Trade Cases

Trade Wars—The Force is Against Us

Written by Sandy Williams

Recommendations from the U.S. Commerce Department calling for potential tariffs and quotas on steel and aluminum imports under Section 232 elicited a strong global reaction including trepidation, anger and threats of retaliation.

Commerce Secretary Wilbur Ross said during a conference call Friday he wouldn’t be surprised if there were retaliations to the measures, adding that “there has been no dialing back” of the recommendations despite arguments from the steel and aluminum consuming industries.

China called the report findings groundless. “The spectrum of national security is very broad. Without a clear definition, it could easily be abused. If every country followed the U.S. on this, it would have serious ramifications on the international trade order,” said Wang Hejun, a senior official at China’s Commerce Ministry.

“If the United States’ final decision hurts China’s interests, we will take necessary measures to protect our rights,” added Wang.

Retaliation could come in the form of tariffs on agricultural goods from the United States. China is the largest export market for U.S. soybeans at $14 billion in sales in 2016. Other targets might include Boeing aircraft and restrictions on companies like Apple and Intel.

On Saturday, the South Korean Trade Ministry met with trade officials and domestic steel industry leaders to discuss countermeasures and find ways to minimize damage from potential Section 232 action.

“Although a broad trade war is unlikely, confrontation over single products will increase,” Huo Jianguo, a former director of a ministry research institute, told the South China Morning Post.

Said one steel producer, according to Yonhap News, “As the internal and external business environments are worsening, (local steel producers) are expected to face a tougher year and smaller firms will be more vulnerable to (the U.S. tariffs). Local companies will have to diversify sources of revenue and expand the export market with high value-added products.”

Wrote the South Korean trade ministry, “The private and public sectors shall work together to maximize contact with the U.S. government, Congress and the (steel) industry until the final decision is made. We shall also analyze the consequences of each scenario and figure out a respective contingency plan for every possibility.”

The EU steel association EUROFER implored Trump “not to pull the trigger on trade war.” Axel Eggert, Director General of EUROFER, warned that blanket trade restrictions will “almost certainly be contested by other WTO countries” and would “spark prompt retaliation alongside action from the EU.”

EUROFER is concerned that quotas and/or tariffs would seriously and unfairly injure EU producers.

“Were either of the two alternatives deployed, we would expect swift and vigorous counteraction by the EU in order to prevent any potential negative impact on our industry, including necessary safeguard measures mirroring the product scope and types of any U.S. Section 232 trade measures,” emphasized Eggert. “The EU has an arsenal of trade remedies and safeguards available to defend its interests. These can be ready to launch in very short order in response to an economic threat, and EU industry will demand their immediate application.”

EU Trade Commissioner Cecilia Malmström agreed with EUROFER, saying the EU will seek retaliation if the Section 232 measures damage European steelmakers.

Canada’s United Steelworkers director says Canada is not among the “bad actors” engaged in dumping steel and aluminum into the U.S. and must be exempted from any potential trade restrictions. “There is no justification to include Canada with countries that systematically violate trade laws and engage in the dumping of illegally subsidized aluminum and steel,” said USW National Director Ken Neumann.

U.S. trade action against Canadian aluminum and steel would not serve the interests of the American economy, said Steelworkers’ Quebec Director Alain Croteau. “Imposing tariffs or quotas on Canadian exports will result in job losses in the U.S. manufacturing sector and will increase prices for many goods and products. Workers on both sides of the border will lose,” said Croteau.

Australian Prime Minister Malcolm Turnbull is expected to plead for an exemption from any measures imposed by Section 232. Blue Scope Steel and Rio Tinto would be the hardest hit by any quota or tariff actions.

Rio Tinto’s Canadian aluminum smelters sell more than $2.5 billion of aluminum to U.S. manufacturers from the Quebec and British Columbia smelters. Rio Tinto’s CEO Alf Barrios said Canada, Australia, and the UK have long been considered part of the U.S. defense base. “Aluminum from Canada has long been a reliable and secure input for U.S. manufacturers – including the defense sector,” said Barrios.

Rio Tinto announced two weeks ago that because of the positive aluminum market it is considering expanding its Canadian smelters. Restrictions on aluminum exports to the U.S. could impact any future investments.

BlueScope’s U.S. subsidiary Steelscape uses imported steel from Australia and Asia to produce coated steels for the nonresidential building and construction markets.

Although Ross said BlueScope shouldn’t have a “serious” problem, the company is concerned about quotas that would prevent future growth.

“We will not pre-empt any decision by the president, but given that our investments support more than 3,000 U.S. jobs, and we have an appetite for more growth in that massive and highly attractive market, we are certainly hoping for an outcome that does not disadvantage Australian steel exports,” said a spokesman for BlueScope.

While the U.S. steel industry favors broad actions against steel imports, the Aluminum Association responded with more caution. In a press release, they asked the administration to specifically address Chinese overcapacity, while avoiding unintended consequences for U.S. production and jobs. Current trading relationships with countries that operate as market economies such as Canada and the EU should be protected, they added. 

“Of particular note, the North American aluminum industry has a long-term, essential trading relationship with Canada, which supports U.S. jobs and industry growth. By statute, Canada is considered part of the nation’s defense industrial base,” wrote the association.

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