Commerce Secretary Says Quotas Required for Permanent Section 232 Exemptions

Only one of the allies that have so far avoided tariffs on their steel and aluminum exports to the U.S. has agreed to reducing the volume of those exports -- and Commerce Secretary Wilbur Ross says all will have to if they don't want to face tariffs. "If people don't have the tariffs, and they don't have the quota, that would defeat the whole purpose of the [Section] 232s," he said, which is to boost aluminum and steel production domestically. Since the temporary tariff exemptions for the European Union, Canada, Mexico, Brazil, Argentina and Australia end May 1, it remains to be seen if countries in talks with the U.S. will get another extension.

Ross said extensions depend on whether President Donald Trump feels U.S. negotiators are far enough along in talks with any of those countries that it makes sense to extend the deadline. Treasury Secretary Steven Mnuchin, speaking to Fox Business News in an interview that aired April 30, said the president has not made a decision yet.

Negotiations with Europe so that those countries can avoid a 25 percent tariff on steel and a 10 percent tariff on aluminum are not the same as re-opening the Transatlantic Trade and Investment Partnership, Ross told an audience of business journalists in Washington on April 27. "What we're trying to work for is a one-off solution to resolve the 232 tariffs, as well as some other issues."

The start of May is not just when the temporary exemptions expire, it's also the week U.S. Trade Representative Robert Lighthizer, China hawk Peter Navarro, Mnuchin and White House Chief Economic Adviser Larry Kudlow fly to China for trade talks. Ross said it's difficult to know what path the trade conflict between the two countries will take. He said the president has made it clear he is looking for a $100 million reduction in the trade deficit. "Exactly how you get there is a different question," he said. "How long it takes to get there is a different question."

The U.S.-China Business Council, whose members are affected by China's forced joint venture and technology transfer rules, is wary of how the administration seems to be saying that changing the balance of trade will be a solution to these intellectual property abuses (see 1804250019). They note that while the trade deficit is also a worthy concern, reducing it does nothing to alter the behavior that the Section 301 report lays out (see 1801170026).

Ross was sanguine about Chinese retaliation for the Section 301 tariffs imposed by the U.S. "If you never take any action because you're afraid of retaliation, you end up back where you started," he said. He said the agriculture secretary is going to help ginseng farmers -- and said "our sympathies go out to them." He also said that China would be more hurt than the U.S. by its retaliatory tariffs, because food inflation will result where people have lower incomes and therefore have to spend more of their income on food. He said China would run out of U.S. imports to target, too. Experts have said China could punish U.S. firms in China in quiet ways -- that tariffs are not China's only available tool to use to retaliate. He said he knows China and Europe will retaliate if they face tariffs, but said, "in terms of it getting to Armageddon-type proportions, I don't see that happening."

He batted away criticism that the U.S. has not made its goals clear to China (see 1804030070). "Over the years, there hasn't been a lack of lists submitted to them, that's not the problem," he said. "The problem is the execution." Allies and adversaries alike have said the Trump administration is being protectionist. Ross said the U.S. is the closest to the free trade ideal that economists rhapsodize about, but added: "There is no free trade in the world. There is nobody who is really a free trader. Some of these other countries have done a better job of talking free trade and pretending to be free trade than we have, but simultaneously they have been practicing extremely protectionist behavior."

He said that while everyone has been saying multilateral negotiations are the best way to solve the problem of steel overproduction, "these multinational fora tend to be a talking situation rather than a doing situation. You may regard [tariffs] as a blunt tool to try to get people to cooperate, but it's certainly gotten their attention, and it's starting to get their cooperation."

Ross said all of the trade remedies the U.S. has undertaken in this administration are still in early days, but he pointed to a steel mill opening in Oklahoma, a solar panel factory opening in Ohio, and said those developments are encouraging. Middle-class incomes have been stagnant or falling in recent decades, he noted, and said that's not right. And that's one of the major motivations for the administration's trade policy, he said. "When we had trade surpluses, industrial America was the real thing, where middle-class Americans got good pay and good benefits."