Senator Hopeful New Congress Will Be More Active on Section 232 Tariffs

Congress has been fairly passive on tariffs so far, Sen. Doug Jones acknowledged at a field hearing in his home state of Alabama, but, the Democrat said, "hopefully, as we go into a new Congress we will see some more activity." Jones, who heard from farmers, steel consumers, the Port of Mobile, auto manufacturers and steel mills during his hearing Nov. 19, said he believes that several administrations "have been fast and loose with this national security measure," referring to Section 232. The measure was used as the basis to hike tariffs on steel and aluminum, and could be used for similar actions on imported uranium, auto parts and autos. Jones noted the bill led by Sen. Rob Portman, R-Ohio -- Jones is a co-sponsor (see 1808010048) -- that would give Congress the opportunity to veto future Section 232 tariffs.

The steel representatives on the panel said they are not protectionists, but that they need artificially low prices because of unfair trade to end so they can be successful. Mike Lee, vice president of Nucor Steel in Decatur, Alabama, noted that the company has 3,000 workers around the state. "The steel tariffs are working," he said, and noted that the steel industry reached 80 percent utilization -- the target listed in the Section 232 report -- for the first time in more than six years.

Brent Sansing, general manager of tubular operations at the Fairfield Works, mentioned Jones's deep ties to U.S. Steel, which opened Fairfield in 1907. Jones worked in the mill during college, and his father worked there his whole career. The plant is near Birmingham. Sansing said more than 2,000 people in tubular operations were laid off because cheaper tubular products from South Korea and China stole market share. He asked how can Asian mills sell oil country tubular goods to Texas customers -- including the cost of shipping the product across the ocean -- for less than he can?

Lee and Sansing questioned how burdensome the higher cost of domestic steel is for automotive countries. Lee said it should only be an additional $250 on a car that would sell for tens of thousands. "Folks around the table are talking about their concern about what might happen to their business," Sansing said. "I can tell what has happened to our business."

Jones did not take a position on the wisdom of steel tariffs, but did say the tariff exclusion process is troubled. "Obviously this is a complicated issue, that involves not just the tariffs being imposed by our country but also the retaliatory tariffs and the administrative process," he said.

The retaliatory tariffs are hurting farmers, but also major employers like Mercedes, which employs more than 3,700 people at its factory in Alabama. "About two-thirds of our SUVs are exported," said Rick Clementz, general counsel for the Mercedes operations in Alabama. With retaliatory tariffs from China on U.S. vehicles, "this situation is putting us in the middle of a trade battle that could imperil [Alabama] production."

Port of Mobile Director Jimmy Lyons said there are only small effects on his operations so far -- three ships leaving full of soybeans rather than seven last year; canceled export shipments of metallurgical coal and steel. But the port has begun building a new auto export handling facility, and, he said, "it does cause me some concern if we open up this, and there’s no market."

Alabama has assembly plants for Mercedes, Hyundai and Honda, and an engine plant for Toyota, and all those automakers talked most about how damaging Section 232 tariffs would be for their business.

Robert Burns, administrative director for Hyundai in Alabama, said substantial tariffs on automotive parts imports would increase production costs in Alabama by 10 percent. "It is impossible to change the supply chain overnight," he said. Hyundai does not have any Mexican assembly plants, so there will not be higher costs for U.S. consumers of the cars after the tighter rules of origin take effect. But Canada charges a 6.1 percent tariff on imported cars that don't qualify for a free-trade exception, and currently, the Alabama production may not be that close to complying with the stricter rule. For instance, the rule requires that 70 percent of a car's steel and aluminum come from the NAFTA region, and Hyundai buys 40 percent of its steel in the U.S. -- but it also has a steel mill in Mexico, so perhaps it could ramp up purchases there. Ten percent of the Alabama plant's vehicles are exported.

Toyota's David Fernandes, who leads Alabama operations, including the 1,400-employee engine plant, said the company is working on a new assembly plant in a joint venture with Mazda, which would employ 4,000 after it opens in 2021. It made the decision to invest in that expansion before the threat of U.S. withdrawal from NAFTA or the auto tariffs. If the tariffs on imported auto parts come to pass, it will be "a direct hit by the government on an otherwise healthy industry," he said. "There is no vehicle in America that’s solely sourced from U.S. parts and components. There’s 15,000 individual parts that go into a single vehicle. Changes to our supply chain cannot be done overnight." Fernandes also expressed anxiety that the new NAFTA is not yet in place, and that there's still a risk of withdrawal. His plant rolls out 700,000 engines a year, with 250,000 shipped to Canada and more than 100,000 to Mexico.

Graham Jones, a project manager for Aker Solutions, said the Norwegian company's manufacturing facility in Alabama imports coiled seamless superduplex stainless steel tubing to make subsea umbilicals for offshore oil platforms. That kind of tubing is made to proprietary specifications, and is only available from the Czech Republic and Austria. Aker projects it will pay $4,718,217 in tariffs on the tubing in 2019 if it doesn't receive exclusions from the Commerce Department. Its requests, filed in August, received no objections, because no domestic steelmakers produce this. But they've gotten no answers. And one shipment due to arrive in December will incur $500,000 in duties. He said exports are suffering because of the increased cost.

Sen. Doug Jones told Graham Jones he's continuing to push for an expedited review of Aker's requests. "There doesn’t seem to be a lot of rhyme or reason about what’s going into making that (exclusion) decision," the senator said.