USMCA trade deal fails to address tariffs

The first thing to note about the proposed United States-Mexico-Canada Agreement (USMCA) is that it does not include elimination of the 25 percent tariff on imported steel and the 10 percent tariff on imported aluminum that the White House ordered into place in early 2018. That seems a little strange because the USMCA is supposed to replace the North American Free Trade Agreement (NAFTA), which eliminated nearly all tariffs on all products traded over North American borders. The USMCA retains that “no tariffs” standard for trade within North America—except for steel and aluminum.

“Unfortunately, for American metalworking manufacturers, the failure to rescind the Section 232 steel and aluminum tariffs on Canada and Mexico as part of the new U.S. Mexico Canada Agreement (USMCA) undermines the entire agreement,” said Bill Gaskin, president, Precision Metalforming Association. “The USMCA could greatly benefit our members if not for these 232 tariffs.”

Trade groups such as the Aluminum Association and the Alliance of Automobile Manufacturers are similarly unhappy that the USMCA does not eliminate the steel and aluminum tariffs.

“These tariffs are doing nothing to impact illegally subsidized Chinese aluminum overcapacity, which has only grown since the measures were implemented,” said Matt Meenan, spokesman for the Aluminum Association.

The U.S. Trade Representative’s office did not reply to a request for a comment on why the Section 232 tariffs on steel and aluminum from Mexico and Canada were not eliminated as part of the USMCA.

Tariffs are only one issue of importance as Congress considers whether to approve the USMCA. Another important issue affecting the metalworking industry is rules of origin, which determine how much of a product has to be made in the three countries to qualify for duty-free entry.

The key metric is regional value content (RVC). U.S. steel manufacturers, who are strong supporters of the Section 232 tariffs, pushed for an increase in the RVC for autos, currently at 62.5 percent.

The new RVC for autos and trucks is 75 percent, with ranges from 65 to 75 percent for varying categories of auto parts. In addition, automotive OEMs have to abide by a separate 70 percent RVC steel purchasing requirement for auto OEMs.

“The RVC and purchasing requirements are different provisions in the USMCA agreement; therefore meeting 75 percent regional content value does not necessarily mean it meets the 70 percent North American purchasing requirement and vice versa,” said Jake Murphy, spokesman for the American Iron and Steel Institute (AISI).

But there also is RVC for various categories of metal products, again, dictating levels of 67 to 75 percent of inputs. Murphy said the new rules apply to welded pipe and tube, butt welding fittings, tool joints, iron and steel structures and parts thereof, stranded wire, barbed wire and wire fencing, steel cloth, nails, tacks, drawing pins, corrugated nails, staples, and similar articles of iron or steel.

Congress will have to approve the agreement by simple majorities of both houses. But that won’t be an easy lift. Rep. Sander Levin, D-Mich., the new chairman of the House Ways & Means Committee, which will play an influential role in whether the Democrat-controlled House ratifies the agreement, said the new agreement allows Mexico to continue to underpay its workers, leading to U.S. jobs migrating south of the border. His stance, as well as other objections from both Democrats and Republicans on various issues, means Congress will be under intense pressure to eat its objections, or President Trump might decide to cancel NAFTA in the absence of congressional approval of the USMCA.

Rusting Pentagon Weapons

Metalworking companies involved in the defense industry may want to take notice of a new Government Accountability Office (GAO) report issued in November. It outlines some of the problems the Department of Defense (DoD) faces in funding weapon corrosion control efforts.

A study cited by the GAO reported the cost impact of corrosion to the DoD was $20.6 billion in fiscal year 2016. The GAO review was prompted by a request from the Senate Armed Services Committee.

The GAO report looked mostly at DoD research efforts in corrosion control, not at individual weapons systems with corrosion problems, why those problems exist, and which suppliers were guilty of supplying subpar products. But that could be the next step, especially as Congress looks to cut military costs.