Articles in Category: Exports

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It didn’t take long for President Donald Trump to extricate the U.S. from one trade deal, the Trans-Pacific Partnership. Now, the Trump administration is looking to make good on a promise to revamp the North American Free Trade Agreement (NAFTA), the 23-year-old trilateral trade agreement with Canada and Mexico.

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On Wedesday, U.S. Trade Representative Robert Lighthizer announced the first round of negotiation talks will be held Aug. 16-20 in Washington, D.C.

A 90-day consultation period with Congress and the public kicked off May 18. Late last month, the Office of the USTR held public hearings over three days regarding NAFTA, welcoming comments from lawmakers, businesses and other stakeholders. Some U.S. industry sectors agreed NAFTA has been largely successful, but that the agreement forged in 1994 needs modernizing tweaks.

Lighthizer also announced John Melle, the assistant U.S. trade representative for the Western Hemisphere, will serve as the chief negotiator during the NAFTA talks. Melle has worked for the Office of the USTR since 1988.

The USTR also released its trade objectives for the negotiations on Monday. Perhaps not surprisingly, the primary goal for the Trump administration is a reduction of trade deficits with Mexico and Canada.

“President Trump continues to fulfill his promise to renegotiate NAFTA to get a much better deal for all Americans,” Lighthizer said in the prepared statement released Monday. “Too many Americans have been hurt by closed factories, exported jobs, and broken political promises. Under President Trump’s leadership, USTR will negotiate a fair deal. We will seek to address America’s persistent trade imbalances, break down trade barriers, and give Americans new opportunities to grow their exports. President Trump is reclaiming American prosperity and making our country great again.”

In 2016, the U.S. had a $64 billion trade deficit with Mexico and an $11 billion deficit with Canada. In 1994, when NAFTA went into effect, the U.S. had a $1.3 billion trade surplus with Mexico.

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According to a recently released study from the Boston Consulting Group (BCG), a border tax or the U.S. exiting the agreement could negatively impact U.S. automotive manufacturers. The study argues that a 15% border tax would cost U.S. automakers and suppliers $22 billion a year and a 20% tariff on Mexican imports would drive up production costs per vehicle by $650 on average.

Whatever happens, though, Mexico and Canada clearly would like to get the ball rolling.

Reuters reported today that diplomats from the U.S.’s NAFTA partners are hoping to reach a deal quickly to put an end to uncertainty in the business community regarding the trade deal’s future.

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Anxiety is rising among Europe’s steelmakers that a potential U.S. plan to levy steel tariffs, on national security grounds, could have a disastrous impact on the region’s sales into the market.

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Reuters reported that the European steel association Eurofer is worried that “….measures potentially stemming from the U.S. section 232 investigation may lead to a proliferation of disastrous global trade flow distortions.”

Eurofer is worried on two counts. First, it is worried that with China largely already cut out of the U.S. market by anti-dumping legislation, the axe will fall on imports from other regions, of which Europe is a major supplier. Many European countries are already experiencing steep declines in sales to the U.S. between 2015 and 2016 — in some cases of 50% — but the largest, Germany, remains the fifth-largest external supplier to the U.S. of flat-rolled products, according to International Trade Administration data.

The second worry is that should the investigation support bans or large duties, suppliers in the affected countries will look for alternative mature, high-value markets for their products, namely the EU. This would potentially flood an already overcrowded market with more low-priced material.

Having championed free trade in recent statements, Europe may have to eat its own words if it is forced to find ways to counter such a flood. Reuters reports that moves are already afoot, at the G20 summit in Germany last weekend, leaders from the world’s 20 leading economies set an August deadline for an OECD-led global forum to compile information about steel overcapacity. That also includes a report on potential solutions, due in November, which could result in the region acting of its own.

In reality, Europe may not be the primary target of the president’s 232 action. Supplies from Canada, Brazil, Mexico, South Korea, Japan and Russia dwarf those from Europe, but that will not necessarily stop the region from suffering considerable collateral damage.

The move would come at an unfortunate time for the European steel industry.

After prices rose nearly 50% last year, they have since fallen back some 10% this year, according to Reuters. Demand, however, is recovering with a 1.9% rise forecast for this year, according to Eurofer, suggesting prices could stabilize (although demand growth is expected to ease again next year, with only 1% growth forecast).

EU Strikes Back?

However, The Guardian reports Europe is also looking at retaliatory measures, should they suffer exclusion or tariffs because of the 232 action. The paper quotes the European Commission president, Jean-Claude Juncker, who is reported to have said that if the U.S. took measures against Germany and China’s steel industries, the EU would “react with counter-measures.”

