So far, the U.S. Department of Commerce has excluded about 40 per cent of imports of Chinese steel from facing its 25 per cent tariff. But to date, only two per cent of the total volume of Canadian steel imports to the U.S. has been cleared to dodge the tariff.
“If the whole point was to do this for China in the first place, then why are the approval rates for China so much higher than other countries?” said Christine McDaniel, a former White House economic adviser, now a senior research fellow with the Mercatus Center at George Mason University.
“It just doesn’t make sense.”
The recent U.S. government shutdown gave McDaniel and her research colleague Danielle Parks an opening to comb through all the exclusion applications submitted last year and group the results by country of origin. Exclusion applications are filed by importers — manufacturers, retailers or construction companies, for example — who want to import tariff-free. McDaniel said the results of their research were so surprising, they ran the numbers a second time just to make sure.
“Whatever process they’re using, it’s unfairly tilted towards China, which is crazy,” she said. Her association’s members suspected the tariffs were distorting markets, she said, but this work “demonstrates with real data what that picture looks like.”
While the results for China conflict with the Trump administration’s rhetoric, the large exporting country that’s been most successful in the exclusion process so far is Japan: 62 per cent of its steel imports to the U.S. no longer face the tariff.
The Japanese manufacture specialty metals; comparable U.S. substitutes tend not to be available for them. It’s possible that what Canadian mills produce is more easily swapped with American product.
Exclusion applications are considered according to specific criteria, such as whether the same product is available in the U.S. Domestic steel companies can monitor these applications and file objections, according to their own business interests. The complicated process also allows for a rebuttal from the company trying to get its shipments excluded.
In some cases, the arguments have sought to interfere in companies’ right to make their own business decisions, McDaniel said. One company, she said, was told it shouldn’t be able to import pipe of a certain length tariff-free when it could buy American pipe and weld pieces together to make up the right length — notwithstanding the extra labour and environmental effects involved.
And some aren’t even realistic. “These steelmakers are objecting to way more than they could produce themselves,” based on their annual production capacity, she said.
The process the U.S. Commerce bureaucrats are using is quite antiquated, she said, and is not tracking cumulative amounts to test what’s realistic, or whether certain countries are emerging as winners or losers: each case is considered in isolation, with no unified strategy driving the results.
Killing jobs instead of creating them?
But while profits may be up for the U.S. steel industry, it’s not clear that employment in the sector will rise as well, since automated production at many plants can boost capacity without significantly increasing employment.
Meanwhile, economists like McDaniel warn that — as the second Bush administration’s levying of steel tariffs in 2002 showed — employment in downstream manufacturing suffers from higher metal costs. One analysis of that previous tariff found more jobs were lost in steel-using industries than were protected in steel production.
Separately, Canada’s embassy in Washington is keeping a close eye on the same process McDaniel is analyzing. Its lobbying campaign against the tariffs continues, with Foreign Affairs Minister Chrystia Freeland in town last week to meet with the head of the Senate finance committee, among others.
According to one estimate based on a range of global trade data and recent U.S. employment and wage trends, a href=”https://twitter.com/hashtag/tariffs?src=hashamp;ref_src=twsrc%5Etfw”#tariffs/a on steel and aluminum could cost 5,000 jobs in the U.S. auto industry and 400,000 jobs overall – 16 jobs lost for every one created a href=”https://t.co/6dcxxfs0aj”https://t.co/6dcxxfs0aj/a a href=”https://t.co/3itRS9pn8w”pic.twitter.com/3itRS9pn8w/a
“It’s almost like steel tariffs are just diverting our sources of product. What would normally be from Canada and Brazil and Mexico now we see the approval rates are much higher for Japan, Thailand, the Netherlands, Poland ” McDaniel said.
For some smaller exporting countries, the U.S. Department of Commerce has approved exclusion requests in volumes far exceeding historical trade volumes. Polish steel, for example, has been approved for exclusions covering nearly nine times the volume of its exports to the U.S. in 2017.
A final analysis of winners and losers in this process is months away: 64 per cent of Canada’s steel applications are still pending, so Canada’s eventual approval rate could improve once the backlog built up during the government shutdown clears.
Only 8 per cent of the applications to exclude Canadian steel from the tariffs have been denied so far. The vast majority of applications for Canadian aluminum (97 per cent) are still sitting in the queue.
U.S. Sen. Pat Toomey, R-Pa., speaks to reporters on Capitol Hill in Washington May 18, 2017. (J. Scott Applewhite/The Associated Press)
Pennsylvania Sen. Pat Toomey, a Republican who recently made headlines declaring the new NAFTA “dead on arrival” in Congress, outlined how much steel tariffs were costing companies in his state during a news conference Wednesday.
“There are about 140,000 workers who are employed by steel companies who are meant to benefit from these steel tariffs. There are six and a half million people employed in companies that use steel,” he said. “It shouldn’t be so easy to impose tariffs that can be so economically disruptive and so problematic, and to do it unilaterally.”
Toomey is working on bipartisan legislation to curb the president’s tariff powers.