Price on Trade: Next six months will set course of trade for years to come

The pace of trade-related executive action in the second Trump administration will likely exceed the already fast pace of the first. Within the first few months of his first term, President Trump issued executive orders enhancing the collection of antidumping and countervailing duties and violations of trade and customs laws, studying the US trade deficit, addressing trade agreement violations and abuses, and establishing the Office of Trade and Manufacturing Policy. The president also instructed the US Trade Representative to initiate a Section 301 investigation into China’s technology transfer, intellectual property, and innovation practices just seven months after inauguration. The result was tariffs on billions of dollars in imports from China, including many downstream steel products.

The next wave of trade actions will almost certainly come much sooner than seven months. Prior experience gives the incoming administration a running start. In fact, according to recent reports, the president-elect told Republican senators that he hopes to enact 100 executive orders, though it is unclear how many of these would touch on trade or domestic manufacturing. To achieve this target, the transition team will have likely already drafted many of these executive orders for the president to issue in the first weeks of the new term.

Getting top leadership in place quickly will be another major priority. The centerpiece of the next administration’s trade policy is still most likely to be a 10% tariff on most imports and a 60% tariff on imports from China. The second Trump administration may aim to strike a balance between moving fast and having the necessary team in place to lead any negotiations and make critical judgement calls.

That said, the incoming administration clearly sees broad tariffs as more than bargaining chips to be ratcheted down after negotiation. As we previously wrote, skeptics of President-elect Trump’s blanket tariff policy would be wrong to think tariffs will be diluted. The incoming president continues to strongly push back on the notion that he will water down his tariff plans. This week, after the Washington Post reported that tariffs would be limited to critical industries, President-elect Trump addressed the story directly, posting that the article “incorrectly states that my tariff policy will be pared back.” Instead, the incoming administration views tariffs as the primary tool for spurring growth among domestic industries after years of erosion.

And they have good reason to believe this is the case. Steel imports declined following the Section 232 and Section 301 measures in the first administration. Domestic steel producers’ capacity utilization improved, and US companies were able to make unprecedented investments in facility expansions and upgrades. If the tariffs helped the domestic steel industry reverse a downward trend, it is reasonable to think broader tariffs could save other US industries that have been ravaged by import surges. However, it has now been about six years since relief was imposed and many of the special deals that trading partners made have either been abused or no longer make sense given changing facts.

For example, the Steel Manufacturers Association (SMA)—the largest steel association in America—notes in a recent action plan that Chinese steel producers have avoided the Section 232 duties by pushing steel products into downstream industries—such as prestressed concrete strand and fabricated structural steel. This practice harms domestic downstream producers (as well as domestic steel and aluminum producers) who must compete against products made with unfairly priced steel. Industry observers note that Chinese companies continue to use Mexico as an end to run around Section 232 and Section 301 duties. Unilateral executive action can address the impact of these imports while the administration seeks a more lasting solution with the government of Mexico.

The administration may also consider adopting SMA’s proposals of ratcheting up existing tariff rates, revoking special arrangements exempting certain countries from Section 232 tariffs, and ending general approved exclusions to the Section 232 tariffs. These actions would help counter resurgent Chinese overproduction that is flooding foreign markets and displacing production. Displaced production has translated to a renewed surge in US steel imports, which transmits the negative price effects of Chinese steel to the US market. This is an immediate problem that the incoming administration will need to quickly remedy.

The outgoing Biden administration may issue a few consequential January decisions of its own before handing over the keys. The White House rang in the new year with an order prohibiting Nippon Steel’s acquisition of U.S. Steel. Nippon Steel and U.S. Steel have 30 days from the order to abandon the transaction “fully and permanently.” For his part, the president-elect quickly dismissed claims—promoted to the media by a collection of sources—that the acquisition was needed to save the company and that the decision could be reversed. Instead, President-elect Trump rebuffed these arguments, stating: “[t]arrifs will make [U.S. Steel] a much more profitable and valuable company[.]” At this point, Nippon Steel and U.S. Steel have challenged the ruling on various legal fronts that may take years to resolve.

Any other trade policy decisions made in the waning days of the Biden administration are likely to receive extra scrutiny and could be reversed. The president-elect has emphasized that this includes “rescind[ing] all unspent funds” under the Inflation Reduction Act.

US trade policy is poised to change dramatically at noon on Jan. 20. Industry observers should prepare to continually refresh the White House’s and Commerce Department’s web pages for the next few months.

Editor’s note

This is an opinion column. The views in this article are those of experienced trade attorneys on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.