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And if there is one thing worse than keeping steel and aluminium tariffs on Canada and Mexico, it would be placing tariffs on imported cars and car parts, too, they said.
“No one is going to pass the USMCA until the tariffs on Canada and Mexico are lifted. It’s just a prerequisite,” said William C. Lane, executive director of Trade for America (TFA), a coalition that supports updating the North American Free Trade Agreement (Nafta).
Lane made his comments at Steel-Con, an annual steel supply chain conference held in Houston and organized by the American Institute for International Steel (AIIS).
USMCA is the trade pact with which the Trump administration wants to replace Nafta. It was signed by the leaders of all three countries in November but requires approval from each country’s legislature to go into effect.
Steel Dynamics Inc (SDI) president and chief executive officer Mark Millett predicted that USMCA would be ratified later this year.
Quotas a no-go The Trump administration implemented Section 232 tariffs – 25% in the case of steel – and quotas in March 2018. It slapped Canada, Mexico and the European Union with 25% tariffs last June.
Replacing those tariffs with quotas – the preference of US Trade Representative Robert Lighthizer – would probably be a deal breaker for Canada and Mexico, said Lane, who also worked at heavy-equipment maker Caterpillar for 40 years.
Canada in particular takes offense at the notion that its imports are a threat to US national security given that Canadian soldiers have fought alongside their US counterparts in Afghanistan, he noted.
The tariffs have also hurt relations with close overseas allies such as Germany and England. “It’s going to take a long time to heal” those relations, Lane said.
And the collateral damage could be far more widespread should Trump extend Section 232 tariffs to automobiles and automobile parts. The president wants automotive tariffs of 25% on German cars in particular and perhaps on Japanese vehicles as well, he said. And a tariff on German cars would amount to a tariff on all European vehicles because Germany is part of the EU, and the EU would retaliate in kind against US companies. “You will see real disruptions going on throughout the whole economy – the auto industry is that important,” Lane said.
An island of high prices Caught in the crossfire have been US steel consumers, whose products are less competitive than those made overseas with cheaper material, Paul Nathanson, senior partner at law firm Bracewell LLP and director of strategic communications for the Coalition of American Metal Manufacturers and Users, said at Steel-Con.
“We’re an island of high steel prices,” Nathanson said. And that’s true even though US steel prices have returned to pre-tariff levels.
Case in point: Fastmarkets AMM’s daily US Midwest hot-rolled coil index was at $661 per ton ($33.05 per hundredweight) on Thursday April 25, down 23.5% from $864.20 per ton a year ago and roughly on par with $652.60 per ton at the outset of 2018, before Section 232 went into effect.
But global prices have fallen in tandem with US prices over the last 12 months. The US price remains 39.5% above the Southern European HRC price of $473.90 per ton and 38.1% above the Chinese HRC export price of $478.71 per ton, according to Fastmarkets figures.
Many members of Nathanson’s coalition – metal formers, contractors and equipment manufacturers – have recorded solid activity during the past year thanks to a strong economy. Most also buy domestic steel.
“When you talk to our guys… they say, ‘Yeah, we are doing really well. But we should be doing much better,” he said, noting that some registered record revenue but paltry profits because of a tariff-related margin squeeze. And some have started to lose orders to competitors abroad.
Bipartisan opposition to Section 232 is building, Nathanson said. Nancy Pelosi, the speaker of the US House of Representatives and a California Democrat, and Pat Toomey, a Republican senator from Pennsylvania, are on opposite sides of most issues but are united against Section 232.
“USMCA is not going to be passed unless something is done with the steel tariffs,” Nathanson said.
And quotas aren’t a solution. “The Canadians have told us that they are not going to agree to quotas. For the most part, the Mexicans are saying the same thing,” he said, adding that his members consider quotas to be “far worse” than tariffs.
If there is one Trump trade policy with even less support in Washington than the Section 232 measures on imported steel and aluminum, it is extending those measures to foreign automobiles and auto parts, Nathanson said.
Putting tariffs on passenger vehicles and vehicle parts would impact almost every congressional district. “There is nobody in Washington advocating for auto tariffs. But one guy in the White House… is enamored with them,” he said.
Trump’s infatuation with tariffs – and global reaction to them – is doing little to help farmers grappling with flooding in the US Midwest and fishermen who have lost lobster markets abroad because of retaliatory measures.
Republicans, however, are unlikely to be vocal in opposition to a president who is overwhelmingly popular with the party’s base. “There are very few profiles in courage when it comes to members of Congress,” Nathanson said.
The Office of the US Trade Representative did not respond to a request for comment. A Commerce Department spokesperson referred questions about Section 232 to the White House, which did not respond to a request for comment.
“POTUS is the one who implements 232 tariffs, so this would be his call,” the Commerce spokesperson said in an email to Fastmarkets AMM.
Michael Cowden