Trade & Tariff Update: Focus on Trade — China, Steel, Aluminum, Shipbuilding

Last week gave us a glimpse into the effect of the 2024 election campaign on trade policy.? It’s a lot to unpack.

In a major announcement last week, the Biden administration pressed the US Trade Representative to triple (from 7.5%) certain Section 301 tariffs on steel and aluminum.? The President also announced that USTR initiated new Section 301 investigation covering China’s alleged unfair practices in the shipbuilding, maritime and logistics industries, based on a petition by five labor unions.? The petition alleges that China’s policies aim at domination of these important global commercial activities.?

The administration statement doubled down on the President’s earlier promise to keep United States Steel American-owned and American operated, opposing the agreement between US Steel’s management and Nippon Steel to sell 100% of US Steel’s stock to Nippon.? That deal was overwhelmingly approved by US Steel’s shareholders on Friday, April 12.

There’s more: the President will speak with Mexico about a growing apprehension that Chinese “and other” steel exports are evading Section 232 or Section 301 tariffs by transshipping through Mexico to the United States.? (Transshipping means mislabeling Chinese steel as Mexican—it does NOT mean using Chinese steel to manufacture other products, such as cars, in Mexico.? There is no real evidence that the former is happening on a big scale.)?

Finally, the President announced grants to Cleveland-Cliffs and others to support several “clean steel” and other energy-related projects.? The Cliffs production facility at Lyndora, Pa., which makes high-silicon grain-oriented electrical steel critical in the production of power and distribution transformers and is the only such plant in the US at present.? Cliffs received another $500 million for a demonstration project on hydrogen-ready steelmaking in Middletown, Ohio.? Other projects, totaling a maximum of about $900 million, were awarded to four different companies.?

Another series of projects was announced last Friday, such non-oriented electrical steel in Calvert, Alabama; lithium-ion battery recycling.?

For those with an appreciation for irony, the projects (accounting for more than half the funds) were awarded to SSAB (Sweden)($500 million) and Vale USA (Brazil)($282 million) and the ArcelorMittal-Nippon Steel joint venture in Calvert, Alabama, highlighting the contributions of foreign investors in the US economy.? DOE announced no grants for US Steel.?

The Biden announcement coincided with a visit the President made to the international headquarters of the United Steelworkers union.? During his speech there the President practically (although not quite explicitly) vowed to block the acquisition of US Steel by Nippon Steel.?

Several aluminum-related development projects were also announced.?

As I said, a lot to unpack.

I have not seen a list of the 30-plus steel-related AD/CVD cases since 2021; but it sounds like a lot.? Most of these, of course, resulted from private petitions.? And periodically there is a flurry of these cases when the steel industry turns down.?

The announcement also asserted that “nearly 27 investigations into anti-competitive actions by Chinese exporters” have been conducted by the Department of Commerce.? Again, I have not seen a list—it may be an increase from the Trump administration, but I would be surprised by that.?

Some have dismissed the announcements as “small potatoes.”? That much is true.? Protectionism advocates, of course, want more than the President has announced.? Perhaps he wants more pressure from the protectionist side to demonstrate that he is balancing two competing points of view.

The “tripling” of Section 301 tariffs on imports of steel and aluminum from China will not make much difference in the value of imports.? Steel mill product imports from China (Chapter 72 of the Tariff Schedule) were about $540 million in 2023. For the first two months of 2024, imports from China were down about 62% from the same period in 2023.? And that was before the announcement.

But if USTR intends to include products made from steel (Chapter 73 of the Tariff Schedule), the impact could be much greater.? Imports of “articles of steel,” such as pipe and tube, fasteners, steel grates, totaled $10.6 billion in 2023.? The same situation exists on the aluminum side, but more so.? Most aluminum imports in 2023 were in categories where the tariffs are 7.5% (about $1.5 billion of imported aluminum are on List 4A).?

Many (if not most) of these products are not made in the US in adequate quantities to satisfy domestic demand, or are made in the US at all.? The Section 301 exclusion process, which is no longer active (all granted exclusions are scheduled to expire on May 31), could determine whether US manufacturers and consumers would suffer more harm from the tripling of those tariffs (as well as the extension of the existing 25% tariffs).? The products subject to 7.5% tariffs (List 4A) currently include many, but not all, products from both Chapter 72 and Chapter 73.? The wording the President’s announcement leaves room for many options regarding the continuation of the Section 301 tariffs.

As a matter of law, the US Trade Representative has the authority to raise the tariffs, as part of the “four year review” of the Section 301 remedies that was started in 2022.? Last week, USTR Katherine Tai declared before Congress that the review was almost done.? She specifically mentioned interagency issues regarding exclusions.?

The question remains whether the country will be helped or hurt by the continuation of Section 301 tariffs and, in particular, by the tripling (or more) of tariffs on steel and aluminum.?

One clear winner is Cleveland-Cliffs, which got the attention on China that it wanted, plus nearly $1 billion in support for clean technology.? These process changes are still preliminary and experimental, but money is fungible.?

Less certain is the impact on steel using manufacturers and their supply chains.? Imports are essential to the US market, as I’ve pointed out before.? Steel users employ about 80 times the workers as steel producers; helping retain jobs in steel does not necessarily help steel users.? And these demonstration projects don’t necessarily retain existing jobs.?

Tariffs certainly impede the efforts to tame inflation.? They are regressive taxes that hit the poor the hardest.?

A lot will depend on how robust the exclusion process will be under the renewed 301 tariffs.? If exclusions are readily available for products not made in the US, or not made in sufficient quantities, the tariffs may not hurt too much.? If that does not happen, many steel and aluminum users could be headed for the exits.??