Economic Policy Institute: Section 232 tariffs delivered ‘near-immediate benefits’

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Three years have passed since former President Donald Trump imposed Section 232 tariffs on steel and aluminum.

The administration cited national security concerns when imposing the tariffs. In addition, it aimed to raise capacity utilization of the US steel and aluminum sectors. (For the week ending March 20, US mills reached a steel capacity utilization rate of 77.3%.)

steel tariff

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Some countries received exemptions and domestic buyers have been able to win exclusions, which have mitigated the strength of the tariffs.

Metals consumers have expressed their opposition to the tariffs. For example, the Coalition of American Metal Manufacturers and Users (CAMMU) called for an end to the tariffs last year, citing the negative economic impact of the COVID-19 pandemic.

However, a recent review of the tariffs offered a more positive view.

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EPI: Section 232 tariffs produced ‘near-immediate benefits’

According to a recent report this week by the Economic Policy Institute (EPI), the Section 232 tariffs offered “near-immediate benefits.”

“Once implemented in 2018, such Sec. 232 steel import measures as 25% tariffs on imported steel and import quotas on select countries helped curb U.S. steel imports by 27% by 2019,” the EPI said. “Import penetration of the U.S. market fell to 26% of all steel consumed in the United States in 2019, from 35% in 2017.”

The EPI further argued that the tariffs have had a “negligible” impact on prices of steel-using goods.

“Econometric analysis shows that price changes in basic steel products had statistically zero or economically negligible causal effects on prices of ‘downstream,’ or steel-using goods, including new motor vehicles, construction equipment, electrical equipment and household appliances, motor vehicle parts, nonresidential construction goods, food at home, and durable goods more broadly — industries accounting for the majority of U.S. steel consumption,” the EPI said.

Excess capacity

Among other issues, the EPI emphasized the challenge of global excess capacity, particularly from China.

The Chinese government has expanded the country’s steel output by 418% since 2000, the EPI said. It added that Beijing has used “subsidies and other forms of distortionary government support” to augment its output.

However, China hasn’t been alone.

India, Turkey, Iran, South Korea, Vietnam, Russia, Brazil, Mexico and Taiwan have also achieved significant capacity gains since 2000.

The Chinese steelmaking hub of Tangshan has recently moved to curb capacity in an effort to mitigate high pollution levels. It remains to be seen if China’s environmental targets in its latest five-year plan will in fact curb production. Despite annual production curbs during the winter heating season, China’s steel output in recent years has continued to rise.

Despite the pandemic, China’s steel output increased by 5.2% year over year in 2020, according to the World Steel Association.

Furthermore, as MetalMiner’s Stuart Burns recently noted, much of China’s output still comes via high-polluting, coal-fired power generation.

Next steps for Section 232

What does a new administration mean for Trump’s Section 232 tariffs?

As we’ve noted previously, the Biden administration reimposed the 10% aluminum tariff on imports of the metal from the United Arab Emirates. On his last day in office, Trump moved to rescind the tariff.

The move suggested the Biden administration will likely keep the tariffs in place.

If the tariffs are removed, it would only benefit “low-priced, high carbon-polluting producers overseas,” the EPI argued.

Until the problem of global excess capacity improves, the tariffs should remain, the EPI added.

“The Biden-Harris administration should press for a permanent multilateral solution to the chronic problem of excess global steel production capacity,” the EPI said. “But until such a solution is achieved, national security concerns and ensuring a sustainable economic recovery for the steel industry require the continuation of comprehensive Sec. 232 import measures and other policies to preserve the U.S. steel industry.”

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