In an executive memorandum signed April 20, 2017, President Donald J. Trump initiated what at least in the near term might be called the mother of all trade actions by launching an investigation into whether steel imports pose a threat to national security under Section 232 of the Trade Expansion Act of 1962.
A week later, the President took a similar action in the nonferrous metals arena when he affixed his signature to an executive order launching a self-initiated Section 232 into imports of aluminum.
Predictably, the moves drew mixed reactions from along the steel and aluminum supply chains and turned the volume up yet another notch on the increasingly fractious global trade front.
This demonstrates that the administration recognizes the vital role that the domestic steel industry plays in our countrys national security, Steel Manufacturers Association (SMA) president Philip K. Bell commented on the action. By invoking this potion of U.S. trade law, to determine if imports of steel into the United States should be restricted on national security grounds, the president appears to be using every tool in his presidential toolkit to support 21st-century steelmaking.
The American Iron and Steel Institute (AISI)expressed much the same sentiment. The administration launching this investigation is an impactful way to help address the serious threat posed by these unfair foreign trade practices and we applaud this bold action, Thomas J. Gibson, AISI president and chief executive officer, said in a statement. We stand ready to work with the administration on this initiative, he pledged.
The American Institute for International Steel (AIIS) also stands ready to assist investigators but from the offshore side of the global trade aisle. At the very least, we hope that the (Commerce) Secretary will consider the national security and economic implications of protectionist policies that would limit the availability of steel and drive up its price, AIIS president Richard Chriss commented in an April 20 statement.
The AIIS will seek to work with investigators to provide objective data to counter misperceptions about steel imports on which this investigation appears to be based, Chriss said. An unbiased examination will show that imported steel strengthens the nations economy and security, he added.
With the carbon steel and aluminum investigations still very much in their early days, top executives at Allegheny Technologies Inc., (ATI) and AK Steel Corp. have called on the Trump Administration to include specialty steels in the steel imports probe.
It remains to be seen where the administrations focus is going to be on Section 232, Richard Harshman, chairman, president and chief executive officer of Pittsburgh-based ATI, said during the companys earnings call on April 25.
Harshman confirmed, however, that the Specialty Steel Industry of North America, has already been contacted by the Trump Administration to provide information and data to support the Sections 232 investigation.
Reaction to the launch of the 232 investigations and the possible outcome among the investment and analyst communities is equally mixed.
In a research note issued soon after the probe was announced, Seth Rosenfeld, an equity analyst at New York-based Jefferies LLC indicated that Commerce Secretary Wilbur Ross might complete the investigation into steel imports as soon as mid-June. That timeline is far ahead of the 270 days Commerce has, by law, to complete its investigation, he observed.
Rosenfeld also noted that the scope of the Section 232 is unclear. The definition of national security is vague, but it could be expanded to include non-defense sectors, such as energy and infrastructure, he said. Whatever the scope, Rosenfeld predicts Commerce is likely to win the case because the department self-initiated it.
Evan Kurtz, an analyst at New York-based Morgan Stanley Equity Research, highlighted another issue tied to the national security debate. The problem with the national security angle is that the Department of Defense uses relatively little steel, Kurtz wrote in an April 24 research note.
The U.S. last attempted a Section 232 case in 2001 and found that the military accounted for only 0.3 percent of U.S. steel demand. It was determined that such a quantity of steel could easily be produced with existing U.S. capacity and that trade barriers were not necessary for national security purposes, Kurtz wrote.
Given the likelihood that major steel consumers will lobby hard against any duties that raise their costs and make their exports less competitive and other nations t fight back with retaliatory duties and World Trade Organization (WTO) challenges, Kurtz suggested that ultimately a lasting game-changing outcome on 232 alone is unlikely.
According to the Alliance of American Manufacturing, Section 232 has been invoked only twice since the U.S. joined the World Trade Organization in 1995 in 1999 on crude oil imports and in 2001 on iron and steel imports. In both cases, the U.S. Commerce Department choose not to act.