Price: A Busy Summer on Trade Issues Continues

Multiple Section 301 investigations remain ongoing with potential implications for steelmaking raw materials

The Office of the US Trade Representative (USTR) is conducting several Section 301 investigations, including on forced labor and structural excess capacity as well as country-specific investigations on Brazil, Vietnam, and Germany.

For instance, on June 2, as part of its forced labor investigation, USTR proposed a 10-12.5% tariff on 60 countries for their failure to either effectively impose or enforce import prohibitions on goods made with forced labor. USTR received more 1,500 comments from interested parties by its July 6 deadline, and the Section 301 committee hosted a hearing with more than 100 witnesses testifying from July 7-9.

While these tariffs, as proposed, would not apply to products that are already covered by Section 232 duties (e.g., steel and steel derivative products), many expect these broadly applied tariffs to enter into force near the end of the month as a means of at least partially replacing the 10% Section 122 tariffs that are set to expire on July 24. There is some speculation that the Section 122 tariffs could be extended or reimposed for a time. But it seems more likely that they naturally expire on July 24 and are effectively replaced by some combination of the forced labor and other Section 301 duties.

USTR is also investigating 16 economies related to alleged structural excess capacity and production in their manufacturing sectors. Like the forced labor measures, any duties applied because of this investigation may be used to replace the Section 122 program or otherwise backstop existing tariff programs. However, the administration has not yet issued a proposed action as a result of this investigation, which means that it is unlikely that any such tariffs will be put into effect by July 24.

Beyond forced labor and excess capacity, USTR is also investigating individual countries under Section 301 for alleged unfair and distortive trade practices. Notable to the steel industry is the administration’s investigation into Brazil, where, on June 1, USTR announced its proposed 25% tariff on Brazil as a result of its investigation into various unfair and preferential Brazilian acts, policies, and practices. USTR solicited comments on this proposed measure through July 1 and held a hearing on July 6-7.

With respect to raw material coverage, the Steel Manufacturers Association is arguing that the steelmaking raw materials not covered by the Section 232 program should similarly not be included under any of the proposed Section 301 measures. (The American Iron and Steel Institute is not participating and did not file comments.) Several companies are arguing that certain steelmaking raw materials should be covered by the tariff action.

Of note, the proposed actions issued by USTR differ by program. For instance, the proposed Brazil tariffs would cover all imported products with a few exceptions, including goods covered by Section 232 tariffs and certain specifically excluded products. Relevant to the steel sector, proposed exclusions include iron ore (agglomerated), direct reduced iron, coal and coking coal, some ferroalloys, stainless steel scrap, and certain iron and steel products when used for civil aircraft. The proposed forced labor tariffs differ slightly and are similar in scope to the International Emergency Economic Powers Act (IEEPA) reciprocal tariffs, covering a comparable list of steelmaking inputs.

Notably, pig iron is not excluded from the proposed Brazil measures. This would represent a change from the Brazil EEPA tariffs, which excluded pig iron. Despite arguments by Cleveland-Cliffs to cover pig iron, this proposed change is inexplicable as nothing has fundamentally changed in the domestic pig iron supply since it was excluded from the Brazil IEEPA tariffs. Separately, Mesabi Metallics, a company not yet in production, is requesting coverage of a different product, agglomerated iron ore. Going forward, which inputs remain covered and excluded from the Brazil Section 301 measures will be worth monitoring because they will impact the competitiveness of the domestic steel industry.

Section 232 investigation announced on anthracite coal

On June 29, the US Department of Commerce self-initiated a Section 232 investigation into imports of anthracite coal, which the agency defines to include both anthracite coal and metallurgical bituminous (i.e., coking) coal. Both anthracite coal and coking coal are used in aspects of steel production. And integrated producers use coking coal in their blast furnaces. The turnaround for interested parties to submit written comments and information to assist in Commerce’s investigation is tight, with those comments due July 21.

Administration suspends duties on Moroccan fertilizer, creating troubling precedent

Another noteworthy (and unfortunate, in our view) recent trade development is the proclamation issued by President Trump on June 29 that temporarily suspends the antidumping and countervailing duties (AD/CVD) on phosphate fertilizer imports from Morocco.

The president took this action due to the inadequate supply of phosphate fertilizer in the US market, especially following the closure of the Strait of Hormuz and other disruptions to Middle East fertilizer production. While there is no direct impact for the domestic steel industry, this sets a bad precedent for future weakening of US trade laws. American steel producers have long benefitted from AD/CVD protection, which are intended to provide durable trade relief. Any suspension or reduction of those measures would be very detrimental to US manufacturing and antithetical to the president’s established trade agenda.

The emergency powers authority the president relied on to suspend these duties is meant to be limited, temporary, and for extraordinary situations. We note that this is the second time that a President has suspended AD/CVD duties under these powers due to an emergency. The first was President Biden’s two-year tariff holiday during the solar circumvention case. Even though that action faced bipartisan opposition and was ultimately reversed by the courts, it was very harmful to the domestic industry. And while President Trump’s latest action is limited to eight months and applies only to Moroccan fertilizer, it is a troubling pattern that we will be watching closely.

USMCA renewal deadline passes, status quo remains

Lastly, as expected, the July 1 renewal deadline for the United States-Mexico-Canada Agreement (USMCA) came and went last week without much consequence. As we predicted, this was the most likely outcome and simply means that the USMCA parties will continue negotiating under a cycle of annual reviews. Indeed, as US Trade Representative Greer noted, while not agreeing to renew the pact, the United States continues to negotiate with Mexico and Canada. While negotiations with Canada do not appear active at the moment, the United States is continuing its bilateral talks with Mexico—with a third round of bilateral negotiations scheduled for the week of July 20. For now, though, the status quo stays in place. We are continuing to monitor carefully and will surely return to the ongoing USMCA negotiations in the coming weeks.