Section 232 Report Elicits Emotional Response

Comments from steel suppliers, steel buyers and steel traders, whom Steel Market Update has granted anonymity, reflect a range of emotions, from optimism to anger:

• “This will never fly. It’s far too extreme and would trigger retaliation and several suits and WTO action. I am very surprised the Commerce Department was this aggressive. Trump, of course, will advise his version, which I believe will be a less harsh approach. He must now appease those he made promises to without losing face, and at the same time avert a trade war.”
• “The recommendations are excessive, unnecessary for an industry that is far from being in danger of its existence, and if implemented will very negatively impact the president’s GDP goals. The mills and jobs lost are recognized but within antiquated and/or inefficient operations that failed to update to remain competitive. U.S. Steel admitted in one of their shareholder calls that they recognized they were a billion dollars behind in upgrading their facilities to compete nationally, much less globally. Now, even they are making profits along with the likes of Nucor, which is close to record profits. The newest mill in the country, Big River Steel, commented recently that the automotive and appliance manufacturers are “beating a path to their door” due to their concerns with some of the traditional and globally uncompetitive suppliers. With the above in mind, the national security foundation for Section 232 is both deceitful and deceptive to simply circumvent the WTO appeal process. Unfortunately, if these recommendations stick, Pandora’s Box will be opened for other countries to claim ‘national security’ for any product or material they want to protect. The negative GDP effect will result from the already identified retaliation that will come from other countries across myriad products. The most vulnerable are within our highly competitive agricultural sector. One of the most obvious results will be the much higher pricing that will ensue and leave our manufacturing sector globally uncompetitive. Furthermore, as has happened with many other protected steel products over the years, the exporting countries simply move downstream, thus providing a double hit for our country’s manufacturing base. Last but not least, it is well documented that protectionism for the most protected industry in our country has failed and cost many more jobs than it supposedly was to save. Such recommendations are yet another exercise to protect the few at the expense of the many.”
• “It would be impossible for any foreign mill to quote at this time. If they did, it would not be real. Two traders I was negotiating with this morning suspended their offers until further clarification of what this means.”
• “I had two orders cancelled for imports during lunch. I have been told all offers are suspended until further notice. I am very worried about how far the U.S. mills will push this. They cannot keep up with demand evidenced by the current situation, and the imports we do have left will go away immediately. This is a scary situation for U.S. manufacturers.”
• “I have not heard of any new foreign offers of late. I believe some of the foreign steel mills are waiting to see what action President Trump will take. If the president does take the Commerce recommendations, I believe the domestic steel market will break the $900 per ton ceiling for both hot rolled coil and plate. Hopefully it won’t be crazy like 2007.”
• “What are the chances that both U.S. Steel and AK Steel restart their respective idled furnaces?”
• “This is simply a ‘shot across the bow’ by the president as a means toward helping him with negotiations with other countries. While the timeframe between now and when the decision is due is short, I assume reactions by other countries will be coming, perhaps with similar retaliatory rhetoric. The recommendations appear to be much more onerous than expected. Therefore, I think the ultimate outcomes will be much smaller and narrower in scope vs. the recommendations. But the market appears to be reacting swiftly to this news, especially given the sweeping approach of the recommendations. We could see much overreaction in the meantime, disrupting an already red-hot market. Quite frankly, this is as reckless a move as a government can make, and I’m shocked to see it coming from the U.S.”
• “I’m not a trade lawyer, but I’m pretty sure that remedy No. 1 will be challenged at the WTO and will most certainly lead to countermeasures by the EU, possibly Japan and Korea. The Europeans have done that before when President Bush used Section 232 (pushed by the unions). They will impose duties on American products, which will offset the 24 percent, and in an election year they will pick products coming from ‘red’ states. I don’t see remedy No. 2 going through, and countries like Turkey, India and Korea will fight this in court. Remedy No. 3 is probably the most likely choice. It will basically be yet another quota system, and we all know how successful the previous quota systems have worked. One side effect may be that the import of semi-finished steel will end, as no country can either overcome the duties or in the case of No. 3 won’t have any interest to sell slabs or billets. That will of course mean even less domestic steel production, fewer jobs in the steel industry and tens of thousands of jobs lost.”
• “The recommendations made by the DOC show once again that the domestic steel industry looks for protection against competition rather than competing. A country that for the last 40 years had to import about 25 percent of the steel needed (and is still importing millions of tons of semi-finished steel every year) has not shown their willingness to compete. The U.S. steel industry has asked for protection since 1969 and numerous remedies such as quotas, trigger prices, voluntary restraint agreements and others were put in place to help the industry become viable. U.S. mills have already increased prices way above international levels in anticipation of any of these remedies and will most certainly raise prices even more if foreign competition is eliminated. This may be good for the steel industry, but it will cost U.S. taxpayers hundreds of millions.”
• “While we hope that the final decision on Section 232 will not follow the recommendations made by the DOC, I think the damage is done and the market will go into short-term crisis mode.”

Certainly, some of the Commerce Department recommendations are viewed favorably:

• “It looks very positive. I have to dig into the 2017 levels by product to see what this means, but it’s a definite huge move in the right direction.”
• “I welcome a balanced measure, which would provide a more stable market. Such action would eliminate the importing countries that have been behaving irresponsibly price-wise, such as Russia, Egypt, Brazil, etc. The recommendation for 53 percent tariffs for these 12 countries and quotas for the others makes a lot of sense, although I don’t understand why they targeted Costa Rica. The recommendation of 24 percent duties across the board, on the other hand, would be suicidal. This would create a steel shortage in the U.S. together with an unprecedented surge of steel prices.”
• “As a domestic manufacturer, we welcome the findings. However, I do not support remedy No. 2 for only targeting 12 countries. Then you leave the doors open for getting ourselves in the same situation with another set of countries. I personally believe the administration should implement both No. 1 and No 3, No. 1 because that provides the fair game from a cost/price standpoint for domestic producers and No. 3 because it still gives the consumer the import option but in a controlled volume. I also think a combination of No. 1 and No. 3 would work great.”
• “All of the options are very favorable to domestic producers. Focusing on a goal of 80 percent capacity utilization and managing imports to achieve it would seem to be a makeover for the industry. From Ross’s comments, it appears that a combination of options 2 and 3 is getting the most attention and using quotas to halt transshipments.”
• “It’s still too early to speculate on President Trump’s final decision. Apparently, the term ‘surgical approach’ takes on different meaning from person to person. The recommendation by Secretary Ross seems to be rather broad. Surely the domestic steel mills must be satisfied. There will most likely be a process put in place to petition certain products to be exempt from tariffs/quotas, especially where the U.S. lacks sufficient capacity. Expect the list for requested exemptions to be long and the waiting period to be significant.”
• “I think the aggressiveness of the proposed remedies has taken everyone a bit by surprise. If any of these remedies are even partially confirmed, things certainly will get lot more interesting and everyone’s domestic mill relationships become even more critical than they already were.”
• “We’re in decent shape on orders and with protective language to cover us, so I’m not jumping off a bridge at this point. Regarding option No. 1 (a 24 percent tariff on all imports), it would not be a good remedy, but we could live with it, assuming everyone had to live with it. Regarding No. 2 (a 53 percent tariff on China and 11 other countries), it is not ideal, but we’ve positioned ourselves well to be protected against issues with this list. Regarding No. 3 (a quota of 63 percent on all exports), this would be a huge problem for everyone. The mills couldn’t make all the steel that would be required, and the first casualty would be light gauge. It would be a huge problem for end users and consumers alike. This particular remedy would be akin to taking a Stupid Pill!”