The Politics of Section 232 Tariffs and Buy American Procurement

The economics and international relations aspects of the Trump administration’s Section 232 tariffs on steel and aluminum — ostensibly based on national security concerns, but very few people find this rationale credible — are fairly easy. Among other things, these tariffs hurt U.S. manufacturers who use these products as inputs in their production; they open up opportunities for corruption through special interest lobbying for exclusions; and they inflame tensions with close allies and have undermined international trade agreements by pushing the boundaries of what is permissible under the security exception. (My colleague Scott Lincicome reviews these tariffs in a new paper entitled “Manufactured Crisis: ‘Deindustrialization,’ Free Markets, and National Security.”) For all of these reasons, you might think this would be an easy issue for the Biden administration, which will now repeal them as soon as possible.

Unfortunately, we may not see immediate action here, as is clear from this exchange between Missouri Senator Roy Blunt and Commerce Secretary nominee Gina Raimondo, at her confirmation hearing yesterday (starts at 49:43)

Blunt: One of the disadvantages we have created for ourself in recent years are our tariffs on a number of things, but particularly steel and aluminum. In my state, we make beer cans, and bass boats, and automobiles, and pickup trucks, … and airplanes. …

President Biden said he’d conduct a review of all existing tariffs, and I am personally concerned about the 232 tariffs on steel and aluminum, and wonder if you have any view on that issue.

Raimondo: … Here in Rhode Island, we make submarines and electric boats, who are consumers of steel and aluminum, and so I hear you, and I appreciate your advocacy. Having said that, China has clearly behaved in ways that are anti‐​competitive, dumping cheap steel and aluminum into America, which hurts American workers and hurts the ability of our companies to compete. So, should I be confirmed, I plan to be very aggressive to help Americans compete against the unfair practices of China.

… The President has been clear. We need to step back, review broadly our trade policies at it relates to China, consult with our allies. I will assure you that I will certainly listen to you, engage stakeholders, and listen to the manufacturers in your state and take their needs into account.

I also understand there is an exclusions process, and I will also commit to you — for consuming industries – and I will commit to you to ensure that that exclusions process is swift, fair, objective, and helps to balance the competing interests.

Blunt: … I do think, and I’m sure you well understand, that dumping, the tariffs that are based on that, are clearly tariffs that we should impose, and we shouldn’t tolerate dumping. At the same time, we shouldn’t use national security as just an excuse to have a tariff and you’re not suggesting we should. But anything you do on that front doesn’t take away the tools you have from a country like China that may be dumping steel and aluminum and I hope you’ll look at that that way.

The points about dumping deserve a response (see some of my colleagues’ work here and here), but I’m going to focus on the Section 232 tariffs. Why was she so non‐​committal about repeal? In short, the answer is domestic politics.

To illustrate this, here is an excerpt from a recent letter written by a number of steel producing groups, including the United Steelworkers (USW) union, pressing the Biden administration to maintain these tariffs:

Continuation of the tariffs and quotas is essential to ensuring the viability of the domestic steel industry in the face of this massive and growing excess steel capacity. Removing or weakening of these measures before major steel producing countries eliminate their overcapacity and the subsidies and other trade‐​distorting policies that have fueled the steel crisis will only invite a new surge in imports with devastating effects to domestic steel producers and their workers.

When lobbying pressure of this sort is put on them, politicians may be reluctant to take action even when they believe action is needed. These interest groups may only constitute a small number of votes in the country as a whole, but when those votes are located in key swing states, politicians take notice.

But maybe, just maybe, the Biden administration can resist the pressure to keep the Section 232 tariffs if it can find something else to give these groups. That leads us to another protectionist trade initiative, Biden’s efforts this week to push for a broader Buy American policy for federal government procurement.

Buy American procurement is bad policy for the reasons my colleagues have put forward many times over the years (see, e.g., here and here), as it limits competition, raises costs, and leads to retaliation that closes off foreign procurement markets to U.S. suppliers. Having said all that, perhaps an enhanced Buy American procurement program offers the Biden administration a way out of its political problems related to the Section 232 tariffs, in the following way.

Buy American procurement has been with us for a while, and Biden is not really breaking much new ground here. He is just trying to ratchet up existing programs a bit (the U.S. Chamber of Commerce recently noted that as things stand now under the existing approach, “97% of the federal government’s procurements by value go to U.S. firms”). It even looks like Biden may try to do this consistently with international trade rules, by negotiating with trading partners to make sure that what he wants to do in the United States is permitted everywhere (“The President remains committed to working with partners and allies to modernize international trade rules—including those related to government procurement–to make sure all countries can use their taxpayer dollars to spur investment in their own countries.”) That’s some small consolation I guess: At least the bad policy he wants to adopt and promote around the world won’t break the rules!

What would make all this easier to swallow is if the procurement changes were in exchange for a repeal of the Section 232 tariffs. Note this interest group letter in support of the procurement changes:

When we undertake federally funded projects, we must ensure that our tax dollars support American production and jobs rather than our foreign competitors, who all too often seek to undermine our industries by flooding our markets with unfairly traded products.

One of the signatories to this letter is, you guessed it, the United Steelworkers union, which is on board with the Biden Buy American procurement as well as with the Section 232 tariffs. So maybe, just maybe, the Biden administration is using protectionist procurement to make the USW folks and other special interests happy, which would give the administration political cover to repeal the Section 232 tariffs?

Of course, there is another possibility, which is that we end up with both Section 232 tariffs and these ratcheted up Buy American measures. At that point, for all of Biden’s calm tone and rhetoric, which has been refreshing, it will start to look like Biden is worse on trade than even Trump was.