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Trump faces his biggest trade decision yet

President Trump and Vice President Pence (Photo by Jabin Botsford/The Washington Post)

The White House is on the cusp of a major decision about whether to impose new restrictions on steel imports, a choice that has divided President Trump's administration while sparking global fears about a burgeoning trade war.

The Commerce Department has for months been evaluating whether steel imports pose a threat to national security, and it is expected within days to present Trump with its finding and a recommendation, which Trump could quickly adopt or decide to take a different course.

Based on its decision, the White House could impose new steel tariffs, import quotas or a combination of the two, said senior administration officials speaking on the condition of anonymity to discuss internal divisions.

The move could provide relief for a domestic steel industry that says it badly needs it, but it could also raise steel costs at every step of the supply chain -- increasing expenses on consumers and on many of the manufacturing industries Trump promised to protect. Additionally, the move has the potential to upset some of the country's closest international allies, and it could spark a set of retaliatory trade moves against U.S. companies trying to sell their products abroad.

Restrictions on steel imports would be Trump's strongest move yet to fulfill his campaign promise to radically alter U.S. trade policy, but there has been a big divide within the Trump administration over whether to go forward with the move. The Defense Department and National Economic Council have raised concerns about economic and diplomatic fallout from protectionist moves.

Top advisers were scrambling to alter the final decision as late as last week, and there was confusion over whether the White House was ready to make a final decision. Top Commerce Department officials were supposed to brief congressional staffers on their planning Friday afternoon, but the briefing was scuttled at the last minute, Capitol Hill aides said. It could be rescheduled this week.

Trump, in late May, wrote in a Twitter post that he would take “major action if necessary” based on the Commerce Department’s recommendations, suggesting he was open to following through on threats to try to revive the U.S. steel manufacturing industry by imposing new trade restrictions.

This remote factory is where Trump may finally draw the line on trade

If Commerce does decide that imported steel poses a threat to national security, it will likely be based on the argument that the United States needs a healthy domestic steel industry to manufacture weapons and combat material.

The United States imported about 30 percent of the steel it used in 2016, or 30 million metric tons, up from 23 percent in 2009, according to data from the Commerce Department.

Trump administration officials have argued that a spike in production by China has hammered the U.S. steel industry. They allege that China floods global markets with cheap steel, making it harder for U.S. producers to compete.

However, since the United States already imposes restrictions on Chinese imports of steel, any new barriers are likely to have more of an effect on close U.S. allies, such as Canada, South Korea, Mexico, Japan and Germany, said Chad Bown, a senior fellow at the Peterson Institute for International Economics.

Canada, for example, is the largest source of steel imports to the United States, providing 17 percent of all steel consumed here. Top Canadian officials, including Foreign Affairs Minister Chrystia Freeland, have expressed deep concerns to top Trump administration officials and U.S. lawmakers, people familiar with the matter said, warning that tariffs or quotas on steel exports could harm the economy in both countries.

Trump and Canadian Prime Minister Justin Trudeau spoke Friday, discussing what Trudeau's government termed "the highly integrated North American steel industry."

While the Commerce Department recommendations are expected next week, it’s also possible the timing could slide if there’s an uproar among White House advisers or business groups who are trying to block any decision. And there were signs that the situation remained fluid late last week. Trump administration officials had planned to brief congressional staff members on the review Friday afternoon, but the briefing was canceled at the last minute.

The Commerce Department is working on a similar review of aluminum imports, although that one is not seen as being as close to completion.

Commerce Secretary Wilbur Ross, one of Trump’s closest friends, has told Congress he is considering three different recommendations based on the national security reviews.

First, he said the White House could impose tariffs – or new fees – against the import of aluminum and steel.

Second, the White House could impose quotas, which would essentially only allow a certain amount of these goods to be imported into the United States.

The third option, which Ross appeared to favor during testimony to the Senate Appropriations Committee earlier this month, would impose a tariff on the import of aluminum and steel once it breached a certain threshold, or quota. Ross referred to this as a “hybrid” approach.

He said this model would have a relatively minor impact on prices of U.S. goods that use steel and aluminum “because it would essentially say we are protecting something like the original status quo and only imposing additional tariff burden in the event” import levels are exceeded.

The steel industry is strongly in favor of the measure and thinks the investigation is long overdue, said Scott Boos, senior vice president at the Alliance for American Manufacturing, which represents steel companies and steelworkers.

