Trump tariff talk stirs markets

Trump tariff talk stirs markets

President’s intended steel and aluminum tariffs provoke criticism in his own political party and around the world.

March 2, 2018

An announcement made by President Donald J. Trump Thursday afternoon (United States time), March 1, 2018, that he fully intends to impose tariffs on imported steel and aluminum greeted metals producers and traders in the rest of the world as they awoke on Friday morning, March 2.

Trump’s announcement was cited as the cause of a sell-off in the New York Stock Exchange and provoked numerous reactions and comments in North America and beyond. According to CBS News, the president “summoned steel and aluminum executives to the White House” March 1 and stated, “We'll be signing it next week,” regarding an executive order imposing new tariffs. Trump reportedly added, “You’ll have protection for a long time, in a while.”

One Hong Kong-based scrap trader, who requested anonymity, noted that while China is pointed to most frequently as the problem by campaigning politicians, an analysis he read “suggests that it may be Canada, Germany, Japan and South Korea, all close allies of the United States, who will suffer most.”

Reactions from Canada and Europe have been strong, but coverage of the tariffs by the China Daily, considered closely aligned with the Beijing government, indicates China was responsible for just 2 percent of the imported steel shipped into the U.S. in 2017.

Shanghai-based investor John Browning of BANDS Financial, who spoke at the May 2017 Bureau of International Recycling (BIR) World Recycling Convention in Hong Kong, observes in his daily dispatch to customers that “In the popular press this morning [in China], the Trumpian trade tariffs news was placed below ‘China, Tonga agree strategic partnership.’ This may reflect the fact that in China these tariffs may largely be a nonissue.”

Figures for 2017 published by the Washington-based American Iron and Steel Institute (AISI) show China shipped less finished and semifinished steel into the U.S. in 2017 than it did in 2016, and the 813,000 metric tons it shipped were surpassed by Brazil (987,000), Taiwan (1.2 million), Germany (1.4 million), Japan (1.5 million), Turkey (2.2 million) and South Korea (3.7 million).

Some industry observers do express concern that much of the steel recorded as coming from South Korea and Taiwan may be produced in China and is shipped via those two nations (and possibly via Canada) on its way to the U.S.

All those nations’ figures are topped by Canada, which in 2016 shipped more than 5.5 million metric tons of steel to the U.S.

On the aluminum front, Dhawal Shah, Managing Director of Mumbai-based Metco Marketing India Pvt. Ltd. states, “The proposed 10 percent tariff on imports of aluminum by the U.S.A. misses logic and rationality.”

The U.S. consumed about 6 million tons of aluminum in 2017, according to the U.S. Geological Survey (USGS), but produced just 740,000 tons of primary aluminum. “Even if they re-start idled lines, they could push it to about 1.5 million,” says Shah, who also is an officer with the Metal Recycling Association of India (MRAI). Adding that to the 3.7 million tons of secondary production, the U.S. would still be a net importer of finished or semi-finished aluminum.

“So, the U.S. has no alternative but to import, and in the process make consumers pay more for cars, cans, conductors, etc.,” states Shah. “It will create a handful of jobs (aluminum production is labor light), but it’s the American consumers who will have to foot a huge bill. I do understand that Mr. Trump wants to revive American manufacturing and create jobs. But my hope is [this] overzealousness does not end up making American consumers pay through their nose. The math is simply missing here.”

At least one China-based critic appeared in the form of the China Nonferrous Metals Industry Association (CNIA), which includes as an affiliate the Metals Recycling Branch (CMRA). CNIA VIce Chairman Wen Xianjun was quoted by Bloomberg as saying the U.S. measures “overturn the international trade order” and that “other countries, including China, will take relevant retaliatory measures.” Bloomberg also quoted a China Iron and Steel Association (CISA) officer as calling the move “stupid.”

The Hong Kong trader also questions the use of America’s Section 232 national security measure as a means of imposing the tariffs. “He’s using a national security investigation from last year and invoking a loophole in international trade rules allowing restrictions in times of war. Is he bringing in the measures for political gain to stimulate the domestic economy and U.S. labor market, or is he preparing for something more serious or just hedging both bets?”

He concludes, “Any way you look at it, if he signs off on the order, other countries will follow [with measures of their own].”

Also questioning the Section 232 approach has been Mexican steel industry association CANACERO, which has stated the proposed tariff “would affect various chains of production, attempting to [unwind] NAFTA’s (North American Free Trade Agreement's) integration objectives.”

In addition to the New York stock sell-off, on the Shanghai Futures Exchange on Friday morning, March 2, most aluminum contracts were trading higher, while copper and steel rebar pricing were moving lower.

Closer to home, Trump’s announcement was greeted with skepticism by several Republican Party elected officials in the U.S. According to CBS News, Sen. Orrin Hatch said the Trump advisors who pushed for the tariffs “ought to be reprimanded” because the new tariffs are “not going to help America.”

Sen. Ben Sasse of Nebraska, a Republican like both Trump and Hatch, called the move “leftist economic policy” when contacted by CBS, adding that the U.S. had “tried it a bunch of times over the last two centuries, and every time American families have suffered. It is bad policy.”

Exactly what will be included in the measure President Trump intends to sign the week of March 5-9 is not yet final. The U.S. Commerce Department has suggested different ways to impose tariffs on imported steel and aluminum, including tariffs of 24 percent on all steel and 7.7 percent on aluminum imports applied to all nations equally; or higher tariffs on 12 targeted countries, including Brazil, China, Russia, Hong Kong, Venezuela and Vietnam; or quotas limiting countries to either equal to or less than what they shipped in 2017.

The BBC and New York Times have reported the president is backing tariffs that will involve imported finished and semi-finished steel facing a 25 percent rate while aluminum will see a 10 percent tariff imposed. News outlets were unclear whether those tariffs will apply to all nations or only selected ones.

Leaders from around the world did not hesitate to question the decision. European Commission President Claude Juncker commented, “Protectionism cannot be the answer to our common problem in the steel sector. We will not sit idly. The EU Commission will bring forward in the next few days a proposal for World Trade Organization (WTO)-compatible countermeasures against the U.S. to rebalance the situation.”

“Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers,” Canadian Foreign Minister Chrystia Freeland was quoted as saying by political website The Hill. Regarding the use of Section 232 in the measure, she added, “It is entirely inappropriate to view any trade with Canada as a national security threat to the United States.”

The president of MillerCoors Brewing took to his Twitter account to say, “American workers and American consumers will suffer,” adding the company has been “selling an increasing amount of our beers in aluminum cans, and this action will cause aluminum prices to rise.”

As of Friday, March 2, neither the Brussels-based BIR or Washington-based Institute of Scrap Recycling Industries (ISRI) had released a statement reacting to the tariff announcement.