DOC Proposes Punitive Measures on Steel and Aluminium Imports as Trump Also Threatens Reciprocal Tax on Trade
02 March 2018
On 16 February, the U.S. Department of Commerce issued its much-anticipated reports in the investigations under Section 232 of the Trade Expansion Act of 1962 to determine whether increasing imports of foreign-made steel and aluminium threaten U.S. economic security and military preparedness. The DOC has recommended the imposition of tariffs and/or quotas on imports of steel mill products and wrought and unwrought aluminium after determining that the quantities and circumstances of such imports are threatening to impair U.S. national security. The reports are currently under consideration and no final decisions have yet been made. President Trump may take a range of actions, or no action, based on the DOC’s analysis and recommendations. Actions could include making modifications to the courses of action proposed, such as adjusting percentages. The president has until 11 April (steel) and 19 April (aluminium) to determine whether to impose these or other remedial actions.
Section 232 investigations include consideration of factors such as the amount of domestic production needed for projected national defence requirements and whether imports impair the domestic industry’s ability to meet those needs, the effect of foreign competition on the domestic industry, and any detrimental impacts from the displacement of domestic products by excessive imports. The DOC said its investigations would specifically examine global overcapacity, dumping and illegal subsidies, as well as various other factors, to determine whether steel and/or aluminium imports threaten American economic security and military preparedness. Under the law the DOC has up to 270 days to conclude a Section 232 investigation and submit its report and recommendations to the president. However, in separate memoranda issued in April 2017 President Trump directed the DOC to “proceed expeditiously” in conducting these investigations.
The DOC determined that “national security” for purposes of these Section 232 investigations includes the general security and welfare of certain industries beyond those necessary to satisfy national defence requirements that are critical to minimum operations of the economy and government. The DOC also recognised the close relation of economic welfare to national security; the impact of foreign competition on the economic welfare of individual domestic industries; and any substantial unemployment, decrease in government revenues, loss of skills or other serious effects resulting from the displacement of any domestic products by excessive imports.
The DOC found that the United States is the world’s largest importer of steel, with imports nearly four times its exports. These imports “have adversely affected the steel industry,” the report states, with six basic oxygen furnaces and four electric furnaces having closed since 2000 and employment having dropped by 35 percent since 1998. For some types of steel, such as electrical transformers, only one U.S. producer remains. In the meantime, world steelmaking capacity has increased 127 percent since 2000 and global excess capacity has now reached 700 million tonnes, almost seven times the annual total of U.S. steel consumption. Mainland China is by far the largest producer and exporter of steel, the report states, and its excess capacity alone exceeds total U.S. steelmaking capacity.
Given that the United States already has 169 antidumping and countervailing duty orders in place against steel products (including 29 against mainland China) along with 25 on-going investigations, the DOC recommends that the president consider the following alternative remedies.
- a global tariff of at least 24 percent on all steel imports from all countries, or
- a tariff of at least 53 percent on all steel imports from mainland China, Brazil, Costa Rica, Egypt, India, Malaysia, Russia, South Africa, South Korea, Thailand, Turkey and Vietnam with a quota by product on steel imports from all other countries equal to 100 percent of their 2017 exports to the United States, or
- a quota on all steel products from all countries equal to 63 percent of each country’s 2017 exports to the United States
The report notes that any of these options would be expected to reduce U.S. steel imports by 37 percent from 2017 levels, from 36.0 million metric tonnes to about 22.7 million metric tonnes.
The DOC states that imports and global production overcapacity, caused in part by foreign government subsidies (particularly in mainland China), have had a substantial negative effect on the economic welfare and production capacity of the U.S. primary aluminium industry. Since 2012 import penetration has risen from 66 percent to 90 percent, the report states, while domestic aluminium industry employment has fallen by 58 percent and six smelters have shut down. Only two of the remaining five smelters are operating at full capacity and only one of these produces high-purity aluminium required for critical infrastructure and defence aerospace applications, including types of high-performance armour plate and aircraft-grade aluminium products.
The DOC has two AD and CV duty orders in place on aluminium, both against mainland China, and four on-going investigations against the mainland. The DOC is now recommending the following alternative remedies, which would cover both aluminium ingots and a wide variety of aluminium products.
