Trade Cases
What Will Happen When Section 232 Goes Away?
Written by Tim Triplett
September 3, 2019
The effectiveness of the Trump administration’s Section 232 tariff gets mixed reviews. The 25 percent tariff has contributed to a 13 percent reduction in steel imports this year, easing the competitive pressures on domestic mills. But after an initial spike in steel prices last year, and record earnings by the mills, the price of finished steel has reverted to pre-tariff levels once again. Begging the questions: Has Section 232 run its course? And what will happen if and when Section 232 goes away?
“Everyone knows that trade remedies have a shelf life; 232 will not be around forever,” said Phil Bell, president of the Steel Manufacturers Association, speaking on a trade panel during Steel Market Update’s Steel Summit last week in Atlanta.
SMA members, the electric arc furnace minimills, don’t need the tariffs to be competitive, Bell said. “SMA members are ready to move on. Companies that are close to their customers and manage their costs will do fine as long as they operate efficiently, safely and sustainably. I think you can see by the investment announcements that companies are poised and getting ready to deal with that new environment.”
Panelist Lewis Leibowitz, a Washington trade attorney, said the Section 232 tariffs were never really about the minimills. “SMA members are pretty vibrant, successful companies. They are riding this wave of protection, but I don’t think they really need it. It’s the integrated mills that are in a more precarious situation.”
President Trump’s tariffs on imports of nearly all goods from China have so far fallen short of their goal to force fundamental change in the way the Chinese do business. “We are going to need help from our allies [to achieve that goal]. One of the quickest ways to get that help is to take the boot off their necks in terms of the steel and aluminum tariffs,” Leibowitz suggested.
When Section 232 is rescinded—whether due to a change in policy or a change in administration—the effect on the domestic steel industry will not be disastrous, Leibowitz predicts. “There may be some companies that don’t succeed as much as they might like. But remember, there are trade remedies other than Section 232 [such as antidumping and countervailing duties] and they will be employed vigorously.”
Another attorney on the panel, Alan Price of the Washington firm Wiley Rein, disputed the inference by Leibowitz that the Section 232 tariffs were put in place primarily as a crutch for the integrated mills. Unlike the state-subsidized Chinese industry, the U.S. industry actually has to see a return on its cost of capital, he noted. “Even the most efficient minimills in the U.S. have not gotten an adequate return on capital. Section 232 needs to stay in place long enough for the mills to recoup their capital investments. The idea that electric furnace mills don’t need this protection, or are separate from the integrated mills, is just wrong.”
What will likely happen to steel prices when Section 232 goes away? That depends on the product, say CRU analysts. At present, steel sheet products in the U.S. remain below the cost to import the same product from other markets, so imports would not be expected to increase and drive domestic prices downward.
Rebar, on the other hand, is already feeling pressure from imports from Turkey, as well as Algeria, Oman, Greece and South Africa. Removing the 25 percent tariffs would likely result in low-priced rebar imports returning to their historical average, said CRU.
Added Leibowitz: “Will 232 still be in place by the 2020 election? I can’t wait to come back here next year. The situation could change considerably.”
Tim Triplett
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