U.S.-China Economic and Security Review Commission2
Bilateral Trade
2018 Starts with Highest Ever January U.S. Goods Deficit with China
In January 2018, the U.S. goods deficit with China grew 14.8 percent year-on-year to reach $36 billion— its highest
ever for January and its highest monthly level since September 2015 (see Figure 1).1 U.S. imports from China
(largely footwear and apparel) increased 10.7 percent year-on-year, contributing to the high deficit.2 By comparison,
U.S. exports to China, which had experienced robust growth since the third quarter of 2016, fell 2.3 percent year-
on-year in the first month of 2018 due to decreases in exports of civilian aircraft and aircraft-related components
and soybeans.3
Figure 1: U.S. Goods Trade with China, January 2016–January 2018
Source: U.S. Census Bureau, “Trade in Goods with China,” March 7, 2018. https://www.census.gov/foreign-trade/balance/c5700.html.
Bilateral Policy Issues
Section 232 Reports on Steel and Aluminum Released
On February 16, the U.S. Department of Commerce (DOC) released Section 232 reports* on steel and aluminum
imports to the United States. As detailed in the reports, Secretary of Commerce Wilbur Ross found that steel and
aluminum imports “are ‘weakening our internal economy’ and threaten to impair the national security as defined in
Section 232.”4 Both reports proposed three possible trade policy actions to the Trump Administration. On March 1,
President Donald Trump announced a 25 percent global tariff on all steel imports and a 10 percent global tariff on
all aluminum imports.5 The formal proclamations confirming these tariffs, issued by President Trump March 8,
exempted Canada and Mexico, owing to the “special circumstances that exist with respect” to these countries.6
* Section 232 investigations tend to be infrequent. Between 1980 and 2017, DOC conducted 14 Section 232 investigations, most recently in
2001. One 1982 investigation resulted in an embargo on crude oil from Libya. In six cases, DOC found imports did not to threaten to
impair national security. In four cases, though a threat to impair was found, no tariff or quota was implemented. In two cases, no threat to
impair was found, but remedial policy initiatives were launched as a result of the investigation. In one exceptional case, the president
sought and received voluntary restraint agreements from machine tool suppliers in Japan and Taiwan. Cases reviewed in: U.S. Department
of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, Section 232 Investigations Program Guide: The Effects
on National Security, June 2007. https://www.bis.doc.gov/index.php/forms-documents/section-232-investigations/86-section-232-
booklet/file.
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U.S.-China Economic and Security Review Commission3
Under Section 232 of the 1962 Trade Expansion Act, the secretary of commerce can investigate any product to
determine whether it “is being imported into the United States in such quantities or under such circumstances as to
threaten to impair the national security.”7 At the investigation’s conclusion, the secretary of commerce submits a
report with recommendations for review by the president. Section 232 states the secretary of commerce must
consider domestic production requirements for defense, industry capacity to meet those requirements, available raw
materials, and human resources. It also states the secretary and the president must consider foreign competition’s
impact on “economic welfare of individual domestic industries” and any resulting decrease in employment,
government revenue, skills, investment, or other effect on domestic production.8
To lay out the considerations for steel and aluminum, the current Section 232 investigations undertook two tasks:
(I) review the product’s national security implications and any industry changes resulting from foreign imports, and
(II) propose recommendations for any impact found.
I. Findings of the reports: imported steel and aluminum quantities threaten to impair national
security
DOC found imports of steel and aluminum were “weakening our internal economy” and threatened to impair
national security.9 The report on steel cited a “large and ongoing” need for steel in weapons production, as well as
in industries classified as “critical to minimum operations of the economy and government.”10 The report on
aluminum similarly marked aluminum as a key component of ground systems and weapons, aircraft, and space and
naval applications, as well as critical electrical and transportation infrastructure.11
Both reports detailed foreign imports’ adverse impact on the U.S. steel and aluminum industries:
The United States’ high share of imports: The share of steel imports stood at about 30 percent of U.S.
domestic consumption in 2017.12 The share of aluminum imports now stands at nearly 90 percent of
domestic consumption.13
Product prices: Domestic steel prices are depressed relative to their 2010–2013 levels, and global
overproduction has weakened U.S. steel producers’ price competitiveness in other markets.14 The price of
aluminum also fell due to international oversupply between 2011 and 2016, prompting closures in U.S.
