Section 232 may go USMCA way for European Union, DC firm says

The administration of United States President Joe Biden might borrow from the US-Mexico-Canada Agreement (USMCA) trade pact playbook when it negotiates with the European Union regarding the future of Section 232 tariffs, according to a lobbying and advisory group.

“I think we are going to see some changes in the EU Section 232 policy,” Samir Kapadia, principal and chief operating officer at the Vogel Group, a Washington, DC-based lobbying and government relations firm, said.

The US Trade Representative and the Commerce Department aim to reach an agreement with Europe regarding Section 232 of the Trade Expansion Act of 1962 by November 1 – the US and EU agreeing on the November deadline after EU trade chief Valdis Dombrovskis and US Commerce Secretary Gina Raimondo spoke in July.

“I think [Biden] might come to the table on moderating Section 232 tariffs with the EU given his larger political objectives with China,” Kapadia told Fastmarkets on Tuesday September 21.

“Biden needs support from the EU and others to keep China accountable on a wide array of fronts – it seems likely that a Canada/Mexico type of exemption could be reached by the end of this year,” Kapadia said.

The Section 232 tariffs – which came into effect on March 23, 2018 – imposed a 25% tax on imported steel and 10% on imported aluminium, and were designed to prevent imports that impair national security.

The EU is suggesting the US impose tariff-rate quotas on steel and aluminium imports from the trading bloc to resolve their trade dispute, though the shift to tariff-rate quotas is not the only solution under consideration, sources have previously told Fastmarkets.

Under the USMCA, the Section 232 mandated tariffs on Canadian and Mexican imports were waived in May 2019 in exchange for a monitoring mechanism.

The Biden administration’s approach is very different from the “siloed approach of the Trump administration,” Kapadia told Fastmarkets.

US Trade Representative Katherine Tai had said in May that Section 232 needed to be modernized, to general applause from steel industry groups.

Biden’s infrastructure bill
The passage of the $3.5-trillion US infrastructure bill – which allocates $1.2 trillion for roads, bridges and trains, among others – will increase the chances of the potential outcome of trade duties being replaced by a monitoring mechanism, Kapadia said.

The infrastructure bill has stringent “Buy America” provisions built in, which should potentially assuage current supporters of Section 232 tariffs, Kapadia told Fastmarkets.

Supporters of Section 232 argue that the trade duties are required to prevent excess global steel capacity from threatening the US steel industry.

The duties also punish exporters who have used unfair tactics to undercut US producers, Cleveland-Cliffs chief executive officer Lourenco Goncalves had said in May.

Any agreement between the EU and US needs to include mechanisms that will prevent surges in European shipments to the US, the USW, the American Iron and Steel Institute and the Steel Manufacturers Association wrote in a letter to Biden on September 3.

Opponents of Section 232 say the tariffs hurt domestic manufacturers and end consumers of steel and aluminium in the US.

A recent presentation by US steel producer Nucor Corp showed that US sheet steel imports have decreased to a 13% market share in 2020 from 19% in 2015.

Following the implementation of the Section 232 tariffs in 2018, Fastmarkets’ daily steel hot-rolled coil index, fob mill US surged to $45.84 per hundredweight ($916.80 per short ton) in early July of that year – nearly a 10-year high at the time.

The index was calculated at an all-time high of $98.25 per hundredweight ($1,965 per short ton) earlier this week, on Monday.

The US aluminium premium too experienced significant volatility after the introduction of Section 232 tariffs, ending March 2018 at 18.75-19.25 cents per lb compared with 14.00-14.50 cents per lb at the start of that month.

Fastmarkets assessed the aluminium P1020A premium, ddp Midwest US at 34.50-36.00 cents per lb on Tuesday September 21, unchanged for a fifth week at an all-time high.

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