The US Department of Commerce announced plans on May 4 to launch an investigation that may lead to tariffs on imported electrical transformers and their components. The affected components are laminated steel used to make cores, wound cores and transformer regulators.

Many wind and solar companies have placed transformer orders with manufacturers as a way to start construction of projects they plan to build over the next few years to qualify for federal tax credits on the projects. If tariffs are now imposed, they could add as much as 25% to the cost. Vendors have been unwilling in many recent contracts to absorb the cost of new US import duties.

The Commerce investigation will focus on whether transformer imports pose a national security threat to the United States.

Tariffs could be imposed under section 232 of the Trade Expansion Act of 1962.

The US has already been collecting a 25% tariff under that section on imported steel and a 10% tariff on imported aluminum since March 23, 2018.

President Trump issued a proclamation on January 24, 2020 extending the tariffs to certain products made from steel or aluminum where the metals account for at least two thirds of the product value. Steel products imported from Canada, Mexico, Argentina, Brazil, Australia and South Korea are exempted from the tariffs.

The Commerce Department is expected to publish a notice shortly in the Federal Register with details about the scope of the new investigation. The notice will set a 270-day clock to run on the investigation. If a national security threat is found, the president will have another 90 days after that to take action.

The investigation comes at the request of steel company Cleveland-Cliffs Inc., which acquired the last US grain-oriented electrical steel manufacturer, AK Steel, on March 13. The Cleveland-Cliffs CEO told the annual meeting of the Congressional steel caucus on March 5 that other countries are evading the existing steel tariffs by sending electrical steel through Canada and Mexico, where it is incorporated into downstream products like transformer cores that are shipped to the United States.

The US removed tariffs on steel and aluminum imports from Canada and Mexico in part to secure Congressional support for the new US-Mexico-Canada trade agreement.

Cleveland-Cliffs said the imports will force it to close two steel mills in Butler, Pennsylvania and Zanesville, Ohio with a loss of 1,400 jobs.

A bi-partisan group of members of Congress from Pennsylvania and Ohio has been urging the Trump administration to take action. For example, two congressmen said in a letter to President Trump on March 6 that minimally transformed grain-oriented electrical steel is being used to create downstream products that enter to the US at unfairly low prices. “If the national electrical grid were to be attacked or compromised by a natural disaster, the US would need a dependable source of electrical steel to allow for rapid repairs,” the congressmen said.

Section 232 of the Trade Expansion Act of 1962 gives the president authority to restrict imports if the Commerce Departments finds 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.”  The president is not limited to tariffs.

Commerce has had its hands full balancing the needs of US manufacturers who use steel as an input for their domestic manufacturing. As of the end of 2019, it had received 94,000 requests for individual exclusions from the steel tariffs, and had granted 47,000 while denying 13,000.