The Tariff Trap
FIA’S PUBLIC POLICY WATCH
Tariffs on top of tariffs, as far as the eye can see. Trade policy in Washington has been turned on its head, and organizations like FIA are working overtime to ensure that their members’ voices are heard. That’s not always easy in this environment, but it’s critical.
As readers of this column know, in March the President implemented a 25% tariff on most basic steel products (flat rolled, sheet, bar, ingot, wire, etc.) and a 10% tariff on aluminum products, including “forgings and castings.” The tariffs were instituted under Section 232 of the Trade Expansion Act of 1962, which gives the President broad authority to impose sanctions on imports that threaten national security. There is no definition of national security under this section, and there is no time limit on any sanctions imposed, nor is there any judicial review.
Although Australia, Argentina, Brazil, Canada, the European Union, Mexico and South Korea were initially exempted from the tariffs until May 1, 2018, pending further negotiations, those exemptions have now ended. The Department of Commerce is overseeing a process whereby individual companies can request product exclusions for covered products not available in the necessary quantity and quality in the U.S. To date, they have received over 20,000 such requests but have granted fewer than 100.
Not surprisingly, Canada, Mexico and the European Union swiftly announced retaliatory tariffs on U.S. exports, notably agricultural products, bourbon whiskey and motorcycles.
FIA submitted written comments prior to the imposition of the steel and aluminum tariffs, highlighting its concerns about unintended consequences on downstream users of steel and aluminum due to increased raw-material costs. If tariffs were to be imposed on steel and aluminum, FIA argued, then downstream products such as forgings needed to be protected as well. We also communicated with members of Congress during our annual Lobby Day in April on the potential negative impacts of the tariffs on forgers.
The final order on aluminum did include forgings and castings, but the order on steel did not. Steel-consuming industries are reporting substantial price increases for domestic steel, increased lead times and, in some cases, loss of business to offshore competitors that can buy steel and forgings at global prices.
Although there is no direct role for Congress in this process (Congress having delegated its constitutional role to the President with the passage of Section 232), some members have begun to express concern that the President has overstepped his bounds. Several pieces of legislation have been introduced that would establish Congressional oversight over such matters, but none is expected to become law soon, if ever. Still, it is an indication of the concerns being expressed about the negative impacts of the tariffs.
In an unusual twist, a lawsuit has been filed challenging the constitutionality of Section 232. The lawsuit, filed by the American Institute for International Steel and two of its members that purchase steel, argues that Congress went too far in delegating its authority to impose tariffs in this statute, failing to provide for any oversight or judicial review, thus violating the separation of powers called for in the Constitution.
At about the same time, the U.S. government also proposed tariffs on up to $60 billion of imports from China. These tariffs were proposed under a different section of the trade law, Section 301 of the Trade Act of 1974, which authorizes the President to “take all appropriate action, including retaliation, to obtain the removal of any act, policy or practice of a foreign government that violates an international trade agreement or is unjustified, unreasonable or discriminatory, and that burdens or restricts U.S. commerce.” Again, not surprisingly, China responded with tariffs on U.S. exports of a similar amount. China also challenged the tariffs in the World Trade Organization (WTO). There are some forgings from China listed on the U.S. list.
Amidst this backdrop, in May the President announced yet another 232 investigation, this time on autos, vans and light trucks, as well as parts thereof. The auto industry has come out in opposition to such tariffs, as have most other trade associations representing manufacturers. The investigation is still ongoing with public comments due June 29. FIA will submit comments in this matter as well, again stressing the need to protect forged steel auto parts in the light of continued tariffs on steel.
No one knows how or when this will end. Some observers have suggested that these actions are part of a larger strategy by the Trump administration to force our trading partners to the negotiating table, where deals can be struck to correct global imbalances in steel capacity or to remove punitive tariffs and other restrictions against U.S. exports. Others argue that they see no coherent strategy, only random actions that threaten to start an all-out trade war between the U.S. and the rest of the world. Either way, U.S. manufacturers are caught in the cross-fire.
Please refer any questions or comments to James Warren, FIA president and CEO (left). He can be reached directly at 216-781-6260 or email@example.com.
Jennifer Baker Reid (right) is FIA’s Washington Representative. For additional information, visit www.forging.org.