Articles in Category: Anti-Dumping

President Donald Trump’s administration is mulling changes to how the U.S. calculates trade deficits. A change could be made that would show more movements of goods between free trade agreement countries, the Wall Street Journal reported recently citing people involved in the discussions.

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The leading idea under consideration would exclude from U.S. exports any goods first imported into the country, such as cars, and then transferred to a third country like Canada or Mexico unchanged, the sources told The Wall Street Journal. These would not be traditional transshipments, generally done to disguise a country of origin, but rather shipments that are manifested to include the country of origin but simply move goods through a trade agreement country.

Economists say that approach would cause trade deficit numbers to go up because it would typically count goods as imports when they come into the country but not count the same goods when they go back out, known as re-exports.

Trump has been highly critical of trade deals including the North American Free Trade Agreement (NAFTA) with Mexico and Canada. By using a metric that widens the trade deficit, it could give him political leverage to make sweeping changes, the newspaper reported.

If the government adopted the new method, the deficit with Mexico would be nearly twice as high.

The effect of such a change would be particularly stark on data involving countries that have free trade deals with the U.S., this person said—and in some cases the new methodology could even change a trade surplus into a trade deficit.

Trump trade officials said the idea is part of an early discussion and that they are examining various options. It is unclear whether the administration would adopt any new approach for measuring trade as part of official government data, or just use the higher deficit calculation to make the case for new trade deals.

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“We’re not even close to a decision on that yet,” Payne Griffin, the deputy chief of staff at the office of the U.S. Trade Representative told the Journal. “We had a meeting with the Commerce Department, and we said, ‘Would it be possible to collect those other statistics?’”

The Journal reported that career government employees at the USTR’s office complied with the request to prepare data using the new methodology but also noted their objections.

Slowly but surely, India seems to be shifting the goal posts on its minimum import price policy designed to protect the domestic steel industry.

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India recently extended the anti-dumping duty on cold-rolled flat steel products from four nations, including China, Brazil and South Korea to guard the domestic steel industry from cheap imports for another two months. The duty was expected to expire after six months and was recently extended to give it a total duration of eight.

Domestic Indian steelmakers could see their protective minimum import prices for steel products lifted. Source: Adobe Stock/ft2010.

India had previously imposed a minimum import prices (MIP) to protect the steel industry and the cold-rolled duties came in addition to the MIP. The policy was described as a short-term emergency measure while anti-dumping duties are a long-term measure to protect the country’s trade.

Yet, according to a recent media report, India’s steel secretary Aruna Sharma said there would be no minimum import price (MIP) extension for 19 steel products.

How the MIP Started

India started imposing an anti-dumping duty of $474-$557 per metric ton on hot-rolled flat products of alloy and non-alloy steel imported from China, Japan, South Korea, Russia, Brazil and Indonesia in August. Read more

The Trump administration is exploring the idea of classifying currency manipulation, such as when China sets the value of the yuan/renminbi deliberately low to promote exports, as an unfair trade government subsidy that U.S. manufacturers can then petition the Commerce Department for redress against.

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The Wall Street Journal reported that, under the plan, the Commerce Secretary (Trump has nominated Wilbur Ross for the job) would designate the practice of currency manipulation as an unfair subsidy when employed by any nation. This plan would not single out China, or any other country, but rather give U.S. companies the opportunity to pursue trade remedies such as countervailing duties on imports from nations that artificially set currency values low.

Dollar vs. RMB

The value of the renminbi against the US dollar has consistently fallen since China removed its peg. Chart: Jeff Yoders/MetalMiner.

Last year, we created an interactive narrative experience showing how China has changed its currency values since it joined the World Trade Organization. Many countries and the WTO, itself, have wrestled with how to deal with Chinese exports in recent years but no country has considered creating a currency manipulation category for dumping of foreign exports that would, presumably, be enforceable under current WTO rules.

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The currency plans, according to the WSJ, are part of a China strategy being put together by the White House’s National Trade Council, led by economist Peter Navarro. The policy seeks to balance the administration’s dual goals of challenging China on trade while still keeping relations  — and most trade — with the massive country on a fairly even keel. That’s why the policy does not single out China and would apply to all nations that reset the values of their currency without direction from an independent body such as the European Central Bank or Federal Reserve.

The difficulty in enforcing such a policy would be that nations such as China could cry foul at the WTO and say that the ECB or Fed are not really independent. A definition of what is an independent central bank might be challenged in the WTO.

Our Raw Steels MMI rose 8% in January. Flat products achieved or came close to multiyear highs across the sub-index. In this post we will lay out some of the factors driving this price rally. A rally that we predicted three months ago.

Rising International Steel Spreads

In late January, President Donald Trump took executive action to advance construction of the Keystone XL and Dakota Access oil pipelines. This will significantly increase U.S. steel demand from the energy sector.

