Trade Cases

Leibowitz: More Tariffs May Harm Consumers

Written by Lewis Leibowitz

Two separate developments suggest that the Biden administration may have concerns that more tariffs would damage the US economy by harming consumers. 

First, we saw the president suspend action to impose additional tariffs on solar cells and modules from four countries in the face of an antidumping “circumvention” proceeding. Circumvention determines whether operations in third countries that add “minor” value should be covered by existing antidumping orders. Early in 2022, domestic petitioners alleged that solar cells and modules fabricated in China were processed in Cambodia, Thailand, Malaysia or Vietnam, changing the origin of the processed products from China to one of the four countries mentioned. 

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The industry installing solar goods in the US responded forcefully by arguing that domestic production of solar goods was not sufficient to satisfy burgeoning demand. The country, for the time being, needs to choose between satisfying domestic demand and punishing Chinese manufacturers. The Biden administration chose the former, by suspending any antidumping duties on solar equipment from the four above-mentioned countries until June 2024. By that time, the administration asserts, domestic production will have increased and the circumvention finding may be implemented.

Second, debate has resumed about the country’s electrical grid, including transformers and transmission lines. Readers will remember that the US Commerce Department investigated imports of transformer components (Cores and Laminations) in a Section 232 proceeding in 2020. At the end of that investigation, the Commerce Secretary recommended that the president impose trade restrictions similar to the tariffs on steel and aluminum under Section 232. The president did not act on that recommendation.

The proponents of more tariffs have continued to pressure the current administration to impose restrictions on imports of cores and laminations. The principal raw material for these products, grain-oriented electrical steel, is currently produced by only one company, Cleveland-Cliffs, in two US locations. 

Several things are clear. First, the production of grain-oriented electrical steel (or GOES) in the US is not sufficient to allow production of sufficient transformers to improve the efficiency of the US electrical grid. Second, GOES imports are currently restricted by the Steel 232 tariffs and quotas. Third, the production of transformers in the US needs to increase if domestic demand for improved transformers can be met from US sources. 

The question is: which needs to happen first? That is decidedly a matter of opinion.

Cleveland-Cliffs wants to extend Section 232 tariffs to transformer cores and laminations. This would, they argue, allow for manufacturing of these vital parts of transformers to be made in the US. According to the Commerce Department report in the Section 232 investigation, imports of cores and laminations increased as a result of the Section 232 tariffs on GOES, which is a critical component of cores and laminations. The tariffs, therefore, created an outward migration of transformer component manufacturing (principally to Canada and Mexico), and an increase in imports of the finished transformers too. In 2019, imports of cores and laminations were over 80% of domestic demand. 

If 25% tariffs are put on cores and laminations, wouldn’t the problem move to the next level, transformers? In other words, a tariff on cores and laminations might be the precursor to pressure on restricting imports of transformers.  However, the link to national security is the improvement of the efficiency of the electrical power grid, not increasing US production of GOES, cores or laminations. It is hard to see how a threat to national security would be cured or even addressed by imposing tariffs on imported transformers, cores or laminations, unless steps were taken to ensure that domestic production of transformers (particularly the large power transformers essential to moving electricity over long distances) would be able to meet foreign competition. Even if domestic transformer production could meet international competition, domestic producers may not be able to use domestic GOES if it in turn is not globally competitive.

Perhaps for this reason, neither President Trump nor President Biden acted on the Commerce recommendation to restrict imports of cores and laminations. The report, dated Oct. 15, 2020, is now nearly three years old. The statute requires the president to make a determination whether to accept the Commerce determination within 90 days after receiving it. Does the president have the authority to implement a report more than 90 days after it is delivered? The courts have not reached that question yet.  (Full disclosure—I have participated in litigation challenging Section 232 determinations on steel products.) Moreover, there are several different types of transformers, each of which is in a different situation. 

In short, there is no way to predict whether increasing tariffs or imposing quotas on imported cores, laminations or transformers would solve the problem of modernizing production of transformers in the US to improve the efficiency of the electrical grid. 

While the chief complaints in both these examples come from companies that have already resorted (several times) to the trade remedy laws and have received protection against imports. In both cases, the antidumping and countervailing duties imposed on imports of GOES and solar panel and cells did not make those industries competitive. 

Maybe tariffs and quotas are not the answer. What is? It could be that identification of barriers to competitiveness of essential US industries and removing those barriers would be a better approach. 

Lewis Leibowitz 

The Law Office of Lewis E. Leibowitz
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Lewis Leibowitz, SMU Contributor

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