Tariffs debate heats up in Washington

U.S. companies looking to get exemptions from Section 232 and Section 301 tariffs are not getting quick responses from federal government representatives.

Trump administration tariffs that were supposed to protect U.S. companies from unfair foreign competition in the name of national security are stuck in a cumbersome, chaotic review process. This has left some manufacturing executives feeling anything but secure and wondering what to do next.

The 25 percent tariff on imported steel that resulted from the Section 232 investigation is applied to material from China, Russia, Japan, and Turkey. South Korea, Australia, Argentina, and Brazil have agreed to quotas to avoid the tariff. Canada, Mexico, and European Union countries were given an extension until June 1 to negotiate deals on how much steel they can export to the U.S.

In the meantime, numerous domestic companies have filed paperwork to make the case that thousands of their products should be excluded from the tariff. Their argument is that their products must be imported because they are not produced in the U.S. in a sufficient and reasonably available amount or that the imported products are essential to the nation’s security. But so far Commerce has approved none of their requests, even in cases where the filings drew no objections from domestic industry.

The product exclusion procedure has been roundly criticized as confusing and burdensome. Companies, trade associations, and congressional members continue to press for a more rapid response.

In a bipartisan letter to Commerce Secretary Wilbur Ross on May 7, 39 members of the House of Representatives argued that the process for reviewing Section 232 tariff exclusion requests is moving far too slowly. They urged Commerce to streamline the process and provide certainty and relief to the thousands of small businesses impacted by the tariffs. For example, Borusan Mannesmann U.S. has filed about two dozen exclusion requests. The pipe and tube manufacturer operates a plant in Baytown, Texas, where it finishes tubes imported from its parent company in Turkey. Company officials said it will be put at a serious competitive disadvantage, and its workforce in the U.S. threatened, if it must pay the tariff on its raw material. Additionally, it has put its plans for further capital investment in the U.S. on hold pending the outcome of the tariff situation. The media is filled with similar stories of companies that say they will be forced to move part production offshore if they have to pay a tariff that increases their steel cost by 25 percent.

“But for companies that rely on global supply chains, the tariffs may be superior to a quota deal such as the one for South Korea, which has quotas that are ‘absolute.’ If the quota limit for any steel product is reached, no more may come into the country,” noted Washington trade attorney Lewis Leibowitz.

Focus on Section 301 Tariffs

The U.S. Trade Representative’s office kicked off three days of hearings in mid-May on the proposed Section 301 tariffs on China. The Trump administration plans to impose retaliatory tariffs on approximately $100 billion worth of Chinese imports in response to what it considers China’s unfair trade practices related to the forced transfer of U.S. technology and intellectual property. To do business in China, U.S. companies are required to transfer their technology and intellectual property to domestic Chinese enterprises.

Numerous manufacturing companies and trade associations are expected to testify against Section 301, arguing that their business would suffer if these new 25 percent tariffs are imposed on China. The proposed Section 301 tariffs include more than 1,400 items—many of them products already covered by the Section 232 tariffs on steel and aluminum. For instance, imports of Chinese-made alloy steel seamless pipe used in oil and gas drilling would be charged 25 percent tariffs on top of the Section 232 tariffs of 25 percent, as well as significant antidumping and countervailing duties (AD/CVD) already applied to oil country tubular goods. On aluminum, the proposed tariffs would be in addition to any AD/CVD duties and the 10 percent Section 232 tariffs on aluminum imports, Leibowitz said.

Job losses in the U.S. manufacturing sector will dwarf job gains in the steel and aluminum industries as a result of the tariffs, Leibowitz added, pointing to a new study by The Trade Partnership that estimates nearly 500,000 jobs will be cut if the proposed Section 301 tariffs on Chinese exports to the U.S. go into effect.

Steel Prices Leveling Off?

Flat-rolled steel prices, which have been on the rise since last fall, may have begun to plateau, according to Steel Market Update survey data. Hot-rolled prices were essentially unchanged in early May, averaging about $880/ton ($44/cwt). Cold-rolled prices actually dipped slightly to about $1,000/ton ($50/cwt), while galvanized steel was unchanged at about $1,100/ton for 0.060-inch G90. Plate prices also declined a bit to $960/ton.

The Steel Market Update Price Momentum Indicator is referencing steel prices as being in transition. Our “neutral” rating means no clear consensus is evident for the direction of flat-rolled steel prices over the next 30 days (from mid-May to mid-June). With the government being actively involved in the sector, industry observers find it difficult to predict which way prices will go from here.

Steel Market Update (SMU) spoke with a trading company in preparation of this article and picked up this foreboding tidbit: “Demand exceeds supply. The domestic mills will ride the prices up, allowing the foreign traders to ship steel into the U.S. at high numbers. The EU and NAFTA will most likely get some form of restrictions. Slabs are an issue for a couple of mills. What is it going to take to bring prices down? I don’t see [prices falling].”

By the end of August, we might have some clarity on a number of the issues facing manufacturing, fabricators, and distributors of steel. The SMU Steel Summit Conference will attract 800 executives from across the supply and manufacturing chain to network and to learn more about the issues facing the industry. You can find more details about the conference at www.steelmarketupdate.com or by calling 800-432-3475.