Leibowitz on Trade: Pivot on Trade Policy?

These rapid-fire announcements signal a “pivot” on trade policy to many, including myself. The China trade dispute has clearly assumed the top position in the administration’s trade agenda. In order to move China to agree to cease its alleged unfair practices, the administration obviously needed to “clear the decks” of other distractions. In addition to the increased China tariffs (now delayed to entries on or after June 1) and the List Four proposed tariffs on nearly all Chinese imports not already subjected to 25 percent tariffs, Commerce announced restrictions on export licenses to affiliates of Huawei, China’s largest electronics company.

Dealing with the tariffs on steel and aluminum from Canada and Mexico were an obvious first step in “clearing the decks.” The tariffs on our NAFTA partners have been a major irritant in relations with two of our most important allies, and were blocking consideration in all three countries of the new NAFTA, or USMCA, as well as cooperation in dealing with China. The administration was bombarded with pressure from Congress, agriculture, manufacturers and the business community at large to clear the way for USMCA ratification. Removal of the steel and aluminum tariffs was a necessary precondition to progress on USMCA. While Democrats are still reluctant to support the new agreement because of issues with labor and environment provisions, the pressure on them to relent will increase if Canada and Mexico rapidly ratify USMCA, which they are now expected to do.

Many would have expected immediate reaction from steel producers, but none has appeared so far. The United Steel Workers President, Leo Gerard, was quoted as saying that Canada and Mexico were never the “real problem,” and cautioned that the union would closely monitor “enforcement” of anti-surge provisions, but no company or trade association has weighed in.

Part of the announced agreement with Canada and Mexico is to institute a “surge” mechanism. If imports of steel or aluminum increase, the U.S. has reserved the right to reimpose tariffs. On the other hand, all parties seem to agree that there is no quota, formal or informal. If tariffs are reimposed before ratification of the USMCA, the prospects for ratification of the new deal in Canada and Mexico will likely disappear.

The impact of the removal of tariffs on Canadian and Mexican steel and aluminum on the overall tariff regime is certainly relevant. It strengthens the case of other steel exporters (e.g., Europe, Japan, Vietnam, India) that the “national security” justification for the tariffs was not credible. The WTO litigation Canada and Mexico have brought will be ended, but all the other cases are still going on.

The reduction of tariffs on steel imports from Turkey can also be seen as an effort to focus more on China and less on other trade considerations. The 50 percent tariff on Turkish steel prompted a lawsuit that is still pending in the Court of International trade. Perhaps Turkey will show support for efforts to deal effectively with China’s trade practices and make a deal more feasible. The Steel Manufacturers Association mildly criticized the tariff reduction announcement on Friday; but, as noted above, neither SMA nor AISI has commented yet on the Canada/Mexico agreement.

Turkey was also excluded from duty-free access to the U.S. market for a variety of commodities as a “developing country” under the Generalized System of Preferences or GSP. That puts Turkey at a disadvantage in some products. The reduction of the steel tariffs on Turkey may be seen as a salve to soften the blow of removal of GSP. But it may mean more. Perhaps Turkey will be persuaded to increase pressure on China in the trade area. Perhaps other important bilateral issues will be eased as well. All of these possibilities suggest that the steel and aluminum tariffs are no longer a top priority.

Europe, Japan and other countries will no doubt increase pressure on the United States to remove tariffs on their exports as well. We will find out what the U.S. is willing to do in order to gain allies in the effort to push China to change its trade and investment behavior.

Clearly, steel and aluminum imports from Canada and Mexico can be expected to rise in the coming months. Other major suppliers of steel and aluminum can be expected to increase pressure on the administration to consider other tariff reductions. The reaction to the tariff announcements on Canada, Mexico and Turkey, and the escalations of the trade war with China in the coming days will no doubt give further food for thought.

Lewis Leibowitz

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