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The Trade Numerologist: New U.S. Tariffs On Metals

02 March 2018 John Miller

Column 27: New U.S. Tariffs On Metals

It looks like the Trump truce on dramatically ramping up tariffs on imports into the U.S. is abating. On the first day of March, the President announced that the U.S. would soon impose tariffs of 25% on steel and 10% on aluminum. They would be in place for “a very long time,” he said.

The stock market in the U.S. took a sharp dive, followed by markets in Europe and Asia, over fears that the new metals tariffs could spark a trade war.

The biggest immediate impact of the tariffs is that they will, as Sen. Orrin Hatch, a Trump supporter, said, raise “the cost of steel and aluminum on American manufacturers and consumers.” Anything made out of steel and aluminum in the U.S., including cars, houses and baseball bats, will become more expensive to put together. That’s a big deal: The industries that use steel employ over 50 times as many people as the industries that make steel.

This is especially true in the U.S., one of the world’s most advanced economies, which has only a few mills still still running, but thousands of so-called “downstream” manufacturers who need metal as a raw material. The U.S. has been importing around a third of its steel for decades. There’s no discernible trend in imports, making it difficult to understand the urgency of the U.S. acting now.

U.S. Steel imports, 2012, 2017

2012: $29 billion
2013: $25.3 billion
2014: $34.2 billion
2015: $26.3 billion
2016: $21.2 billion
2017: $27.5 billion

Only a few firms, led by U.S. Steel and Alcoa, still make steel and aluminum from scratch. On the day the tariffs were announced, they were among the only companies to increase in stock market value. The U.S. was once the greatest steel producer and exported in the world, but during the first 11 months of 2017, it ranked seventh.

Exports of iron and steel, first 11 months, 2017

China $39.4 billion
Japan $25.4 billion
Germany $24.3 billion
South Korea $20.4 billion
Russia $16.8 billion
Belgium $16.2 billion
U.S. $14.9 billion
France $13.8 billion
Italy $13.7 billion
India $12.3 billion

China, which has benefitted the most this century from global trade liberalization, lashed out immediately. Hua Chuying, a spokeswoman for China’s foreign ministry, demanded that the U.S. “respect multilateral trade rules, and make a positive contribution to international trade order.”

European Commission President Jean-Claude Juncker said the European Union “will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk.”

While the U.S. ranked seventh in exporting raw steel, it ranked third in exporting products made out of iron and steel, such as screw, bolts, pipes and railroad track.

Exports of iron and steel products, first 11 months, 2017

China $51.7 billion
Germany $28.6 billion
U.S. $16.9 billion
Italy $16.2 billion
South Korea $12.3 billion
Japan $8.9 billion
Netherlands $7.8 billion
France $7.1 billion
Spain $6.9 billion
Poland $6.9 billion

The U.S. is a huge market for imported finished steel products, meaning that its domestic companies need affordable raw materials to compete with foreign suppliers. For example, it’s the biggest buyer of bolts and screws.

Imports of steel and iron bolts and screws, first 11 months, 2017

U.S. $4.5 billion
Germany $3.7 billion
China $2.8 billion
Mexico $2.5 billion
France $1.6 billion
Canada $1.4 billion
UK $1.2 billion
Netherlands $1.1 billion
Thailand $1.1 billion
Czech Republic $1 billion
Italy $909.1 million

The picture is a bit different in the aluminum sector, where imports have surged this decade, and the U.S. has been the target of a trans-shipment scheme designed to avoid tariffs operated by a Chinese aluminum maker.

U.S. Aluminum Imports, 2012-2017

2012: $15.6 billion
2013: $15.3 billion
2014: $16.7 billion
2015: $17.4 billion
2016: $18.1 billion
2017: $22.7 billion

The U.S. is now the world’s biggest aluminum importer. However, despite increasing shipments of aluminum from China to $3.4 billion in 2017 from $1.9 billion in 2010, the U.S. still gets most of its aluminum, legally, from Canada, which has access to massive quantities of cheap hydropower, crucial to making aluminum.

U.S. Sources of Aluminum, 2017

Canada $8.4 billion
China $3.4 billion
Russia $1.6 billion
UAE $1.4 billion
Mexico $1 billion
Bahrain $603.4 million
Argentina $548.2 million
Germany $539.3 million
India $464.3 million
South Africa $341.9 million

Advisers to the presidents told reporters they didn’t believe that there would be any exceptions carved out, even for Canada. The prospect of tensions with Canada escalating seems bizarre, but unavoidable if the Trump administration follows through on imposing the hefty tariffs.

A lot of the metal imported into the U.S. is Canadian steel and aluminum headed for Detroit to be turned into cars, part of a supply chain that just happened to have a border somewhere in the middle. Canadian foreign Minister Chrystia Freeland said the tariffs were "absolutely unacceptable." Canada, she said, “will take responsive measures to defend its trade interests and workers.”

What topic would you like the Trade Numerologist to cover? Email tradenumerologist@gmail.com with comments and questions.

The Trade Numerologist is IHS Markit’s unique weekly look at global trade by award-winning journalist John W. Miller, formerly of the Wall Street Journal, using proprietary numbers from IHS Markit’s Global Trade Atlas database, the world’s most complete and accurate set of trade numbers.

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