“Over the course of a protracted period of surges of imports, there is absolutely an impact on U.S. national security as well as economic security, that hampers the ability of the U.S. to respond to national security threats,” he said. “We’re hopeful that there will be relief that allows U.S. producers to recapture lost market share."

Yet all three approaches being considered by the Commerce Department would likely raise the price of imported steel. In doing so, experts say it would also encourage domestic producers to raise their prices – in turn raising the cost of other goods produced with steel.

That could end up costing far more American jobs than the measures would protect. A 2016 study by the Cato Institute found that 16 times more Americans have jobs in industries that use steel than are employed in the actual production of metals such as steel and aluminum.

Steel-consuming industries in the United States, like the companies that form small metal parts for appliances, autos and airplanes, say they already pay more for steel than many of their competitors because of protections that are already in place. They say further price increases would cause them to lose ground to international competitors.

“If you want to protect manufacturing jobs and manufacturing in the United States, you have to look at the whole supply chain. If you protect the top of the chain at the expense of the bottom, you’re not going to create jobs, you’re going to lose a lot more jobs,” said Paul Nathanson, a senior principal at Bracewell LLP, a law firm that represents the precision metal forming and tooling industries, which oppose the restrictions.

If the Trump administration does choose to use national security as a rationale for restricting imports of steel, it would be a historic step forward for protectionism. The little-known statute that gives the president broad purview to make these decisions, known as Section 232, has only been used to erect trade barriers twice in U.S. history.

Numerous federal agencies, business groups and foreign countries have tried to influence the Commerce Department’s review.

The Pentagon has raised concerns about how U.S. military allies might react if the White House imposed restrictions on steel and aluminum imports, two senior administration officials said, speaking on the condition of anonymity to discuss divisions within the Trump administration.

Army Lt. Col. Roger Cabiness, a Pentagon spokesman, said that the Defense Department is aware of the Commerce review “and will work closely with our interagency colleagues on this effort.” He declined to answer whether the Pentagon has any specific concerns or how the Defense Department is consulting with Commerce.

European Union officials have told U.S. officials and business groups that they would consider responding with their own tariffs, people familiar with the exchange said, adding that U.S. agriculture exports could be a target.

The Commerce Department was required to consult with the Pentagon as part of the process, and several people familiar with the review said Defense Department and State Department officials did raise concerns about retaliatory steps that U.S. allies could take if the United States imposed more protectionist, nationalist restrictions.

Even though there are many people advising Trump about this decision, few are as personally close to him as Ross.

In the recent Senate testimony, Ross told lawmakers that there was a strong case to be made that the weakening of the U.S. steel industry had become so severe that it threatened national security.

“There is I believe a genuine national security issue that must be considered in this case because steel is used in over 10,000 different products that the military needs and there is no steel mill in the country that can operate just on government business,” he said.

Ross said, for example, that the recent “mother of all bombs” that was dropped in Afghanistan was manufactured at a plant that “normally makes oil field tubular goods.”

In a recent report, the American Iron and Steel Institute found that just 3 percent of American steel production goes to national defense and homeland security. Yet experts said the Trump administration may be considering a broader definition of national security, which includes aspects such as infrastructure construction and basic industry.

Some in the administration fear that these actions could cause other countries to follow suit, by blocking U.S. products from their markets while claiming national security exemptions. “There’s a fear that they could ignite a trade war,” said Dean Pinkert, a partner at Hughes Hubbard and the former U.S. international trade commissioner under President George W. Bush.

“Once we go down this path, it creates the opportunity for anybody to do the same thing,” Bown said.

The founder of International Steel Group, Ross is just one of several Trump administration officials with years of experience working with the steel industry, including U.S. Trade Representative Robert E. Lighthizer, USTR counsel Stephen P. Vaughn and Trump trade adviser Dan DiMicco.

Lighthizer is scheduled to testify on Thursday before the House Ways and Means Committee about the White House’s trade agenda.

The steel and aluminum decision would mark the third time in Trump’s presidency that he decides how to proceed on an international economics issue that has split top advisers. He rebuffed the nationalist wing of the White House in April when he opted not to withdraw from the North American Free Trade Agreement.

And he rejected guidance from Secretary of State Rex Tillerson and others when he decided to withdraw from the Paris climate agreement, a move Trump said would help grow the U.S. economy.

Dan Lamothe and Karen DeYoung contributed to this report.