US, Japan Announce Steel Trade Deal
At the beginning of the week, The White House announced a new deal between the United States and Japan to roll back tariffs on Japanese steel.
While the new deal excludes aluminum, on which former President Donald J. Trump also imposed tariffs, it follows an agreement last year between the U.S. and the European Union to ease Trump-era metal tariffs.
Trump Steel Tariff History
In March 2018, Trump imposed tariffs to affect steel and aluminum imports from other countries across the globe. The assigned duties were 25% on steel products and 10% on aluminum.
Companies that felt they needed to use steel or aluminum from another country—because that particular product wasn’t made in the U.S., for example—had the opportunity to apply for an exemption.
By June, the U.S. allowed the tariffs to go into effect for Canada, Mexico and the European Union, after months of discussion of possible exemptions. The U.S. Department of Commerce also announced the first round of exemptions, while noting that it would be investigating whether some companies in the market were taking advantage of the duties and raising prices unduly.
In May the following year, Trump continued work on updating the USMCA, Steel Dynamics CEO Mark Millett went on the record to say he believed a quota system would replace the current tariffs that the steel and aluminum industry were subjected to.
However, some in the aluminum industry were reportedly against the quotas, in fear that they would raise prices on aluminum-dependent goods. That same month, Trump later announced that the U.S. would lift its steel and aluminum tariffs imposed on Canada and Mexico in exchange for a new monitoring and enforcement system that will prevent import surges into the U.S. As a part of the agreement, Mexico and Canada would also lift its retaliatory tariffs on American products.
In July, Trump signed an order that would see the expansion of the use of American-made iron and steel in federal projects. The “Buy American” platform aims to push the domestic content threshold from 50% to 95%.
By December, officials from Canada, Mexico and the United States signed a deal once again. The United States-Mexico-Canada Agreement replaced the North American Free Trade Agreement, and both the U.S. United Steelworkers union and the AFL-CIO labor voiced their approval of the deal.
In January 2020, Trump signed an initial trade deal with China that lowered levies on some other goods. The tariff is expected to stay in place, even after the election, as any move to reduce them will hinge on Beijing’s compliance with the terms of a phase-one trade accord.
According to reports, after the first phase goes into effect, the U.S. will maintain 25% tariffs on $250 billion of Chinese imports and a 7.5% levy on another $120 billion.
The following month, Trump announced an expansion of tariffs on foreign steel and aluminum, claiming that the existing tariffs were not as successful as he’d hoped in restoring American production.
Under the new program, specific products made of aluminum were subjected to an additional 10% duty and certain steel products were tacked with a 25% tariff. However, Argentina, Australia, Canada and Mexico were exempt from the expanded aluminum tariffs. Those countries, along with Brazil and South Korea, were also exempt from the new steel tariffs.
By August, Trump announced that the U.S. was reinstating its 10% tariffs on raw aluminum imports from Canada beginning Aug. 16 following a proclamation by the then-president. Canada, then, announced shortly after that it would impose tariffs on $2.7 billion worth of imports form the U.S. in response.
European Tariff Roll Back
Despite experiencing setbacks as a result of COVID-19, in January 2021 a group of several domestic steel industry associations penned a letter to President Joe Biden, urging him to keep steel tariffs and quotas that were set in place by the Trump administration.
The letter was signed by the American Iron and Steel Institute, the United Steelworkers, the Steel Manufacturers Association, the Committee on Pipe and Imports, and the American Institute of Steel Construction.
The letter referenced the tariff and quota program that was established in 2018 as a means to allow the U.S. to “restart idled mills, rehire laid-off workers and begin investing tens of billions of dollars in new and upgraded plants.”
“Last year, the OECD projected that steel overcapacity would grow to 700 million metric tons in 2020—eight times the total steel output of the United States last year,” the letter read.
“China, Vietnam and Turkey, among others, continue to increase their steel production even as the pandemic has caused demand for steel to drop around the world. Others, such as Korea, Russia, Ukraine and Indonesia, continue to export large and increasing shares of their steel production to other markets.”
The organizations added that continuing the tariffs and quotes was “essential to ensuring the viability of the domestic steel industry in the face of this massive and growing excess steel capacity.”
Months prior to receiving the letter, in May, Biden had told USW that he would keep the tariffs in place until a global solution to the excess production could be negotiated. More recently, he again said that he would not make changes, pending consultations with U.S. allies.
Regardless of the intentions to keep the tariffs at the beginning of the year, by November, The White House announced a deal between the U.S. and the European Union to roll back tariffs on European steel and aluminum to lower costs on various goods, reduce carbon emissions and help supply chains get back on track.
The agreement to lift tariffs on some steel and aluminum imports arriving from Europe went into effect on Dec. 1, 2021, as a part of an agreement to easing trading between the two countries. The agreement sets a quota allowing a certain amount of steel and aluminum to be imported from the European Union duty-free, with anything above that level subject to existing tariffs.
As part of the agreement, the European Union agreed to remove billions of dollars’ worth (25%, respectively) of retaliatory tariffs on bourbon, motorcycles and other American-made products that were previously slated to increase next month.
In addition, the two nations reported that the agreement was open to any interested country that wished to join and meet criteria for restoring market orientation and reducing trade in high-carbon steel and aluminum products.
The new steel/aluminum tariff agreement is scheduled to last two years.
Latest Steel Deal
On Monday (Feb. 7), the U.S. and Japan announced that the 25% levy previously imposed by former President Trump would be removed from about 1.25 million metric tons of Japanese steel imports annually.
Should Japan go over that amount, however, the tariff would be reinstated on any additional steel imports. According to the U.S. Commerce Department, Japan is one of the top 10 sources of steel to the nation, but only accounts for roughly 4% of all steel imports.
The decision made by President Biden to remove the tariffs arrives as the nation continues to mitigate inflation and a shortage of goods. Tariffs on $350 billion of various Chinese goods will remain intact.
In a joint statement by the two nations, it was reported that Japan would begin implementing “appropriate domestic measures, such as antidumping, countervailing duty, and safeguard measures or other measures of at least equivalent effect” in order to establish more market-oriented conditions for steel.
The new deal, like the European Union steel and aluminum agreement reached last fall, calls for steel imported from Japan to be completely produced in the country for duty-free access to reduce the risk of Chinese steel skirting U.S. tariffs. Unlike the deal, however, Japan did not impose retaliatory tariffs on U.S. goods such as whiskey, motorcycles and denim.
“This is a step towards a solution... but we will continue to strongly urge the United States to fully eliminate the tariff in a manner consistent with WTO rules,” said Japanese Industry Minister, Koichi Hagiuda.
Adding to that, U.S. Commerce Secretary Gina Raimondo was quoted as saying that the deal would “strengthen America's steel industry and ensure its workforce stays competitive, while also providing more access to cheaper steel and addressing a major irritant between the United States and Japan, one of our most important allies.”
The new deal is slated to take effect on April 1.