As President Trump continues to march off to (trade) war, the U.S. economy is starting to show the negative effects.
Trump on March 8 announced plans to impose 25 percent tariffs on steel imports, as well as 10 percent tariffs on aluminum imports. Since then, the rhetoric has escalated and the stock market has declined.
On March 8, the Dow Jones Industrial Average closed at 24,895.21. From that point through the end of the month, it slid more than 3 percent to 24,103.11. This continued a trend that began in late January, as anticipation of the release of the Commerce Department’s reports on its Section 232 investigations of steel and aluminum imports began to have an impact. From Jan. 26 through March 29, the Dow dropped nearly 10 percent.
The concern in the markets stems largely from fears that other nations will raise tariffs on U.S. exports, resulting in a tit-for-tat targeting of various goods that could slow economic activity in the United States and around the world.
While Treasury Secretary Steven Mnuchin said on CBS that he does not expect a trade war, he acknowledged that there “could be” one coming. Trump’s new top economic adviser Larry Kudlow, meanwhile, said on Fox News that there is not “any trade war in sight” and charged that, “The whole world knows China has been violating trade laws for many years, and President Trump is the guy calling them on it. And he’s right to do so.”
Chinese officials, of course, disagree with Kudlow. In early April, China proposed tariffs on American soybeans, cotton, cars and more than 100 other products valued at $50 billion, which represents about 8 percent of all imports into the country from the United States. This followed China’s announcement of tariffs on $3 billion in U.S. goods in direct response to the levies on steel and aluminum imports and the Trump administration’s later proposal of restrictions on up to $60 billion in Chinese technology imports that it says violate intellectual property rights.
“China has never succumbed to external pressure,” China’s Vice Minister of Finance Zhu Guangyao said. “External pressure will only make the Chinese people more focused on economic development.”
On March 22, Trump announced that he would temporarily exempt Canada, Mexico, Australia, Argentina, South Korea, Brazil, and the member countries of the European Union from the tariffs – nations that account for just over half of all U.S. steel imports – because the United States has a “security relationship” with them and discussions are underway to identify alternatives to the tariffs. If an agreement is not reached with an exempted nation by May 1, though, the tariffs will go into effect.
Federal Reserve Chairman Jerome Powell fleetingly acknowledged the possible negative economic impact of a trade war in early April, saying, “Tariffs can push up prices,” but adding that, “it’s too early to say whether that’s going to be something that happens or not.” (Powell’s comments came during a Q&A session that followed a speech on “The Outlook for the U.S. Economy” that did not mention trade or tariffs.)
Other members of the Federal Reserve Board of Governors, while similarly stating that it is too soon for predictions, noted that the trade disputes “present some downside risk” and represent “a material uncertainty” in economic forecasts. The Federal Reserve Bank of Dallas forecast that the steel and aluminum tariffs, alone, could reduce the U.S. gross domestic product by a quarter-point over the long-term, though if other countries retaliate and a trade war ensues, “the effects can become much larger.”
The Fed’s Federal Open Market Committee on March 21 announced a quarter-point increase in interest rates. The target range for the federal funds rate is now 1.5-1.75 percent. Two more increases are expected this year, following three hikes last year.
“Economic activity has been rising at a moderate rate,” the committee said in its announcement. “Job gains have been strong in recent months, and the unemployment rate has stayed low.”
The Bureau of Economic Analysis in late March revised its estimate of growth in the 4th quarter of 2017 to 2.9 percent, up from a previous estimate of 2.5 percent. With growth in the preceding two quarters reaching 3.1 percent and 3.2 percent, he economy thus narrowly missed posting three straight quarters of 3 percent growth for the first time since before the Great Recession.
The economy added 103,000 jobs in March, as the unemployment rate remained at 4.1 percent for the sixth straight month, according to the Bureau of Labor Statistics.
Confidence in the economy, as measured by The Conference Board’s Consumer Confidence Index, slipped to 127.7 in March, down from an 18-year high of 130 the previous month.
“Consumers’ assessment of current conditions declined slightly, with business conditions the primary reason for the moderation,” the board’s director of economic indicators said. “Consumers’ short-term expectations also declined, including their outlook for the stock market, but overall expectations remain quite favorable. Despite the modest retreat in confidence, index levels remain historically high and suggest further strong growth in the months ahead.”
