Washington Insider -- Wednesday

Extended Steel and Aluminum Tariffs

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USDA’s Perdue Pushes EU To Follow ‘Science’ On Food, Ag Products

USDA Secretary Sonny Perdue continues to press the European Union (EU) on trade issues relative to agriculture, pushing the bloc to follow “sound science” when it comes to matters on food safety, genetically modified organisms (GMOs) and other matters. Perdue is currently in Europe and met with ag ministers from EU countries.

The issue of poultry trade figures to be a key as Europe said it will not accept so-called “chlorine-washed” poultry, referring to the U.S. practice of using a chemical wash to remove pathogens from chicken. Perdue said the U.S. does not use chlorine but peracetic acid. “Peracetic acid … is a great pathogen reduction treatment,” he told reporters in Brussels. “You know what it is? It is vinegar, essentially. To say that is unsafe or not to be used… we do not think there is a basis for that in sound science.”

On biotechnology, Perdue also chided Europe for its views on GMO crops. “I use the example of table salt that can be hazardous if you consume it in too much quantity, but we use it regularly,” Perdue explained. “And that is why we have the MRL (maximum residue level) for pesticides.” Perdue said the stance by Europe is going to put European farmers behind since they are not able to adopt technology used by growers in other areas of the world.

Perdue also heard complaints from EU farm ministers on U.S. trade policies, including the use of tariffs on a host of goods. His stance on including agriculture in any U.S.-EU trade deal was also emphasized, with him criticizing offers to remove barriers to U.S. apples, pears and shellfish as not enough. "We are not going to get there with apples and pears and shellfish. There are other things have to happen," he said.

China Says It Is Bringing Its Domestic Ag Supports Into Compliance With WTO

While much attention in a meeting of the WTO Dispute Settlement Body (DSB) Monday focused on the stalled appeals process as the U.S. continues to block appointment of new judges to hear appeals to WTO rulings, China offered a status report on their efforts to comply with a WTO ruling against their use of subsidies for domestic wheat, corn and rice producers.

“Chinese government agencies [have] conducted intensive consultations aiming to implement the recommendations and rulings of the DSB in this dispute,” China said. Internal processes “with respect to amending relevant measures” are ongoing, officials told the WTO, noting the “complexity of measures at issue.”

China said it would “accelerate the internal process and fulfil our implementation obligation in due course.” China is facing a March 31 deadline to bring its domestic ag supports for wheat, corn and rice into compliance with the ruling in the case brought by the U.S.

The U.S. said it would “engage bilaterally with China on specific amendments it will make to bring its measures into compliance.”

Washington Insider: Extended Steel and Aluminum Tariffs

In spite of signs of some pull backs in trade policy battles, the Trump administration announced plans to broaden tariffs on foreign steel and aluminum late last week. It argued that “existing tariffs had not proved as effective as hoped in reviving American production the New York Times said Tuesday.

The administration accused foreign companies of trying to “circumvent” the 25% tariff placed on foreign steel and the 10% tariff on foreign aluminum in 2018. Imports of steel and aluminum into the United States have declined since the tariffs went into place but imports of products made with those metals had “significantly increased,” the administration said.

The net effect “has been to erode the customer base for U.S. producers of aluminum and steel and undermine” the effect of original tariffs, the announcement said. That led the United States to expand its tariffs to cover products made of steel and aluminum—like nails, tacks, staples, cables, certain types of wire, and bumpers and other parts for cars and tractors — as of Feb. 8.

For American companies making such products, the move provided some relief. For example, Southwire, a Georgia company that makes power cable and one of the largest manufacturers calling for the new tariffs, said the measures were necessary to ensure fair competition in the market for aluminum wire.

“We continue to believe that when there is a level playing field, the strength of our manufacturing comes forth,” Burt Fealing, Southwire’s general counsel, said.

However, the Times said that for economists and trade experts the development was an “I told you so” moment.

Economists have long argued that by raising the price of steel and aluminum, the administration’s tariffs would make it more expensive to produce things like nails or cars in the United States—and would encourage companies to import more of those items.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, called this an example of “cascading protectionism” that he said was “entirely predictable.”

“Trump’s steel and aluminum tariffs have raised the cost of key inputs, making American companies that rely on those metals less competitive worldwide,” Bown said. “Now President Trump is expanding his tariffs to shield their products from competition as well. Where will it end?”

Richard E. Baldwin, a professor of international economics at the Graduate Institute of International and Development Studies in Geneva said that the administration is “learning this particular lesson in economics one failure at a time.”

In his order expanding the tariffs, President Trump pointed to large increases in imports of certain products made of steel and aluminum. For example, from June 2018 to May, imports of items including steel nails and staples rose 33% from a year earlier. Imports of aluminum wire and cable were up 152% over the same period, the administration said.

President Trump continues to argue that his trade policies are delivering on his promises to revive the manufacturing sector by sheltering American businesses from unfair competition and encouraging companies to move factories back to the United States.

But a study released by two economists at the Federal Reserve in December showed that the costs of the administration’s trade approach to China had outweighed its benefits for manufacturers.

Tariffs offered American companies some protection from Chinese imports, the study showed. But those positive effects were more than offset by the negative effects of the trade war, including the higher prices companies must pay to import components from China and the retaliatory tariffs China had placed on the United States.

Still, American producers of steel and aluminum have supported the tariffs and U.S. steel producers operated their plants at a modestly higher share of capacity this year compared to last. But in its order, the administration said capacity utilization had not stabilized above 80%, its goal.

Large steel companies have ramped up their investment since the tariffs came into effect, however. However they also have faced steel prices well below recent highs, leading to decisions to idle some facilities. For example, a plant near Detroit is sending layoff notices to roughly 1,500 employees. Some analysts continue to point at China for market pressure, since it produced steel at a record level in 2019.

At the same time, trade experts have questioned the legal basis for Trump’s continuing to make revisions to his metal tariffs.

The administration has said Section 232 of a 1962 trade law gives the president broad powers to impose tariffs to protect American industry for matters of national security — and that domestic capacity to make iron and steel is essential for national defense. It issued broad tariffs globally, before later carving out some exemptions for Argentina, Australia, Canada, Mexico, Brazil and South Korea.

But in a preliminary decision last year, the United States Court of International Trade gave a narrower interpretation of that statute, arguing that the president must act within certain periods that have already expired.

So, we will see. Certainly tariffs on basic production inputs like steel and aluminum do have impacts across a broad range of products and may well become a continuing source of skepticism for the administration’s tariff-oriented trade policies. This also is likely to lead to a continuing debate that producers should watch closely in the coming months, Washington Insider believes.

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