Commerce Under Pressure to Drop Tariffs

“A NAFTA with tariffs on steel and aluminum substantially contradicts the main purpose of an FTA,” said Canacero President Máximo Vedoya.

The Canadian Steel Producers Association said recent changes to Canada’s trade remedy laws demonstrate its commitment to the fair trade of steel in North America. “The renegotiation of NAFTA represents an ideal opportunity to eliminate trade barriers in steel and aluminum within the region to strengthen North America’s leading energy, industrial, construction and manufacturing supply chains,” said Joseph Galimberti, president of CSPA.

U.S. Trade Representative Robert Lighthizer has insisted that Section 232 must include restrictions on all countries, including allies, to be effective. U.S. lawmakers, business associations and officials in both Canada and Mexico have called it “absurd” to say that imports of aluminum and steel from Canada and Mexico pose a national security threat.

GOP Senator Ron Johnson (R-WI) and Rep. Mike Bost (R-IL) are confident that the tariffs will be lifted if a trilateral deal is reached on NAFTA. However, Bost, co-chair of the Congressional Steel Caucus, said quotas are a possibility instead of tariffs. Inside U.S. Trade reported the U.S. has already discussed replacing the tariffs for Mexico with quotas.

“If we can work with our steel industries to make sure that we can produce those products right here and that they will keep producing those products, and we will have to work also with other countries to get them to join in with us to make sure that China has stopped this continual cheating. If that’s the case, then the president, I would say, could lift 232 and go a different way,” said Bost.

In August, the U.S. amended the Section 232 measure to allow companies to request exclusions on products from countries that have agreed to quotas on steel and aluminum. The change would allow a product to be excluded from the quota restriction but still be subject to the 25 percent tariff. Currently, South Korea, Argentina and Brazil are on the quota system. 

The tariffs have come under attack by numerous business associations, as well as by those countries affected. China, the EU, Canada, Mexico, Turkey and others have filed requests for consultation against the U.S. tariffs or imposed retaliatory tariffs. Small businesses have complained about petitioning for exclusions for products not made in the United States only to be denied when steel companies filed objections.

Members of the House have urged Commerce to clarify and streamline the exclusion process. As of Aug. 27, 30,035 steel and aluminum exemption requests had been submitted with decisions made on only 3,559.

On Aug. 29, Sen. Elizabeth Warren (D-MA) sent a letter to the Commerce inspector general requesting an investigation into the product exclusion process. Warren said in her letter that although the administration and Commerce promised that it would run “a fair and transparent process,” it “appears to be running on an ad hoc basis, with little transparency, and bending to political pressure from well-connected lobbyists and administration officials.”

Warren asked that an investigation include:

1. The processes and procedures in place for Commerce officials to make decisions on tariff exemptions.
2. The extent to which Commerce officials are following these policies and procedures.
3. Whether Commerce officials are making decisions on a case-by-case basis, in a transparent process, based on consistent application of factual analysis, free of political interference from individuals inside or outside the administration.
4. The steps that Commerce officials are taking to ensure that tariff exemptions meet their goal of protecting national security “while also minimizing undue impact on downstream American industries.”
5. Any credible evidence that tariff exemptions granted by the Department have strengthened the national security of the United States.

On Sept. 5, during a hearing of the Senate Health, Education, Labor and Pensions Committee, the administration was criticized for its lack of a “coherent” trade strategy. Trump former economic advisor Stephen Moore was subjected to numerous questions regarding the administration’s trade policy.

Sen. Johnny Isakson (R-GA) said, “We’ve gone from having a clear and understandable trade policy to not having a clear and understandable trade policy; is that fair to say? U.S. trade policy used to be predictable and now it’s not?”

Moore agreed, stating, “I think we’re in a time when people are still trying to figure out the trade policy in this administration, and I think Trump has to be clearer about what the goals are.” He added, however, that Trump should be given the benefit of doubt on trade.

Sen. Todd Young (R-IN) shot back, “We should trust him on trade policy? Without clarity of the plan?”

What If the Tariffs are Lifted?

What is likely to happen to U.S. steel prices if the tariffs on imports from Canada and Mexico are lifted? In the short-term, a sentiment-based reaction could push prices somewhat lower. Longer term, however, the U.S. still needs steel from other countries, said CRU Steel Analyst Josh Spoores.

For 2017 as a whole, the U.S. imported around 8.9 million metric tons of steel sheet products. Of that, 2.7 million tons came from Canada and Mexico. Therefore, even if the Section 232 tariffs on Canada and Mexico are eliminated, the U.S. will still require some 6 million metric tons of additional volume from other countries. 

“We do have higher production coming online in the U.S. with Granite City and the old Mingo Junction facility,” Spoores said. “But the U.S. will remain a net importer, and therefore our market price should be close to the global price plus the 25 percent tariff plus logistics costs.”