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U.S. Re-Imposes 10% Tariff on Specific Aluminum Imports from Canada

aluminum

U.S. Re-Imposes 10% Tariff on Specific Aluminum Imports from Canada

On August 6, 2020, the White House issued a proclamation stating that the U.S. would re-impose 10% tariffs on imports of non-alloyed unwrought aluminum under subheading 7601.10 from Canada starting August 16, 2020.  The subject products make up the majority of U.S. aluminum imports from Canada.

President Donald Trump explained that the re-imposition of tariffs was necessary in his view, stating that:

“Canada is the largest source of United States imports of non-alloyed unwrought aluminum, accounting for nearly two-thirds of total imports of these articles from all countries in 2019 and approximately 75 percent of total imports in the first five months of 2020. The surges in imports of these articles from Canada coincides with a decrease in imports of these articles from other countries and threatens to harm domestic aluminum production and capacity utilization.”

The proclamation went on to state that “the United States will monitor for import surges of articles that continue to be exempt from the tariff proclaimed in Proclamation 9704, to ensure that exports of non-alloyed unwrought aluminum to the United States are not simply reoriented into increased exports of alloyed, further processed, or wrought aluminum articles,” the proclamation said, meaning that tariffs on additional aluminum articles could follow in the future. Additionally, under the previous agreement between the two countries, Canada is allowed to place retaliatory tariffs on U.S. aluminum products.

The White House has not stated whether or not it will reinstate the 25% tariffs on imports of steel.

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Nithya Nagarajan is a Washington-based partner with the law firm Husch Blackwell LLP. She practices in the International Trade & Supply Chain group of the firm’s Technology, Manufacturing & Transportation industry team.

Turner Kim is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

Camron Greer is an Assistant Trade Analyst in Husch Blackwell LLP’s Washington D.C. office.

aluminium foil

EU Aluminium Foil Market Increased 0.3% to $5.2B

IndexBox has just published a new report: ‘EU – Aluminium Foil – Market Analysis, Forecast, Size, Trends and Insights’. Here is a summary of the report’s key findings.

In 2019, the EU aluminium foil market increased by 0.3% to $5.2B, rising for the third year in a row after two years of decline. The market value increased at an average annual rate of +1.1% over the period from 2009 to 2019; the trend pattern remained consistent, with somewhat noticeable fluctuations being observed in certain years. The most prominent rate of growth was recorded in 2011 when the market value increased by 19% against the previous year. As a result, consumption attained a peak level of $5.4B. From 2012 to 2019, the growth of the market remained at a somewhat lower figure.

EU Consumption by Country

The countries with the highest volumes of aluminium foil consumption in 2019 were Italy (275K tonnes), Germany (144K tonnes) and France (137K tonnes), with a combined 42% share of total consumption.

From 2009 to 2019, the biggest increases were in Italy, while aluminium foil consumption for the other leaders experienced more modest paces of growth.

In value terms, Italy ($872M), Germany ($697M) and France ($485M) were the countries with the highest levels of market value in 2019, together comprising 40% of the total market. These countries were followed by the UK, Spain, Poland, Belgium, the Netherlands, the Czech Republic, Sweden, Austria and Greece, which together accounted for a further 44%.

The countries with the highest levels of aluminium foil per capita consumption in 2019 were Belgium (5.57 kg per person), Italy (4.62 kg per person) and Sweden (3.82 kg per person).

Market Forecast to 2030

Driven by increasing demand for aluminium foil in the European Union, the market is expected to continue an upward consumption trend over the next decade. Market performance is forecast to decelerate, expanding with an anticipated CAGR of +1.7% for the period from 2019 to 2030, which is projected to bring the market volume to 1.6M tonnes by the end of 2030.

Production in the EU

Aluminium foil production rose to 1.3M tonnes in 2019, picking up by 1.5% on 2018. The total output volume increased at an average annual rate of +1.3% over the period from 2009 to 2019; the trend pattern remained relatively stable, with somewhat noticeable fluctuations being observed in certain years. The pace of growth was the most pronounced in 2010 when the production volume increased by 7.2% y-o-y. Over the period under review, production hit record highs in 2019 and is likely to see steady growth in the immediate term.

Imports in the EU

Aluminium foil imports expanded markedly to 1.2M tonnes in 2019, picking up by 8.2% against 2018.

