When Donald Trump announced on March 8 that his administration would impose tariffs on steel and aluminum imports, it signaled the end of a months-long trade policy debate over what steps the U.S. might take in addressing global excess capacity.
Metals producers welcomed the tariffs — 25 percent on steel and 10 percent on aluminum. While further downstream, distributors and fabricators were a little more cautious, worried about their effects on the supply chain. More than three months have passed since those tariffs took effect, and many are still grappling with the immediate effect of Section 232 and struggling to keep pace with the administration’s evolving and at times unpredictable approach to trade.
Trade policy expert Jean Carroll Kemp addressed the concerns of metal distributors head on when she presented an overview of Section 232 last month during the Association of Steel Distributors Regional Meeting in Chicago.
“There’s a lot of change and a lot of unknowns,” Kemp said to attendees of the June 7 meeting. “I hope that I can give you some insights into what’s going on, how we got here, what the current status is of the administration’s 232 program, and most importantly, what we might expect next.”
Unsurprisingly, the senior vice president of government affairs and trade policy for the Steel Manufacturers Association outlined a series of arguments in favor of the Section 232 tariffs, beginning with Chinese overcapacity and exports.
“The amount of steel coming out of China grew tremendously in the period 2009 to the present,” Kemp said. “It went from 25 million tons of exports in 2009 to over 100 million in 2015 and 2016.”
In response, the U.S. steel industry initiated antidumping and countervailing duty cases against China and other countries. These and other efforts on the part of U.S. steelmakers did not eliminate the problem of excess capacity, according to Kemp, and the domestic steel industry started to suffer.
The Department of Commerce initiated a Section 232 investigation on steel imports on April 19, 2017, and a week later a similar investigation was initiated on aluminum imports. From the beginning, the Section 232 inquiries were controversial, Kemp said, with disagreements both within the administration and with foreign governments causing delay.
Finally in February, 10 months after the investigation began, the Commerce Department issued its report on Section 232, and the findings seemed to support steel producer’s claims that foreign imports were threatening domestic producers.
“Among the findings in the report was that the low level of capacity utilization is unsustainable for the U.S. industry and is shrinking the ability of the U.S. industry to meet national security requirements,” Kemp explained. “It also noted that steel imports threatened to yield more closures of U.S. capacity and that the excess capacity in the global market and unfair trade practices continue to contribute to the threat to U.S. national security.”
With the goal of bringing the domestic steel industry back to at least 80 percent capacity utilization, steel and aluminum tariffs were announced and imposed a month later. The administration also began negotiating agreements with the country’s trade partners. Initial temporary exemptions were granted to several countries, including Canada, Mexico and the European Union, representing roughly 70 percent of U.S. imports.
Only Argentina, Australia, Brazil and South Korea, which together represent about 25 percent of steel imports in 2017, successfully negotiated agreements by the June 1 deadline.
“Three of our largest trading partners, Canada, Mexico and the EU, failed to submit to what the U.S. demands were in the negotiations, and they’re now subject to 25 percent tariffs,” Kemp said, noting these countries, along with China, India, Japan, Russia and Turkey, have filed retaliation notices with the World Trade Organization. “I guarantee you there are going to be more after this.”
Despite the remedies, Kemp said the steel industry isn’t out of the woods.
“The Steel Manufacturers Association’s members have suffered with this excess capacity situation for a long time, and we very strongly believe that we need effective steel relief in the current environment,” she said. “The duration of measures for 232, in our view, needs to be sufficient to boost new steel mill investment.”
Kemp said SMA is concerned that tensions with foreign trade partners and policy uncertainty could undermine relief to the U.S. steel industry.
“Even though things are good for the steel industry, capacity utilization is still only at 76 percent,” she said. “We expect it to come up somewhat, but it is still quite low considering the conditions that we’re in.”