The article says one industry in the Europeans’ crosshairs is Kentucky bourbon, worth $166 million to the state last year and directly employing some 17,500.

Kentucky was staunchly supportive of Trump during his campaign, with 62.5% of the electorate voting for him.

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“I am telling you this in the hope that all of this won’t be necessary,” Juncker said during the G20 summit. “But we are in an elevated battle mood.”

Bellicose talk, indeed.

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This morning in metals news, Chinese exports of steel are down to levels not seen in a few years, aluminum prices get a boost from talks of Chinese output cuts and a group of former White House economists wrote President Donald Trump in an attempt to convince him not to go forward with imposing tariffs on steel imports.

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Steel Exports Down in China

Chinese steel exports are down to three-year lows, according to a Bloomberg report.

Chinese excess capacity has been at the heart of the Trump administration’s Section 232 investigation into steel (and aluminum) imports, but it appears as if that oversupply is on the decline.

According to Bloomberg, China is “exporting a lot less of the metal as government-ordered closures of illegal plants tighten supply and improving local demand spurs mills to sell more at home.”

Aluminum Prices Get Good News

Sticking with China, aluminum prices surged 2.8% on news of Chinese production cuts, according to Reuters.

In related news, our Stuart Burns wrote about the issue of Chinese oversupply this morning, and whether announced measures to close plants — in efforts to cut production — are actually meaningful.

Former White House Economists on Section 232 Tariffs: Don’t Do It

When it comes to the the Trump administration’s Section 232 investigation of steel imports and the possibility it could hit foreign suppliers with tariffs, a number of former White House economists agree on one thing: It’s a bad idea.

According to a report in The Los Angeles Times and other outlets, 15 former White House economists sent a letter to the White House explaining why the tariffs would be a bad idea. According to the report, the letter is signed by economists from both sides of the aisle, and includes the signatures of two former Federal Reserve chairmen: Ben Bernanke and Alan Greenspan.

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It’s unlikely that such a letter will have much pull with Trump and his administration at large, but it is notable for the simple fact that a group of ideologically differing economists agree on a singular issue (in this case, whether or not to impose steel tariffs).

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Before we head into the weekend, let’s take a brief look back at some of the news from the world of metals this week:

China’s Falling Steel Exports?

Earlier this week, our Stuart Burns wrote about the phenomenon of dropping Chinese steel exports:

“As we noted in a piece yesterday reviewing the 232 probe, China’s share of the U.S. import market for steel products has been falling for the last couple of years, mainly due to successful anti-dumping cases,” Burns writes. “China no longer appears even in the top 10.

So, what exactly is going on in China with respect to steel production and demand? Can we take it that Beijing’s actions to tackle excess steel production have finally resolved China’s deflationary impact on global steel markets?”

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In case you missed it on Monday, definitely give the story a read, especially as the Department of Commerce’s Section 232 steel investigation results will be announced any day now.

Indian Coal Faces Green Wave

Also earlier this week, our Sohrab Darabshaw wrote about coal mine closures in India, partially a result of the growth of the renewable energy sector:

“One estimate by the Energy and Resources Institute predicts if the cost of renewable energy and storage continue to fall, India may phase out coal power completely by 2050. Both solar and wind energy prices have been steadily decreasing over the last three years.

“In 2016-17, India added over 14,000 megawatts of new renewable energy power compared to almost 7,000 megawatts of new coal power capacity.”

Even so, the dependence on old energy sources won’t disappear immediately. Yesterday, Indian Steel Minister Choudhary Birender Singh announced India will ramp up its steel production significantly. That uptick in production will need energy, and Singh indicated Coal India Ltd. will be asked to provide the coal needed to back the steel-production operations.

In general, however, the interplay between older, dirtier sources of energy and clean, renewable energy sources is happening all over the world.

China-U.S. Back and Forth

Tensions have been building between the U.S. and China, as Reuters reported President Donald Trump was growing frustrated with China over its inability to rein in North Korea, while China expressed concern this week about the results of the Section 232 aluminum investigation.

The Department of Commerce investigations into steel and aluminum imports were announced in April.

Adding to the tension is China’s disapproval of a planned $1.42 billion arms sale by the U.S. to Taiwan, which the Chinese embassy denounced in a statement, Reuters reported Friday.

With many expecting tariffs or quotas (or a combination of the two) to be slapped on steel and aluminum imports (as an outcome of the 232 investigation), there’s no doubt the tension between the U.S. and China will only increase.

