US President Trump impending decision to increase the 25 percent tariffs on steel and 10 percent tariffs on aluminum and Section 232 in action in a week’s time has confirmed an expected trade war US has started with rest of the world.
The Impact:
The trade war started at a slow pace from Jan’17 as and when US withdrew from the Trans Pacific partnership till Feb’18 when US declares WTO as a “catastrophe”. But, the March 2018 Section 232 action is the most aggressive one which will have a rippling effect across the world.
Thus far, most U.S. trade counterparts have responded rhetorically, threatening counter-attacks, but, the Section 232 will sure to test their prudence.
What is Section 232 ?
Section 232 of the Trade Expansion Act of 1962 grants the president authority to limit or restrict imports that are determined to have an impact on national security. The U.S. currently has 169 anti-dumping and countervailing duty orders in place for steel.
The broader outlook of the President of Section 232 : If the findings of Commerce Department turns out conclusive, then the President must act to ‘adjust’ the imports of any “article and its derivatives so that such imports will not threaten to impair the national security” of the U.S. ‘Adjustment’ is not tied to the geographical origin of imports, nor to a class of merchandise, as are the AD-CVD and safeguard remedies are done.
Three options given by the US commerce dept: The options are: 1) Steel will see a 25% tariff from all the countries; 2) merchandise steel will at least see a tariff of 53% from 12 countries including India 3) also the capping of all steel imports from a specific country at 63 per cent of its 2017 exports to the US.
As per reports the President option is one to impose the steel tariffs of 25 percent and aluminum tariffs of 10 percent for all the countries.
Fulfilling the Trump mandate & China- the target
In his June 2016 speech during elections candidate Trump has made his intention to use Section 232 to stand against Chinese export policies that rendered American jobs.
The Trump Administration roughly plans around 80% capacity utilization in each industry, up from the 2017 level of 73 percent in steel and 48 percent in aluminum, by cutting down on steel imports by 13.3 MnT and aluminum imports by 669,000 tons.
The Administration says Chinese shippers make minor alterations to their goods and trans-ship them through third countries, to confuse U.S. Customs and Border Protection and so the Section 232 tariff will act like a barrier protecting US from Chinese trickery.
Probable reality of foreign imports to US
Most steel for US comes from its closest countries like Canada, which provides 6 percent of steel and it is the single biggest supplier as well as from Brazil, Japan, South Korea, and Mexico.
America is not dependent on China even though it is the world’s largest steel exporter and China accounts for just 4% of US steel imports.
The overall situation is not worrying as Chinese steel exports rose globally by 378 percent (since the second quarter of 2009), but fell in volume and value terms (by 31 percent and 2 percent, respectively, in 2017 and 2016).
Chinese steel exports to America fell by 5 percent in 2017. China also exported less, and consumed more, of what it made and in the same way India is the world’s 14th biggest steel exporter, and the U.S. is its sixth largest destination, behind Nepal, Vietnam, Italy, Belgium, and the UAE.
Section 232 cannot fix global Over Capacity
As per reports the commerce department report shows that the world steelmaking capacity is 2.4 billion metric tons, up 127 percent from 2000, while steel demand grew at a slower rate and the recent global excess capacity is 700 million tons, almost 7 times the annual total of U.S. steel consumption. So this over capacity globally may be the prime problem of America’s steel producers face. So Section 232 tariff may not able to fix the overcapacity problem.
China’s excess capacity alone exceeds the total U.S. steel-making capacity and the Trump Administration claims Beijing boosted its steel production capacity over 160 percent since 2009 through July 2017, and says current Chinese steel production exceeds the total combined capacity of America, Brazil, India, and Japan.
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