by Jeff Yoders on NOVEMBER 7, 2016

The Department of Commerce is expected to launch a formal investigation today into whether Chinese steel companies are shipping steel through Vietnam to avoid U.S. import tariffs, a person familiar with the matter told the Wall Street Journal.

Steelmakers Asked for Vietnam Investigation

The decision to investigate follows a complaint in September from U.S. steelmakers, and is an escalation of U.S. efforts to stop a glut of China-made metal from flooding U.S. markets. The inquiry could result in new tariffs on steel imported from China via Vietnam, under rules designed to prevent such a tariff-evading practice, known as circumvention.

U.S. steel producers alleged in their complaint that Chinese steelmakers have shipped metal to Vietnam, made enough changes to it that they could then classify it as Vietnamese and then shipped it to the U.S. under the lower tariffs charged on Vietnamese steel.

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Independent trade data supports what the steelmakers are alleging. In the first six months of 2016, shipments of steel from Vietnam to the U.S. increased to 312,329 tons, from 25,756 tons in the year earlier period. Over the same period, Chinese exports of steel to Vietnam rose 46% to 6.3 million tons from 4.3 million tons, according to data firm Global Trade Information Services.

12 Senators Ask Treasury to Block Aluminum Acquisition

On a related note, 12 U.S. senators recently urged that a national security review panel reject Chinese aluminum giant Zhongwang International Group Ltd.‘s proposed $2.3 billion purchase of U.S. aluminum products maker Aleris Corp.

The senators asked Treasury Secretary Jack Lew in a letter to launch a review of the deal by the Committee on Foreign Investments in the United States and “ultimately reject it” on grounds that it would damage the U.S. defense industrial base.

“Zhongwang’s purchase of Aleris would directly undermine our national security, including by jeopardizing the U.S. manufacturing base for sensitive technologies in an industry already devastated by the effects of China’s market distorting policies, and creating serious risk that sensitive technologies and knowhow will be transferred to China, further imperiling U.S. defense interests,” the senators wrote.

Zhongwang released a counter statement, saying “We respect the preliminary determination of the U.S. Department of Commerce that import of 5050 alloy extrusions from China is considered circumvention and take seriously compliance with U.S. trade laws. Participation in the DOC inquiry conducted about a year ago is voluntary, and among the reasons we chose not to participate include that China Zhongwang ceased production of those products close to two years ago, in early 2015, and we have no plans to produce or sell such products in the future. We exported an insignificant amount of 5050 extrusions in response to customer requests between 2013 and early 2015, constituting less than 0.1% of our total sales over that period. The determination therefore has no impact on our sales and operations,” said Lu Changqing, President of China Zhongwang.

Two-Month Trial: Metal Buying Outlook

Department of Homeland Security agents in recent weeks questioned former employees of companies associated with Liu Zhongtian, the founder and chairman of aluminum giant China Zhongwang Holdings Ltd., the people told the WSJ.

Homeland Security has been coordinating with the U.S. Department of Justice on the probe, some of the people said. Agents are investigating whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud, they told the journal.