Trade Cases

Trump Gives Ally Nations a Temporary Reprieve from Tariffs

March 25, 2018

President Trump’s Section 232 steel tariffs went into effect at 12:01 a.m. ET on Friday—but hardly as expected. At the last minute, the president suspended the tariffs for a large group of ally nations until May 1 while negotiations continue. The suspension could head off retaliatory trade measures threatened by various foreign countries, at least temporarily, but it leaves the market wondering what to expect next.

In addition to Mexico and Canada, the president exempted the EU (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom), Argentina, Australia, Brazil and South Korea. The exempted countries account for well over half of the imported steel sold into the United States in 2017. Effectively, the tariffs as they now stand apply to just four major exporters: China, Russia, Japan and Turkey.

U.S. Trade Representative Robert Lighthizer told the Senate Finance Committee last Thursday: “The idea that the president has is that, based on a certain set of criteria, some countries should be out. What he has decided to do is pause the implementation of the tariffs in respect to those countries.”

The country exemptions are only temporary, however. As of May 1, 2018, the tariffs will apply to all countries, pending further action by the administration. Trump’s team reportedly hopes to use the tariff restart as leverage in trade negotiations, such as the NAFTA talks with Canada and Mexico and the free-trade pact in the works with South Korea.

Lobbying continues in Washington as representatives from various trading partners make their case for long-term exemptions from U.S. trade action. They basically have a bit more than a month to present “satisfactory alternative means” to address the threat of exports from their countries to U.S. national security.

The administration is also considering quotas to prevent transshipment of steel from China and other nonexempt nations through countries not subject to the tariffs. Trump trade advisor Peter Navarro told CNN: “Every country that is not facing tariffs that we’re going to negotiate with will face quotas so that we protect our aluminum and steel industries. For all countries, there has to be a quota. If you don’t put a quota on, then any country that can do whatever they want will become a transshipment point for every other country.”

The World Trade Organization and the courts may still weigh in on the tariffs. “These last-minute major changes to the tariffs are unprecedented and may be subject to legal challenge,” said Washington trade attorney Lewis Leibowitz.

Some steel industry executives fear the latest move by the Trump administration will water down the tariffs and leave the domestic steel industry, and the national security, vulnerable to predatory trade practices.