Price on Trade: The tariff carousel becomes the tariff rollercoaster

In particular, US producers that understand the purposes and contours of each new action will be best positioned to use these actions to their advantage.

Some tariffs are bargaining chips, others are not

As we have said before, it would be a mistake to view any of these trade actions as mere negotiating tactics. President Trump has made clear that reshoring is a national security priority and that tariffs are the primary tool to accomplish this objective.

This rationale emerged in the first Trump administration and has expanded in President Trump’s second term. But not all tariffs are alike, and it is important to distinguish between the types of tariffs.

Some tariffs are seemingly more set in stone than others. This is most apparent with the duties on steel and aluminum products under Section 232 of the Trade Expansion Act of 1962.

Section 232 is not a negotiating tactic

The first administration recognized that the yearslong deterioration of the domestic steel and aluminum industries presented serious threats to US national security. Imports undercut US producers to gain market access, often doing so with the help of massive government subsidies.

The second Trump administration has announced major steps to close the loopholes and exemptions that, according to a recently released economic study by the Coalition for a Prosperous America, greatly undermined the program’s effectiveness.

The new program recognizes that these exemptions and exclusions were ultimately counterproductive. Exclusions were granted for millions of tons of imports, frequently over the objection of US producers. That gave US purchasers no incentive to procure these products domestically. Imports from excluded countries increased significantly. And the effects of global steel overcapacity grew as imports flowed in from the exempted countries.

Further, foreign steelmakers simply sold the same subsidized steel to make downstream products for export. Those downstream goods became another tool for avoiding the Section 232 duties altogether. That not only eroded the US steelmakers’ customer base but also harmed downstream producers.

Trump really doesn’t like the word ‘exemption’

President Trump’s Feb. 10 executive order demonstrates the comprehensive approach the administration will take to steel and aluminum tariffs. The order eliminates the exclusion request process, revokes alternative country arrangements, and extends duties to derivative products.

It currently appears that there is little room for negotiating Section 232 duties in Trump 2.0. As Kevin Hasset, Director of the National Economic Council put it: “He really doesn’t like the word ‘exemption’. If I walk in and offer an exemption, then I’ll probably get kicked out of the office.”

Instead, producers can anticipate opportunities to propose additions to the list of covered downstream products as their best solution. Those companies that relocated downstream production to circumvent 232 duties may want to consider relocating their operations to the US – at least that seems to be the message being sent.

Expect a USMCA renegotiation

Importers should be aware that heightened coverage is also coupled with heightened enforcement at US Customs and Border Protection. Based on statements from the administration and an anticipated renegotiation of USMCA, Mexican and Canadian steel- and derivative-product producers should not expect to continue operating under the existing USMCA framework as a 232 duty workaround.

New Section 232 duties are already in the works, and they are expanding into new supply chains. On Feb. 25, the administration initiated a Section 232 investigation into imports of copper and copper-derivative products. On March 1, the administration announced a Section 232 investigation into imports of timber and lumber.

And while these cases are underway, the president indicated in his address to Congress that a couple more may be in the works. But the first Trump term showed that simultaneously conducting these and other investigations can quickly become complicated, limiting the administration’s bandwidth for additional Section 232 actions.

Chinese ships aren’t a bargaining chip either

Under its Section 301 authority, the administration is continuing full steam ahead with an investigation into China’s shipbuilding practices. The administration is seeking public comment, due March 24, about unfair and harmful practices in China’s shipbuilding industry. American steelmakers and shipbuilders will likely make their voices heard.

The administration’s proposed remedies focus on applying substantial fees on Chinese-built ships docking at US ports, which affect far more than the maritime or steel sectors. In essence, it’s the economic equivalent of a tariff on imports using Chinese ships. And Chinese ships compose a substantial portion of the ships supplying imports into the US. Like 232 duties, the Section 301 duties appear to be designed less for negotiation and are more likely to stay in place longer and with less modification.

