Pentagon Wary About Metals Tariffs Justified on National Security Grounds

The Department of Defense agrees with a Section 232 investigation that concludes that systematic unfair trade practices that erode the industrial base pose a risk to national security. However, Defense Secretary James Mattis' position is that any tariffs or quotas aimed at shoring up the domestic steel and aluminum industries may have "negative impact on our key allies." Mattis, in an undated memo released by the Commerce Department on Feb. 22, wrote that there is no immediate problem with sourcing steel and aluminum for military uses, since military consumption is just 3 percent of U.S. production. The Commerce Department's report, which became public last week (see 1802160020), noted that as well.

If the administration decides to follow any of the 232 report's recommendations, Mattis said, targeted tariffs on steel from Brazil, China, Russia, South Korea, India, Egypt, Malaysia, Costa Rica, Turkey, Thailand, South Africa and Vietnam are preferable to a global quota or global tariff. But, he wrote, "we recommend an inter-agency group further refine the targeted tariffs, so as to create incentives for trade partners to work with the U.S. on addressing the underlying issue of Chinese transshipment."

He emphasized that the administration must communicate to key allies that tariffs "are focused on correcting Chinese overproduction and countering their attempts to circumvent existing antidumping tariffs." South Korea, India, Turkey and Egypt all have strategic importance. Mattis also recommended that no action be taken on aluminum yet. "The prospect of trade action on aluminum may be sufficient to coerce improved behavior of bad actors," he wrote. The Aluminum Association responded to the 232 report by saying that a global tariff or quota is the wrong course of action

Meanwhile, the recommendations are also drawing attention in Canada. Asked about the 232 recommendations during a Feb. 23 Washington International Trade Association event, Quebec Premier Philippe Couillard told International Trade Today that his province provides the majority of Canadian aluminum exports to the U.S., because of its inexpensive hydro-power electricity. Of all U.S. aluminum imports, Canada is by far the largest source, accounting for about 65 percent of the total. Given that Quebec is also home to many aluminum-consuming companies that provide military equipment to the Pentagon -- such as helicopter engines -- Couillard said both countries should be considered one unit for national defense purposes.

Given the integrated aerospace supply chain across the three NAFTA countries, Couillard noted that even supposed trade conflicts are more complex than they seem. He praised the U.S. International Trade Commission's unanimous decision that Bombardier's C Series planes pose no competitive threat to Boeing's narrow body jets (see 1801290016). But he noted no one talks about the fact that 53 percent of the C Series components are procured from U.S. factories.

Ontario Premier Kathleen Wynne, also at the event, said her province's steel producers have been battling the same dumping these actions are tackling. "We need to look at it as a North American challenge," she said, and recognize that there's a regional nature to the steel market around the Great Lakes.