Steel & Aluminum: Tough Tariffs, Tough Road Ahead?

steelBy Susan Kohn Ross

Earlier today, President Trump announced his intention to adopt the recommendations of the Dept. of Commerce and impose tariffs on imports of steel and aluminum. The formal signing is said to be taking place “next week.” President Trump has stated those tariffs will be 25% on foreign-made steel and 10% on foreign-made aluminum. Hopefully when the final document is signed and released, it will become clear how long these tariffs will be in place and whether they will be accompanied by any other measures, such as quotas.

Commerce’s original steel recommendations were: (i) a 24% tariff on all steel imports; or (ii) a 53% tariff on steel imports from Brazil, China, Costa Rica, Egypt, India, Malaysia, South Korea, Russia, South Africa, Thailand, Turkey and Vietnam; which (iii) could include a quota from all other countries equal to their 2017 level of imports; or (iv) no tariffs, but a quota on all steel products from all countries equal to 63% of their 2017 import levels.

As to aluminum, the original Commerce recommendations were : (i) a 7.7% tariff on all aluminum imports; or (ii) a 23.6% tariff on all aluminum products from China, Hong Kong, Russia, Venezuela and Vietnam, and (iii) a quota on all other countries equal to their 2017 export levels to the U.S.; or (iv) a quota applies to all imports from all countries equal to a maximum of 86.7% of last year’s exports to the U.S.

The President’s logic is that by imposing these tariffs, it would lead to the expansion of American production of both metals. The President is quoted as saying: “… you’ll have protection for a long time in a while…You’ll have to regrow your industries, that’s all I’m asking.”

As soon as a summary of Commerce’s report was issued, South Korea and Thailand sought consultations at the World Trade Organization (“WTO”). That effort is now expected to expand dramatically. Due to the length of time WTO proceedings take to come to conclusion, the more immediate impact is expected to take two distinct and potentially damaging forms. The first is the price increases that will hit American consumers due to how often steel and/or aluminum is found in products, starting with the cans in which so many products are sold.

Already under challenge at the WTO is the use of adverse facts available (“AFA”) when antidumping and countervailing duty cases are processed. The law is written to allow the International Trade Administration (“ITA”) (the agency which conducts the investigation) to find a party to a proceeding as not cooperated to the fullest extent possible and so adverse facts may be used. An AFA finding typically allows the ITA to pick and choose the information on which it will rely, and thereby dramatically increases the percentage of antidumping or countervailing duty found to apply.

The second impact which is expected to quickly develop takes the form of retaliation by our trading partners. For example, one of the major U.S. exporting industries is agriculture. Soybeans are likely to be at the top of this list for retaliation by China. USDA reports the leading U.S. agricultural exports are grains/feeds, soybeans, livestock products, and horticultural products. How likely is it any of the remaining products will be spared from retaliation?

President Trump is focused on needing to rebalance the trade deficit. Secretary Ross comes from the financial sector where he dealt with failing companies in such industries as steel, coal, telecommunications, foreign investment and textiles. In a previous administration, now US Trade Representative Lighthizer negotiated bilateral trade agreements regarding steel, automobiles, and agricultural products. When back in private practice, Mr. Lighthizer defended U.S. industries from unfair trading practices. No one should be surprised with the outcome given the parties involved in the decision-making and President Trump’s previous expressions of putting forth a new trade policy. The stock market certainly did not care for today’s announcement, but we will have to wait and see what the long term impact is to overall trade deficits, and commerce in general, given we are, as noted, likely to see retaliatory policies from certain international trading partners.

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