Protectionism

This Steelmaker Looked Like a Winner in the Trade War. Now It's Suing the Commerce Department Over Tariffs.

Protectionism fails, even for those who were supposed to benefit.

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In March 2018, just weeks after President Donald Trump announced plans to place tariffs on imported steel, the India-based company JSW Steel announced plans to spend $500 million to expand its steelmaking plants in America.

A huge victory for "America First" economic nationalism, right?

Wrong. Less than 18 months later, the same company is now suing the U.S. Department of Commerce over the trade barriers that it once celebrated. In a complaint filed last week, JSW Steel claims it has been harmed by the steel tariffs because, as it turns out, even steel manufacturers with U.S.-based operations still sometimes have to import steel from abroad. When JSW Steel sought an exemption from the steel tariffs, the Commerce Department denied it and told them to pay up. In the lawsuit, the company argues that those exemptions should have been granted.

As I've written before, the tariff exemption process set-up by the Commerce Department is opaque and unaccountable. Even such rudimentary details as which Commerce Department officials are responsible for making final determinations, or the metrics by which those decisions are made, remain a secret. With little transparency or due process, the entire waiver procedure is open to abuse and political favoritism—something that businesses trying to navigate the exemption process have been complaining about for more than a year.

In its lawsuit, JSW Steel claims it applied for a tariff exemption so it could import steel slab—a type of bulk unfinished steel product—from Mexico and elsewhere. Steel slab is not produced in the United States in sufficient quantity to satisfy the company's demand, the lawsuit says.

But the Commerce Department apparently did not care about that. The lawsuit argues that the department "yielded to the objections of three competitive domestic steel producers" (U.S. Steel, AK Steel, and Nucor Corp.) despite making "no effort to verify their claims" and failing "even to offer any reasoned basis for its decisions."

Which, yeah, is pretty much exactly what everyone who's looked at the Commerce Department's tariff exemption process has concluded. It's the sort of dense bureaucratic operation where cronyism flourishes.

In testimony to the House Ways and Means Committee last year, the executive of a Texas-based pipeline builder said the process did not allow adequate time for businesses to respond to objections raised by U.S. Steel and other manufacturers. Once an application is submitted, there is little interaction between the government and the applicant, and there is no opportunity for businesses to "state their case," said Willie Chiang, vice president of Plains All American GP.

Those are "due process flaws that do not exist with respect to most other government procedures," Chiang complained.

Sens. Orrin Hatch (R–Utah) and Ron Wyden (D–Ore.) sent a letter to the Commerce Department last year outlining their worries about a lack of "basic due process and procedural fairness" in the tariff exemption system. The senators held some hearings about the problems with the process, but Congress has not acted to meaningfully restrict Trump's tariffs or instruct the Commerce Department to alter the process.

The fact that a steelmaker that once praised Trump's tariffs is now learning a painful lesson about the realities of "economic nationalism" might seem like karma—with maybe a touch of schadenfreude too. There's been plenty of that to go around. Aluminum manufacturers have sought protection from the tariffs that were supposed to help them. Appliance-maker Whirlpool initially cheered tariffs on washing machines before getting walloped by tariffs on steel and aluminum. And the American steel industry in general has suffered over the past year, largely because tariffs have increased prices and triggered a decline in demand—which has led to layoffs rather than the promised resurrection of American steelmaking.

But JSW Steel's suit is a welcome development. It's a chance for the courts to review the obvious problems with how the Commerce Department has handed Trump's trade policies.

The lawsuit demonstrates the extent to which Trump's trade policies are failing even for the industries that were supposed to be "winning." More government control over trade doesn't produce prosperity. It produces the special kind of misery that JSW Steel is now experiencing.

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