U.S. Department of Commerce to Investigate Imports of Transformer Components

May 12, 2020

On May 4, 2020, U.S. Secretary of Commerce Wilbur Ross announced that the Department of Commerce will review imports of grain-oriented electrical steel laminations for transformer components under Section 232 of the Trade Expansion Act of 1962. The focus of a Section 232 investigation is “to determine the effects on the national security” of an import. According to a March 6, 2020, letter to the White House from U.S. Reps. Troy Balderson (R-Ohio) and Mike Kelly (R-Penn.), only one manufacturer of grain-oriented electrical steel, which is used to manufacture transformer cores, remains in the United States.

In 2017, investigations under Section 232 led to the imposition of tariffs on steel and aluminum, which began in 2018. However, imports from Canada and Mexico (among other nations) were exempted. In response to the new investigation, Cleveland-Cliffs Inc., which owns the sole remaining domestic producer of grain-oriented electrical steel lamination, suggested that overseas suppliers were taking advantage of that exemption to ship materials to Canada and Mexico for minimal processing before eventual sale in the United States.

The Trade Expansion Act requires the secretary of the Department of Commerce to report the results of his review to the U.S. president within 270 days. A public comment period is optional under the Trade Expansion Act, but will be open in this case. If the secretary’s report includes a determination that imports “threaten to impair the national security” and the president concurs in that assessment, the president will have 90 days to determine what action to take. In prior Section 232 responses, actions have included tariffs, import quotas and voluntary restraint agreements with international suppliers.

If President Trump decides to restrict the import of grain-oriented electrical steel laminations, then power producers, utilities and project developers could face higher prices for transformers. Developers of wind and solar generation projects, which sometimes use transformers to help satisfy a safe harbor for Investment Tax Credits or Production Tax Credits, may need to spend more of their own capital to achieve a stage of development sufficient for permanent financing or a sale. If the administration chooses to impose a quota on imports, the bottleneck in domestic manufacturing could also translate into construction delays.