Media reports have created more confusion than clarity around tariffs and effects on costs in the market for steel mill and downstream products. I offer this memo as an attempt at a brief summary to add clarity. It’s not exhaustive and I’m not putting myself forth as an authority on trade policy or politics. I’m not a trade attorney and I’m not offering legal advice or analysis.
Media reports often refer to “tariffs” without much explanation. According to my research, the Trump Administration has acted in three areas using executive authority to impose or threaten to impose tariffs on a range of products:
- Section 202 Tariffs: Washing Machines & Solar Panels
In January 2018, President Trump imposed tariffs via Presidential Proclamations (9693 & 9694) on solar panels and washing machines, exercising executive authority according to Section 202 of the Trade Act of 1974. These tariffs remain in effect as of today.1
- Section 232 Tariffs: Steel & Aluminum
In April 2017, the US Department of Commerce initiated investigations into whether steel and aluminum imports were a threat to national security under provision of Section 232 of the Trade Expansion Act of 2962. Commerce released the results of that investigation in February 2018.
In March 2018, President Trump imposed tariffs of 25% on certain steel and aluminum imports, exercising his authority according to Section 232. Tariffs were imposed on specific countries and specific products as defined in the Harmonized Tariff Schedule (HTS). The President issued further proclamations creating exceptions for certain countries for different periods of time. These tariffs remain in effect as of today. 2
- Section 301 Tariffs: $50 Billion of Assorted Chinese Imports
In April 2018, the Office of the US Trade Representative published a proposed list of products imported from China that could be subject to tariffs “as part of the U.S. response to China’s unfair trade practices.” These tariffs were the result of an investigation under provision of Section 301 of the Trade Act of 1974.3 This set of tariffs recently caused a stir when news outlets reported “U.S. Putting ‘Trade War’ Against China on Hold” after remarks from Treasury Secretary Steve Mnuchin on May 20, 2018.4 These tariffs are proposed, subject to ongoing negotiations, and not yet in effect as of today.
Impact of Section 232 Steel Tariffs on Supply of Wire Rod
The tariffs affecting MAR-MAC and our customers are the Section 232 steel tariffs. I offer a more detailed timeline of events around Section 232 below for your reference.
MAR-MAC’s primary raw material is steel wire rod, a hot rolled mill product produced in a manner similar to rebar. Prior to Section 232 investigations and tariffs, U.S. wire rod and rebar markets were supplied by a mix of domestic and foreign producers. Estimates vary but it is generally accepted that 20 – 40% of the market consisted of imports. Rod prices were on the rise prior to any Trump Administration action as prices increased 7.3% in the first quarter of 2017 according to American Metal Market (AMM) indexes. The possibility of Section 232 tariffs had the immediate effect of making imports of rod and rebar more risky – at any time, tariffs could be imposed. Product on the water and under contract at a pre-tariff price would be subject to the tariff. Delivering on pre-tariff contracts at post-tariff prices would be a money-losing proposition for the importer. This threat of Section 232 action effectively began to restrict supply as import offerings began to dry up in the summer of 2017. As supply was diminished, prices rose. Rod was up 2.6% in the second quarter of 2017 and 1.7% in the third quarter of 2017 according to AMM.
As total supply of rod diminished, other import buyers turned to domestic producers for material. This raised prices across the board not only for import product buyers but domestic product buyers like MAR-MAC. Rod prices increased 8.2% in the first quarter of 2018 and 18.2% from March to May of 2018 after tariffs were actually imposed.
Impact of Section 232 Steel Tariffs on Downstream Goods
Section 232 steel tariffs were imposed according to HTS codes and mostly covered Chapter 72 “Iron and Steel” and parts of Chapter 73 “Articles of Iron and Steel”. The intent of the tariffs was to protect U.S. steel mills from foreign competition but did little to protect downstream goods produced from mill products. Most of MAR-MAC’s product offering consists of downstream goods. In effect, Section 232 has increased the cost of material for domestic producers of downstream goods without providing them much protection from foreign producers. Even where Section 232 touches downstream goods, the effect is not enough to raise imported finished goods pricing enough to make domestic producers competitive with foreign imports.
