United States tariffs on steel and aluminium imports

4 minute read  13.03.2018 Mark Jennings

While Australia is exempt from these proclamations, we investigate the potential wider implications.

In a controversial action on 8 March, President Trump signed presidential proclamations imposing higher tariffs on steel and aluminium products imported into the United States. President Trump asserted this action was necessary to protect the national security of the United States because imports had weakened the strategically important steel and aluminium industries.

Although Australia is not a major exporter of steel and aluminium products to the United States, the government made sustained and vigorous representations to the Trump Administration arguing for Australia to be exempted from the tariff increases. These representations appear to have succeeded with Prime Minister Turnbull and President Trump taking to social media to confirm Australian steel and aluminium exports would be exempt.

The positive outcome on tariffs will not shield Australia from the wider consequences of President Trump’s action. Global trading powers such as China and the European Union have threatened retaliatory action against the United States, raising fears of a ‘trade war’. Displaced steel and aluminium exports to the United States will be diverted to third countries. This may impact on Australian steel and aluminium exports, while domestic production may face competition from low priced imports.

The tariffs will very likely be subject to legal challenge in the World Trade Organization (WTO), adding to the strain on the dispute regime. The Australian government has stated it will not take part in any challenges.

Background to presidential proclamations

The Trump Administration is acting under s. 232 of the Trade Expansion Act 1962, which authorizes the Secretary of Commerce to conduct investigations to determine the effects of imports of any article on national security. In 2017, the Commerce Department undertook s. 232 investigations into imports of steel and aluminium. This provision gives a broader scope to national security, recognising the close relationship between the economic welfare of individual industries and national security.

The steel investigation report noted that the United States is the world’s largest steel importer. In the first ten months of 2017 steel imports accounted for more than 30 percent of consumption. The aluminium investigation report stated that imports accounted for 64 percent of consumption in 2016. Excess production by China is targeted in both reports.

The steel report found that ‘excessive’ steel imports had weakened the domestic steel industry to the extent that it could leave the United States unable to produce sufficient steel to meet national defence and critical industry needs. This constituted a threat to national security. The aluminium report concluded that the United States relied heavily on foreign producers, leaving the domestic industry at risk of being unable to meet defence needs. This threatened national security.

On the basis of the reports, Commerce Secretary Ross recommended to President Trump that he consider imposing tariffs or quotas as remedies. President Trump chose tariffs.

Exemption of Australian steel and aluminium products

Unlike Canada and Mexico, Australia is not expressly mentioned in either the steel or aluminium proclamation. Both proclamations do address cases where the United States has ‘important security relationships’ with countries from which it imports steel and aluminium products. The proclamations allow President Trump to remove or modify the tariffs on products from such countries if ‘satisfactory alternative means’ can be agreed to address the threat to national security. We await the text of the order exempting Australian products to see if it details the ‘satisfactory alternative means’ agreed with Australia.

WTO challenges

Article XXI of the General Agreement on Tariffs and Trade (GATT) will be a key provision in any WTO dispute on the tariffs. It states in part that nothing in GATT shall be construed as preventing a party ‘from taking any action which it considers necessary for the protection of its essential security interests’:

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.

As the United States asserts it is acting to deal with a threat to its national security, this text may offer it a defence, in particular, the reference to the 'traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment'. This broad language may cover imports of steel and aluminium which are used in the manufacture of weapons and other defence systems.

If the United States were to rely successfully on Article XXI in a dispute, it may lead other WTO Members to explore its application. Such an outcome could be challenging for the WTO. 

This issue has a long way to run and should be monitored closely given its potential impact on global trade and the rules that govern that trade. 

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