The Biden administration’s new report on U.S. supply chain “vulnerabilities” contains a lot of bad-but-expected ideas, but it was both surprising and dismaying to see it tacitly endorse arguably the worst trade law on the books.
The 250-page report resulted from President Biden’s February 2021 Executive Order calling for an interagency review “to strengthen the resilience of America’s supply chains.” Given the administration’s past statements and the current winds in Washington (blowing towards industrial policy and away from economic openness), the report’s contents – heavy on subsidies, new government programs, and domestic content requirements – were generally unsurprising and will surely be the subject of future work.
One issue, however, warrants immediate mention – and scorn: a recommendation that the administration consider using Section 232 of the Trade Expansion Act of 1962, which gives the president broad authority to restrict imports deemed to be a threat to “national security,” to address one specific supply chain concern. The report states:
Evaluate whether to initiate a Section 232 investigation on imports of neodymium magnets: Neodymium (NdFeB) permanent magnets play a key role in motors and other devices, and are important to both defense and civilian industrial uses. Yet the U.S. is heavily dependent on imports for this critical product. We recommend that the Department of Commerce evaluate whether to initiate an investigation into neodymium permanent magnets under Section 232 of the Trade Expansion Act of 1962.
As we’ve written repeatedly, Section 232 is one of the worst trade laws on the books, with substantive and procedural loopholes so wide that the president has almost unfettered discretion to block imports of any product without regard for Congress (which has constitutional authority over trade) or the American public – discretion that President Trump abused on more than one occasion, causing significant economic damage in the process. Given these problems, we issued a paper earlier this year calling for the Biden administration and Congress to repeal the (or, at least, seriously reform) the law, but it has been an open question as to whether the White House viewed the law as a problem or, guided by Trump’s disastrous precedent, an opportunity to pursue its own agenda unilaterally.
Indeed, the inclusion of a potentially new investigation in the supply chain report, while Trump’s Section 232 tariffs on steel and aluminum remain in place (mostly on our allies), is telling and unfortunate. Previous administration statements about Section 232 related to past cases started by Trump and with strong and now-entrenched support from labor unions and influential members of Congress. This is different: it’s an official acknowledgement from the White House that the President may wish to use the law to start new cases and thus views it (as currently written) as a legitimate tool for implementing U.S. trade policy in the future.
As Trump’s tariffs taught us, however, doing so would be a mistake. First, evidence shows that Trump’s Section 232 actions – tariffs and the threat of tariffs – imposed significant harms to the U.S. manufacturing sector and the economy more broadly. Tariffs on steel and aluminum, prices of which are now at historic highs in the United States, today continue to threaten the economic recovery. Second, the steel tariffs have not achieved their primary objectives of creating a thriving domestic industry or curtailing global excess capacity.
Third, pursuing any Section 232 investigation without rectifying the law’s many procedural and substantive flaws would effectively condone the Trump administration’s abuses and cement that precedent – and Section 232 – as not merely an unfortunate blip in U.S. trade policy history but the “new normal” that will be used and abused by future presidents as they see fit. This would inject significant uncertainty into the U.S. and global economies and, given U.S. trading partners’ vocal distaste for Section 232 and its tenuous “national security” nexus, undermine Biden’s other international efforts. Indeed, it is difficult to conceive of an easier way for the Biden administration to convince U.S. allies and other World Trade Organization members that America is no longer a reliable partner and leader on trade issues than to embrace President Trump’s favorite trade law!
Thus, new Biden Section 232 actions could not only harm the economy but also undermine the administration’s own economic and national security objectives. The law should be repealed, not embraced, and we should hope that the new supply chain report’s reference to Section 232 is never pursued and soon forgotten.
Commentary by Inu Manak and Scott Lincicome. Originally published at Cato At Liberty. https://www.cato.org/blog/biden-administration-flirts-section-232-it-will-backfire