In value terms, aluminium foil imports contracted to $4.6B (IndexBox estimates) in 2019. The total import value increased at an average annual rate of +2.0% over the period from 2009 to 2019; however, the trend pattern remained consistent, with somewhat noticeable fluctuations being recorded throughout the analyzed period. The pace of growth was the most pronounced in 2011 with an increase of 23% against the previous year. As a result, imports attained a peak of $5B. From 2012 to 2019, the growth imports remained at a somewhat lower figure.

Imports by Country

In 2019, Germany (176K tonnes), France (155K tonnes), Italy (128K tonnes), the UK (121K tonnes), Poland (89K tonnes), Belgium (81K tonnes), Spain (65K tonnes), the Netherlands (59K tonnes), Austria (42K tonnes), the Czech Republic (38K tonnes), Denmark (28K tonnes) and Hungary (26K tonnes) was the key importer of aluminium foil in the European Union, making up 88% of total import.

From 2009 to 2019, the biggest increases were in Italy, while purchases for the other leaders experienced more modest paces of growth.

In value terms, Germany ($845M), Italy ($498M) and the UK ($459M) appeared to be the countries with the highest levels of imports in 2019, with a combined 39% share of total imports. France, Poland, Spain, the Netherlands, Belgium, the Czech Republic, Austria, Hungary and Denmark lagged somewhat behind, together comprising a further 48%.

The Czech Republic recorded the highest growth rate of the value of imports, in terms of the main importing countries over the period under review, while purchases for the other leaders experienced more modest paces of growth.

Import Prices by Country

The aluminium foil import price in the European Union stood at $3,971 per tonne in 2019, dropping by -13.1% against the previous year. Over the period under review, import prices attained the maximum at $5,228 per tonne in 2011; however, from 2012 to 2019, import prices stood at a somewhat lower figure.

There were significant differences in the average prices amongst the major importing countries. In 2019, the country with the highest price was the Czech Republic ($4,973 per tonne), while Belgium ($2,775 per tonne) was amongst the lowest.

From 2009 to 2019, the most notable rate of growth in terms of prices was attained by the Czech Republic, while the other leaders experienced a decline in the import price figures.

Source: IndexBox AI Platform

How U.S. Manufacturers Can Mitigate the Impact of Steel & Aluminum Tariffs

President Trump’s imposition of additional tariffs on imports of steel and aluminum dominated global trade news headlines for most of 2018 and caught many manufacturers off guard. Prior to the first announcement in March, many in the industry believed that the President’s tariff threats were merely a negotiating tactic and would likely never materialize.  By June 2018, the Trump administration left no doubts that it would follow through.

On the basis of protecting U.S. national security, the U.S. imposed additional tariffs of 25 percent and 10 percent on steel and aluminum imports for almost all countries under Section 232 of the Trade Expansion Act of 1962.  Specifically, the Section 232 action affects steel articles classified under HTSUS subheadings 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, and aluminum articles described as follows: (a) unwrought aluminum (heading 7601); (b) aluminum bars, rods, and profiles (heading 7604); (c) aluminum wire (heading 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (headings 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (headings 7608 and 7609); and (f) aluminum castings and forgings (HTSUS 7616.99.5160 and 7616.99.5170).

Since the administration’s initial announcement, the U.S. and its major trading partners, including the EU, South Korea, and China have traded a series of exemptions, extensions, and retaliatory tariffs.  Talks to deescalate trade tensions have had varying degrees of success. After imposing retaliatory duties on American-made goods, the European Union and the U.S. entered into talks to draw down to zero-tariff levels, but they haven’t yet reached a permanent agreement. Other countries, like South Korea, immediately sought and secured permanent exemptions from certain U.S.’ tariffs.

The U.S.’ trade relationship with China has been significantly more volatile. In the months following President Trump’s proclamations, the U.S. and China placed multiple rounds of tariffs on each other’s imports.  In 2018, the U.S. imposed tariffs on over $250 billion worth of imports from China under Section 301 of the Trade Act of 1974.  To date, nearly half of all Chinese goods brought into the U.S. are subject to additional tariffs, many at 10 percent and a significant portion at 25 percent if ongoing bilateral negotiations fail.

U.S. manufacturers have long relied on China as a source of affordable manufactured materials.  They had no need to explore alternative sources for decades.  Now, manufacturers are reexamining old assumptions.  At least for the duration of the current administration, tariffs will always be on the table—if not always in effect.  And there is no guarantee that future administrations will entirely remove existing tariffs or refrain from implementing new tariffs.

