Section 232 Tariffs Could Be Dwarfed by Section 301 Actions, Experts Say

Despite the recent attention on Section 232 tariffs, some expect the effects of the Section 301 investigation started last year (see 1708210024) to eclipse the steel and aluminum import restrictions, panelists said at a Washington International Trade Association event March 13. Wendy Cutler, a former acting deputy U.S. trade representative, said once the White House announces what it's doing to respond to China's intellectual property transgressions, "we won't be talking about steel and aluminum."

Combined steel and aluminum imports were a little less than $50 billion last year; the figure is lower when imports from Canada, Mexico and Australia are removed. The 301 investigation, Cutler said, concerns "hundreds of billions of dollars. It's going to have a profound impact on the trade world." The 301 investigation, which began in August, must be completed within a year of initiation.

One strand of the expected response will be restricting Chinese investment in U.S. firms until China changes its policies on foreign investment. But tariffs will likely go up, too. "From my perspective, I think it would be a big mistake to go down the tariff route with 301," said Cutler, who is currently vice president of the Asia Society Policy Institute.

Rufus Yerxa, president of the National Foreign Trade Council, said a coordinated response to Chinese IP transgression is needed. The "232 fracas" will make coordinating a response to China on IP among allies even harder, he said. Yerxa said the tariffs, if they are broadly applied, will backfire, especially since the U.S. backed out of the Trans-Pacific Partnership while Canada and Mexico stayed in. As a result, he predicted, companies that make steel-containing products that they intend to export to Asia will choose to do final assembly in Mexico rather than the U.S., because they will avoid both higher input costs and higher tariffs.

"I would argue this is really a wonderful strategy to have a deindustrialization policy," he said. The last time there were steel tariffs, in 2001, Yerxa said, there were thousands and thousands of product exclusions. Before the Commerce Department could determine which products would be excluded, steel consumers paid duties, and were refunded later if that product was exempted.

While most trade professionals and economists oppose the 232 tariffs, Nova Daly, a senior public policy adviser at Wiley Rein, suggested that allies in Europe and other parts of the world may have needed something dramatic to get them to be serious about confronting Chinese subsidization and overproduction in metals. And, he said, China is not the only country that uses state intervention to bolster its mills and foundries. Russia and some countries in Western Europe and the Middle East do, too.

Precisely which countries will face tariffs, and at what levels, is still unclear. Canada and Mexico have exemptions, for now, and Australian Prime Minister Malcolm Turnbull said Australia is going to be exempted (see 1803120029). But how will the USTR decide if the EU, Japan or South Korea can avoid tariffs? Yerxa said the USTR will encourage exporters to implement voluntary export restraints, but he said he has "very low expectations that other countries are going to roll over to USTR."

The Aluminum Association CEO Heidi Brock said in a brief interview after the panel that while her association is pleased Canada is exempted, in the industry's view, no market economy should face tariffs on aluminum exports. The trade group represents primary producers, but far more of its membership is scrap recyclers, midstream producers and fabricators. The Midwestern Aluminum Premium has climbed almost 10 percent compared to the London Metal Exchange prices, according to Reuters, so avoiding a price increase by avoiding imports is not as easy as Trump suggested in his announcement last week.

Imported scrap aluminum is not subject to tariffs, and Brock said her group will be watching what happens at scrap recyclers, to see if more aluminum consumers turn to recycled aluminum. "Scrap has already become a more important component of our aluminum supply," she said.