Japan, Europe and other American allies are increasingly concerned that a new measure under consideration by U.S. President Donald Trump to restrict steel imports could cause friction at the two-day Group of 20 summit opening Friday in Germany.
"The United States stands firm against all unfair trading practices, including massive distortions in the global steel market," Gary Cohn, director of the National Economic Council, told reporters during a White House briefing June 29. "We ask the G-20 economies to join us in this effort," Cohn added. He will attend the summit with Trump.
Trump, having promised during the election campaign to slash American trade deficits and protect U.S. workers, is considering new import restrictions on steel and aluminum based on Section 232 of the Trade Expansion Act of 1962. The rule lets the U.S. raise tariffs and take other measures based on national security considerations. The Commerce Department will announce specific proposals soon.
Imports account for around 30% of the U.S. steel market. Excessive production in China has eroded steel import prices into the U.S., causing serious damage to earnings at United States Steel and other American steelmakers.
Participants at the Group of Seven summit in late May in Sicily agreed to cooperate toward eliminating overproduction of steel, with Japan and Europe supporting the U.S. stance. But the new potential American move on tariffs is driving a wedge between the U.S. and its allies because it potentially violates World Trade Organization rules.
President Barack Obama's administration used anti-dumping duties and other measures to address the problem of steel overproduction, but his government acted within the WTO framework. The Trump administration, however, is skeptical about the effectiveness of the WTO rules, as seen in a comment by Commerce Secretary Wilbur Ross that anti-dumping tariffs can only be imposed on limited products from limited countries.
Section 232 of the trade law would allow a blanket increase in tariffs, affecting much broader imports. Some within the American government want a tariff increase of around 20 percentage points. Section 232, which took effect during the Cold War, has not been used to restrict imports since the WTO was established in 1995.
Though anti-dumping duties under the WTO already have reduced imports from China, the U.S. proposal could apply import restrictions against allies such as Japan, Canada and Germany. Hiroshige Seko, Japan's trade minister, visited the U.S. at the end of June and informed Ross of Tokyo's concerns regarding the U.S. plan to raise steel import barriers.
Other countries could bring the matter to the WTO, setting off a cycle of trade battles. Many nations may shift toward protectionism, citing national security, a Japanese trade ministry staffer said.
The Trump administration's withdrawal from the Paris Agreement on climate change in late May is seen as some as an attempt to raise a low public approval rating. If their view is correct, America under Trump may unleash increasingly isolationist policies. The challenge of maintaining international cooperation even under such a scenario may come to the fore during the G-20 meeting later this week.