232 Tariffs: Limited Actions

In mid-May, President Trump determined that imports of autos and auto parts threaten the national security but deferred action for six months. He also lifted tariffs on imports of steel and aluminum from Canada and Mexico. This post looks at the two actions and considers the potential for negotiations of an agreement to limit auto imports similar to side agreements with Canada and Mexico.

In an effort to remove an obstacle to Congressional approval of the U.S.-Mexico-Canada Agreement (USMCA), the president issued two proclamations: one lifted tariffs on imports of steel and the other on aluminum imports from Canada and Mexico. In exchange, the two countries agreed to remove the tariffs on U.S. goods that they had imposed in retaliation. Canada, Mexico and a number of members of Congress had conditioned action on USMCA on removal of the tariffs.

The 232 tariff action began 14 months ago (March 2018) when the president imposed a 10% tariff on imports of aluminum and a 25% tariff on steel imports under Section 232 of the Trade Expansion Act of 1962. The steel tariffs did not apply to Argentina, Australia, Brazil, Canada, Mexico, South Korea and the EU member states. When the administration was unable to negotiate satisfactory arrangements to limit imports from Canada, Mexico and the EU, it imposed the 25% tariff on them on June 1, 2018. (Turkey was subject to a 50% tariff from August 2018 until May 2019, when the tariff on its steel imports was reduced to 25%.)

The U.S. removed both the steel and aluminum tariffs on Canada and Mexico on May 20 after reaching agreement on measures to prevent the importation of aluminum or steel that is unfairly subsidized or sold at dumped prices and the transshipment of aluminum and steel articles. They also agreed to “monitor for and avoid import surges.” If there is a “meaningful” surge of imports of aluminum or steel products above historical levels, the parties may request consultations. If they are not successful, the importing party may re-impose duties of 25% for steel and 10% for aluminum, and the exporting country can retaliate but “only in the affected sector.”

On May 17, the president concurred for the third time with a Commerce Department’s finding that imports threaten to impair the national security, the latest relates to imports of autos and auto parts. This finding drew sharp rebukes from members of Congress, industry and the EU, challenging the claim that auto imports threaten U.S. security.

Unlike the earlier cases where the president immediately imposed tariffs, the president directed the U.S. Trade Representative (USTR) “to negotiate agreements to address the national security threat, which is causing harm to the American automobile industry” with the European Union, Japan “and any other country the Trade Representative deems appropriate.” He asked for an update on the negotiations within 180 days. This gives USTR until mid-November to negotiate agreements with the EU and Japan.

The president may be looking for the type of arrangements that the U.S. negotiated with Canada and Mexico as part of the USMCA negotiations. Upon the conclusion of those negotiations, the U.S. signed side letters with both countries that guaranteed them exclusions from any tariffs that the U.S. might impose on autos and auto parts under Section 232. The exclusions cover the annual import of 2.6 million Canadian autos and 2.6 million Mexican autos, all light trucks from other country and auto parts of $32.4 billion for Canada and $108 billion for Mexico in any calendar year.

While both the EU and Japan agreed in 2018 to negotiations with the U.S., they have yet to reach agreement on the scope of the negotiations. It is unclear how the new presidential directive will influence the negotiations. The EU has stated that it will not negotiate an agreement that is inconsistent with the WTO.

Jean Heilman Grier

May 23, 2019

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