SFC Hearing on Proposed Commerce Department Tariffs

• Section 232 Commercial Exclusion Process: Sens. Ben Cardin (D-Md.), Claire McCaskill (D-Mo.), and Pat Roberts (R-Kan.) called the product exclusion process cumbersome and slow, and cited long processing times and “extreme” administrative hurdles.  Ranking Member Ron Wyden (D-Ore.) asked Secretary Ross to provide the Committee with a “specific timetable and specific fixes” to the handling of the exclusion applications.
• Section 232 National Security Concerns: Sen. Pat Toomey (R-Pa.) challenged Ross’s assertion that steel imports from Canada posed a national security threat to the U.S., and argued, “this debate is about economic nationalism, not national security.”  Sen. Rob Portman (R-Ohio) said the administration is misusing Section 232 and “pushing the envelope beyond national security.”  Ross insisted there was a “national security implication… in the aggregate in all of the steel” produced and transshipped by China to third party countries.
• Direction of U.S. Trade Policy: Ross insisted that the President’s objective is not to end up in a trade war, but rather to lower trade barriers and to protect intellectual property. Sen. John Thune (R-S.D.) expressed concern about the direction of U.S. trade policy, which he said is restricting market access rather than expanding it.  Sens. Maria Cantwell (D-Wash.) and Cardin voiced concerns about entering into a trade war and expressed their disapproval with the manner in which the administration is carrying out its trade policies.
• U.S. Trade Relationship with China: Thune agreed with Ross’s assertions that China has been using unfair trade practices for far too long, but expressed increasing concern that existing and proposed tariffs are creating a “rapidly escalating situation.”  Ross said he does not think China wants a trade war “any more than we do.”

• The Honorable Wilbur L. Ross, Jr., Secretary, U.S. Department of Commerce

Chairman Orrin Hatch (R-Utah), Senate Finance Committee
In his opening statement, Hatch said the United States is currently imposing tariffs of 25 percent on steel products and is and assessing tariffs of 10 percent on aluminum products.  He explained that combined, these tariffs directly affect almost $50 billion worth of goods, while also affecting many billions of dollars more in downstream goods.  He also warned that steel prices are increasing, and not just foreign steel subject to tariffs, but also U.S. steel. As a result of this, Hatch added that many U.S. manufactures have lost their competitive edge against foreign companies. He went further to say the negative consequences of the steel and aluminum tariffs are not isolated to manufacturing, but that the effects have spread throughout the economy.

While Hatch agreed with the President’s assertion that Chinese mercantilist policies harm U.S. companies, he argued that the tariffs fail to address Chinese overproduction since only five percent of the steel and aluminum products targeted are from China.  He emphasized that the Commerce Department’s actions target U.S. allies, not adversaries, particularly Canada and the EU, “with whom our trade in steel and aluminum products far exceeds our trade with China.” Hatch said that the tariffs do not support U.S. national security, but instead “harm American manufactures, damage our economy, hurt American consumers [and] disrupt our relationship with our long-term allies, while giving China a free pass.”

Hatch said he was “stunned” to learn that the Commerce Department had initiated another Section 232 investigation into the national security implications of imports on automobiles and auto-parts, which covers over $200 billion worth of trade, and is four times larger than that under the steel and aluminum investigations combined. He warned that like the steel and aluminum tariffs, the potential auto tariffs would target the U.S.’s closest allies, while allowing China to “continue its predatory trade practices undeterred.”         

Ranking Member Ron Wyden (D-Ore.), Senate Finance Committee
Wyden expressed his frustration with the administration’s trade policies, which he said seem more like “knee jerk impulses instead of carefully thought-out strategy.”  He said that while tariffs on steel and aluminum imports are in place, the process of determining what imports will be excluded is in a “state of disarray.”

Wyden called for a strong, well-planned strategy on trade that would bring the “full economic might of the United States and its allies to bear on China’s trade practices rather than create chaos.” He also said there would be bipartisan interest on Capitol Hill in “fresh” policies that would strengthen trade enforcement and protect American workers.

Wilbur Ross, Secretary of the Department of Commerce
In his testimony, Ross argued that tariffs are the “necessary means to revive” the American steel and aluminum industry which have been hurt by imports. He said the imports stemmed from a variety of reasons, including “industrial export policies of our trading partners, unfair trade practices, and massive global excess production, particularly by China.” Ross argued that steel import levels and global excess capacity, as well as the quantities and circumstances of aluminum imports, are weakening the U.S. economy and threaten to impair U.S. national security. He said that tariffs on steel and aluminum are anticipated to reduce imports to “levels needed” for these industries, “in combination with good management,” to achieve long-term viability.