What’s Next For U.S.-India Ties?

President Donald Trump met with Indian Prime Minister Narendra Modi earlier this week in Washington D.C. Our Stuart Burns wrote about Modi’s visit and what could be in store for the U.S.-India relationship throughout the Trump administration.

During a joint press statement this week, Trump stressed India’s status as the world’s largest democracy and touted himself as a friend to India.

However, he also touched on thornier issues, like trade barriers.

“I look forward to working with you Mr. Prime Minister to create jobs in our countries, to grow our economies, to create a trading relationship that is fair and reciprocal. It is important that barriers be removed to the export of U.S. goods into your markets and that we reduce our trade deficit with your country.”

After the Tragedy

The Grenfell Tower fire earlier this month could have been prevented if safe building materials had been used. Burns wrote about that and more in his piece on the tragedy.

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Beijing’s focus on supply-side reforms of China’s giant aluminum industry has been a prime mover for the metal price this year.

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But primary metal price rises aside, of more concern to aluminum consumers should be the nature and extent of China’s aluminum semi-finished product exports. There have been various facets to China’s product exports, as Andy Home of Reuters succinctly explained in an article last week.

On the one hand, the growing volume of product exports has ignited considerable trade tensions with the U.S. and Europe. In the case of the former, the article reports, it led to a formal complaint to the World Trade Organization (WTO) and, more recently, a Section 232(b) investigation under the Trump administration. In Europe, expiring duties have been rolled over on imports of aluminum wheels from China and further action sought by trade bodies on a range of aluminum products.

Meanwhile, rumours that an indeterminate but significant proportion of China’s semi-finished product exports were in fact primary metal being illegally classified as semi-finished product to circumvent export duties on unwrought aluminum have at least partially been vindicated, as a focus has been brought to bear on a massive stock of aluminum held in Mexico last year that appeared to originate from Vietnam but with links to China.

Home explained that China’s exports of commodity code 7604 (bars rods and extruded profiles) have mushroomed from just over 6,000 tons in 2012/2013 to 463,000 tons in 2015 and 510,000 tons in 2016. Some of that metal appeared in Mexico last year before media attention encouraged the metal to be recycled back to an obscure port in Vietnam. Read more

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.

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As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.

Dean Pinkert

Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.

Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is the final post in our three-part series that covers border-adjustment and tax policy.

JY: The reason you might want to avoid a VAT is that it would apply to all transactions, right? It would be on individuals and not companies.

DP: Think of it as the difference between a sales tax in the United States and an income tax. They are completely different. A VAT is essentially a national sales tax. We have sales taxes but the issue we’re talking about is the corporate income tax. If the U.S. adopted a VAT it would be a huge change so the idea here is to stay within the corporate income tax concept, but make some tweaks so that U.S. companies aren’t disadvantaged relative to foreign companies. Because we’re not talking about a VAT, though, you might get a different outcome at the World Trade Organization when it’s challenged by another country.

A VAT would be a big change. We are getting into some areas of policy that I’m not an expert on here, but there are all sorts of other issues that go way beyond the issue, but from a trade perspective the idea of a border adjustment is supposed to neutralize the advantage that VAT tax countries might have in international trade. The WTO may come to the conclusion that, even though a border-adjustment does have some features of a VAT, it’s still not acceptable because it might be viewed as an export subsidy. Read more

Dean A. Pinkert is a partner in Hughes Hubbard’s International Trade practice. He is a former Commissioner of the U.S. International Trade Commission. Pinkert was nominated by President Bush and confirmed by the Senate in 2007, and was designated Vice Chairman by President Obama in 2014.

Benchmark Your Current Metal Price by Grade, Shape and Alloy: See How it Stacks Up

As a commissioner, Pinkert participated in numerous anti-dumping, countervailing duty, and safeguard investigations, including the special safeguard investigation of passenger tires that resulted in import relief for the domestic tire industry and was upheld by the World Trade Organization. He participated in an unprecedented number of final determinations in Section 337 investigations during his tenure, notably dissenting in an electronic devices case that went to President for policy review. President Obama, relying on many of the factors cited in the dissent, overruled the commission for the first time since 1987.

Dean Pinkert

Former ITC Vice Chair A. Dean Pinkert. Source: Hughes Hubbard.

Pinkert spoke with MetalMiner Editor Jeff Yoders by phone about several issues facing metals producers and manufacturers, including global steel and aluminum overcapacity and how the new Trump administration can approach trade and overcapacity issues. This is part two of our discussion, which focuses on cases that rise to the WTO. See part one here if you missed it.