Two of MAR-MAC’s key building product offerings – rebar tie wire and merchant wire (aka “catch-weight coils” or “#9 wire”) are covered under Section 232 tariffs. These two products happen to be considered bulk wire and fall under Chapter 72 of the HTS. None of our other building products are affected. MAR-MAC’s CONTRACTOR Concrete Construction ProductsTM are sourced as economically as possible which frequently means foreign sources, usually China. Therefore, CONTRACTOR rebar tie wire and merchant wire are subject to the tariff and MAR-MAC is paying customs brokers the 25% tariff on these products.
To date, Section 232 has increased the costs of MAR-MAC PREMIUM Building Products produced in the U.S. and our CONTRACTOR products sourced largely overseas.
I would be pleased to discuss this situation further with any of our customers. The overall situation has created a great deal of confusion and uncertainty and we very much appreciate our customers’ understanding and patience as we’ve navigated this tumultuous time. If you’d like to discuss this further or have any questions, please feel free to give me a call at 843-335- 6718 or email me at email@example.com.
A Timeline of Trump Administration Actions on Steel Imports
April 19, 2017: US Secretary of Commerce Wilbur Ross notifies Secretary of Defense James Mattis that he is “initiating an investigation to determine the effects of imported steel on national security.”5
April 20, 2017: President Trump directs Commerce Department to prioritize Section 232 investigation into steel imports.6
January 11, 2018: Commerce Department transmits to the President the report on results of Section 232 investigation.
February 16, 2018: US Department of Commerce releases Section 232 report to the public. The report finds that national security is threatened by steel imports and recommends the following actions:
- A global tariff of at least 24% on all steel imports from all countries, or;
- A tariff of at least 53% on all steel imports from 12 countries (Brazil, China, Costa Rica, Egypt, India, Malaysia, Republic of Korea, Russia, South Africa, Thailand, Turkey and Vietnam) with a quota by product on steel imports from all other countries equal to 100% of their 2017 exports to the United States, or;
- A quota on all steel products from all countries equal to 63% of each country’s 2017 exports to the United States.7
March 8, 2018: President Trump issues a Presidential Proclamation imposing 25% tariffs on certain imported steel products.8
March 22, 2018 – President Trump issues a Presidential Proclamation creating exceptions for certain countries from tariffs imposed in Proclamation of March 8th. Countries include Canada, Mexico, Australia, Argentina, South Korea, Brazil and the European Union.9
March 23, 2018: Tariffs go into effect as ordered in Proclamation of March 8th and subsequent Proclamations allowing for exceptions of certain countries.
April 30, 2018: President Trump issues a Presidential Proclamation:
- Acknowledging an agreement with South Korea to limit imports via quota and excludes them from the 25% tariff;
- Citing agreements in principle with Argentina, Australia, and Brazil and extends exceptions from the tariff pending finalization of those agreements, and;
- Extending exceptions to the tariff to Canada, Mexico and the European Union until June 1, 10
June 1, 2018 – With no additional Presidential action, 25% tariffs go into effect on certain steel imports from Canada, Mexico, and the European Union.
3 “USTR Releases Proposed Tariff List on Chinese Products” https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/under-section-301-action-ustr
4 “S. Putting ‘Trade War’ Against China on Hold, Mnuchin Says” https://www.bloomberg.com/news/articles/2018-05-20/u-s-puts-tariffs-against-china-on-hold-mnuchin-says
5 “Section 232 Notification Letter to Secretary of Defense James Mattis (2017-04-19)” https://www.commerce.gov/page/section-232-investigation-effect-imports-steel-us-national-security
6 “Presidential Memorandum Prioritizes Commerce Steel Investigation” https://www.commerce.gov/news/press-releases/2017/04/presidential-memorandum-prioritizes-commerce-steel-investigation
7 “Secretary Ross Releases Steel and Aluminum 232 Reports in Coordination with White House” https://www.commerce.gov/news/press-releases/2018/02/secretary-ross-releases-steel-and-aluminum-232-reports-coordination
8 “Presidential Proclamation on Adjusting Imports of Steel into the United States” https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states/
9 “Presidential Proclamation Adjusting Imports of Steel into the United States” https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-2/
10 “Presidential Proclamation Adjusting Imports of Steel into the United States” https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-3/