Section 232 tariff exclusions may not survive Nafta talks

While US President Donald Trump’s imposition of import tariffs of 25% on steel and 10% on aluminium included exclusions for Canadian and Mexican exporters, his administration continues to stress this relief could be temporary.

Trump signed the 232 tariffs into law with two separate proclamations on March 8. In the steel notice, Trump cited the “ongoing discussions with these countries” alongside his decision “to exempt steel articles imports from these countries from the tariff, at least at this time.”

That decision came shortly after the seventh round of talks on renewing the North American Free Trade Agreement wrapped up in Mexico City on March 5. The three Nafta partners agreed to meet again in late March or early April to tackle remaining issues, particularly the US demand for enhanced sourcing requirements for steel and aluminium and other automobile components.

Trump’s proclamation signaled that he will want progress on origin rules during the Nafta talks. “I expect that Canada and Mexico will take action to prevent transshipment of steel articles through Canada and Mexico to the United States,” he wrote.

US Trade Representative Robert Lighthizer, addressing his Canadian and Mexican counterparts at the conclusion of the talks on March 5, warned that time was running out on the Nafta renegotiation effort and said the US was willing to go it alone if future meetings failed to get a good deal. He pointed to the July 1 presidential election in Mexico and the November mid-term Congressional elections in the US as factors “which complicate our work. I fear that the longer we proceed, the more political headwinds we will feel.”

“We have tried to be clear and very specific in what we want to see in a new Nafta,” he told the Mexico City gathering. “As President Trump has said, we hope for a successful completion of these talks, and we would prefer a three-way, tripartite agreement. If that proves impossible, we are prepared to move on a bilateral basis, if agreement can be made.”

Market divided
In the more immediate aftermath of the tariff announcement, reaction in the metals industry has been predictably divided along the US-Canadian border. Executives from both U.S. Steel and Nucor, who had flanked Trump at the White House signing ceremony, wasted no time in lauding the tariffs and their authorization. Section 232 of the Trade Expansion Act of 1962 allows tariffs to be imposed - without dumping investigations - provided there is a “national security” justification for the action.

“We thank the president for taking decisive and meaningful action to address the massive flood of dumped and illegally subsidized steel imports into the United States,” Nucor chairman, president and chief executive officer John Ferriola said.

Reaction in Canada was less enthusiastic. The Canadian Steel Producers Association issued a statement that “welcomed Canada’s exemption from the tariffs,” and noted that the association continued “to support the dialogue between Canadian and US governments to ensure our integrated markets remain open and that our respective supply chains collectively grow, while continuing to address global excess steel capacity issues.”

And as for that dialogue: Canada and Mexico, at least outwardly, have shown no indication that they will bow to apparent US threats and make Nafta concessions to avoid the tariffs. Canadian foreign affairs minister Chrystia Freeland described Nafta and the steel and aluminium tariffs as “quite distinct issues,” adding that “our negotiating positions are absolutely unchanged.”

Canadian Prime Minister Justin Trudeau has also been at pains to try and separate those concerns, although he told CNN that “the steel issue makes it more difficult to move forward on Nafta.”

Indeed, noting how Trump has linked the duties to what he regards as a successful outcome in the Nafta talks, Dr Peter Warrian, senior research fellow at the Munk School of Global Affairs, University of Toronto, and a senior expert on the steel trade, warned Metal Bulletin: “This has the potential to become doubly bad. The risk that the steel tariff could cause a tariff war is real.”

But a key problem is that overcapacity and low steel prices are also real, Warrian said. And here “China is the elephant in the room” - an issue not addressed directly by Nafta, or even the steel duties given the US’s comparatively low level of Chinese steel imports.

Fueled by cheap Australian iron ore and by ready markets for cheap steel goods, such as in South Korea, Chinese overcapacity is not an easy problem to solve, Warrian said. So, pressure on the Trump administration to act to protect its metal producers will remain while the Nafta talks continue.

Keith Nuthall, Ottawa, Canada; and Ed Zwirn, New York, contributed to this report.

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