Jeff Yoders: Is there a risk to elevating any such case to the WTO of essentially spending the money and hiring the lawyers, only to lose the case?

Dean Pinkert: First, there are two types of cases. When there’s a decision by the U.S. Trade Representative‘s office to file a case with the WTO, we’ll call those offensive cases. They are filing a complaint with the WTO saying that another country is violating its trade commitments. By the way, I think the Obama administration was very aggressive at developing and filing cases of that kind.

There is  another type, and these are what I was referring to earlier, where the U.S. has an investigation of something, concludes that a trade remedy is appropriate, imposes that trade remedy and then gets sued and it goes to the WTO. In 2002, when the steel safeguard relief was put into place, the U.S. was taken to the WTO by our trading partners and, ultimately, the WTO ruled against the safeguard. It was then withdrawn, although the Bush administration said the reason it was withdrawn was because it achieved its aim of giving the domestic industry some breathing space so that they could regain profitability, not because of the loss.

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I was talking more about that more defensive posture in the WTO when I was talking about safeguards.

JY: There’s a lot of talk about a border-adjustment tax right now. Many policy papers are calling the scheme very similar to a value-added tax but only on companies. Is there a chance that such an idea might run afoul of WTO rules?

DP: We don’t now exactly what it would look like or what the final measure, if there is one, would be. We don’t know how the WTO would react to it, either, but it’s possible that the WTO would consider it an export subsidy and, if it did, then that would have some serious consequences because there is a list of various kinds of subsidies, particularly export subsidies, in the WTO agreement. If it was found to be an export subsidy there would be considerable consequences for the U.S.

But, it’s important to note that we don’t even know what the border adjustment tax will look like yet. We would have to see. Read more

We had a chance to sit down and discuss the issues facing members of the Steel Manufacturers Association with SMA President Philip K. Bell at the recent S&P Global Platts Steel Markets North America conference here in Chicago. Bell also currently serves on the  Department of Commerce International Trade Advisory Committee on Steel (ITAC 12), advising the Secretary of Commerce and United States Trade Representative on trade policy, trade agreements, and other trade related matters that benefit U.S. businesses, workers, and the economy.

Philip K. Bell

Philip K. Bell. Source: SMA

Jeff Yoders: We’ve heard a lot about North American Free Trade Agreement and what changes to it might mean in the last two days. How do your members feel about reopening NAFTA to changes?

Philip K. Bell: NAFTA is over 20 years old and it’s probably time to look at it again. A lot has changed over the last two decades. We hope the approach that the administration takes is one that’s more methodical and takes into account that not only are Canada and Mexico two of our biggest trade partners but, when it comes to the steel industry, they ARE our two largest trade partners.

There is a lot of integration in this area. You have a lot of steel producers that either have businesses in Mexico such as Gerdau, ArcelorMittal and Nucor — through its joint venture JFE — and you have a lot of companies that want to do business there like Steel Dynamics which is hoping to increase its presence in that market by importing flat-rolled into Mexico. Read more

Chinese steel exports tumbled to a three-year low in February, customs data showed last week, lower than expectations, as steelmakers in the world’s top producer shifted to meeting rising demand at home.

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Shipments for the month were 5.75 million metric tons, the lowest since February 2014, data from the General Administration of Customs showed. It was down 29.1% from a year ago and down 22.5% from January.

Duterte Wants Mining Compromise

Philippine President Rodrigo Duterte said recently he hopes there will be a “happy compromise” between the mining industry and protecting the environment, throwing support to Environment and Natural Resources Secretary Regina Lopez will appear before Congress ahead of her confirmation hearing. Lopez is under pressure because she has closed nearly half the nation’s mines.

German Dominguez

German Dominguez

There’s been a lot of talk about President Trump’s “border tax” lately as it relates to reshoring manufacturing to the U.S. and financing “great, great” border walls, and my colleague Jeff Yoders has done a bang-up job covering the gamut of the Trump administration’s proposed policies in general.

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On our sister site Spend Matters, we tried to get closer to the bottom of the whole south-of-the-border tax issue, which opened up a can of worms — and devolved into golf analogies.

But what does it all mean for U.S and Mexican manufacturers and their future strategies?

Q&A With German Dominguez, Independent Advisor and LatAm Sourcing Expert

We caught up with German Dominguez, an independent sourcing advisor helping U.S. manufacturers to best-cost-country-source direct materials where it is most advantageous in Latin America, mainly within The Pacific Alliance region (Mexico, Colombia, Peru and Chile) — the largest emerging markets economic bloc in Latin America. Read more