2001 Section 232 Results on Iron Ore & Semi-Finished Steel

At the time, imports of semi-finished steel accounted for 7 percent of US semi-finished steel consumption with the foreign product coming mostly from “safe suppliers” in Canada, Mexico and Brazil. Semi-finished imports totaled 8.56 million tons in 2000 and in the first six months of 2001 totaled 2.75 million, a 43 percent decrease from the same period the year before.

Petitioners, Reps. James Oberstyar and Bart Stupack stated that the imports of iron ore and semi-finished steel forced US iron ore producers to dramatically reduce production and threatened the integrated U.S. steel sector industries critical to national security. The steel products considered in the investigation were ingots, slabs, billets and blooms. The legislators argued that each ton of imported semi-finished steel consumed domestically displaced 1.3 tons of iron ore pellet consumption.

The Department of Defense agreed that continued access to steel was critical for the manufacture of weapon systems. However, it estimated its annual steel requirements comprised less than 0.3 percent of the industry’s output or 325,000 net tons of finished steel per year. That is about what today a single mill produces in a month.

DOD reported that steel for weapons was projected to be flat for the next five years, after declining in previous years. A slight increase was noted for steel associated with shipbuilding and aircraft parts over the next five years, counterbalanced by a slight decrease in the need for steel for ammunition and aircraft engines.

Even after a 2-MTW conflict (two major theater wars) the need to replenish the force would create a DOD replenishment demand of no more than twice its total peacetime demand (i.e. 650,000 tons).

In addition, DOD steel is subject to domestic procurement policies. Domestic steel is defined as melted in the United States, therefore, imports of semi-finished steel are not used for DOD weapons systems.

The investigation also looked at the steel demand for industries “critical to minimum operations of the economy and government.” Critical industries included, but were not limited to, telecommunications, energy, banking and finance, transportation, water systems, and emergency services – both government and private.

Commerce identified 28 industries accounting for 30.9 percent of the output of the primary iron and steel manufacturing sector. The 28 industries would require no more than 33.68 million tons of finished steel per year. For purpose of the investigation, Commerce assumed the entire steel consumption by the industries was related to supporting national defense and critical industry requirements. The Commerce report said, “In reality, however, a substantial portion of consumption by these industries is likely not related to national security requirements.”

The final conclusion of the investigation was that U.S. national security requirements would require at most 36.04 million net tons of per year of semi-finished steel and 22.5 million metric tons per year of iron ore. U.S. steel production far exceeds that amount annually.

Commerce wrote, “The Department is unable to conclude that imports of iron ore and semifinished steel threaten to impair the national security of the United States, or to recommend to the President that he take action under Section 232 to adjust the level of imports.”

How will the new investigation fare?

This latest enactment of Section 232 is more about protecting the domestic steel industry by finding a way to reduce the flow of imports, rather than concerns about national security.

Section 1 of Trump’s memorandum states: “The United States has placed more than 150 antidumping and countervailing duty orders on steel products, but they have not substantially alleviated the negative effects that unfairly traded imports have had on the United States steel industry. Repeated efforts by the United States to encourage other countries to reduce and address the underlying causes of excess capacity in the steel market have had little meaningful effect.”

It is unlikely that DOD requirements for semi-finished steel have increased significantly from the 2001 investigation. Imports of semi-finished steel are actually less today, with last year’s total at 6.5 million tons compared to the 8.65 million reported in 2001. The top three exporters have changed a bit with Canada out of the mix, now in fifth place, and Brazil, Russia and Mexico taking the top three places.

The current investigation, however, is much more broad in scope, citing “steel imports” and referencing specialty steels. If not limited to semi-finished, as in the 2001 investigation, the steel import totals will be much higher.

If the proposed military budget should pass Congress, it could be argued that the “many, many beautiful ships” promised would require an increased consumption of finished steel.

There is also the possibility that the definition of “national security” will be revised. In the 2001 investigation, Commerce had to first clarify what constitutes national security. Section 232 and relevant Commerce regulations had no specific definition.

Commerce determined that the definition had to include a military or “national defense” component and included the “requirements of certain critical industries for finished steel.”

Likewise a definition of “effects of imports” needed to be determined. Commerce came up with the following list:

• “domestic production needed for projected national defense requirements;”
• “the capacity of domestic industries to meet such requirements;”
• “existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense;”
• “the requirements of growth of such industries and such supplies and services including the investment, exploration, and development necessary to assure such growth;” 
• “the importation of goods in terms of their quantities, availabilities, character, and use as those affect such industries and the capacity of the United States to meet national security requirements.”
• “the impact of foreign competition on the economic welfare of individual domestic industries;” and
• “any substantial unemployment, decrease in revenues of government, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products.”

A new consideration added by President Trump is:

• consider the status and likely effectiveness of efforts of the United States to negotiate a reduction in the levels of excess steel capacity worldwide.

The hoped for conclusion by the Administration is that “if the Secretary finds that steel is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall, in the report submitted under subsection (a) of this section, recommend actions and steps that should be taken to adjust steel imports so that they will not threaten to impair the national security.”

The actions can include imposing quotas or license fees on imported steel as well as negotiating trade agreements that will restrict import of steel products to the U.S.