Ross also announced the Commerce Department’s first determinations on 98 exclusion requests for steel products, in which 42 were granted and 56 denied. He said that the review of exclusion requests and related objections is being conducted on a case-by-case basis in a fair and transparent process, and that Commerce is making an “unprecedented effort” to process the requests expeditiously. Finally, Ross noted the Department’s investigation to determine whether auto and auto part imports threaten to impair national security. He explained that this investigation will examine U.S. production capabilities and technologies needed for projected national defense requirements.

Section 232 Commercial Exclusion Process
Sen. Ben Cardin (D-Md.) said that the Commerce Department has made it “extremely challenging” for a small business to pursue a product line exemption from Section 232 tariffs because of the long processing times, and the legal and administrative burden of making such requests.

Sen. McCaskill (D-Mo.) told Ross, “in a chaotic and incompetent manner, you’re picking winners and losers on a technical basis without a great deal of training.”  She then called the regulatory burden “so extreme” on small businesses filing exclusion waivers to the tariffs. She also criticized Ross for announcing the tariffs without concomitantly announcing the exclusions, and she recalled that President George W. Bush had done that when he announced steel tariffs.

Sen. Pat Roberts (R-Kan.) called the product exclusion process cumbersome, slow, and flawed. Hatch added that some companies were subjected to rejections from Commerce that contained inaccurate claims and explained that companies are not able to challenge these claims because there is no formal channel for them to do so.

Ross invoked visual aids to demonstrate the large number of exclusion requests Commerce had received so far and maintained that the Department has made “very good progress” in responding to the steady inflow of submissions.  Sen. Chuck Grassley (R-Iowa) responded to this claim, saying it sounded like Ross was referring to a “government run by a mercantilist economy rather than a free market.”

Wyden claimed that small U.S. businesses are “stuck in a bureaucratic twilight zone that they can’t escape.” He referred to a press report Tuesday morning in which a Commerce Department official said, “[this process] is going to be so unbelievably random and some companies are going to get screwed. These people are making multibillion dollar unbelievably uninformed decisions.” Ross refused to acknowledge claims from what he called “an unnamed anonymous allegedly high-ranking Commerce official” but did point to a delay in the Congressional appropriations committee as the reason he was not able to hire new staff until recently.  Wyden called this a real “head slapper” and asked Ross to provide the Committee with a “specific timetable and specific fixes” to the handling of the exclusion applications. Ross agreed to respond but added he could not provide a timetable since the number of future incoming requests is unknown. He also maintained that “few requests” had gone more than 12 days without a response.

Hatch argued that there is no national security justification for refusing exclusions from quotas when there are instances of the very same product being excluded from tariffs. Ross explained that the Presidential Proclamation does not authorize the Commerce Department to grant exclusion from quotas and added that the Commerce Department is taking into consideration the requests that had been made for exclusion based on quotas that already had been exceeded or shortly will be. He went on to explain that several countries “rammed in huge amounts” of product prior to the President’s decision, and the “challenge” was whether to “reward” countries that were trying to “game the system.” Ross said he is giving “real consideration” to submitting a request that the President grant exclusions to countries subject to quotas in the same way they grant exclusions to countries subject to tariff rates.

Section 232 Investigation into Autos and Auto-Parts
Grassley asked whether this investigation would deal with parts solely used to build automobiles, or if it would encompass parts used in autos that are also used throughout other sectors of the economy.  Ross said that he has invited industry input on the matter, and that his aim is to approach the investigation in a “judicious, very open, fair and transparent manner.”

Wyden asked whether Commerce had consulted with industry or labor unions when putting together the investigation and objected that he “didn’t hear about it.” Ross said that he had taken on the investigation at the request of the President and that the stakeholder comment period was just beginning.

Section 232 National Security Concerns
Sen. Michael Bennet (D-Colo.) asked why Ross thought the Canadian steel industry poses a national security threat to the United States. Ross countered that the Canadian industry had not been accused of “directly and individually” being a security threat, but rather there was a “national security implication… in the aggregate in all of the steel.”

Ross said the reason for imposing tariffs on “mostly… friendly countries” is that China has been masking its increased exports to the U.S. by transshipping them through third party countries. He credited the Section 232 tariffs for “getting other countries to play ball with us,” because “suddenly the EU is enacting safeguards against steel dumping into Europe, [and] Canada is taking action; Japan created an enforcement body to deal with the problem.”  The fact is, Ross said, “they’re starting to take the kind of action, which if done sooner, would have prevented the current crisis.”

