President Donald Trump on March 8 imposed a 25 percent tariff on most steel imports, a move that was announced a week earlier amid immediate threats of retaliation from trading partners around the world.
The order concludes a process that began last April when Trump directed the Commerce Department to conduct a Section 232 investigation of the impact of steel imports on national security. In January, the agency submitted a report to Trump that concluded that “the present quantities and circumstance of steel imports are ‘weakening our internal economy’ and threaten to impair the national security.” Trump also announced a 10 percent tariff on aluminum imports from most countries, which were also the subject of a Section 232 investigation.
“A strong steel and aluminum industry are vital to our national security, absolutely vital,” Trump said. “Steel is steel. You don’t have steel, you don’t have a country.”
The tariffs will go into effect on March 23 and, at least initially, will not apply to Canada and Mexico, which Trump said present a “special case.” The United States is currently negotiating revisions to the North American Free Trade Agreement (NAFTA) with those two countries, and Commerce Secretary Wilbur Ross said that “the action the president took today is a further motivation to both Canada and Mexico to make a fair arrangement with the United States.” In addition, the administration indicated that exemptions for other close allies would be considered.
Trump’s March 1 announcement of his decision to impose tariffs was met with condemnation within his own party, a stock market plunge and at least one resignation from his administration. Senate Majority Leader Mitch McConnell, R-Ky., said, “There is a lot of concern among Republican senators that this could sort of metastasize into a larger trade war,” while Speaker of the House Paul Ryan, R-Wisc., warned of “unintended consequences” that could hurt the economy. Meanwhile, the Dow Jones Industrial Average, which had been rebounding following a nearly 3,000 point drop in early February, fell almost 1,200 points between Monday, Feb. 26, and Friday, March 2, ending the week at 24,536.06. And on March 6, Gary Cohn, who opposes the tariffs, resigned as Trump’s top economic adviser, though he did not publicly cite the tariffs as a reason.
Outside the United States, the “unintended consequences” that Ryan warned of began to emerge. The European Union commissioner for trade said the tariffs would “put thousands of European jobs in jeopardy, and it has to be met by a firm and proportionate response,” and a spokesman for China’s National People’s Congress said his country would implement “necessary measures” to respond to the trade restrictions. Officials there are already investigating imports of certain U.S. agricultural products.
With economists and analysts warning of the harm that a trade war could do to the economy, the move would seem to work against Trump’s oft-stated goal of having the United States consistently achieve a 3-4 percent annual growth rate. In the fourth quarter of 2017, gross domestic product expanded by 2.5 percent, the Bureau of Economic Analysis said at the end of February. This was a slight downward revision from its previous estimate of 2.6 percent growth. The first three quarters of the year came in at 1.2 percent, 3.1 percent and 3.2 percent.
The economy exceeded expectations in February by adding 313,000 jobs, the most since July 2016, according to the Bureau of Labor Statistics. The unemployment rate remained at 4.1 percent for the fifth straight month, the lowest it has been in 17 years.
The Federal Reserve’s Federal Open Market Committee (FOMC) did not meet in February, so the target range for interest rates remained 1.25 to 1.5 percent. With the economy showing signs of strength, the Fed is expected to raise rates several times in 2018. At least one member of the FOMC, though, warned of the negative impact the tariffs could have on economic growth, noting it could be significant enough that, “we might want to revise our economic forecast downward.”
“Protectionism is often not helpful for the broader economy,” Federal Reserve Bank of Atlanta President and CEO Raphael Bostic said. “You have wins on one side, but you have costs and losses on the other side, and how that all shakes out is often not positive. … Europe has signaled they would hit a whole host of other products that are not aluminum or steel. There is just not certainty as to which products are going to get pulled into this. Anyone who is engaged in any kind of international trade space has got to be concerned.”
A few days before Trump’s announcement, The Conference Board reported that its January Consumer Confidence Index had reached its highest level since November 2000 – 124.3. (The index’s baseline is 100 in 1985.)
“Despite the recent stock market volatility, consumers expressed greater optimism about short-term prospects for business and labor market conditions, as well as their financial prospects,” the board’s director of economic indicators said. “Overall, consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”
The University of Michigan’s Index of Consumer Sentiment, meanwhile, in February recorded its second-highest rating since 2004 – 99.7.
“The highest proportion of households since 1998 reported that their finances had improved compared with a year ago and anticipated continued gains during the year ahead,” researchers said. “Economic news heard by consumers continued to be dominated by the tax reform legislation and net job gains, which was untarnished by the consensus view that interest rates would increase and stock prices would remain volatile.”
Confidence in the manufacturing sector, as measured by the Institute for Supply Management’s Purchasing Managers Index, is also at its highest point since 2004, with the February index, which is based on a survey of supply executives, coming in at 60.8.
