Commerce Secretary Defends Tariffs as Only Way to Get Allies, China to Move on US Demands

Republicans and Democrats on the Senate Finance Committee criticized Commerce Secretary Wilbur Ross on June 20 over the steel and aluminum tariffs and the implementation of granting exclusions for certain imports subject to those tariffs. Democrat Sen. Claire McCaskill, who described a nail maker in her home state of Missouri who is laying off more than half its 500-person workforce as its inputs' cost increases, told him: "it appears to me a chaotic and, frankly, incompetent manner you're picking winners and losers." Only Sen. Sherrod Brown, D-Ohio, asked supportive questions during the hearing on tariffs.

But Ross didn't waiver in defending the wisdom of the administration's course on trade, and said the product exclusion process is on track. When asked by Sen. John Thune of South Dakota, a member of the Republican party leadership, what the administration's strategy is as it escalates tariff threats on China, Ross replied that the U.S. has to be punitive enough "so that they conclude that continuing their present behavior is more painful to them" than ending the practice of stealing intellectual property. Negotiations over these issues have been tried for years, he said, and have failed to get results.

Both Democrats and Republicans pushed Ross on why Canadian steel imports are a threat to America's national security. Sen. Michael Bennet, D-Colo., used a line of questioning to get Ross to acknowledge that Canada spends more on U.S. steel than the U.S. spends importing Canadian steel. After Ross said, "We don't have a trade deficit in steel with Canada," Bennet responded in mock surprise: "We don't?"

Ross said that most of the countries that have been hit with Section 232 tariffs are friendly to the U.S., but that before the U.S. levied tariffs on them, they were not working to confront China's excessive, subsidized steel production. He said now, suddenly, the Europeans are implementing safeguard protections on steel imports. "While they're complaining bitterly about the tariffs, they're starting to take the type of actions, which if they had taken it sooner, would've prevented the crisis," he said.

Sen. Pat Toomey, R-Pa., urged his colleagues to sign on to his bill that would prevent the president from unilaterally implementing tariffs under Section 232. He also asked Ross what the Canadians would have to do to get the tariffs lifted. Ross said: agree to a revised NAFTA. Toomey protested that the provisions U.S. Trade Representative Robert Lighthizer is seeking and that Canada objects to, such as a sunset clause, would make a weaker NAFTA. "This is about economic nationalism and an economic policy of managing trade," he said, not about national security.

Senators spent time talking about the unintended consequences of tariffs -- such as foreign producers getting a price advantage on finished products made of steel, which are not covered by the tariffs, and the fact that many Harmonized Tariff Schedule headings that apply to auto parts also apply to parts used in industrial engines, agricultural equipment, construction equipment, buses and heavy trucks.

With regard to the broader impact of a tariff on auto parts, Ross said, "There has been no decision made whether to recommend tariffs at all," adding, "we will try our very best to avoid any unintended consequences as you've described."

With regard to producers moving up the value chain to avoid tariffs, Ross acknowledged that's worse than undercutting U.S. mills on raw or semi-finished steel. His solution -- more tariffs. He said the Commerce Department has identified 50 items of this sort that will be added to the separate Section 301 tariff list of goods from China. He also said the Commerce Department is investigating the surge in price of domestic steel and aluminum past the tariff amounts. He said there was no reason for that to happen and blamed it on "anti-social behavior" by intermediaries.

Finance Committee Chairman Orrin Hatch, who is retiring from his Utah seat at the end of the year, was highly critical of the idea of levying a 25 percent tariff on imported cars. He pointed out in his opening statement that the average price of an imported car is $23,200, and that a 25 percent tariff would increase the price tag by $5,800. Given that the median household income is $59,000, that is not an insignificant amount, he noted. "I'm shocked that anyone would consider making [buying a car] more expensive."