Highlights
- Section 232 enables U.S. presidents to impose trade restrictions on imports deemed national security threats without Congressional approval.
- The policy has been used by both Trump and Biden administrations to address supply chain vulnerabilities, particularly with Chinese critical minerals.
- Recent applications expand beyond metals to high-tech components, reflecting evolving global trade challenges and national security concerns.
As Rare Earth Exchanges (REEx) reported back on April 15, President Trump invoked Section 232 of the Trade Expansion Act of 1962 as to critical minerals. From that date, the White House Fact Sheet notes that the president signed the Executive Order launching a Section 232 investigation under the Trade Expansion Act of 1962 to examine the national security risks of U.S. dependence on imported critical minerals and their derivative products. The probe will assess supply chain vulnerabilities, foreign market manipulation, and recommend ways to strengthen domestic production and reduce reliance on adversarial nations like China. The fact sheet underscores that minerals such as rare earth elements are essential for national defense systems and advanced technologies. It warns that foreign producers, especially China, use their dominance in these materials to manipulate markets and threaten U.S. economic and national security. Recent Chinese export bans on key minerals and rare earth magnets have heightened concerns.
So why the Section 232 move?
Frankly, this action allows for the expansion of executive power. Section 232 has long served as a powerful tool in the United States’ trade arsenal. Originally enacted to promote economic welfare and national security through expanded international trade, it provides the president with the authority to impose trade restrictions, such as tariffs or quotas, if specific imports are determined to threaten national security. As reported (opens in a new tab) by Investopedia and written by Adam Hayes, Ph.D., CFA—a financial writer with over 15 years of Wall Street experience and an expert in behavioral finance—Section 232 allows for executive action without Congressional approval, enabling swift responses to evolving economic threats.
How does it work?
The mechanics of Section 232 begin with an investigation initiated by the Department of Commerce, either through a formal request by an official or by self-initiation. This investigation, which must be completed within 270 days, includes consultation with the Department of Defense and results in a formal report to the president.
Once the president receives the findings, they have 90 days to determine whether to act and how. This authority was notably exercised during former President Donald Trump’s administration, when in March 2018, he imposed tariffs of 25% on steel and 10% on aluminum, citing national security threats identified by then-Commerce Secretary Wilbur Ross. The rationale was stark: steel imports were four times the level of exports, and aluminum imports satisfied 90% of U.S. demand, putting domestic production—and by extension, national security—at risk.
Biden too
While taking a more multilateral approach in many trade matters, the Biden administration has nonetheless maintained and even expanded the use of Section 232. As reported (opens in a new tab) by Bloomberg in September 2021, the first Section 232 investigation under Biden focused on neodymium-iron-boron magnets—key components in high-stakes technologies like fighter jets, missile guidance systems, electric vehicles, and wind turbines. These permanent magnets are overwhelmingly sourced from China, with the U.S. relying on imports for 80% of its rare earths. The investigation, initiated by the Commerce Department’s Bureau of Industry and Security, directly addressed concerns that China’s dominance in these materials could become a national security vulnerability. Secretary of Commerce Gina Raimondo emphasized the inquiry’s consistency with President Biden’s broader supply chain security strategy, launched earlier that year.
Biden in 2024
Most recently, the use of Section 232 has evolved to reflect more sophisticated rules of origin. According to a 2024 update (opens in a new tab) from law firm Mayer Brown, President Biden issued two proclamations on July 10, 2024, targeting imports of steel and aluminum from Mexico. These proclamations introduced new origin-based restrictions that tie tariff eligibility to where the metals were “melted and poured” (for steel) and “smelted or cast” (for aluminum). These measures aim to prevent transshipment, where foreign metals are minimally processed in a third country to skirt tariffs, and to reinforce domestic production by discouraging reliance on foreign steel and aluminum, particularly from nations like China. Mexico’s exports now face higher tariffs if the raw materials originated in countries not included in the U.S.-Mexico-Canada production chain.
Expect future use
These developments underscore that Section 232 remains a live wire in U.S. trade policy. While its primary function is safeguarding national security, its implications ripple through diplomatic channels, global supply chains, and domestic industries.
With continued investigations, new rules of origin, and expanding application beyond traditional metals to high-tech components, the law will likely remain a centerpiece in how the U.S. responds to an increasingly complex and contested global trade environment.
Given rising national security concerns over Chinese control of rare earth elements and China’s recent export restrictions on key materials, Donald Trump is highly likely to escalate the use of Section 232 to impose aggressive tariffs, quotas, or even embargoes targeting rare earth-derived imports, particularly those tied to adversarial nations such as China.
He may further invoke emergency powers to direct Defense Production Act funds or mandate domestic production quotas, especially for defense-critical inputs like neodymium magnets and heavy rare earths, which are critical for products such as the next-generation fighter jets discussed in REEx.
Should this trade war continue, President Trump will likely pursue an even harder-line industrial policy combining punitive trade actions with targeted incentives to fast-track U.S.-based mining, refining, and magnet production projects. Expect a more unilateral and combative stance toward allies and trade partners alike if they are perceived to obstruct or underperform in reshoring supply chains vital to military readiness or hinder another initiative the current administration deems mission-critical.
On the other hand, Trump has certainly given signs that he wants the US to negotiate with the Chinese. So we think there is a good chance he’ll find a way to do that soon.
Leave a Reply