Trump Must End Dodd-Frank's Backdoor Tariffs Blocking Critical Minerals & Impoverishing Congo

Forbes

3 days ago

Amid controversies over tariffs and their effects, one particularly destructive barrier to trade has gone overlooked: restrictions on 'conflict minerals' that exacerbate poverty in the developing world, undermine U.S. access to rare earth metals and critical minerals, and hand a competitive edge to China in control of the global supply of these critical minerals.
Ironically, this trade barrier was not erected by President Donald Trump. It came from legislation hailed by many Democrats now critical of Trump tariffs. Nor did it come from legislation particularly geared to trade. Rather, this obstruction of trade was a last-minute insertion into the Dodd-Frank financial regulation overhaul signed by President Barack Obama 15 years ago in July 2010.
Dodd-Frank's Section 1502 targets the Democratic Republic of the Congo (DRC), which has recently been a focus of the Trump's administration's strategic plans to access rare earths and other critical minerals to ensure a steady supply not reliant on China. The DRC has one of the richest mineral supplies in the world but is plagued by violence from warlords and militias, including a July 27 attack on a Catholic church that left at least 49 worshipers dead.
The Trump administration's African diplomatic team has made headway in striking a deal with the nation in which the U.S. would provide security assistance to the DRC government in its fight against warlords in return for U.S. access to critical minerals within the country. But any such deal would likely be threatened by Section 1502, effectively a prohibitive backdoor tariff on many U.S. companies trying to access the DRC's resources.
This Dodd-Frank provision forces publicly traded companies in the U.S. to disclose if any of their products contain 'conflict minerals' mined in the Democratic Republic of the Congo and nine adjoining African nations. Under the law, firms listed on U.S. stock exchanges must audit their supply chains and disclose if their products contain even traces of four designated minerals—gold, tantalum, tin and tungsten—that might have been mined in areas controlled by warlords.
The provision was sold as a way to protect Congolese residents from warlords who profited from the mining and sale of these minerals, with little effect on U.S. consumers and producers. Yet the rule has ended up increasing poverty and violence in the DRC while depriving the U.S supply chain of access to critical minerals needed for everything from smartphones and laptops to medical equipment.
The big problem is that companies often face insurmountable difficulties when trying to trace the origins of tiny components of their products. As the Wall Street Journal reported, manufacturers spent about $709 million and more than six million man-hours attempting to trace their supply chains for conflict minerals in 2014. After all this expense, 90% of those companies still couldn't confirm their products were conflict-free.
As a result of these burdens in auditing the supply chain, many companies simply left the DRC and Congo region altogether and sourced materials elsewhere. As David Aronson, an acclaimed journalist who has written about the region for more than three decades, put it in testimony to Congress, 'the law imposed a de facto embargo on mineral production that impoverished the region's million or so artisanal miners.'
Among the lingering effects of the de facto embargo are reductions in education, health care, and food supply. These woes stem both from the sharp increase in unemployment of the region's miners and – as noted by Aronson in his testimony and in a New York Times op-ed he wrote -- the sharp reduction in mining company planes that also brought food and medicine to the region that occurred after U.S firms left. A study in the Journal of Law and Economics in 2016 found that the mandate from the Dodd-Frank provision increased infant mortality in the affected Congo regions by at least 143 percent.
And the warlord situation didn't improve and in fact may have worsened because of the Dodd-Frank provision. An October report to Congress from the U.S. Government Accountability Office (GAO) found 'no empirical evidence that the rule has decreased the occurrence or level of violence in the eastern DRC, where many mines and armed groups are located.' The GAO also found that 'the rule was associated with a spread of violence, particularly around informal, small-scale gold mining sites, … since gold is more portable and less traceable than the other three minerals.'
The poverty and violence that soared due to Dodd-Frank's effects also gave China the perfect entry point into the Congo region. With limited options, the DRC government agreed to China's offers over the past 15 years of building infrastructure in return for granting China access to its minerals.
Now, as China has failed to deliver promised infrastructure improvements, the DRC is looking for a new deal with the U.S that will focus on boosted security and trade rather than aid. But any such deal will likely fail as long as Dodd-Frank's burdens on U.S. companies accessing the minerals continue. As the GAO notes, the rule's near-insurmountable burden – that 'many mines are located in remote, potentially insecure areas, and coordinating teams to visit and inspect them is difficult' – remains standing as a trade barrier.
Fortunately, the Dodd-Frank provision allows the president to waive its mandate for two years if he deems such a waiver to be in the interest of national security. President Trump, as part of his goal of U.S. resurgence, must make use of this waiver to reduce China's influence and increase U.S. access to the region's minerals. Then, he should call on Congress to end this trade barrier by repealing Dodd-Frank's Section 1502.
It's time for the president and Congress to remove this backdoor tariff from Dodd-Frank that puts China first and the U.S. and DRC last.
John Berlau is Senior Fellow & Director of Finance Policy at the Competitive Enterprise Institute and author of the book George Washington, Entrepreneur: How Our Founding Father's Private Business Pursuits Changed America and the World.