The University of Michigan recorded a 1.7-point uptick in its Index of Consumer Sentiment in March to 101.4, the highest level since 2004. Researchers, though, did note a slight dip from the middle to the end of March “due to uncertainty about the impact of the proposed trade tariffs.”
“Households with incomes in the top third cited significantly greater concerns with government economic policies than last month, especially trade policies … offsetting their positive reactions to tax policies,” researchers said.
In the manufacturing sector, the Institute for Supply Management’s Purchasing Managers Index in March recorded a 1.5-point drop from its 14-year high in February to 59.3. The chairman of ISM’s Manufacturing Business Survey Committee said that the index’s survey of supply executives identified “steel and aluminum disruptions across many industries” as one of several negative factors affecting manufacturing inputs.
Housing starts in February fell 7 percent from January and were 4 percent below the level of a year earlier, according to the Census Bureau and the Department of Housing and Urban Development. Existing home sales grew by 3 percent from January to February following two months of decreases, the National Association of Realtors reported.
“The very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018,” the association’s chief economist said. “However, even as seasonal inventory gains helped boost sales last month, home prices – especially in the West – shot up considerably. Affordability continues to be a pressing issue because new and existing housing supply is still severely subpar.”
The median price for an existing home in February was $241,700, 5.9 percent higher than the average in February 2017.
Car sales in March fell 9.2 percent compared to a year earlier, but light-duty truck sales increased by 16.3 percent. Through the first three months of the year, car sales were down 10.8 percent, while truck sales were up 9.8 percent.
The dollar closed March trading at 0.81 euros, 0.71 pounds, 106.28 yen and 6.28 yuan.
Trump is famously resistant to most input from his advisers, but the stock market has often seemed to have his ear. From his election in November 2016 until February of this year, he tweeted about the market – typically about rising stock values – at least 60 times, often linking those values to his policies, as when he asserted last November that market increases showed “great confidence in the moves that my Administration is making.” Surely, then, the president can see that the “Trump bump” ended and investors became much more pessimistic about his economic plans as soon as the most prominent features of those plans stopped being tax cuts and deregulation and became tariffs and protectionism. Perhaps Trump is engaging in trade brinkmanship, expressing a willingness to go to war in order to get a better deal. But, as in all wars, the enemy gets a vote, and China and other nations are, not surprisingly, casting their ballots in opposition. “We will not start a war,” China’s commerce ministry spokesman said. “However, if someone starts a war, we will definitely fight back.” With the economy growing strongly and unemployment at or near its minimum level, Trump should apply the advice offered during a previous unwinnable war to the current needless trade conflict: Declare victory and go home.
Steel, Aluminum Tariffs Could Cut Long-Term Economic Growth by 3.5%
Imposing 25 percent tariffs on steel imports and 10 percent tariffs on aluminum imports could reduce U.S. gross domestic product (GDP) by a quarter-point over the long term, but that impact could be 10 times larger if other countries respond in kind, according to the Federal Reserve Bank of Dallas.
“These materials are a direct input in the construction of large commercial and industrial structures and bridges and the production of automobiles and other transport equipment,” the bank stated, further explaining, “Thus, policies that affect the scarcity, or ultimately the price, of steel or aluminum could ripple through the entire economy. … While production of metals would increase significantly, durable goods producers – the primary consumers of steel – would take a hit in production and in exports because of higher input prices.”
The bank noted, though, that, if the tariffs lead to retaliation – the European Union and China have already announced possible tariffs of their own – GDP could take a 3.49 percent long-term hit. In addition, it estimated that productivity in the United States – which is a key contributing factor to wage growth – could decline by 1.65 percent.
“The main risks lie in the potential for retaliation by trading partners and the possibility of a trade war,” the bank stated.
President Trump announced the tariffs in March following the Department of Commerce’s completion of a Section 232 investigation that concluded that steel and aluminum imports have a negative impact on national security. AIIS has strongly disputed that finding.
Trump Exempts More Than Half of Steel Imports from New Tariffs – But Only Briefly
President Trump somewhat softened the immediate impact of tariffs that he announced on March 8 by exempting more than half of all steel imports – but only for about a month.
The 25 percent tariffs on steel imports are based on a finding by the Commerce Department that such imports have a negative impact on national security. Trump said on March 22 that he would temporarily exempt Canada, Mexico, Australia, Argentina, South Korea, Brazil, and the member countries of the European Union from the tariffs because they are nations with whom the United States has a “security relationship” and they each are in discussions to “arrive at a satisfactory alternative means to address the threat to the national security.”
