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Time is running out for the United States to rescind the so-called Section 232 tariffs on steel and aluminum, avert further harm to American workers and companies, and refocus on the real challenges facing global steel markets.
U.S. Trade Representative Katherine Tai made news in her May 12 appearance before the Senate Finance Committee when she said she is “having constructive discussions” with her European counterparts on the import duties of 25% on steel and 10% on aluminum. According to Tai, the talks aim “to address the real problem of overcapacity in the steel and aluminum sectors coming primarily from China.”
Why is resolving these tariffs so urgent — and important?
1. Foreign retaliation against U.S. companies and the workers they employ is set to spike absent swift action by the administration
Notably, the EU on June 1 will double its retaliatory duties on exports of made-in-America products ranging from Harley-Davidson motorcycles — on which EU tariffs are set to soar to 56% — to Bourbon, Tennessee Whiskey, and other American Whiskey exports — on which duties are slated to double to 50%. Workers producing about 200 different categories of goods — from cosmetics and motorboats to cranberry juice and playing cards — are likely to be affected.
The tariffs in place have already exacted a heavy toll from U.S. businesses and the workers they employ. For example, U.S. spirits exports to Europe have slumped by about 40% since the retaliatory duties were imposed at their lower level, and the expected doubling of tariff rates is expected to hit hard.
The Biden administration’s emphasis on a “worker-centered trade policy” certainly needs to take into account the plight of American workers whose livelihoods will be endangered by continued adherence to the Trump-era tariffs.
2. The stated objective of the Section 232 tariffs — blocking subsidized Chinese steel from the U.S. market — has been achieved using other tools.
Overcapacity in China resulting from subsidies and other Chinese government support to its steel producers is widely recognized as the principal challenge for global steel markets. However, U.S. actions have barred nearly all steel imports from China.
Import penetration for steel products was just 17% in December 2020, meaning that domestic steel production accounted for more than 80% of the U.S. market. Chinese steel imports account for less than 1% of U.S. steel consumption.
How was this achieved? U.S. anti-dumping and countervailing duties (AD/CVDs) are applied to dumped or subsidized imports, and nearly half of the roughly 600 orders in place apply to iron and steel imports. Steel imports from China have been targeted far more often than those from any other country. These duties soar into the double and triple digits.
The aggressive application of these tariffs, together with the Section 301 tariffs of 25% also applied to steel imports from China, have had their intended effect of almost entirely blocking Chinese steel from the U.S. market.
By contrast, the Section 232 tariffs have had their most notable effect on metals imports from U.S. allies such as Britain, Germany, Japan, and Korea. Given that the underlying statute for the Section 232 tariffs allows their application when imports “threaten to impair the national security,” it’s understandable that these countries — America’s closest allies — have taken umbrage at the charge.
3. The elements of a deal to end the Section 232 tariffs are widely understood.
The case for terminating the Section 232 tariffs is strong, but there are measures the Biden administration can agree with key allies such as the EU, U.K., Japan, and Korea to facilitate such a move.
First, the administration should refocus on the widely acknowledged challenge posed by Chinese overcapacity by reviving the Global Forum on Steel Excess Capacity. It was created by the G20 and Organization of Economic Cooperation and Development (OECD) in 2016 to tackle this problem. While it offers no panacea, the Trump administration did not prioritize it; the Biden team should certainly seek to leverage this multilateral approach.
Second, the administration can take steps to guard against transshipment of Chinese steel into the U.S. market through third countries. In September 2020, the Department of Commerce took steps to modernize the Steel Import Monitoring and Analysis (SIMA) system, which allows officials to “more readily identify transshipment and circumvention involving steel imports.” A similar system for aluminum was set up shortly thereafter. Other countries have similar systems; coordinating these efforts with U.S. allies makes sense.
Third, the administration can use the same mechanisms to monitor against import surges. When the United States agreed in 2019 to drop the Section 232 tariffs on Canadian metals — and Canada dropped its retaliatory measures — the two governments committed to monitor for surges and for transshipment. (The same arrangement was agreed with Mexico.) U.S. allies would certainly agree to similar joint efforts.
The price of inaction is high, and the path forward is clear. It’s time for the administration to strike a deal with America’s allies and rescind the Section 232 tariffs.