Tariffs are already disrupting manufacturers’ supply chains—increasing costs and eroding margins. Continued trade uncertainty is generally bad news for manufacturers, complicating business planning and hindering growth.

How, then, can manufacturers mitigate the impact of tariffs, and position their businesses for sustainable, long-term growth?

Submit Product Exclusion Requests

To avoid making major adjustments to supply chain—which may not be an option for manufacturers of specialty items or those that lack the significant time and capex allocations required—manufacturers affected by Section 301 tariffs submitted product exclusion requests to the Office of the U.S. Trade Representative (USTR) for goods described under Lists 1 and 2 (USTR is no longer accepting product exclusion requests for List 1 and 2 items and has yet to open a docket for List 3 requests).  Manufacturers affected by Section 232 tariffs may continue to submit product exclusion requests to the Department of Commerce.

In late December 2018, USTR announced the first set of products, all under List 1, that it approved for exclusion from its Section 301 action.  The exclusions are retroactive as of July 6, 2018.  Anyone that imports goods approved for exclusion under the Section 301 stand to benefit because approvals are not limited to specific requestors.  Manufacturers and importers should examine the Section 301 list of excluded products to see whether their imports qualify for relief.  Approved exclusions will remain in effect for one year.  USTR indicated it is still reviewing other Section 301 product exclusion requests and decisions will be forthcoming.

According to a recent Wall Street Journal report, the Department of Commerce granted about 75% of the 19,000 requests it received to exclude products subject to Section 232 tariffs on foreign steel in 2018.  The Steel Manufacturers Association received approvals for exclusion on 66 of 132 requested tariff lines—a significantly higher success percentage than other industries, The Wall Street Journal reported in October 2018. For comparison, the National Retail Federation and National Restaurant Association were granted less than 5 percent of their requested exclusions.

Successful requests involve significant investments of time and resources.  The Steel Manufacturers Association’s success was the result of a strategic, coordinated effort: a combination of data-driven exclusion requests and government relations efforts.  Manufacturers should keep track of their direct and indirect costs resulting from the tariff actions and model impacts on growth plans as part of internal strategy data analytics.  When preparing exclusion requests, manufacturers should seek to establish that there are either no feasible alternative suppliers of items in the U.S. or abroad and/or tariffs will have serious adverse economic impacts on their business’ operations, their downstream and upstream partners’ operations, as well as their industry as a whole.  To understand the full scope of tariffs’ impact on their business, manufacturers need to have open channels of communication with upstream and downstream business partners whose respective supply chains may also be impacted.  Additionally, manufacturers should maintain coordinated government relations efforts to ensure elected representatives are aware of how tariff actions are impacting their constituents’ bottom lines and job prospects.

Rethink the Supply Chain

Nevertheless, many requests for product exclusion are denied. As such, business owners should not assume that pending applications will receive a favorable outcome.  If a manufacturer is unable to secure an approval for exclusion, they may need to consider alternative sources for imports. If alternative sources exist, then businesses need to evaluate cost and quality across those options.

If no alternative sources exist, for example, for highly specialized and customized goods, manufacturers may need to redesign products in a manner that allows them to change countries of origin.  This endeavor may entail building entirely new supply sources. Rebuilding supply chains has inspired déjà vu among many manufacturers, who haven’t had to make these kinds of ground—up sourcing decisions since inception years ago.

Under the current administration, trade imbalances and national security are used as justification for additional tariffs. When evaluating alternative sources, manufacturers should consider whether the new source country’s overall trade posture and geopolitical sensitivities are likely to threaten the United States.  If so, the new source country may be a potential target for future tariffs.

Plan for the long term: Revaluate the Core Business

The safest route for long-term planning is to act as if tariffs are here to stay. Tariffs will likely always be on the table under the current administration, and there are no guarantees that a future administration will shift course if tariffs yield favorable geopolitical results.

As manufacturers assess their options, they may discover that locating or creating an entirely new supply source for certain may not be financially feasible. Business owners may need to reevaluate whether it makes fiscal sense to continue producing certain products at all, and whether they need to refocus or shift production to products less impacted by trade barriers.

 

About Johny Chaklader 

Johny Chaklader is Export Controls and International Trade Practice Lead within BDO’s Industry Specialty Services – Government Contracts Group.  He can be reached at jchaklader@bdo.com.