The new president also issued another executive order that required them, and all pipeline projects, to use only American-made steel. There is no language in Trump’s memo that indicates any waivers for American-made steel would exist for trade-agreement countries. If this policy is adopted, for at least the next four years even by only the executive branch, it is, by far, the most stringent definition of “American-made” we have seen in federal steel procurement.

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With the expected increase in U.S. demand for steel and new “Buy American Steel” policies, the spread between U.S. and international prices could widen this year. Spreads bottomed at the end of November and it looks like there have room to rise again.

Strong Chinese Steel Prices

China shut at least 45 million metric tons of steel production capacity last year, meeting its target, in a drive to address a glut through 2020. In January, China unleashed its boldest reform plan so far for its bloated steel sector, saying it will eliminate all production of low-quality steel products by the end of June.

Coal burning is the biggest contributor to air pollution in China. One of the principal users of coal, and therefore most polluting, is its steel industry. This is another reason to believe Beijing will strengthen its supply-side reforms this year.

Meanwhile, demand indicators from China, by far the largest consumer of steel, continue to look strong. This combination of lower-than-expected supply and stronger-than-expected demand has translated into rising steel prices in China, which continue to look strong. In addition, iron ore prices have held above $80 per mt. Chinese steel mills rely heavily on seaborne iron ore.

Falling China Steel Exports

Chinese steel exports have fallen in double digits for four consecutive months. The E.U. has slapped anti-dumping duties on some Chinese steel products. India has set a minimum import price for steel products to fend off cheap Chinese steel from its borders. The U.S., no slouch when it comes to anti-dumping and countervailing duties on Chinese steel already, now favors a more aggressive trade policy, regularly citing job losses as a result of imports from foreign countries, especially China.

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As more countries act against the menace of Chinese steel products, we could see further moderation in Chinese steel exports in 2017, and this would bode well for global steel markets.

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Our Automotive MMI took off in February, surging 12.2% along with strong gains in steel prices and all of the base metals in the automotive index saw gains in the first full month of 2017.

Hot-dipped galvanized steel was a particularly strong performer along with the catalyst metals, palladium and platinum. The tough talk about U.S. automotive production that President Donald Trump started during the campaign has only ramped up since his inauguration. Automakers could have to significantly alter their purchasing and supply chains if a border tax is enacted.

House Republican leaders have proposed what they call a “border-adjusted tax,” which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer recently said it was under consideration and could help pay for a wall along the Mexico border.

An overhaul of the U.S. tax system could hand an advantage to Ford Motor Company, Honda America and General Motors, which rely the least on imported vehicles among the major automakers. The shake-up, if it is a border-adjusted tax, would clearly undermine Toyota America, which relies on shipments of RAV4 sport utility vehicles from Canada and Lexus luxury models from Japan, and deliver an even more damaging blow to companies with zero domestic production, including Mazda Motor Corp.

“The border adjustment piece of this is very intriguing for us,” Ford Chief Executive Officer Mark Fields told analysts after posting a $10.4 billion pretax profit for 2016. “The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”

About 79% of Ford’s domestic vehicle sales were built at home last year, according to researcher LMC Automotive, second only to the much smaller electric-car maker Tesla Motors. Honda ranks just behind Tesla and Ford, with 68% of its U.S. sales coming from domestic plants, followed by GM with 65%.

If the first weeks of the Trump administration are any indication, though, initial action on a tax plan could happen quickly via executive order and the lengthy process of legislation could be a post-executive order action plan.

January is typically the weakest month of the year for U.S. auto sales, and last month appeared to be no exception. Sales fell 2% to 1.1 million, according to Autodata Corp. Supply chain executives are clearly more worried about supply chains and a possible import tax this month than end-product sales.

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Yesterday, the Department of Commerce placed final, affirmative anti-dumping and countervailing duties on imports of stainless steel sheet and strip from China.

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Commerce found that dumping  occurred by mandatory respondents Shanxi Taigang Stainless Steel Co., Ltd. and Tianjin Taigang Daming Metal Product Co., Ltd. Commerce also determined that the mandatory respondents are not eligible for a separate rate and, therefore, part of the China-wide entity.

Commerce calculated a final dumping margin of 63.86% for the non-China-wide respondents eligible for a separate rate. Commerce assigned a dumping margin of 76.64% based on adverse facts available for all other producers/exporters in China that are part of the China-wide entity due to their failure to respond to Commerce’s requests for information. Read more

However much we may focus on supply and demand fundamentals, metal prices and economic stability will be influenced more in 2017 by trade policy than just about any other issue.

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The new Trump Administration in Washington has already shaken up the status quo for NAFTA with threats to renegotiate the terms of that 20-year-old agreement in a manner that would have been inconceivable just six months ago.