“Comments from the panel reflect expanding business conditions, with new orders and production maintaining high levels of expansion; employment expanding at a faster rate to support production; order backlogs expanding at a faster rate; and export orders and imports continuing to grow faster in February,” the institute said.
Housing starts in January increased nearly 10 percent over December and were 7.3 percent higher than in January 2017, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales in January, however, slipped 3.2 percent month-to-month and fell 4.8 percent from a year earlier, the National Association of Realtors reported. The association’s chief economist said, “It’s very clear that too many markets right now are becoming less affordable and desperately need more new listings to calm the speedy price growth.”
Car sales in February were 12.6 percent lower than they were the previous February, but light-truck sales were 3.8 percent higher, according to Motor Intelligence. Year-to-date, car sales were down nearly 12 percent, while truck sales were up almost 6 percent.
The dollar closed the month trading at 0.82 euros, 0.73 pounds, 106.61 yen and 6.33 yuan.
Most economic indicators are positive, which should mean that strong growth is ahead, especially following the passage of tax reform legislation. There seems, in fact, to be only one thing standing between the United States economy and growth that could rival pre-Great Recession levels, and that is President Trump’s inexplicable commitment to what Republican Sen. Ben Sasse of Nebraska describes as “kooky 18th century protectionism [that] will jack up prices on American families.” One need not go back to the 1700s to see the folly of such trade restrictions, though. In 2002, then-President George W. Bush imposed tariffs of as much as 30 percent on steel, and at least one study found that this led to higher steel prices that caused 200,000 Americans to lose their jobs, a total that exceeded the number of people employed by the domestic steel industry at that time. Unless Trump changes course, U.S. consumers will be paying more for vehicles and other products and this country’s producers and manufacturers will have a more difficult time selling goods overseas. Such a fundamental lack of understanding of business and economics would not be acceptable from a contestant on The Apprentice, much less from America’s first CEO president.
Tariffs Will Cost More than 5 Jobs for Every 1 Created, Report Concludes
More than five jobs will be lost for every one gained as a result of the tariffs imposed on steel and aluminum imports by President Donald Trump, a consulting firm has concluded.
Trump on March 8 signed a presidential proclamation imposing 25 percent tariffs on most steel imports and 10 percent tariffs on aluminum imports from most countries. The Trade Partnership, in a report released three days earlier, projected that across-the-board tariffs at those levels would add more than 33,000 iron, steel and aluminum jobs but would cost nearly 180,000 jobs throughout the rest of the economy. The biggest losses – more than 142,000 jobs – would be in the services sector, including trade and distribution (more than 34,000 jobs), construction (more than 28,000 jobs), and business and professional services (more than 22,000 jobs).
“Services sectors are hit the hardest for several reasons,” the report stated. “First, as the largest component of the U.S. economy, services are key inputs into the output of every U.S. sector, so as manufacturing, agriculture and energy output decline, so too do services output and related jobs. Second, consumers have reduced spending power when they are hit by higher costs (of a new car, a new washing machine, etc.) and, for many, lost wages from unemployment. As a result, households pull back on spending; services like education, entertainment and even healthcare are on the front lines of the spending reduction impacts, with additional attendant job losses.”
The job estimates are based on Trump’s initial indication that the tariffs would apply to all countries, but in the end, he at least temporarily exempted Canada and Mexico. Also, the report noted that the projections “do not take into account any potential retaliation against U.S. exports; only of the tariffs themselves.”
100 GOP Lawmakers Criticize Steel Tariffs
More than 100 Republican lawmakers warned in a March 7 letter to President Donald Trump that “adding new taxes in the from of broad tariffs would undermine [recent] remarkable economic progress.”
On March 8, a week after announcing his intentions, Trump signed a presidential proclamation imposing 25 percent tariffs on most steel imports and 10 percent tariffs on aluminum imports from most countries.
The GOP letter conveyed “deep concern” regarding the tariffs and urged that they be implemented in a narrowly focused manner.
“Because tariffs are taxes that make U.S. businesses less competitive and U.S. consumers poorer, any tariffs that are imposed should be designed to address specific distortions caused by unfair trade practices in a targeted way while minimizing negative consequences on American businesses and consumers,” the letter stated.
The lead signer on the letter was Rep. Kevin Brady of Texas, the chairman of the House Ways and Means Committee. Trump’s order at least temporarily exempted Canada and Mexico from the tariffs, referring to them as a “special case,” and Brady said that this was “a good first step” to “improving the original proposal.”
“I urge the White House to go further to narrow these tariffs so they hit the intended target, and not U.S. workers, businesses and families,” Brady said.
Scaled-Down Trans-Pacific Partnership Goes Forward Without United States
Canada, Japan, Australia and eight other countries on March 8 signed a trade agreement that is basically the Trans-Pacific Partnership minus the United States.
