US could ease Section 232 tariffs on Canada, Mexico as early as next month, AISI says
The US might agree to relax Section 232 tariffs on steel from Canada and Mexico by the end of November, the president and ceo of the American Iron & Steel Institute (AISI) said on Tuesday October 16.
Thomas Gibson said that Section 232 steel tariffs - 25% n in the case of Canada and Mexico - could be replaced by another mechanism to limit imports, such as quotas.
“That’s being discussed at high levels by the governments right now,” Gibson told Fastmarkets AMM in an exclusive interview at the World Steel Association (Worldsteel) annual conference in Tokyo.
The US-Mexico-Canada Agreement (USMCA), the trilateral trade pact that is expected to replace the North American Free Trade Agreement (Nafta), was agreed on September 30.
“The governments said that after they got the USMCA agreed... they could then move on to talking about the Section 232 situation,” Gibson said.
The leaders of the three countries are expected to hold a signing ceremony for USMCA on November 30, according to AISI general counsel and secretary Kevin Dempsey.
That is largely because Mexico’s current president, Enrique Peña Nieto, who has been responsible for negotiating USMCA on behalf of Mexico, is leaving office. Mexico’s new president, Andrés Manuel López Obrador, takes office on December 1.
“It doesn’t have to happen [on November 30] but all of the work over the last three months has been geared towards getting to that date,” Dempsey said.
Section 232 success
Section 232 has largely been a success for the US steel industry, Gibson said, with imports down 11% so far this year and down 19% since April - shortly after Section 232 tariffs were imposed in March. And imports now account for 24% of US steel sales, compared with 27% in 2017.
US Steel, for example, has restarted idled blast furnaces at its Granite City Works in southern Illinois. And domestic mill capacity utilization rates are above 80% - a key goal of the Section 232 tariffs, Gibson said.
Domestic raw steel production was 1.88 millon net tons while the capability utilization rate was 80.2% in the week to October 13, according to AISI data. But capacity utilization rates must remain above 80% for a “sustained” period of time before Section 232 can be “eased or removed more broadly,” Gibson added.
“I don’t think there is any magic that, having attained 80.2% for last week, [you can] say the problem is solved,” Gibson said.
He said it would be better still if the United States saw average capacity utilization levels in the mid- to high-80% range - rates achieved before the 2008 financial crisis.
Section 232 also remains necessary, he added, because of problems such as duty circumvention and because the world remains awash with steelmaking overcapacity of about 600 million tonnes - much of it in China.
“The overcapacity issue has not been solved,” Gibson said. “Growth is good, but we’re not going to grow our way out of [overcapacity].”
And he rejected the idea that Section 232 might hurt domestic steel demand by disrupting manufacturing supply chains.
“The risk to the supply chain is if you don’t have a reliable steel industry in the country,” he said. “That’s the real risk - that the supply chains become beholden solely to foreign sources.”
Mythical midterm divisions
One thing the AISI is not worried about is the US midterm elections.
While the country is divided on many issues, support for the steel industry and issues important to steel - such as infrastructure spending - have bipartisan support, Gibson said.
“Usually, infrastructure is an area where Democrats and Republicans can come together,” he said. “[Infrastructure spending] could fill a political need for members - to have something that they can bring home to demonstrate that they can work together.”
US president Donald Trump has already pledged to spend $1 trillion on infrastructure, although the means of financing that hefty sum are not clear.
But an infrastructure bill might not come to the forefront of US policy until 2019-2020, because the next Congress won’t take office until January and because big infrastructure deals tend to happen in presidential election years - the next of which is in 2020.
And on the funding front, Gibson said that where previous governments had paid for improvements to roads and bridges through a gasoline tax - effectively a users’ fee - that method no longer works.
“Patterns have changed. Vehicles don’t consume as much gas,” he said, pointing to the fact that trend will only accelerate as electric vehicles become more prevalent.
“How do you charge a user fee on an electric vehicle that is putting as much wear and tear on the road as a gasoline-powered vehicle?” Gibson said. “There needs to be a new deal on highway funding and on infrastructure funding generally.”