“Any country not listed in this proclamation with which we have a security relationship remains welcome to discuss with the United States alternative ways to address the threatened impairment of the national security caused by imports of steel articles from that country,” Trump said in a March 22 presidential proclamation.
The tariffs went into effect on steel imports from non-exempt countries on March 23. If a long-term agreement is not reached with the exempted nations, the tariffs will go into effect on their steel imports on May 1.
E.U. Studying Impact of U.S. Steel Tariffs
The European Union in late March launched an investigation to determine how tariffs recently imposed on steel imports by the United States will affect the E.U. market and whether it needs to respond with its own “safeguards.”
E.U. officials are concerned, among other things, that the 25 percent tariffs on steel imports announced by President Trump in March could lead China and other countries to more aggressively sell steel in Europe to make up for losses in the American market.
“The information currently available to the European Commission … has revealed that imports of certain steel products have recently increased sharply, showing that there is sufficient evidence that these trends in imports appear to call for safeguards measures,” the European Union stated in its announcement.
While the investigation was prompted by multiple factors that have contributed to “a negative impact on the market shares of the Union producers,” the announcement specifically noted the impact of “recent developments, such as any trade diversion resulting from the US measures.”
The investigation is to last no longer than nine months.
Commerce Department Announces Determinations in Trade Cases
The Department of Commerce announced findings in several antidumping duty (AD) and countervailing duty (CVD) investigations in March.
• The agency on March 20 announced affirmative final determinations in AD and CVD investigations of imports of carbon and alloy steel wire rod from Italy and Turkey and AD investigations of imports of carbon and alloy steel wire rod from South Korea, Spain and the United Kingdom.
• On the same day, it announced affirmative preliminary determinations in the AD investigations of imports of stainless steel flanges from China and India.
• And on March 8, the department announced an affirmative preliminary determination in the CVD investigation of imports of forged steel fittings from China.
More Duties Proposed on Chinese Steel Products; New Educational Webinar Series from CBP
Proposed Duties under Section 301 Case Include Steel
The United States Trade Representative (USTR) announced on April 3, 2018 the list of products potentially subject to additional 25% duties as a remedy in the Section 301 investigation against Chinese violations related to technology transfer, intellectual property, and innovation. The investigation determined that there was systematic action by China to force technology transfers, restrict foreign ownership, and impose unfair terms on US companies. The proposed remedy involves the imposition of 25% duties on Chinese products imported into the US sufficient to offset the damages, approximately $50 billion in value of imports.
Basic steel mill products are once again targeted, with most of the products covered by the Section 232 investigation remedy also included in the Section 301 list (plus some additional items such as steel nuts in HTS 7318.16). If these duties are imposed, the steel products on both lists will be subject to 50% ad valorem duties, plus any duties under the multiple antidumping and countervailing duty orders in force.
USTR will accept written comments (due by May 11) and hold a public hearing (May 15) on both the acts, policies and practices of China determined to be unreasonable and discriminatory, and on the inclusion or removal of products from the list and the level of the increase in duty. The USTR announcement including the full list of products for which duty increases are proposed can be accessed at
Customs Webinar Programs on Commodities
From April through July 2018 the National Commodity Specialist Division at U. S. Customs and Border Protection (CBP) will present 40 one hour webinars focused on specific commodities. Most will cover classification principles and concerns for particular products; two will apply this to Antidumping and Countervailing Duty issues as they affect tires and diamond sawblades. The webinars will take place at 1:30 pm EDT on the scheduled days, and will be conducted by the National Import Specialist responsible for the products involved. They are stated to be presented in support of the Trade Enforcement and Trade Facilitation Act.
Two of the webinars will cover steel products. Other Articles of Steel will be presented by National Import Specialist Taub on Tuesday July 17. Tubes and Pipes of Iron and Steel will be presented by National Import Specialist Laker on Thursday July 19.
The webinars were announced in a Customs message:
A schedule is attached to the message. Interested parties must sign up for the month covering the webinars they wish to attend. Sign-up forms can be accessed at https://apps.cbp.gov/csms/viewmssg.asp?Recid=23443&page=&srch_argv=18-000247&srchtype=all&btype=&sortby=&sby=.
Steven W. Baker
AIIS Customs Committee Chair
**Welcome New Member!**
Tubular Services LLC
Contact: Ricky Hickman, President
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