Feb 25, 2019 - 1:45pm

How the Steel and Aluminum Tariffs Miss Their Mark


Senior Vice President for International Policy

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Workers wear protective gear while operating machinery inside a steel plant in Hamilton, Ontario, Canada.
Workers wear protective gear while operating machinery inside a steel plant in Hamilton, Ontario, Canada.

When the administration introduced tariffs on imports of steel and aluminum last year, the move came after years of mounting frustration about a real problem.

However, it’s now all too clear that the supposed cure was never suited to the disease. In fact, this “remedy” has created all kinds of new problems, damaging U.S. trade relations with Canada and Mexico in particular.

For years, it’s been widely recognized that the problem afflicting the global steel and aluminum markets is massive overcapacity in China. Over the past decade the role of state-owned and state-directed enterprises has expanded in China, and its investment in steel and aluminum production has ballooned beyond what the Chinese market – or global markets – can bear.

It’s not a new problem: The Obama administration wrestled with it as well. More than 30 countries, including the G20 and Organization of Economic Cooperation and Development (OECD) members, created the Global Forum on Steel Excess Capacity in 2016 to tackle the problem.

The United States has also used targeted tariffs known as “trade remedies” to address unfairly traded metal imports. There are 172 anti-dumping and countervailing (anti-subsidy) duty orders now in place against imports from China, with steel and aluminum products representing a majority of these orders.

In many instances, these tariffs soar into the triple digits. These anti-dumping and countervailing duties are the chief reason steel imports from China accounted for about 1% of total U.S. steel imports in 2016-2017. Other major AD/CVD orders focus on Chinese aluminum products.

This is the context in which the administration last year imposed new import tariffs of 25% on steel and 10% on aluminum from nearly every country on earth. (Argentina, Brazil, and South Korea agreed to quotas instead; only Australia got a full exemption.) Introduced in two waves – in March and July – the tariffs were imposed using a statute dubbed Section 232 of the Trade Expansion Act of 1962, and they remain in place today.

Here’s the thing: The Section 232 tariffs have been implemented in a fashion that has walloped our closest allies and trading partners, such as Canada, but they’ve barely touched China. Drawing on research by the Mercatus Institute, Janyce McGregor of the CBC dug into how the process for excluding certain steel and aluminum products from the 232 tariffs:

If the Trump administration’s tariff policy is meant to target unfair Chinese trade, it sure has a funny way of going about it.

So far, the U.S. Department of Commerce has excluded about 40 per cent of imports of Chinese steel from facing its 25 per cent tariff. But to date, only two per cent of the total volume of Canadian steel imports to the U.S. has been cleared to dodge the tariff. [For Mexico, the figure is one percent.]

The head-scratching discrepancy gets even stranger with the United States’ 10 per cent tariff on aluminum imports. About 86 per cent of Chinese aluminum imports now enter the U.S. tariff-free, while less than one per cent of Canadian aluminum shipments do.

“If the whole point was to do this for China in the first place, then why are the approval rates for China so much higher than other countries?” said Christine McDaniel, a former White House economic adviser, now a senior research fellow with the Mercatus Center at George Mason University. “It just doesn’t make sense.”

This is a bizarre outcome. No one contends that Canada is dumping or subsidizing metals sold in the U.S. market. In fact, the Heritage Foundation’s Index of Economic Freedom ranks Canada “1st among 32 countries in the Americas region” (and ahead of the United States) in its effective commitment to policies that support free enterprise, free markets, and other policies and principles associated with economic freedom.

Further, the Section 232 tariffs are imposed under a statute that allows their application when the Commerce Department deems imports “impair national security.” This is patently ridiculous in the case of Canada, a NATO ally and NORAD partner that is recognized in U.S. law to be an integral part of the U.S. defense industrial base years ago.

Administration officials stated repeatedly – including in testimony before Congress – that the tariffs on steel and aluminum imports from Canada and Mexico would be lifted when a new North American trade agreement was concluded. The new United States-Mexico-Canada Agreement (USMCA) was signed on November 30. Yet the tariffs remain in place.

Also caught in the crossfire are U.S. farmers, ranchers, and manufacturers hit with Canada’s and Mexico’s retaliatory tariffs. More than $15 billion of U.S. exports of products ranging from cheese and pork to furniture and recreational boats have suffered as a result. Every state has been affected.

There’s nearly universal opposition to the tariffs on Canada and Mexico. Congressional trade leaders such as Senate Finance Committee Chairman Chuck Grassley and House Ways and Means Ranking Member Kevin Brady have called for the tariffs’ end. U.S. industry and agriculture groups have pushed hard for a quick solution.

Even the United Steelworkers (USW) have demanded the tariffs on Canada be ended: “Canada is an essential security ally and manufacturing partner, with metal forged in both countries crossing the border repeatedly for finishing into products ranging from cans to car engines,” said USW International President Leo W. Gerard. “Canada should never have been included in the Section 232 tariffs, and the administration must immediately honor its pledge to end charging the penalties on Canadian steel and aluminum.”

It’s time to recognize that the Section 232 tariffs have missed their intended target of Chinese overcapacity and instead hit innocent bystanders in Canada and Mexico as well as U.S. workers, farmers, and ranchers. It’s time to stop the damage now.

Read more: Why We Should Lift the Steel and Aluminum Tariffs on Canada and Mexico

About the Author

About the Author

Senior Vice President for International Policy

Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.