As the White House seeks to turn steel overcapacity into a national security matter, the issue is alienating not only China but America’s NATO allies.

'They're dumping steel and destroying our steel industry, they've been doing it for decades, and I'm stopping it. It'll stop,' US President Donald Trump declared during a recent flight from the US to France. “There are two ways: quotas and tariffs. Maybe I'll do both,” he added at the eve of his administration’s first Sino-US Comprehensive Economic Dialogue (CED), also known as Diplomatic and Security Dialogue (D&SD).

Only days after China’s US Ambassador Cui Tiankai warned the US on “troubling developments” that could derail the bilateral relationship, US Commerce Secretary Wilbur Ross said he would present Trump a range of options to restrict steel imports on national security grounds – even as Europe’s NATO leaders were already lobbying against the White House’s steel efforts.

Steel overcapacity as a national security threat

After the Trump-Xi Summit in early April, the US and China announced a 100-Day Action Plan to improve strained trade ties and boost cooperation between two nations. “This may be ambitious, but it’s a big sea change in the pace of discussions,” Wilbur Ross said at the time.

Yet, barely two weeks later, President Trump issued a Presidential Memorandum, which directed Ross to investigate the effects of steel imports on national security on the basis of the Trade Expansion Act of 1962. If Ross determines steel “is being imported into the US in such quantities or under such circumstances as to threaten to impair the national security,” Trump is authorized to take actions “to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

It was those actions that Trump alluded to in his recent statement, including imposing import quotas, license fees on imported goods, or negotiating more restrictive trade agreements.

Since 2000, the global steel market has changed dramatically. Some two decades ago, world crude steel production was still about 850 tonnes annually. While North America, Europe, and Japan – read: the G7 bloc – accounted for more than half of the total, China only 15 percent.

Today, global steel production has almost doubled to 1,630 tonnes and China accounts half of the total, whereas the share of the G7 nations has halved to 25 percent. In the past, advanced economies were the key producers. Today, emerging economies spearheaded by China account for 70 percent of global steel production.

That’s the real reason for the calls for steel protectionism in the US and the EU in the past few years. But now Trump’s latest effort is splitting even the transatlantic front.

Divided Brussels and Washington, again

The issue is also dividing the White House. Trade hawks – including Trump’s trade and industrial policy head Peter Navarro, trade representative Robert Lighthizer and trade advisor Dan DiMicco, former CEO of US steel giant Nucor – are pushing for high import tariffs. In contrast, the more business-friendly former Goldman Sachs executives – Treasury Secretary Steven Mnuchin and National Economic Council’s chief Gary Cohn – argue for restraint.

As steel imports have suddenly become an issue of “national security,” US Defense Secretary James Mattis has been dragged into the debacle. By mid-June, Europe’s NATO leaders joined in as well. They launched an extraordinary lobbying campaign against an anticipated US crackdown on steel imports, which, they argued, would hit US allies more than China. Consequently, Mattis – not Ross – has been hearing the cases of apprehensive German and Dutch NATO leaders and passed on their concerns to the White House.

In the Bush era, the transatlantic axis almost fell apart, thanks to a deep divide about security policy. Now, the same axis is being strained to the hilt by deep divides in economic, trade, climate, steel (read: security) policies.

Washington’s NATO allies do not buy the national security arguments. In Brussels, the mood is growing for retaliation if the Trump administration will walk the talk.

As Ross seemed to be pushing for a trade war over steel in a closed-door meeting with Senate Finance Committee members, he did not put a time frame on his review's release. Officially, he has 270 days to submit a report to Trump – which translates to anytime between soon and late fall.

What next?

If Ross finds that steel imports threaten to impair national security, Trump must determine within three months whether he concurs with the Secretary’s findings; and what actions should be taken.

In practice, the White House’s current goal was to ramp up “America First” pressure at the eve of Trump’s first Sino-US Dialogue. Theoretically, Ross and Trump can defer difficult decisions about steel only until early spring 2018.

However, the Pandora’s box has now been opened and an adverse decision could not just derail Sino-US bilateral relations, but alienate America’s NATO partners and undermine much of past economic progress worldwide.