smelters.15
Facility closures: Steel manufacturing capacity has fallen since 2000, including a 25 percent decline in
blast furnace production.16 Between 2012 and 2018, six aluminum smelters were permanently closed,
removing 1.1 million metric tons (MT) of production capacity.17
Falling employment: The steel industry shed around 14,100 jobs between 2015 and 2016.18 The aluminum
industry has lost about 3,500 jobs since 2012.19
Loss of bidding opportunities: The Alliance for American Manufacturing’s testimony at the Congressional
Steel Caucus pointed to three New York infrastructure projects relying on subsidized imported steel. 20
Boston and Chicago have also accepted subway car bids from Chinese companies utilizing imported steel.21
Financial distress: As reported by the DOC steel investigation, the U.S. industry has maintained a negative
average annual net income from 2009 to 2016.22 In aluminum, the two remaining domestic producers also
maintained negative average annual net income between 2012 and 2016.23
In assessing the cause of the decline of U.S. steel and aluminum industries, both Section 232 reports point to steel
and aluminum supply gluts resulting from substantial foreign government subsidies. DOC found China produced
about 50 percent of global steel and 55 percent of global aluminum in 2015.24 China’s steel output represented only
about 73 percent of its production capacity in 2015, which stood at 1.1 billion MT, according to official data.*
Though China’s National Development and Reform Commission (NDRC) announced the steel industry had
achieved its target of cutting 45 million MT in 2016, Greenpeace reported that most cuts were made at idle plants.25
Similarly, subsidies have allowed Chinese aluminum producers to expand despite falling prices. For example, with
* For further information on China’s overcapacity in steel, see U.S.-China Economic and Security Review Commission, Economics and
Trade Bulletin, March 7, 2017, 4. https://www.uscc.gov/sites/default/files/Research/March%202017%20Trade%20Bulletin.pdf.
U.S.-China Economic and Security Review Commission4
government support, Chinese aluminum producers increased capacity by about 243 percent from 2007 to 2015
during a global price decline of 46 percent.26
II. Recommended courses of action
Based on DOC’s findings, Secretary Ross recommended several options on which the Trump Administration could
choose to act or not act (see Table 1). These recommendations would be in addition to any antidumping or
countervailing duties currently applied. The tariffs and quotas are intended to enable U.S. steel and aluminum
producers to operate at about 80 percent of production capacity.27
Table 1: DOC Section 232 Report Recommendations
Recommendation Steel Aluminum
(1) Global Tariff 24.0% 7.7%
(2) Global Quota 63.0%86.7%
(3) Tariff on a Subset of Countries 53.0% 23.6%
Country Subset
Brazil, China, Costa Rica,
Egypt, India, Malaysia, Russia,
South Africa, South Korea,
Thailand, Turkey, and Vietnam
China, Hong Kong, Russia,
Venezuela, and Vietnam
Source: U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology Evaluation, The Effect of Imports of Steel on
the National Security, January 11, 2018, 58-60; U.S. Department of Commerce, Bureau of Industry and Security, Office of Technology
Evaluation, The Effect of Imports of Aluminum on the National Security, January 17, 2018, 107-109.
These tariffs or quotas would be applied to the following product categories, though an exclusions process may be
run in the future to limit the measure to more specific products:
Steel mill products: (a) carbon and alloy flat products, (b) carbon and alloy long products, (c) carbon and
alloy pipe and tube products, (d) carbon and alloy semifinished products, and (e) stainless products.
Aluminum products: (a) unwrought aluminum; (b) aluminum castings and forgings; (c) aluminum plate,
sheet, strip, and foil; (d) aluminum wire; (e) aluminum bars, rods, and profiles; (f) aluminum tubes and
pipes; and (g) aluminum tube and pipe fittings.
If any recommendation is adopted, DOC recommended the president establish an appeals process for companies to
petition for product- or country-specific exclusions to the tariff or quota. For consideration, companies must
demonstrate a lack of comparable U.S. product supply or a specific national security concern.28 Details on an
appeals process have not yet been released.
There is significant debate among observers regarding the impact of the proposed measures on U.S. domestic
industries. Some have welcomed tougher actions. For example, the American Iron and Steel Institute issued a
statement on March 1 applauding the president for his desire to strengthen the domestic industry.29 While the
Aluminum Association initially advised against measures affecting critical trading partners, it also expressed
appreciation for the president’s support of the sector.30 Richard Trumka, president of ALF-CIO, the largest
federation of unions in the United States, called the tariffs, “a great first step toward addressing trade cheating.”31
Others have expressed concerns regarding the international reaction to the proposed measures. For example,
Secretary of Defense James Mattis cautioned against applying a global tariff given its negative impact on key U.S.
allies.32 The Business Roundtable responded similarly to the Administration’s initial announcement, stating: “We
urge the President to pursue other approaches that target unfair traders without putting various parts of the economy
at such high risk.”33 The Automotive Association, representing Fiat Chrysler, Ford Motor Co., and General Motors,
echoed this sentiment: “We are concerned with the unintended consequences the proposals would have, particularly
that it will lead to higher prices for steel and aluminum here in the United States.”34
Any tariff or quota may also prompt retaliatory measures or cases brought against the United States at the World
Trade Organization (WTO). Trade ministers from Canada, South Korea, Japan, and the EU have expressed their