Nearly a year and a half after former President Donald Trump declined to impose Section 232 tariffs on imports of titanium sponge (see Update of February 28, 2020), the Department of Commerce has released its full public report on the investigation, which found that these imports indeed threatened to impair the national security of the United States. Despite former President Trump’s decision to forego any Section 232 import restrictions or tariffs on titanium sponge and to form instead a working group to address concerns, the report’s findings are nevertheless noteworthy. The report determined that:
- The United States imports 68 percent of the titanium sponge needed to fulfill domestic demand, with most of it coming from Japan and smaller quantities from Kazakhstan and Ukraine. The report notes a “burgeoning capacity” to manufacture the product in China: Between 2004 and 2018, Chinese titanium sponge production capacity increased approximately 1,050 percent.
- Titanium sponge is essential to the manufacturing and maintenance of U.S. defense systems.
- Congress has implicitly recognized that titanium sponge is critical to national security by including titanium as a strategic material in the Specialty Metals Clause (10 U.S.C. § 2533b).
- Titanium sponge is also vital for critical infrastructure and supports 15 of the 16 critical infrastructure sectors identified by the Department of Homeland Security.
While the United States was the first country to commercialize titanium sponge production in the 1950s, the report states that U.S. titanium sponge production capacity has declined significantly, with only one producer by 2019 capable of producing the product for defense, commercial and industrial applications. As a result, imports satisfy most of U.S. sponge demand, with U.S. titanium sponge production and inventories satisfying only 32 percent of U.S. sponge demand in 2018. The report acknowledges that another factor impacting the health and competitiveness of the U.S. industry is the growing use of titanium scrap.
Despite this national security concern, the Department of Commerce found that “an adjustment of tariffs on imported titanium sponge will not address the distortionary effect of non-market producers such as Russia, and eventually China, on the global titanium sponge market.” An alternative approach was proposed that would allow the U.S. government to temporarily compensate the domestic titanium sponge industry under Title VII of the Defense Production Act of 1950 “for the difference between its comparatively higher production prices and lower global sale prices, affording U.S. industry time to make the investments required to reduce production costs to a level comparable with other market producers, and additional government stockpiles of U.S.-origin titanium sponge or U.S.-melted titanium in a stable form such as ingots.” The report notes the possibility of “multilateral negotiations among the world’s market titanium sponge producers to constructively address low prices, low inventory levels, and other factors that harm the U.S. and other market producers.”