Now, Peter Navarro, who heads the new National Trade Council, described the euro this week as an “implicit Deutsche Mark” that gives Germany a competitive advantage over its trade partners and accused Germany’s structural imbalance in trade with the rest of the E.U. and the U.S.A. as the result of a deliberately engineered-to-be-undervalued currency. Navarro accused Germany of engineering a grossly undervalued euro to exploit the terms of trade with its principal trading partners and called it illegal. Read more

PricewaterhouseCoopers recently released its Q4 2016 Deal Insights Report. Among the findings,

  •   For Q4 2016, the total deal value of $12.9 billion for deals with disclosed value greater than $50 million was 12% higher than last quarter and 106% higher than Q4 2015.
  • Deal value in 2016 was driven by M&A activity in China, as eight of the 10 largest deals throughout the year were announced by Chinese acquirers.
  • Over the past three years, 77% of deal activity has occurred locally.

I had a chance to discuss the metals m&a market with Michael Tomera, PwC’s metals division leader, based in Pittsburgh.

Jeff Yoders: Deal volume finally took off in Q4. What did the election have to do with it?

Michael Tomera: A key driver in this global report did have to do with Chinese deals. That was the driver, industry consolidation over there, over the last two quarters. There is definitely optimism for what’s going on with the new administration.

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Chinese steel industry consolidation, as much of a glimpse as we have of what’s going on in China — it is quite difficult to get exact details and good information out of China — it does, indeed, look like consolidation over there is happening and maybe even the reduction in capacity that they have said they want to do. It does look like that … from the information that is available.

JY: How so? In some of these large mergers, such as between Baosteel and Wuhan Iron and Steel? Or from some other measures?

MT: Generally, I think what a lot of the industry folks have been looking at is the need to curb excess Chinese capacity. The Chinese have said they are trying to do that, cut the capacity, and even if it’s less than the numbers they’re talking about cutting to… there’s going to be an impact on imports into North America.

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What happens with that, combined with anti-dumping actions, is really going to drive the impact on this market. The anti-dumping regulations are things that people in the North American market are going to continue to look at rather than discussing reductions in Chinese capacity simply because anti-dumping and countervailing duties, and their collection, are things that they can independently verify.

JY: Steel deals took off in Q4, is the steel sector a good place to invest again?

MT: 43 deals in the steel category, 40% of all deals in 2016. It looks like (steel investing is back). There’s been more going in anti-dumping actions in steel than other metals categories. We can’t predict what might happen with steel, aluminum or other individual metals sectors, but it does look like anti-dumping duties will be a factor. It seems like there is a fair amount of capital available among acquirers and private-equities and there is infrastructure planning going on from the Trump administration, so these are the things that have contributed to the increased share values of metals companies, in general, and steel companies in particular since the election.

JY: The mergers and acquisitions market looks healthy, then?

MT: Probably in previous years, we thought deal conditions would be better than they were just yet, particularly at the beginning of ’15. There was a 104% increase in deal value vs. Q1 2015. Now, it really looks like things have turned a corner. There are momentum drivers here. If you look at liquidity, market conditions, infrastructure development in the U.S. with the new infrastructure and trade plans, all of those are good indicators for the metals industries and growth going from 2016 into 2017.

On the campaign trail, Donald Trump’s supporters seemed to be of two positions when it came to trade policy: there were those that took every word and fervently believed the candidate when he said Buy American would Make America Great Again… and then there were those among the supporters who saw the risk of taking that policy too far, but still felt comfortable in the belief that come the day the candidate reached the Oval Office a more conciliatory, if still robustly pro-U.S., line would be pursued.

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Well, if further clarification was needed it was made clear in the new president’s inauguration pledge to buy American and hire American, followed by one of his first executive orders to strike-out the Trans-Pacific Partnership after seven years of painstaking negotiation.

In itself, the pledge to buy American and hire American is admirable, commendable and logical. The risk comes when it is enforced by the application of arbitrarily applied tariff barriers. History is littered with examples of previous leaders who have sought to protect domestic jobs and industries by putting up tariff barriers. As recently as 2002, George W. Bush slapped tariffs on steel imports instigating a wave of World Trade Organization complaints and, a year late,r a ruling from the WTO that the steel tariffs were illegal.

Whither the WTO?

Eventually Bush backed down and order was restored, but only because all sides accepted the legitimacy of working within a rules-based system such as the WTO. As a recent article in the Telegraph observed, the international community built the current system after the devastation of World War II and the Great Depression precisely hoping the we could avoid the self-inflicted wounds resulting from tit-for-tat trade disputes.

