November 2021 Volume 3

WASHINGTON UPDATE

Not Always Black or White: A Look at The Economics of Section 232 Tariffs and Its Effects on the Forging Industry - An Interview with Trenton Forging By Steve Haro

Section 232 of the Trade Expansion Act of 1962 gives the President of the United States the ability to impose tariffs on certain imports should a Commerce Department investigation determine that a product “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.” While there is no specific definition of “national security” in the law, it states that “the investigation must consider certain factors, such as domestic production needed for projected national defense requirements; domestic capacity; the availability of human resources and supplies essential to the national defense; and potential unemployment, loss of skills or investment, or decline in government revenues resulting from displacement of any domestic products by excessive imports.” Citing national security concerns and using Section 232 authority, then-President Trump in March 2018 applied 25 percent and 10 percent tariffs on certain steel and aluminum imports respectively. It was the first time a president has levied tariffs using Section 232 since 1986 and was arguably only the 11th time a president has done so in the statute’s 60-year history. In this case, Commerce used a broad interpretation of “national security,” defining it to include “the general security and welfare of certain industries, beyond those necessary to satisfy national defense requirements, which are critical for minimum operations of the economy and government.” These tariffs have been controversial and their practical effects debatable across myriad industries, including ours. For this issue’s version of the Washington Update, we decided to shift away from our conventional format on reporting on the latest and greatest happenings in our nation’s capital to explore how policies coming from Washington have a practical effect on one of the critical companies in our industry. Trenton Forging Company is a 90-employee, second generation- owned, third-generated operated business based in Trenton, Michigan. It produces custom closed impression die forgings for a variety of industries, with its largest customer industry by volume being automotive. Chelsea Lantto is Trenton’s president and Eugenio Calle is the company’s director of business development. FIA Magazine recently sat down with Lantto and Calle over Zoom to discuss Section 230 tariffs to see what effect, if any, they have

had on Trenton’s business. It turned out to be an intellectually fascinating conversation that spoke more to the effects of global economics driving industry complications as opposed to tariffs. But the clear conclusion from the discussion is that this issue is definitely not black or white. What follows is that discussion. It has been edited for clarity.

Eugenio Calle Chelsea Lantto FIA Magazine: We have had a Section 232 tariff regime on steel and aluminum in place now since March of 2018. The rationale for levying these tariffs is national security based on a 1962 law. So we're using a 60-year-old law that was forged (see what I did there?) in the Cold War. Please walk us through the practical effects of what has happened since March of 2018 and what pivots you've had to make since those tariffs were put in place. Calle: I understand the motives for the tariffs. Personally, I agree that steel production is a matter of national security. But the tariffs as they've been implemented do not cover every scenario and do not cover every industry affected by those tariffs in a positive or negative way. Personally, we've seen no change before the tariffs and after the tariffs because the tariffs were on steel. Special Bar Quality, which is the type of steel that most forging companies utilize, only accounted for about 10 percent of SBQ consumption in North America. So imports of steel for our industry were very low to begin with. What's really affecting our business is the importing of finished components from low-cost countries with subsidized programs.

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FIA MAGAZINE | NOVEMBER 2021