Spectre of US Steel, Aluminium Tariffs Draws Scrutiny from International Trade Community

8 March 2018

The international trade community has been engaged in intense debate over US President Donald Trump’s plans to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminium. Trump announced the measures informally last Thursday and said that he will confirm these tariffs this week, despite warnings from key trading partners that this could prompt actions in response. 

Speaking to industry representatives from the US steel and aluminium sectors, Trump said that his administration will “be signing [the tariffs] in. And you will have protection for the first time in a long while, and you’re going to regrow your industries. That’s all I’m asking. You have to regrow your industries.” 

At the same meeting, he announced the planned level of tariffs and initially suggested that these would be in place for an “unlimited period,” then saying that these would be for “a long period of time.”

The tariffs came following US Commerce Department recommendations, which were made public last month. The US agency had put forward options such as global tariffs, a combination of tariff and quotas depending on the country involved, or global import quotas.

The Commerce Department had investigated whether imported steel and aluminium had posed national security risks to the United States, such as in national defence or critical infrastructure, under a type of probe known as “Section 232.” That name refers to the provision in a 1962 trade law that outlines how these investigations should work. (See Bridges Weekly, 22 February 2018)

Details on when these tariffs might take effect and their actual duration were not clear at press time, though an announcement is expected later today. Also unclear is whether the tariffs will have any country exclusions. Trump hinted in a Twitter post on Monday 5 March that Canada and Mexico, which are partners with the US in the North American Free Trade Agreement (NAFTA), could potentially face an exemption depending on the results of separate negotiations to modernise that accord.

“We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for USA. Massive relocation of companies [and] jobs. Tariffs on steel and aluminium will only come off if new [and] fair NAFTA agreement is signed,” said Trump.

The director of the White House’s Trade and Manufacturing Policy office, Peter Navarro, said on Wednesday that Canada and Mexico are likely to have temporary exemptions from the tariffs.

Domestic divides abound

The tariffs announcement has fuelled an intense national debate over whether the tariffs will be high enough to boost steel and aluminium manufacturing to necessary levels, as well as what additional costs these tariffs will create for downstream producers that use these inputs in their manufacturing processes and consumers who buy these products.

“People have no idea how badly our country has been treated by other countries, by people representing us that didn’t have a clue,” said Trump last week to industry leaders, repeating past rhetoric criticising the US trade policy adopted by prior administrations.

“Or if they did, then they should be ashamed of themselves because they’ve destroyed the steel industry, they’ve destroyed the aluminium industry, and other industries, frankly, when you look at all the plants, the car plants, automobile plants that moved down to Mexico for no reason whatsoever, except we didn’t know what we were doing,” he continued.

Many lawmakers from Trump’s own Republican Party have pushed back against the planned tariffs, with many high-profile legislators openly criticising the move and urging the president to reconsider.

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” said Speaker of the House Paul Ryan, via a statement delivered by spokesperson AshLee Strong on Monday 5 March.

“The new tax reform law has boosted the economy and we certainly don’t want to jeopardise those gains,” said the statement. Ryan is a Republican from Wisconsin and has been one of the champions behind the tax overhaul legislation that was signed into law in late 2017. Similar concerns were raised on Tuesday by Senate Majority Leader Mitch McConnell, a Republican from Kentucky.

Some lawmakers have cautiously welcomed the move, with caveats pending the structure of the tariffs and other information that had not been confirmed by the administration.

“I am pleased that the President recognises the importance of addressing these challenges and finally intends to take action,” said US Senator Ron Wyden, a Democrat from Oregon who serves as the ranking member on the Senate Finance Committee. “Until the details are known, however, it is too soon to tell whether the measures announced today will end China’s overcapacity and bring back good paying American jobs or simply provide a short-term boost to corporate profits.”

Industry reactions have been similarly mixed, with companies like US Steel backing the move. Car manufacturers, retail associations, and a host of other manufacturing groups whose use steel and aluminium as production inputs have warned that the tariffs could make their processes more costly and lower their competitiveness.

“We are concerned with the unintended consequences the proposals would have, particularly that it will lead to higher prices for steel and aluminium here in the United States, compared to the price paid by our global competitors. This would place the US automotive industry, which supports more than seven million American jobs, at a competitive disadvantage,” said the American Automotive Policy Council, a coalition whose members include companies like General Motors and Ford.