But Canada, Mexico blanket tariffs might be

But as we also said, other tariffs appear to be specifically designed for negotiations. President Trump and his administration have signaled a willingness to postpone or modify other tariffs based on negotiations.

The Trump administration imposed additional 20% duties on Chinese imports under the IEEPA to address illegal fentanyl trade and illegal immigration. Following a dizzying series of statements, however, the administration ultimately delayed and modified blanket 25% duties on all products from Mexico and Canada.

Most recently, the president announced that any USMCA-compliant imports would not be subject to the 25% duties. Though the full tariffs are scheduled to resume April 2, the administration appears quite open to negotiations on these tariffs and focused on quickly addressing its fentanyl and immigration goals.

Of course, these rapid developments mean businesses trading between USMCA markets should keep a close eye on applicable duty rates.

The devil is in the details

For starters, the pause in the 25% duty rate only applies to USMCA-compliant imports. Only about half of imports from Mexico and 40% of Canadian imports are USMCA compliant.

However, many companies that had no duties without USMCA compliance may now have reason to reevaluate whether their goods are USMCA compliant. So, stay tuned.

In the steel context, it appears that most products are not going to be covered by the 25% duty. But this is not necessarily uniform. Now that 25% duties are on the line (and likely to bring heightened scrutiny), importers may be tempted to seek USMCA benefits for products for which they had not done so in the past.

As a word to the wise, seek counsel before making changes. Because these entries are likely to be scrutinized by Customs.

Reciprocal tariffs could come sooner than April 2

President Trump has also advanced the concept of “reciprocal tariffs” based on each trading partner’s trade practices. He has instructed various agency heads to evaluate “non-reciprocal trading arrangements with trading partners.” Examples include tariffs on US exports, value-added taxes, burdensome regulatory requirements on US exports, exchange rate manipulation, or other barriers to US exports.

The review will likely yield recommendations for country-specific tariff rates with the dual purpose of reshoring domestic production and gaining market access for US exports. On the one hand, narrowing the trade deficit, like promoting reshoring, is a cornerstone policy objective for the Trump administration. On the other hand, the administration has different paths for achieving this goal. And so we can anticipate that the stick will only be needed as long as non-reciprocal practices persist.

The administration has the stated goal of working with trading partners towards reciprocal trading arrangements. Thus, these tariffs seem clearly aimed at seeking a negotiated solution. We will also need to wait and see which legal authority will be used to implement tariffs.

In his address to Congress, President Trump announced that reciprocal tariffs would be imposed on April 2. But some may come even sooner. For example, on March 7, he indicated that he may accelerate reciprocal tariffs on Canadian dairy and lumber.

Have your say! (and get a lawyer)

US producers will have a say in shaping the administration’s approach on reciprocal tariffs. For example, the Office of the US Trade Representative has asked for assistance reviewing and identifying unfair or non-reciprocal trade practices. Comments are due March 11.

Given the massive variety of potentially applicable foreign trade practices, US producers and exporters should raise any issues they have seen in accessing foreign markets. They should also note ones that stimulate exports.

But remember, keeping up is complicated and—at least for the lawyers—pretty all encompassing. New tariffs may arise on short notice. Case in point: previous tariffs threats against Colombia related to accepting deportation flights. A more recent example: tariff threats against Russia related to the war in Ukraine.

And these developments don’t even include any potential legal challenges. For example, the Wall Street Journal editorial board almost begged for someone to challenge the IEEPA tariffs in court.

Riding the Trumpercoaster

The administration’s trade rollercoaster is moving at record speeds, running along the rails of innovation and expansion. But it can be confusing and difficult to keep up with.

US manufacturers that follow these developments closely could benefit from the ride. Companies that miss new updates, or fail to accurately interpret their duty liability, could be left feeling queasy.

Some rollercoasters are not for the faint of heart, and this one is a bit like Space Mountain. We are all riding without much ability to see the next turn or drop.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney 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.