Fabricators Forum Focuses on Steel Tariffs

Section 232 remains a sticking point with officials from Canada and Mexico, who have stated publicly that they won’t give final approval to the U.S.-Canada-Mexico trade agreement, the replacement for NAFTA, as long as the tariffs are in place. Some experts predict Trump will be forced to remove the tariffs, others speculate they may be replaced with some sort of quota.

The 25 percent tariffs are not paid by the governments of Mexico and Canada, explained Washington trade attorney Lewis Leibowitz. The tariffs are paid by the importers of record, which may be the foreign suppliers, steel consumers, traders, brokers, freight forwarders or logistics companies. In the end, the cost of the tariff is usually passed on, in all or in part, to the downstream consumer. “Tariffs are taxes. They are regressive,” said Leibowitz. “Steel is an intermediate good, used to make other products, so companies that make cars and capital equipment, etc., are the ones that end up paying most of the tariffs. It is up to the marketplace whether they can pass that cost along or whether they have to absorb some of it.”

The Section 232 tariffs on Canada and Mexico could be replaced with some form of quota, which places a limit on the amount of goods a country can export to the United States, Leibowitz said. Brazil, South Korea and Argentina currently are subject to U.S. steel quotas rather than tariffs. Those quotas place annual limits on imports, but are enforced quarterly; no more than 30 percent of the annual amount can be imported during any one quarter. Another possible form of quota, the tariff rate quota, would set an annual limit, beyond which any additional imports would be subject to a tariff.

Companies can apply for relief from the tariffs if they must source foreign steel because the product they require is not available in a sufficient quality or quantity in the U.S. The Commerce Department was slammed with more than 50,000 exclusion requests and has struggled to process them all. Commerce figures available as of Jan. 31 showed that nearly 50 percent of the requests were still pending. The backlog—including objections from domestic producers, rebuttals from filers and rebuttals to those rebuttals—could take many more months to process. Congress is asking questions and proposing measures to expedite the review process, but for many companies, there is little tariff relief in sight. “I am still looking for the first one that has been granted over the objection of a domestic producer,” said Leibowitz.

Service center executive Andy Gross, president of Alliance Steel in Chicago, said he agrees with Kooima that companies should be free to buy and sell at market levels, but he is fearful that rescinding Section 232 could have serious consequences. “The impact of a rapid unwinding of 232 could be devastating on the service center level. Service centers carry tens of thousands of tons of steel and a rapid decline in prices could be devastating to inventory values.”

Supporters of the tariffs often point to China as the main bad actor on the global stage of trade. But Chinese exports to the U.S. effectively have been banned by various antidumping and countervailing duty actions. “We have not seen offerings on HRC out of China in three years,” said Gross. “China in the carbon flat rolled world has not been an issue for a long time. It’s the other countries that were bringing in low-cost material.”

China may have eased exports of steel coils to the U.S., but Chinese-made parts continue to flow, noted Kooima. “We have seen an immense influx of parts, such as brackets and stampings from China, that are not affected by 232. This is distorting the market for fabricators.” Alliance Steel has lost volume with large customers that have opened plants in Asia so that they could import parts tariff-free, Gross added.

A tariff like Section 232 is a blunt instrument for trade enforcement. There are other, more precise and measured means to achieve fair trade, Leibowitz told the FMA crowd. “I think the situation will get worse if we stick with the remedies we have now. Companies will start to make long-term investment decisions about where to produce things and we could see an avalanche of offshoring.”