US trading partners balk at move

Trump’s announcement last week prompted swift reactions from a host of US trading partners, as well as from the head of the World Trade Organization, with many officials warning that these tariffs could upend global markets, complicate production processes, and spark retaliatory actions that could spiral quickly out of hand.

“The WTO is clearly concerned at the announcement of US plans for tariffs on steel and aluminium. The potential for escalation is real, as we have seen from the initial responses of others. A trade war is in no one’s interests. The WTO will be watching the situation very closely,” said WTO Director-General Roberto Azevêdo in a statement last week.

At an informal meeting of the WTO’s Trade Negotiations Committee this week, Azevêdo reiterated concerns that unilateral trade measures could have frightening consequences for the global trading system.

“In light of recent announcements on trade policy measures, it is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe,” he said.

“Once we start down this path, it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in deep recession. We must make every effort to avoid the fall of the first dominoes. There is still time,” Azevêdo told heads of delegation in Geneva.

Trade officials from Canada and the European Union are among those which have warned that unilateral US tariffs on steel and aluminium will trigger responsive action.

“The EU will seek dispute settlement consultations with the US in Geneva at the earliest opportunity. The Commission will monitor market developments and if necessary will propose WTO-compatible safeguard action to preserve the stability of the EU market,” said EU Trade Commissioner Cecilia Malmström last week.

The EU trade chief also announced on Wednesday 7 March a multi-pronged response if the tariffs move forward.

“We cannot see how the European Union, friends and allies in NATO, can be a threat to international security in the US. We found that assumption deeply unjust,” said Malmström following a meeting of the bloc’s College of Commissioners. She also expressed the EU’s “serious doubts” over whether the planned US tariffs were in line with WTO rules.

If the duties are confirmed, then the move “has to be met with a firm and proportionate response,” she said. She added that the EU views its three proposed “tracks” as being in line with WTO rules, and said these would be applied only if the US moves forward with the tariffs.

One track involves using the WTO’s dispute settlement arm, noting that the EU is in touch with other potential partners on the subject. Given how long disputes take at the WTO, she said there is preparatory work underway on other tracks, should the EU’s expectation be realised that “a significant amount of trade in steel” ends up being diverted to the bloc’s market. This includes safeguard measures to protect against a sudden import surge.

She also suggested that the US tariffs would be “an economic safeguard measure in disguise, not a national security measure.” If so, she said that would mean that the EU would be able to use the provisions of the WTO’s safeguard rules in response.

There is a provisional list of products that could be targeted by the EU for duties, which will soon be shared with member states and then with the public before being finalised. Bourbon whisky, peanut butter, cranberries, orange juice, some steel and industrial goods, and others are being considered, Malmström confirmed.

Already prior to this announcement, Trump said that he was prepared to respond to any EU actions in kind.

“If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a tax on their cars which freely pour into the US. They make it impossible for our cars (and more) to sell there. Big trade imbalance!” said Trump via Twitter over the weekend.

Canadian officials issued their own pledges warning of some type of response, both in a statement issued last week on the subject, as well as during a joint NAFTA press conference on Monday 5 March in Mexico City. Canada is the largest source of imported steel for the United States and is also a buyer of US steel. (For more on the NAFTA talks, see related story, this edition)

“It is entirely inappropriate to view any trade with Canada as a national security threat to the United States.  We will always stand up for Canadian workers and Canadian businesses. Should restrictions be imposed on Canadian steel and aluminium products, Canada will take responsive measures to defend its trade interests and workers,” said Canadian Foreign Minister Chrystia Freeland last week, reiterating those sentiments on Monday.

China, which is the world’s largest steel producer, has also criticised the measures, with a senior official from the country’s Ministry of Commerce suggesting that Beijing would partner up with other “affected countries to safeguard its own benefits” if the US measures end up hurting China.

“To restrict the trade of steel and aluminium products with the excuse of national security will severely destroy the multilateral trading system represented by the WTO and is sure to impact on normal international orders,” said Wang Hejun, the head of MOFCOM’s trade remedy and investigation bureau.

ICTSD reporting; “Paul Ryan ‘Worried About the Consequences of a Trade War’,” ROLL CALL, 5 March 2018; “Trump’s steel and aluminum tariffs have angered nearly ever US industry,” VOX, 2 March 2018; “Trump to offer temporary tariff exemption for Canada and Mexico,” WASHINGTON POST, 7 March 2018. 

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