Protecting the Few at the Expense of the Millions: Trade Protectionism Reigns Supreme In 2016

By E.J. Thomas*

Photo: Wikimedia Commons/Gnovick. Creative Commons Attribution 3.0 License. 

2016 marked an unprecedented year for steel producers and consumers across the United States.  The domestic steel industry overwhelmingly prevailed in its antidumping (“AD”) and countervailing duty (“CVD”) trade cases with the U.S. Department of Commerce (“Commerce”) imposing large duties on many steel products from all over the world.  However, while this was great news for the domestic steel industry, these actions actually harm American consumers as the prices of many goods increase and thousands of Americans who work in the construction and automotive sectors face job losses because drastic increases in steel prices can harm employment in these downstream industries.  If history is any lesson, more Americans will lose their jobs then are employed by the entire U.S. steel industry. 

2016 was an unprecedented year for trade enforcement in terms of the number of AD and CVD orders that were imposed and also in terms of the sky-high duties that were levied. In 2016 alone, Commerce issued over 30 new AD and CVD duty orders, many of which imposed large dumping and subsidy margins on countries from China to the United Kingdom. These large duties effectively prevent producers in these foreign countries from being able to sell steel in the United States.  To put the number of AD and CVD orders generated in 2016 in context, at the beginning of 2016, there were 332 AD and CVD orders in existence with just under half (149) on steel products.  Thus, Commerce and the International Trade Commission (“Commission”) increased the total number of AD and CVD orders in effect by 10 percent (over 30 AD and CVD orders) in just one year with all 10 percent of the increase targeting steel products. 

This rapid expansion in trade enforcement in 2016 is unlike anything even the most seasoned veterans have experienced during their careers in international trade.  Donald B. Cameron, Partner at Morris, Manning & Martin, LLP, who has represented the Korean steel industry for over 30 years, stated that “the domestic industry filed an unprecedented number of cases on steel products between 2015 and 2016, and thanks to several trade bills they passed through Congress that went into effect in 2016, this made it even easier for Commerce to manufacture and levy high AD and CVD duties on producers that are completely unrelated to any actual dumping or sale of subsidized merchandise actually taking place.” 

Why does any of this matter?  One could argue that there must have been a good reason to protect the domestic steel industry.  Recent news reports have estimated that the U.S. steel industry has lost 48,000 jobs since 2000, with the total number of jobs in the steel industry declining from 135,000 in 2000 to 87,000 in 2015. Although ArcelorMittal, one of the largest U.S. steel companies who is often involved in filing cases with Commerce and the Commission to impose large duties on foreign steel producers, attributes much of this decline in workers to automation and advances in technology, the common narrative in the media is that imports of foreign steel are flooding the market and costing American steelworkers their jobs. 

The problem with this narrative is that not only is it incorrect, but this protectionism of one industry will have adverse effects on American consumers and on Americans employees in downstream industries that turn steel into the products and structures that we all use on a daily basis.  Take, for example, the automotive and construction industries.  These two industries make up the two largest consumers of steel, and a conservative estimate of the number of people employed in these industries is north of 10,000,000 Americans.   

In one of Commerce’s most stunning decisions in 2016, it calculated subsidy margins of over 58 percent for cold-rolled and hot-rolled steel produced by Korean steelmaker POSCO.  A subsidy margin is calculated by taking the total subsidies a producer allegedly received and dividing it by their total sales of the subject merchandise.  The percentage or margin is the amount of countervailing duties importers will have to pay if they want to import that product.  In addition, Commerce also calculated combined 38+ percent dumping and subsidy margins for Hyundai Steel, South Korea’s other major steel producer, in the cold-rolled steel case, a 13+ percent margin in the hot-rolled steel case, and a 47+ percent margin in the investigation of corrosion-resistant steel.

These margins shocked steel trade observers because POSCO and Hyundai Steel had received de minimis margins in CVD investigations and administrative reviews for the past decade and margins ranging from 0 to 3 percent in AD investigations and administrative reviews of flat rolled steel cases during that same period.  When a company receives a de minimis margin in either an AD or CVD investigation, the investigation with respect to that company is terminated, they are not subject to any duties, and they are excluded from any AD or CVD order.  Similarly, when a company receives a de minimis margin during an administrative review, which takes place every year after an AD or CVD order is imposed if the Petitioner or the foreign producer request one, the company is not subject to any duties for that review period.  For more than 10 years, POSCO and Hyundai Steel had not been subject to any subsidy margins as Commerce consistently calculated de minimis margins in any CVD investigations against them.  Further, the AD margins calculated for POSCO and Hyundai Steel during this period were never above 3 percent for flat-rolled steel investigations or reviews. 

