The Commerce Department's Self-Defeating Conception of National Security

On Feb. 16, the U.S. Commerce Department released two highly anticipated reports on its investigations into the impact of steel and aluminum imports on U.S. national security. The investigations were carried out pursuant to Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862), which authorizes the commerce secretary to conduct investigations to determine the effects of imports on the national security of the United States. The investigations concluded that, under the terms of Section 232, the current “quantities” and “circumstances” of steel and aluminum imports “threaten to impair the national security.” In reaching this conclusion, the reports embrace an expansive conception of national security that carries risks when viewed in the broader context of U.S.-China relations and U.S. trade policy.

In issuing the reports, Commerce Secretary Wilbur Ross recommended that the president consider a range of steep tariffs and quotas to bolster domestic production capacity in the steel and aluminum industries. Under Section 232, the president has 90 days to decide whether he agrees with the Commerce Department’s determination, and if so, what actions to take.

The Section 232 investigations were motivated in significant part by concerns about China. According to the Wall Street Journal, “Administration officials say Chinese global overcapacity is swamping steel and aluminum markets and that conventional trade remedies haven’t fixed the problem since Chinese firms facing U.S. penalties often ship their cheap products to third countries, that then sell them into the U.S.”

In other words, Chinese industrial policies (including subsidies and other preferential treatment leading to excess capacity) are weakening U.S. steel and aluminum industries, thus posing a threat to U.S. national security given the importance of steel and aluminum to U.S. defense and critical infrastructure sectors. This multi-step economic analysis is at the heart of the Commerce Department’s national security determination.

In the days since the reports’ release, that analysis has met with ample skepticism. Observers have emphasized, for example, that current domestic steel production is more than sufficient to cover U.S. defense and critical infrastructure needs. According to a Wall Street Journal editorial,

There’s little risk that the U.S. couldn’t procure sufficient steel and aluminum for defense even during a war. Defense consumes 3% of U.S.-made steel and about one-fifth of high-purity aluminum. U.S. steel mills last year operated at 72% of capacity while aluminum smelters ran at 39%. Both have ample slack to raise production for defense and commercial demands.

Moreover, the United States has other options to source imports from allies and non-hostile trading partners—including, for example, through Memoranda of Understanding with a number of partner governments concerning “Reciprocal Procurement” and “Security of Supply.” (By contrast, China currently accounts for only 2 percent of U.S. steel imports and 10 percent of aluminum imports.) Finally, the reports are conspicuously devoid of analysis concerning the potential harm to downstream U.S. industries important to U.S. national security (e.g., the auto industry) in the event of significant new tariff and quota measures for steel and aluminum.

A core challenge with Section 232 investigations is that “national security” is notoriously difficult to define with precision. In the trade context, should it be viewed in terms of distinct, near-term threats, or is it appropriate to take a more anticipatory approach that considers attenuated risks to the economic welfare of domestic industries that play a role in national defense and critical infrastructure? That Commerce opted for an expansive view is not entirely without justification: Section 232 explicitly instructs the commerce secretary and the president to “recognize the close relation of the economic welfare of the Nation to our national security.” But this general instruction leaves much room for interpretation, and there are risks in exercising that discretion in ways that privilege an expansive notion of national security and apply it to a discrete analysis of one or two industries. Those risks are especially pronounced when viewed in the broader context of U.S.-China relations.

The most obvious peril is the prospect that American action on Section 232 will open the door for other countries to invoke similarly broad interpretations of national security to justify protectionist policies, allowing the “national security” exception within the World Trade Organization (WTO) framework (Article XXI of the General Agreement on Tariffs and Trade) to swallow the general rules of free and fair trade. As noted in a Washington Post editorial, WTO law “allows countries to raise trade barriers for reasons of national security, without being liable to [WTO] discipline, on the understanding that they will do so only rarely, in cases of genuine need. To use national security as a pretext for garden-variety protectionism ... invites tit-for-tat behavior by other trading nations.”

In response to the Section 232 investigations, Chinese officials have been vocal in pressing this very point. A representative of China’s Ministry of Commerce testified that “in light of the lack of a unified definition of ‘national security’ within the WTO framework, such [Section 232] action may trigger other [WTO] Members to invoke similar national security interests to protect their own allegedly critical industries from imports, which would create unnecessary and harmful barriers to trade.” Another ministry official similarly admonished that “[t]he spectrum of national security is very broad and without a clear definition it could easily be abused.”

Such statements strike a disingenuous chord given the Chinese government’s own expansive—indeed, nearly all-encompassing—definition of national security. In 2015, China enacted a National Security Law that codifies a sweeping vision of national security, instructing officials to “adhere to a comprehensive understanding of national security” that explicitly includes economic welfare as well as cultural and other concerns. President Xi Jinping has echoed this call for a “comprehensive” approach that incorporates “political, economic, territorial, social and cyber security.”

American policymakers have condemned China’s capacious approach to “national security” across a range of issues in the bilateral relationship. A core feature of recent U.S. diplomacy has been Washington’s effort to persuade Chinese leaders to distinguish between economic and national security interests—and not to use the latter as a catch-all excuse for various misdeeds.

