steel aluminum tariffs

How New Steel, Aluminum Tariff Reductions Will Impact US Producers

steel aluminum tariffsRemember studying the Stamp Act and Tea Act in high school history class? That was many people’s introduction to the concept of tariffs. While such import taxes contributed to the start of the American Revolution (recall the colonists’ protests of “taxation without representation”?), tariffs are alive and well even today. In fact, the U.S. still imposes tariffs on certain imported goods, which may have an impact on your clients’ and prospects’ businesses.

Modern-day trade deals

While some tariffs are intended to be punitive or revenue-generating, most are designed to protect American companies from lower-priced foreign producers.

In March of 2018, a 25 percent and 10 percent tariff were applied, respectively, on certain steel and aluminum imports, under Section 232 of the Trade Expansion Act of 1962. Although the United States negotiated various tariff exemptions with Brazil, South Korea, Argentina, Australia, Mexico, and Canada, it fully maintained the tariffs on EU exports since June 1, 2018.

Recently, however, in a move designed to improve foreign relations and guard against subsidized Chinese steel and aluminum flooding the market at below-average prices, the current administration has been brokering deals with allied trade partners to ease these tariffs on steel and aluminum imports.

The current landscape

Steel and aluminum are used in a wide range of products and applications including industrial, commercial, and agricultural machinery; appliances and electronics; hardware and tools; transportation equipment; food and beverage packaging; oil and gas drilling; and construction.

Imports account for about 25 percent of the US market for iron and steel and about 13 percent for aluminum and nonferrous metals.

A look at the new trade deals

Between October 2021 and February 2022, revised trade agreements were made with the European Union (EU), the United Kingdom (UK), and Japan. The lifting of these particular tariffs is designed to create a reciprocal revocation of tariffs on other U.S-made products while also curtailing China’s ability to influence the steel and aluminum markets. The new arrangement replaces the existing tariffs with a complex tariff rate quota (TRQ) system. For instance:

  • The US-UK trade deal allows 500,000 tons of steel that are certified as made in the UK to enter the US duty-free. In exchange, the UK will ease its countervailing tariffs on US-made imports including motorcycles, bourbon whiskey, jeans, and cigarettes.
  • The US-EU agreement allows 3.3 million tons of certified steel and 18,366 tons of certified aluminum to enter the US duty-free. In exchange, the EU will end its countervailing tariffs on US-made products including motorcycles and whiskey. The US and EU have also agreed to further cooperate on trade issues including fraud detection.
  • The US-Japan deal allows 1.25 million tons of steel to enter the US duty-free. Japan has agreed to impose antidumping, countervailing duties, and other safeguard measures to prevent China from flooding its market with government-subsidized steel.

In all three trade agreements, additional volume remains subject to the 25 percent tariff imposed under Section 232 of the Trade Expansion Act of 1962.

Impact on US steel and aluminum manufacturers

The bottom line is that these trade deals decrease the import prices of steel and aluminum from the EU, Japan, and UK. While the agreements do limit volume at the reduced price, domestic steel and aluminum manufacturers will see some increased competition in the US market as a result.

The move is largely seen as a way to stabilize the global market for steel and slow China’s output and dumping of low-priced metals, however. Chinese steel products are subsidized by the Chinese government, and imports may be sold at below US manufacturing cost. Similarly, in a move designed to combat the impact of tariffs, Beijing raised the value-added tax rebate for aluminum exports from 13 percent to 16 percent, making their exports almost tax-free.

Oversupply of steel and aluminum in the global market tends to drag down prices and pinch profits. Certification is aimed at preventing China from moving its steel through these allied countries in an effort to avoid tariffs. In fact, even Chinese-owned steel and aluminum manufacturers producing in the UK, EU, and Japan are required to submit documentation showing that they are not subsidized by the Chinese government.

Impacts on US buyers of imported steel and aluminum

US buyers of steel and aluminum imported from the UK, EU, and Japan stand to benefit from lower-cost imports and a more stable market. Under the previous 25 percent tariff, US buyers of steel and aluminum were often forced to pass their elevated costs to customers or suffer tightened profit margins. High metal prices tend to increase the cost of goods to consumers and businesses, and can erode demand for goods and stall investment in metal-intensive industries like construction and machinery.

On the other hand, US exporters of goods that had countervailing tariffs lifted are likely to experience sales growth as the prices of their products decline in the UK, EU, and Japan – making their goods more affordable and US exporters more competitive in those markets.

Mixed sentiments from US stakeholders

The reaction from US steel and aluminum stakeholders is mixed, according to a Congressional Research Service report. The United Steelworkers voiced support for the interim arrangement, stating it would allow US industries to remain competitive while addressing the nonmarket policies of China and others, but noted the need for strict monitoring and enforcement. The American Iron and Steel Institute expressed similar sentiments.

The US aluminum industry was not as clearly aligned. The American Primary Aluminum Association welcomed the agreement, while the Aluminum Association opposes the TRQ system, preferring joint enforcement against China. The Coalition of American Metal Manufacturers and Users said the deal is “good news,” but voiced concern that the TRQ does not fully eliminate the threat of tariffs if US demand surges with new domestic infrastructure investments.

Understanding issues such as how trade agreements and tariffs might be impacting your clients’ and prospects’ industry enables you to build trust, tailor your solutions, and bring additional value to the table. Vertical IQ customers have access to industry and local economic reports covering more than 94 percent of the U.S. economy and Canada, equipping users with the confidence and credibility to make memorable first impressions and sustain enduring relationships.

Contact us to learn more or see a list of the industries we cover.

Image credit: Bence Szemerey via Pexels

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