Here is my submission to the US Department of Commerce, Section 232 Vanadium Investigation, Docket No. BIS–2020–0002
Prof. Steve Charnovitz
George Washington University
26 June 2020
In Section 232 of the Trade Expansion Act of 1962, the US Congress delegated authority to the President to require Trade Contraction when, in the President’s judgment, imports threaten to impair national security. Because the Act defines “national security” broadly to encompass the “economic welfare” of the United States as well as the “economic welfare of individual domestic industries,” no limits exist under the Act on the President’s power to rewrite tariffs and to flout America’s international trade agreements. In effect, the Congress gives the President carte blanche to determine how closed to imports the US economy shall be. The President’s broad mandate with regard to US imports under Section 232 is paralleled by the President’s and Secretary’s broad mandates under the Export Controls Act of 2018. Because of the Administration’s unlimited authority to constrain both imports and exports, US trade policymaking has shifted more from the Legislative to the Executive Branch than at any previous time in US history.
The President’s tariff-making authority is triggered whenever the Secretary of Commerce makes a finding that “an article is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” On 28 May 2020, the Department of Commerce opened a Section 232 investigation of vanadium imports, and this Comment by an interested party is submitted in response to the Department’s Federal Register Notice. The Department is asking for comments on, inter alia, (1) “the effects on the national security from imports of vanadium” and (2) “relevant factors that are causing or will cause a weakening of our national economy.” Because an affirmative finding by the Secretary of Commerce is essential to empowering the President to impose more US protectionism, the Secretary should carefully investigate how vanadium production and trade affects US national security and should carefully consider any recommendations for tariffs or quotas under Section 232.
The frequent use of Section 232 by the Trump Administration has led some analysts to propose a reconceptualization of US trade policy. Although the tools of trade policy remain what they were a century ago, a restatement of US trade policy provides context for the vanadium investigation. The challenge of restating trade policy is to find coherence in a mix of market opening and market closing measures.
US trade policy has two components: first, as part of an industrial policy to promote (or impede) the welfare of particular US industries; and second, as part of a foreign policy to influence the behavior of other countries. The two components, industrial and foreign policy, can be mutually-supporting or mutually-impeding depending on the particular policies being pursued. The industrial policy component of US trade policy gives rise to US measures that protect domestic producers, such as most-favoured-nation tariffs and trade remedy tariffs. Industrial policy also gives rise to US measures that thwart foreign consumers, such as export controls. The foreign policy component gives rise to US measures that use trade as a stick or as a carrot to influence foreign governments on trade and non-trade issues.
In restating trade policy, I omit purposes that others might view as one of the basic goals. For example, I omit the original purpose of tariffs which was to generate federal revenue to finance the government. Nowadays, the federal government acquires its funding mainly from income taxes, employment taxes, and borrowing. Some analysts portray “national security” as a central objective of US trade policy. To be sure, national security can be aided (or hindered) by industrial policy and foreign policy actions. But the term “national security” in Section 232 is too amorphous to delineate a discrete set of policies. Other analysts postulate trade fairness to be a fundamental principle. But so-called “fairness” in trade boils down to an industrial policy of protecting domestic producers from various kinds of foreign competition.
Strengthening the institutions of the international trading system was for many decades an important US goal. Those efforts culminated in the creation of the World Trade Organization (WTO) in 1994 to expand international trade law. Enabling trade without regard to industry or trading partner would be a sound way to carry out a pro-competitive national economic strategy. But such a neutral approach is alien to US trade policy.
With that backdrop, the Department’s first question regarding the effects on national security of imports of vanadium is easy to answer. Because vanadium is a useful element that is not sufficient in US land or waters, the US economy needs unimpeded access to imports of vanadium from other countries. Therefore, the importation of vanadium enhances US economic security and should not be impaired by government policy. Vanadium is available in many countries including two countries with US trade agreements, Canada and Australia.
US access to non-living natural resources was carefully studied by the President’s Materials Policy Commission (1952). Even 68 years later, the Paley Commission’s Report, Resources for Freedom, remains the most thoughtful study on US resources ever produced by a national commission. The Commission examined vanadium as an “additive metal” and, as with all such metals, called attention to the need for more production, conservation, and stockpiling. The Commission promoted the “least cost principle” for the acquisition of materials and argued against “restriction on imports” and against interference with the “normal channels of trade.” Indeed, the Commission urged the US government to “remove restrictions on the entry into this country of material from abroad” and to “join with other producing and consuming nations” to reduce impediments to trade, such as tariffs, import and export quotas, and cartel agreements. The Commission did not rule out protective tariffs, but stated that in the Commission’s judgment, “there would be few cases where a protective tariff would be the best device for satisfying security needs.”
Vanadium is not one of those cases. In its study, the Commerce Department should focus on whether the United States should stockpile vanadium and whether there should be some domestic capacity for processing and refining vanadium. Should the market not deliver a requisite minimum level of domestic productive capacity, then the Commerce Department should subsidize the needed commerce in a manner consistent with international trade law.
The second question is the identification of relevant factors that are causing or will cause a weakening of the US economy. The most relevant factor is the danger of a new round of unwise findings by the President that suppressing demand for imports can enhance the economic welfare of American workers or consumers. Another factor that could weaken the US national economy would be a finding by the Secretary of Commerce that imports of vanadium are impairing or could impair US national security. So, the two factors with the greatest risk are more irrational trade policy decisions by the President and Secretary such as the protectionist decisions taken on steel and aluminum. The use of Sections 232 and 301 by the Trump Administration demonstrate an ever more powerful US Presidency employing non-market interventions to achieve the President’s domestic and international objectives.
In addition to considering my comments, I urge the Commerce Department to follow federal law which requires the Secretary’s Section 232 Vanadium Report to be published in the Federal Register (except for classified or proprietary information), see 19 USC § 1862(b)(3). The Department violated federal law in its Automobiles Proceeding by failing to publish its report to the President. That misstep may be tiny itself, but when added to other missteps and multiplied every day, the aggregate effect of a scofflaw Administration is further weakening of US national security.