To begin with, consider U.S. efforts to persuade China to accept a norm against state-sponsored commercial cyber theft of intellectual property. In September 2015, after years of private diplomacy and public signaling, U.S. President Barack Obama and Chinese President Xi Jinping reached an agreement that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.” This norm gained the support of G-20 leaders at their November 2015 summit, and the agreement was reaffirmed by the Trump administration and Beijing as recently as October 2017.

There have always been questions about the sturdiness of the agreement—particularly questions around how to interpret “the intent of providing competitive advantages to companies or commercial sectors.” As I outline in a recent essay, given China’s expansive conception of national security and the close links between Chinese enterprises and the Communist party-state, it is not clear that providing the fruits of state-sponsored hacking to Chinese companies would, in the eyes of Chinese officials, violate the “intent” to provide competitive advantages in the marketplace (as opposed to the intent to advance China’s national security). Jack Goldsmith and I have questioned the robustness of the commercial espionage norm in the wake of the Justice Department’s November 2017 indictment of three Chinese hackers for stealing commercial secrets from U.S. companies. How much weaker will it become if the United States is seen to undercut its own normative position by conflating economic welfare with national security?

This is not merely a peripheral concern. Chinese cyber-enabled theft of intellectual property from U.S. firms is itself a central issue in U.S. trade policy. It is the subject of a separate ongoing investigation by the U.S. Trade Representative (USTR) into Chinese trade practices under Section 301 of the Trade Expansion Act of 1974. And it is part of a broader set of concerns about China’s invocation of “national security” to justify protectionist barriers on market access and other practices that may violate China’s WTO commitments.

The USTR’s 2017 Report to Congress on China’s WTO Compliance (released just a few weeks prior to Commerce’s Section 232 reports) illuminates the scope of U.S. concerns about China’s use of overbroad national security policies to rationalize unfair trade practices. Among the illustrative passages in the USTR report:

China’s passage of several cybersecurity-related laws since 2015 provides an overall statutory framework for technology-related restrictions on foreign companies in the name of cybersecurity or national security. However, the sweeping approach of this legislation has raised concerns that the framework will be used as an industrial policy tool both to promote and favor national champions and other domestic companies and to block or impede foreign companies’ access to the China market. For example, in July 2015, China passed a National Security Law whose stated purpose is to safeguard China’s security, but it also includes sweeping provisions addressing economic and industrial policy. Additionally, in September 2015, the State Council published a big data development plan, which for the first time set a time table for adopting ‘secure and controllable’ products and services in critical departments by 2020. China also adopted a Counterterrorism Law in December 2015 and then a Cybersecurity Law in November 2016, which impose far-reaching and onerous trade restrictions on imported ICT products and services in China.

The USTR report is rife with scathing assessments of China’s overly expansive interpretation of national security. China’s Cybersecurity Law and related implementing measures are criticized for “associating intellectual property rights with national security.” China policies “issued in the name of enhancing cybersecurity or protecting national security impose unwarranted IP disclosure conditions and contain provisions requiring related IP rights to be owned and developed in China.” Similarly, the USTR report flags concerns about China’s draft Foreign Investment Law and related policies that suggest “China intends to pursue a broad definition of ‘national security,’ to include ‘economic security,’ under its national security review regime.”

The USTR analysis expresses legitimate concerns about a lack of reciprocity in the rules that define the United States’ trade and investment relationship with China. By contrast, the Commerce Department’s Section 232 reports seem to reflect what economist Douglas Irwin calls the fallacy of focusing on “outcomes rather than rules, focusing on the trade balance rather than on market access.” The Commerce reports’ emphasis on trade deficits in particular sectors may privilege the case for protective trade measures in the name of national security. The Trump administration must now consider whether accepting this analysis would weaken U.S. strategy on other important issues in U.S.-China economic relations. It will simultaneously have to consider whether other measures—for example, the 164 steel-related antidumping and countervailing duty determinations currently in effect and the 20 additional cases under investigation—are more appropriate (and normatively consistent) tools for redressing unfair trade practices.

One might object that the foregoing comparison implies a false equivalence between clearly excessive Chinese market restrictions that vaguely invoke “national security” as a pretext, and transparently reasoned U.S. trade measures that are tailored to two strategically important domestic industries. Whatever its merit, however, this distinction is unlikely to persuade Chinese officials considering retaliatory measures against the United States. Among the battlegrounds that could conceivably be reopened, for example, is China’s control over the global supply of rare-earth elements—another issue of critical concern for U.S. national security.

In short, U.S. officials have made clear they will not continue to tolerate Chinese protectionism justified by an overly expansive appeal to national security that elides any distinction from economic welfare. The U.S. government’s persistence in denouncing Chinese commercial cyber theft and the USTR critique of China’s WTO compliance are clear illustrations of this position. The Commerce Department’s Section 232 reports on steel and aluminum, however, raise questions about the consistency and durability of the U.S. position, thus opening the door for Chinese officials to turn the tables and call foul on the United States.

President Trump recently tweeted that “economic security is not merely RELATED to national security – economic security IS national security.” Now he must consider whether taking action under Section 232 risks surrendering U.S. trade strategy to a reciprocity of hypocrisy.