Source: YI CAI

Author: Feng Difan

Jian GUAN stated that these investigations indicate that such US probes have extended from upstream basic materials in the industrial chain to downstream high-tech applications and derivatives, warranting vigilance.

On the 14th local time, the US disclosed two new Section 232 investigations, targeting "Unmanned Aircraft Systems (UAS) and components" and "polysilicon and derivatives."

Specifically, both investigations commenced on July 1st and have now published notices in the US Federal Register, seeking public comments on the impact of these products on US national security.

Jian GUAN, a partner at Beijing Grandwin Law Firm, explained to a China Business News reporter that these investigations indicate that such US probes have extended from upstream basic materials in the industrial chain to downstream high-tech applications and derivatives, warranting vigilance.

At the same time, it is noteworthy that the industries and products targeted by the US in these investigations are areas where the US lacks comparative industrial advantages. Insisting on imposing tariffs would also harm its domestic industrial chains.

Jian GUAN explained to the reporter that the US argues that these industries have been unable to grow due to external shocks, which also impact national security. Therefore, the US needs to take measures to protect them, promote domestic production, and reduce foreign dependence. "At least on the surface, this is the US logic," he said.

He also stated that in the future, more attention should be paid to Section 301 investigations and Section 232 investigations conducted in the name of national security, compared to so-called "reciprocal tariffs." Greater vigilance is needed for these types of investigations.

US Section 232 Investigations into Drones and Polysilicon

Both Section 232 investigations were self-initiated by the US Department of Commerce under Section 232 of the Trade Expansion Act of 1962. This law authorizes the Department of Commerce to investigate the impact of imports on national security.

Typically, within 270 days after initiation, the Department of Commerce must submit a report to the US President with its findings and recommended measures to address the national security threat. The President then decides whether to concur with the Department's findings and whether to take action, such as imposing tariffs, to adjust imports to mitigate their impact on national security.

Currently, both investigations are in the public comment period. The Department of Commerce stated that any interested party may submit comments to the Bureau of Industry and Security (BIS) within 21 days of the Federal Register publication, i.e., by August 4th local time.

Regarding the investigation into "Unmanned Aircraft Systems (UAS) and components," the Department of Commerce indicates it focuses on examining current and future US demand for UAS and components; whether US domestic production capacity can meet domestic demand; the role of foreign supply chains in meeting US demand; and the concentration of UAS and component imports from a few suppliers and related risks.

The US also seeks to understand the feasibility of expanding domestic UAS and component production capacity to reduce import dependence; the impact of current trade policies on US UAS and component production; and whether further measures (such as tariffs or quotas) are necessary to protect national security.

Regarding the investigation into polysilicon and derivatives, the US focuses on understanding current and future US demand for polysilicon and derivative products; whether US domestic production capacity can meet domestic demand; the role of foreign supply chains in meeting US demand; and the concentration of polysilicon and derivative imports from a few suppliers and related risks. Other aspects of this investigation are highly similar to the drone investigation.

"These products under Section 232 investigation are essentially those where the US has little comparative advantage. These investigations seem designed to pave the way for protective tariffs and promoting domestic production," Jian GUAN told the China Business News reporter.

He explained that the US used similar logic in its previous Section 232 investigation on steel products. After imposing tariffs, it protected the entire market, making the domestic US market profitable and incentivizing domestic investment and production.

Regarding the prospect of tariffs, Jian GUAN believes that, at least for now, the US still seems inclined towards tariff measures.

Vigilance for More Section 232 Investigations

According to incomplete statistics from a China Business News reporter, the US has currently launched Section 232 investigations covering a total of 11 product categories: steel, aluminum and derivatives; automobiles; copper; semiconductors; pharmaceutical products; critical minerals and derivatives; trucks; lumber; commercial aircraft and engines and components; UAS and components; and polysilicon and derivatives.

Among these, tariffs already imposed include: 50% tariffs on steel and aluminum, later expanded to derivatives; 25% tariffs on automobiles, covering approximately $153 billion in automotive products and $279 billion in auto parts; and 50% tariffs on copper, covering products worth around $17 billion.

Jian GUAN explained, using the steel and aluminum Section 232 investigation as an example, that it was positioned as targeting "strategic resources." When initiating a Section 232 investigation, the US first establishes the strategic positioning of the target product, endowing it with irreplaceable strategic attributes and describing it as a "strategic resource indispensable for national survival and development." The core of this step is to demonstrate the dual importance of the product in both defense and economic spheres.

Subsequently, the US constructs a "national security threat" using quantitative data. He explained that after establishing the product's strategic position, the US further uses detailed data and empirical analysis to quantify the impact of imports on domestic industries, thereby constructing a "national security threat."

He stated that the US also expands the scope of the "national security" concept, elevating what are essentially economic trade issues into existential security crises.

"The US also worries about the long-term risks associated with industrial hollowing out. Furthermore, the US equates economic security directly with national security, arguing that unemployment caused by large-scale industrial decline not only leads to regional poverty and social instability but may also exacerbate political polarization," he explained.

Jian GUAN summarized that in previous Section 232 investigations, the US focused on derivative raw materials and derivative products. These investigations targeted not only the products themselves but also implemented Section 232 measures on derivatives. For example, with steel and aluminum derivatives, they could encompass major products like washing machines.

However, "this time, the US has extended further along the industrial chain, aiming to protect both upstream and downstream industries," Jian GUAN explained.