BREAKING NEWS—Ross to President: Hit All Steel and Aluminum Imports With Tariffs, Quotas
United States Secretary of Commerce Wilbur Ross today released reports on the department’s investigations into the impact on US national security from imports of steel and aluminum products from around the world.
The reports recommended that President Donald Trump impose new tariffs on all steel and aluminum imports. The president is now considering these recommendations and could take a range of actions, or no action, based on the analysis and recommendations provided in the reports. Under the statute, the President is required to make a decision on the steel recommendations by April 11, 2018, and on the aluminum recommendations by April 19, 2018.
The Commerce investigations were carried out under Section 232 of the Trade Expansion Act of 1962, which requires a finding that imports could have an impact on national security before enacting new tariffs. The Commerce reports found that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security.” The reports were submitted to the president three weeks ago.
The steel report found 10 US steel plants have closed since 2000 and employment has dropped by 35 percent since 1998, while global steelmaking capacity is up 127 percent since 2000 and while steel demand grew at a slower rate during that period. Global excess steel capacity is 700 million tons and China is the largest source of excess steel capacity and by far the largest producer and exporter of steel.
The US has 169 antidumping and countervailing duty orders in place on steel, of which 29 are against China.
The steel report recommends that the president consider the following alternative remedies: a global tariff of at least 24 percent on all steel imports from all countries; a tariff of at least 53 percent on all steel imports from 12 countries: Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey, and Vietnam—while freezing steel imports from all other countries at their 2017 exports; or a quota on all steel products from all countries equal to 63 percent of each country’s 2017 exports to the United States.
According to the report, “each of these remedies is intended to increase domestic steel production from its present 73 percent of capacity to approximately an 80 percent operating rate, the minimum rate needed for the long-term viability of the industry. Each remedy applies measures to all countries and all steel products to prevent circumvention. The tariffs and quotas would be in addition to any duties already in place.”
The report also recommends that US companies can apply for exclusions from the new tariffs and/or quotas “if the US lacks sufficient domestic capacity or for national security considerations.”
The aluminum report found that current imports have risen to 90 percent of total demand for primary aluminum, up from 66 percent in 2012. From 2013 to 2016 aluminum industry employment fell by 58 percent, six smelters shut down, and only two of the remaining five smelters are operating at capacity.
Interestingly, the report also found that “military consumption of aluminum is a small percentage of total consumption and therefore is insufficient by itself to preserve the viability of the smelters.”
The US has two antidumping and countervailing duty orders in place on aluminum, both against China, and there are four ongoing investigations against China.
The aluminum report recommends three alternative remedies: a tariff of at least 7.7 percent on all aluminum exports from all countries; a tariff of 23.6 percent on all products from China, Hong Kong, Russia, Venezuela and Vietnam, with imports from all other countries frozen at 2017 levels; or a quota on all imports from all countries equal to a maximum of 86.7 percent of their 2017 exports to the United States.
“Each of the three proposals is intended to raise production of aluminum from the present 48 percent average capacity to 80 percent,” said the report, “a level that would provide the industry with long-term viability.”
The report recommends a process for exclusions similar to those included in the steel report.
Neither of the reports make out much of a case for the national security implications of steel and aluminum imports, other than noting a broad-brush connection between economic security and national security. The reports both mention US military requirements for steel and aluminum but makes no case that those requirements are somehow jeopardized under current conditions.
The department’s recommendations for blanket tariffs and/or quotas against all countries is a departure from its usual approach of placing narrowly tailored punitive tariffs and specific products from individual countries. Commerce’s recommendations, if enacted, would have broad-ranging implications for US industries that consume imported steel and aluminum as well as for prices of industrial and consumer products that are fashioned by them.
That worries the Motor & Equipment Manufacturers Association, which called for the administration not to impose blanket quotas or tariffs. The organization, which represents over one-thousand US vehicle suppliers sent a letter to Trump noting that its members operate in “integrated global supply chains” and that “national security also depends on the economic security of the country.” Disruptions in supply chains and increased production costs “will not contribute to the national security of the United States.” “Many specialty materials and components imported by motor vehicle suppliers are used by hundreds of vehicle parts manufacturers,” the letter stated. “Suppliers’ access to these specialized products is critical to the industry and our national economy.”
The imposition of tariff’s, the letter went on to say, “would place a significant regulatory burden on the industry,” and as such would fly in the face of the Trump administration’s policy to reduce the regulatory burden on businesses.
That’s why MEMA wants the administration “to take a country- and product-specific approach to this issue rather than imposing blanket quotas or tariffs on all steel and aluminum imports.”
Similar concerns were voiced by Roy Hardy, president of the Precision Metalforming Association, who said that imposing steep tariffs on steel “would devastate downstream US steel consuming manufacturers.” Those companies employ 6.5 million Americans, compared to the 80,000 employed by the domestic steel industry, he noted. The last time the U.S. imposed steel tariffs in 2002, he added, more than 200,000 American jobs were lost.
“If these tariffs are imposed,” Hardy concluded, “the US will become an island of high steel prices.”
At this point, we don’t know what Trump will do with Commerce’s recommendations but it will be shocking if he does not impose some sort of broad-based tariff/quota scheme on steel and aluminum imports. If and when that comes about, one thing will be certain: there will be a lot of US companies applying for exemptions.