In an executive order issued three days after he took office last year, President Donald Trump directed that the United States withdraw from the Trans-Pacific Partnership, which had the potential to become the world’s largest free trade pact, affecting as much as 40 percent of global trade. Trump, who campaigned on a protectionist, America First platform, said at the time that, “We’re going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country, and it’s going to be reversed.”
The new deal, known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, will ease trade restrictions between countries representing a combined 13 percent of the global economy.
“The signing is a significant moment for open markets, free trade and the rules-based international system,” Australian Trade Minister Steven Ciobo said. “It sends an important message to the world that prosperity is achieved through breaking down trade barriers, not building them.”
Commerce Department Initiates Investigations of Pipe Imports
The Department of Commerce on Feb. 12 announced the initiation of antidumping investigations of imports of large diameter welded pipe from Canada, China, Greece, India, South Korea and Turkey and countervailing duty investigations of imports of those products from China, India, South Korea and Turkey.
The dumping margins ranged from 16.18 percent (South Korea) to 132.63 percent (China), while the subsidy rates for the four countries included in the inquiries were each above de minimis.
“The product covered by these investigations is welded carbon and alloy steel pipe, more than 406.4 mm (16 inches) in nominal outside diameter (large diameter welded pipe), regardless of wall thickness, length, surface finish, grade, end finish, or stenciling,” the Commerce Department explained. “Large diameter welded pipe may be used to transport oil, gas, slurry, steam, or other fluids, liquids, or gases. It may also be used for structural purposes, including, but not limited to, piling.”
Preliminary determinations in the cases are expected to be issued by the agency by April 16.
Section 232 Steel Remedy Customs Implementation Concerns
President Trump ordered a 25% duty surcharge on imported basic steel mill products beginning on March 23, 2018. Canada and Mexico are excluded “for now”, pending continuing NAFTA renegotiation. Entries securing an entry date before March 23 will not be subject to the duties. Products covered are defined at the Harmonized Tariff Schedule (HTS) 6-digit level as: 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications. These include carbon and alloy semi-finished products, carbon and alloy flat products, carbon and alloy long products, carbon and alloy pipe and tube products, and stainless steel products in semi-finished, flat-rolled, long, and pipe and tube forms. A detailed listing is set forth below.
Each of the listed tariff items will have a new tariff item established in Chapter 99 of the HTSUS providing for a 25% duty in addition to any other duties that may be due on the product. Entry filing requirements will necessitate listing both the original applicable tariff item and the Chapter 99 item, with appropriate duty rates applied.
While specific procedures have not yet been developed or promulgated, importers can expect to quickly be faced with requirements for substantial increases in Customs bond amounts to cover the potential duties due on imports covered by Section 232, or in the alternative with requirements for live entry, which involves payment of duties before the goods are released. Importers can also expect careful review by Customs of classifications for products made from steel but claimed to be classified in non-covered provisions. Some potential concerns may be for certain angles, shapes and sections, and for articles claimed to be steel structures or parts of structures.
Section 232 duties will be considered regular duties. They will not be collected on goods held in a bonded warehouse or FTZ until the goods are withdrawn for consumption. They are eligible for drawback. Temporary Import Bond (TIB) amounts will be calculated to include double the Section 232 duties, although the amounts (as opposed to the bond fee) will not be collected if the goods are exported under the terms of the TIB. Duty deferral provisions applicable to NAFTA and under the Chile FTA will apply.
The detailed list of covered products:
(1) Carbon and Alloy Flat Product (Flat Products): Produced by rolling semi-finished steel through varying sets of rolls. Includes sheets, strips, and plates. Flat products are covered under the following 6-digit HS codes:
(2) Carbon and Alloy Long Products (Long Products): Steel products that fall outside the flat products category. Includes bars, rails, rods, and beams. Long products are covered under the following 6-digit HS codes:
(3) Carbon and Alloy Pipe and Tube Products (Pipe and Tube Products): Either seamless or welded pipe and tube products. Some of these products may include stainless as well as alloy other than stainless. Pipe and Tube products are covered under the following 6-digit HS codes:
(4) Carbon and Alloy Semi-finished Products (Semi-finished Products): The initial, intermediate solid forms of molten steel, to be re-heated and further forged, rolled, shaped, or otherwise worked into finished steel products. Includes blooms, billets, slabs, ingots, and steel for castings. Semi-finished products are covered under the following 6-digit HS codes:
(5) Stainless Products: Steel products, in flat-rolled, long, pipe and tube, and semi-finished forms, containing at minimum 10.5 percent chromium and, by weight, 1.2 percent or less of carbon, offering better corrosion resistance than other steel. Stainless steel products are covered under the following 6-digit HS codes:
It is unusual for steel trade remedies to include semi-finished products, as these are primarily consumed by domestic steel producers.
Steven W. Baker
AIIS Customs Committee Chair
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