Dozens of companies have told the Department of Commerce that this would happen through the exclusion process, so it is not like we had no idea that this would occur.
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