However, all of that changed in 2016 when these two major Korean steel producers received some of the highest margins ever levied against a market economy producer of goods.  This decision to place exorbitantly high duties on Korean steel will have a significant impact on American jobs and the U.S. automotive industry.  Both Kia Motors and Hyundai Motors use steel from POSCO and Hyundai Steel.  Collectively, Kia and Hyundai employ 57,000 Americans across the United States.  Kia and Hyundai also indirectly employ thousands of other Americans across the country through their 755 dealerships and 800+ dealerships, respectively. 

This decision by Commerce to impose such high margins for steel products forces downstream steel-consuming companies, like Hyundai and Kia, to either significantly increase the cost of their vehicles to pay these high duties or suddenly find an entirely new source of steel, which will also most likely lead to increases in the cost of their vehicles.  When steel prices increase due to punitive tariffs, American employees of downstream steel-consuming industries suffer.  Higher steel prices lead to the cost of other goods increasing, which then leads to fewer goods being purchased.  This, in turn, leads to layoffs and reduced paychecks for employees in these downstream industries, as American consumers become less likely to purchase these downstream products. 

While no recent study has been conducted to measure job growth or loss after this recent surge of AD and CVD orders, a comprehensive study conducted in 2003 after a wide array of AD and CVD tariffs were imposed found that 200,000 Americans lost their jobs due to higher steel prices.  This is especially shocking given the fact that more Americans lost their jobs in one year because of higher steel prices than were employed by the entire U.S. steel industry. 

Yet, today, the United States again finds itself in a similar predicament.  While the jobs of 87,000 steelworkers are undoubtedly important, Commerce and the Commission have buckled to the political pressure exerted by steel industry executives and protectionist politicians and have started manufacturing AD and CVD margins to protect one shrinking industry at the expense of both American consumers and the millions of Americans who work in downstream industries that consume steel.  Although there are laws and regulations instructing Commerce on how it should calculate margins, the agency maintains significant discretion in applying this methodology, which allows it to make decisions that can significantly impact the margin. 

Further, in 2015, Congress passed new legislation allowing Commerce even more authority to make decisions that significantly increase margins.  Although technically legal, reliance on such techniques to manufacture high margins does not satisfy the intent of these trade laws, which are supposed to allow for the imposition of duties commensurate to any dumping or benefit resulting from subsidies and not to allow for duties to be used as a mechanism to insulate domestic industries from competition from imports.  In some of the most egregious cases, Commerce preliminarily determined that a company either was not selling its goods at less than fair value (i.e., dumping) or did not receive any unlawful subsidies and then reversed course in the final determination to levy duties between 58 and 92 percent. 

What could explain this dramatic change?  Based on the public record from these cases, Commerce was pressured by Congressional representatives, unions, and other interested parties to manufacture margins.  On one such letter from the Secretary of Commerce, Penny Pritzker, in response to a letter from the President of the United Steelworkers Union, Secretary Pritzker included a handwritten note on a form letter saying that “We are using our tools.”  Although it is unclear exactly what Secretary Pritzker meant by this, one thing is clear:  Commerce felt pressured to generate these margins and margins increased exponentially between the preliminary determinations and final determinations.    

Even with a 10 percent increase in the number of AD and CVD orders in one year and massive dumping and subsidy margins levied against a large portion of foreign steel imports, politicians from both sides of the aisle, including President Trump, Senator Rob Portman, and Senator Sherrod Brown continue to push for more investigations on steel, including a Section 201 investigation, under which, if successful, the United States would impose high duties on certain products from all countries.  Section 201 duties could, therefore, prove even more fruitful for protectionists and be used to isolate domestic producers from competition from all imports of specific products. 

Some trade lawyers think a Section 201 investigation is likely, especially in the new Trump Administration.   Mr. Cameron stated, “Given that Trump’s USTR team is filled with lawyers that represent the domestic industry who are constantly arguing for even higher duties to be levied, it is only a matter of time before the Trump administration files a Section 201 petition to block all imports.” 

*E.J. Thomas is a law student at Georgetown University Law Center and an International Trade Law Clerk at Morris, Manning & Martin, LLP.  This Article represents the author’s personal views and does not necessarily represent the official views of Morris, Manning, & Martin, LLP.