Officials, Steel Industry Groups React to US Agency’s Tariff Recommendations
The prospect of US tariffs on imported steel and aluminium has drawn scrutiny and concern from industry groups and government officials from various trading partners, as well as from some domestic lawmakers, following the release of reports from the US Commerce Department on 16 February that recommended the move.
The two reports were released following investigations under Section 232 of the 1962 Trade Expansion Act, with that section specifically dealing with the effect of imports on various areas deemed to relate to US national security, such as whether domestic producers are capable of manufacturing at levels sufficient to meet national defence needs.
This type of investigation, while used frequently in the 1980s and 1990s, has not been used since 2001. Commerce has only conducted Section 232 probes on 14 other occasions.
Fellow WTO members such as the EU, China, and Russia have previously raised concerns both at the global trade club and elsewhere over the use of Section 232 investigations, and what imposing trade restrictions based on national security concerns rather than the normal “framework” of trade remedies could mean for the wider trading system.
The investigations were launched by the US Secretary of Commerce last year. The Trump administration has also set in motion probes on alleged forced technology transfers and intellectual property rights violations in China, as well as global safeguard investigations into solar cells or modules and large residential washing machines. In the case of the safeguard probes, those have since led to President Donald Trump imposing duties. (See Bridges Weekly, 25 January 2018)
“Excessive steel imports have adversely impacted the steel industry. Numerous US steel mill closures, a substantial decline in employment, lost domestic sales and market share, and marginal annual net income for US-based steel companies illustrate the decline of the US steel industry,” the Commerce report on steel says.
The Commerce Department reports’ definition of national security included not just defence, but also sectors deemed as “critical” for the country’s infrastructure such as energy and water.
The report on steel included three options for addressing imports. One approach would be universal, with imported steel facing tariffs of 24 percent or higher. The second approach would involve a much higher tariff for 12 select countries, with a quota approach for imports from all others. That tariff would be set at a minimum of 53 percent, and would target countries such as Brazil, China, India, and Korea, among others.
The third option on the table would impose an import quota for all countries, set at nearly two-thirds of what those economies exported to the US last year.
The US agency has recommended a similar approach – either a global tariff, a tariff or quota depending on the country, or a quota based on 2017 exports – for aluminium. The level of tariffs and quotas is not nearly as steep as what the Commerce Department has recommended for steel.
For both steel and aluminium, Commerce says that its recommended measures would boost domestic industry capacity to 80 percent, which it says is the “minimum rate needed for the long-term viability of the industry.” It also urged that measures be imposed immediately.
“I am glad that we were able to provide this analysis and these recommendations to the President,” said Commerce Secretary Wilbur Ross. “I look forward to his decision on any potential course of action.”
Domestic lawmakers debate benefits, risks
Under the timeframes dictated by US law, Trump is due to confirm any measures on imported steel and aluminium on 11 April and 19 April, respectively.
During a meeting earlier this month with domestic lawmakers, Trump said that his decisions would be made in line with “the best interests of the United States, including the need to address overproduction in China and other countries,” without specifying further which approach he favours.
At the meeting, lawmakers gave a mixed response to the prospect of steel and aluminium tariffs, noting that while they have concerns about the state of US steel and aluminium production, they are also worried that making foreign imports more expensive could lead to these inputs becoming more costly across the board. Some cautioned that this could hurt downstream producers in sectors such as automobile manufacturing.
Some also warned that the use of Section 232 investigations, as opposed to trade remedy probes, could provoke retaliation from US trading partners, and that the national security justification is a difficult claim to prove.
Industry groups, trade partners react
While Commerce sent the reports to Trump in January, they were only made public late last week. Their contents have prompted expressions of concern from industry groups in countries or regions that are major producers of steel.
For example, Chinese officials have suggested that any trade restrictions could lead to a response from Beijing, though what steps the Asian economy would take is not clear.
“If the United States’ final decision affects China’s interests, we will take necessary measures to defend our rights,” said Wang Hejun, who runs the trade remedy and investigation bureau at the Chinese Ministry of Commerce (MOFCOM), to Xinhua. Wang also questioned whether imported steel and aluminium really hurt US national security, given the type of product imported and role in the value chain.
The Japan Iron and Steel Federation was among those industry coalitions to comment on the reports, with Chairman Kosei Shindo calling their recommendations “regrettable” and warning that these could “violate the principles of free trade, which form the foundation on which the global economy has developed and prospered.”
“We are committed to work with the US and other countries to swiftly eliminate the source of these distortions: global overcapacity. This will not be achieved with scattergun, unilateral measures,” said Axel Eggert, Director General of EUROFER, a Brussels-based group representing EU steel companies and country federations.
Eggert also noted that the US and EU are involved in the Global Forum on Steel Excess Capacity, which was set up in 2016 in the wake of the G20 summit in Hangzhou, China. That forum’s objective is to improve the sharing of information along with working more closely to craft policy solutions. The forum held a ministerial meeting in late 2017 under the German G20 presidency, releasing a report aimed at providing a “roadmap” to address the issue. It has committed to issuing additional reports with further detail this year.
At the time, US Trade Representative Robert Lighthizer issued a statement praising the opportunity for discussion with international partners and pledging continued engagement.
Lighthizer also suggested, however, that the Global Forum “has not made meaningful progress yet on the root causes of steel excess capacity” and indicating that the report does not go far enough to address the need for “market-based reforms in the steel sector” at the domestic level for some countries.
ICTSD reporting; “China says U.S. report on steel, aluminium imports ‘groundless’,” XINHUA, 17 February 2018; “Trump Administration Proposes Stiff Penalties on Steel and Aluminium Imports,” THE NEW YORK TIMES, 16 February 2018.