Titanium Sponge Section 232 Follow-Up Suggests Eliminating Tariffs on Sponge, Hiking on Aerospace Parts

The Section 232 investigation was requested back in 2019 by the only domestic producer of titanium sponge (see 1904100032), a company called TIMET that argued at the time that two Japanese companies and TIMET should be favored and that other producers should be restricted through quotas or tariffs that were not subject to drawback. At the time, 68% of titanium sponge was imported.

The working group's report, highlighted by the Federal Register Aug. 3, acknowledged that the administration cannot remove or reduce the tariff on titanium sponge without action from Congress, since the original Section 232 investigation was aimed at erecting barriers to titanium sponge imports.

TIMET closed its titanium sponge operations in Nevada in 2020. It told the working group: "TIMET has changed its position and recommendations and believes, under the current economic conditions, national security can be protected without domestic sponge production capacity." It said a stockpile approach is the most practical solution.

The working group endorsed that idea, and also said the government should maintain strong relations with Japan, the source of the vast majority of titanium sponge imports. It also said the government should explore "the feasibility, benefits, and consequences of restructuring titanium-related product tariffs."

Manufacturers are able to reduce their tariff costs for titanium sponge through drawback, the report noted. But the 15% tariff on titanium sponge, ingot, plate, sheet, strip, foil, tubes, bar, rod, wire, combined with the zero tariff for aircraft engine parts or undercarriage parts made with titanium, makes titanium melting in the U.S. less competitive.

"Implementing tariffs on these high value-add, titanium-embedded aerospace products may help further protect additional portions of the titanium supply chain," the report said. The working group said the administration could initiate another Section 232 report on value-added titanium products, and through that process, possibly hike tariffs on downstream products.

"TSWG recommends further analysis of the U.S.’s reliance on titanium and aerospace products from Russia and China, and the potential for establishing various tariff levels on Russian and Chinese aerospace products containing titanium. Though adding these tariffs would not ensure domestic production or access to sponge, it could protect the higher value-add downstream titanium industries in the U.S. and incentivize the diversification of downstream titanium processing to other U.S. allies and trading partners," the report said.

The report said the four buyers of titanium sponge said "the industry will invest in titanium production capabilities if and when the market supports it," and the government should not get involved.

While 10 commenters said the 15% tariff on sponge should be removed, TIMET and OSAKA said it should remain on Russian and Chinese sponge, since they are produced by state-owned enterprises. There is a 25% Section 301 tariff on Chinese titanium, and, since the invasion of Ukraine, there is a 45% tariff on Russian titanium. Before the war, Russia exported more than $250 million in titanium plate across 2019, 2020 and the first quarter of 2021.

Russia also sold landing gear that used titanium worth $170 million across that period.

The report noted that Boeing has ended its titanium purchases from Russia since March 2022, but that Airbus sources half its titanium from Russia.