Sen. Rob Portman (R-Ohio) called the Section 232 tariffs an “extraordinary remedy” that should be used “selectively and for national security reasons only.” He said the administration is misusing Section 232 and “pushing the envelope beyond national security,” which he warned “risk[s] losing the tool in the future.” Portman argued that The Enforce and Protect Act of 2015 (EAPA) should be used much more aggressively in U.S. trade relations. He said the U.S. should measure transshipments of exports from China through Canada and Mexico, and suggested invoking a “trigger” in a new North American Free Trade Agreement (NAFTA) instead of using 232 as a “blunt instrument.”  Ross dismissed this and said there was no definitive data in the way of transshipment from China through Canada, but maintained that transshipment exists “in other cases.”

Sen. Pat Toomey (R-Pa.) challenged Ross’s assertion that steel imports from Canada posed a national security threat, and argued, “this debate is about economic nationalism, not national security.” He urged Ross not to impose tariffs on autos, calling it a “wholly inappropriate” use of Section 232. He closed by asking that his colleagues support his proposed legislation which would require congressional approval of tariffs designated under Section 232.

Direction of U.S. Trade Policy
Sen. John Thune (R-S.D.) asked what new trade agreements the administration is working on to counterbalance “what we may lose” if the U.S. does not reach an agreement on NAFTA, and to “offset what we lost” by pulling out of the Trans-Pacific Partnership (TPP). Ross did not address the questions directly, and instead asked the Committee, “if we don’t fix the big problem, the unfair trade practices, the abuse of intellectual property (IP), when are we ever going to fix this?”  Thune reiterated his concerns about the direction of U.S. trade policy, which he said is restricting market access rather than expanding it.

Sen. Maria Cantwell (D-Wash.) referred to trade wars as a “very 1980s, retro policy” and suggested the U.S. had created a trade war.  Ross replied that the President’s objective is not to end up in a trade war, but rather to lower trade barriers and to protect intellectual property (IP).  He blamed “constrictions” imposed by the World Trade Organization (WTO) for the “relatively few” tools in existence to accomplish those objectives.  Ross emphasized the need to pressure China and other parties with “untoward practices” and said the “only way we’ll get them to change” is to apply pressure. He then explained his purpose was to get to “an end game” that is “much closer to free trade than anything the world has seen before.”  Ross said that the President decided to take “decisive action” because “[the] tragic fact is that historically we’re the least protectionist country in the world and we have the deficit to show for it.”

Cardin criticized the administration’s use of Section 232 and called it “unprecedented and unanticipated.” He challenged Ross’s assessment of U.S. treatment in trade agreements and argued that bilateral and regional trade agreements have “elevated standards” which have helped strengthen American companies. Cardin echoed Cantwell’s concerns about entering into a trade war and expressed his disapproval with the manner in which the administration is carrying out its trade policies.

Sen. Sheldon Whitehouse (D-R.I.) asked Ross to predict how “trade conflicts will cascade into American economy.” Ross did not squarely address the question but cited the Commerce Department’s research which suggested the Section 232 tariffs would have a minimal impact on the economy. He added that the total amount of tariffs on the economy is one percent of U.S. gross domestic product (GDP).

U.S. Trade Relationship with China
Sen. Sherrod Brown (D-Ohio) cited a bill he introduced with Grassley which would review foreign investment in the U.S. and determine whether certain investments are in its long term economic interests. He explained that this bill would give the Commerce Department authority to review those investments that fall outside the scope of the Committee on Foreign Investment in the United States (CFIUS), thereby equipping the U.S. with another tool to “fight Chinese unfair trade practices.”  Brown enlisted Ross’s support of this bill, to which Ross replied he was happy to “help with anything that will make it easier to restrict Chinese investments here.” Ross continued that the administration has placed 446 trade actions against countries for various infractions. Of those, he said, half are against China and 40 percent of that half are on steel, “which means 60 percent are in products other than steel.” Brown asked Ross if he would be prepared to support his bill, and Ross responded that he supported the “intent” of the bill.

Thune agreed that China has been using unfair trade practices for far too long but expressed his increasing concern that existing and proposed tariffs, as well as the President’s announcement Tuesday night that he is prepared to impose $400 billion more, are creating a “rapidly escalating situation.” He asked about the administration’s overall trade strategy with China, and Ross replied that the intention was to “make it more painful for [China] to continue their practices than to do otherwise.”  Ross reiterated the President’s commitment to protecting IP and added that yesterday the President signed the 10 millionth patent issued by the United States but warned that patents are only good if we can “force other nations to honor them,” not force technology transfers, and do “horrible things.” Thune acknowledged that China has “been abusive, they’ve cheated,” and remained steady in his view that the administration is creating a situation that is “escalating out of control.”  Ross responded by saying “I don’t think the Chinese want a trade war any more than we do. The President’s general view is that the trade war was lost years ago. This is an effort to fix unsatisfactory outcomes that came from that.”

For more information on this hearing, please click here.