Leibowitz on Trade: Update on the Tariff Debate

Today, the Office of the U.S. Trade Representative announced new Section 301 tariffs on Chinese goods imported into the United States. New 25 percent tariffs on $34 billion worth of Chinese imports went into effect on July 6. The new tariffs target $16 billion of additional imports from China. They will be imposed on imports (“entries or withdrawals from warehouse for consumption” to be precise) effective Aug. 23 (16 days from now). Of the 284 tariff lines slated to be taxed, USTR finally determined to apply tariffs to 279 of them. The final list will be released “shortly” by publication in the Federal Register.

The New York Times reported on Monday that U.S. Steel and Nucor, two large domestic steel producers, have objected to hundreds of product exclusion requests. So far, no request that was objected to has been approved by Commerce officials. Domestic mills claim to make the products that U.S. steel and aluminum users claim they cannot get in the U.S. There is clearly a disconnect. I have reviewed a large number of objections; the disconnect seems to center around whether the products are really available or only theoretically available. Good examples of this are the requests to exclude slab imports from the tariffs. In general, domestic steel companies do not supply slabs or other semifinished steel products (ingots, billets, blooms, etc.) to purchasers on the open market. Over the last 30 years or so, entire industries have grown up relying on open-market sources of semifinished steel—rerollers (e.g., Steelscape, California Steel), seamless pipe and tube producers, wire producers and others—who depend on raw materials made by others. Domestic steel producers are not in that market, which has left the field to foreign products. Yet domestic producers state, to quote one objection from Nucor, that “the U.S. steel industry could have supplied 100 percent of 2017 domestic demand for steel slab, with millions of tons of capacity remaining.” Domestic steel companies are urging the Commerce Department to deny exclusion requests in order to create demand for domestically produced semifinished steel. The department has not shown any signs so far of rejecting this argument. In the meantime, the companies that rely on imports find themselves priced out of the market for their products, made with expensive, tariff-laden raw materials. Will domestic steel companies land new customers for semifinished steel before those customers are driven offshore or out of business? There is plenty of room for argument about that.

On Wednesday, Alcoa filed a massive product exclusion request for semifinished aluminum products. As a major aluminum producer, they make their own semifinished products, but they rely heavily on foreign sources for such products because of competitive pressures. There may or may not be objections to these requests by Alcoa. The company mainly wants to import semifinished aluminum from Canada, a country many critics say should be excluded in toto from steel and aluminum tariffs. It is useful to pay attention to this case.

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