- a tariff of at least 7.7 percent on all aluminium exports from all countries, or
- a tariff of 23.6 percent on all products from mainland China, Hong Kong, Russia, Venezuela and Vietnam, with all other countries subject to quotas equal to 100 percent of their 2017 exports to the United States, or
- a quota on all imports from all countries equal to a maximum of 86.7 percent of each country’s 2017 exports to the United States
For both steel and aluminium, any tariffs and/or quotas would be in addition to any duties already in place. However, the report recommends implementing a process to allow the DOC to grant requests from U.S. companies to exclude specific products if the United States lacks sufficient domestic capacity or for national security considerations. Any exclusions granted could result in changed tariffs or quotas for the remaining products to maintain the overall effect. In addition, the president could exempt specific countries from any remedies imposed.
The imposition of any of the aforementioned remedies in these investigations could have a considerable negative effect on imports from mainland China and other large U.S. suppliers such as the European Union. Not surprisingly then, the proposed measures have already drawn the ire of industry associations and other stakeholders across the globe. Mainland China’s Ministry of Commerce on 17 February described the DOC’s findings in the steel and aluminium proceedings as “groundless” and asserted the mainland Chinese government’s intention to take any necessary action should punitive measures be ultimately adopted.
Press reports indicate that the European Commission is already considering potential countermeasures should steep tariffs or quantitative restraints be imposed against European steel and/or aluminium shipments. A report by Germany’s Frankfurter Allgemeine Zeitung suggests that the EC would be prepared to announce an adequate response to any U.S. measures within days, and such a response would likely include a carefully selected list of U.S. agricultural and industrial products such as tomatoes, potatoes, motorcycles and bourbon. According to other press reports, Germany Chambers of Commerce and Industry Managing Director Martin Wansleben warned on 14 February that punitive U.S. tariffs would lead to higher prices and possibly trigger a trade war with the majority of its trade partners.
U.S. business groups have also reacted negatively to the DOC’s recommendations. National Foreign Trade Council President Rufus Yerxa urged the president to reject the proposed measures, which he said would increase costs to downstream industries that “are far greater than steel and aluminium in terms of manufacturing output, jobs and exports.” The NFTC and Business Roundtable also warned that using national security as a pretence for import restrictions could embolden other countries to take the same approach, which could restrict U.S. exports of goods and services.
The American Institute for International Steel, meanwhile, described the DOC’s recommendations as “excessive and unnecessary” and warned that if implemented they would “have a significant negative impact on the United States’ economic growth.” The association stressed that the U.S. steel manufacturing sector is already the most protected in the country and its problems have not been caused by imports of foreign steel, but rather by antiquated and inefficient facilities that rely on decades-old technology. According to the association, if the United States moves forward with the recommended measures “other countries will be sure to assert “national security” reasons for protecting many other politically sensitive products from export competition” and “the retaliatory measures that will follow will drive up manufacturing costs, inflate prices, shrink high-value U.S. exports, and push the United States and the world toward recession.”
Possible Reciprocal Tax on Trade
Meanwhile, in line with a trade policy that is heavily focused on enforcement and achieving “fair trade,” which in turn means finding ways to reduce the growing U.S. trade deficit, President Trump recently declared his intention to reveal plans during the coming months to impose a “reciprocal tax” against imports from countries that have high tariffs on U.S. exports. However, an administration official later said no formal proposal for such a tax is “in the works right now.”
Trump asserted that “we cannot continue to let people come into our country and rob us blind and charge us tremendous tariffs and taxes and we charge them nothing,” reinvigorating rhetoric employed in his presidential campaign. “They’ll send in their product and we won’t charge them anything and we send them our product, same product as they’re sending us, and they’ll charge us 50 and 75 percent tax. And that’s very unfair.” He indicated that this disparity is “why we have these big trade deficits” with economies like mainland China, Japan and South Korea, which have been a key focus of his administration’s trade policy.
As a result, Trump said, “we’re going to be doing very much a reciprocal tax,” which a Bloomberg article described as “a levy on imports from other countries at the same rates those countries impose on U.S. products.” Trump speculated that “either we’ll collect the same that they collect,” the article said, “or probably what happens is they’ll end up not charging a tax and we won’t have a tax, and that becomes free trade.” However, press reports said the president has yet to indicate which countries or products might be targeted. Increasing tariffs uni-laterally on select countries without due review and justification would be considered a violation of U.S. World Trade Organisation commitments and would therefore be subject to challenge and possible retaliation.
- North America