The US was central in that process and helped craft the rules in its own image of fair and open terms of trade. The fact is that other countries don’t stand still if a trading partner arbitrarily applies a tariff, quota or import tax. The idea of rules-based system such as the WTO is that these disputes can be resolved within a framework that, however tortuous, is accepted by all parties as balanced, but we should take note of the new President’s statements. He generally means what he says.

So, when Trump vowed to “renegotiate” America’s relationship with the WTO if it tries to block his protectionist policies, adding “we’re going to renegotiate or we’re going to pull out,” (something he said last year), declaring “these trade deals are a disaster. The WTO is a disaster,” he is clearly signalling he has no intention of letting the internationally accepted WTO system get in the way of his ideas for putting up barriers to imports.

What Has NAFTA Brought the US?

The consequences of such action should not be underestimated. Over the last 20 years the creation of NAFTA and the consequences of lower transport costs and better communications has meant U.S. corporations large and small have become more integrated with suppliers overseas, both with their own operations and third parties.

Source: Telegraph Newspaper

Many U.S. corporations are extensively integrated with the Mexican manufacturing sector and, therefore, exposed to any changes.

Source: Telegraph Newspaper

A radical shakeup of the tariff system would have a profound impact on the price of just about every industrial and consumer good sold in the U.S. U.S. Foreign direct investment in China, for example, stands at $65.8 billion, whereas China’s in the U.S. is only $9.5 billion, meaning the U.S. is far more reliant on open access to China than the other way around. The Telegraph points out China could easily buy Airbus over Boeing. Or Brazilian soy over U.S. soy. Or put the squeeze on Apple’s supply chain in China. Sure, iPhones could, in time, be made wholly in the U.S.A. but consumers are going to have to pay a lot more for them.

If the intention is to boost domestic jobs by putting up barriers, then the risk is if companies like Apple move to reshore production they would seek to automate in order to avoid the higher U.S. labor cost. Automation is already a growing challenge to job creation in mature markets, forcing firms to relocate would also force the pace of automation.

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Tariff barriers are like using a hammer to crack a nut. However attractive the grand gesture of slapping up barriers may seem, a more subtle approach to encouraging firms to buy American and, where possible, to relocate production would be much more beneficial for the U.S. economy. President Trump’s other idea of re-writing the U.S. tax system would be a good place to start.

Among the ideas that the Trump administration has mentioned as a way to pay for the planned southern border wall is a 20% tax on all goods coming in from Mexico. Press Secretary Sean Spicer and other administration insiders were quick to point out that this is just one of many ideas (including taxing remittances sent to municipalities from nationals working in the U.S.) being considered for how to get Mexico to pay for the wall that it certainly doesn’t want.

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If President Donald Trump makes good on threats to gut NAFTA and impose stiff tariffs on Mexican goods, economists say he risks a trade war that could lead to the very thing he is hoping to avoid — a huge surge in Mexican migration here to the U.S.

A stiff tariff policy and a wall could very well be catastrophic for the Mexican economy. Recession, a dramatic weakening of the peso, soaring inflation, interest rates and unemployment would only be the start of it.

“Mexico is smaller than the U.S. and can be harmed by conflict more than the U.S. would be,” said Adam Posen to the Associated Press. Posen is president of the Peterson Institute for International Economics, a Washington think tank that supports free trade.

Still, it’s hard to argue that Trump’s talk couldn’t conceivably leave U.S. manufacturers with a better deal with Mexico, precisely because the one they have right now is so, so bad. According to the Office of the U.S. Trade Representative, the U.S. goods and services trade deficit with Mexico was -$49.2 billion in 2015.Mexico is currently our third-largest goods trading partner with $531 billion in total (two way) goods trade in that year, the last for which full figures are available. Goods exports totaled $236 billion; goods imports totaled $295 billion. Is that -$49.2 billion an opportunity? Possibly for both the U.S. and Mexico?

A Mexico-U.S. Deal That Targets China?

Bank of America Corp. chief Mexico and Canada economist, Carlos Capistran, pointed out in a recent report that 90% of the U.S. trade deficit lies outside North America. Bringing together more resources from Mexico and Canada within the NAFTA free-trade zone could help make everyone more competitive and narrow that gap.

It’s not a crazy idea, really, at all. China has played a greater role boosting the U.S. trade deficit than Mexico over time, even without a free-trade agreement. From 1993 to 2015, the gap with China grew by $361 billion versus Mexico’s roughly $49.2 billion. Mexico also buys about twice as much from the U.S. as China does. A Bloomberg article points out that deterring imports from Mexico, in some future negotiation, could give way to mutual export growth for both countries, spurred “by helping to create larger and more innovative companies.”

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Of course, after President Enrique Pena Nieto canceled a trip to Washington to discuss new trade terms after President Trump’s executive order asking for the aforementioned wall… we’re not heading in that direction right now. The best that either side can hope for is that the Trump at the negotiating table is far different than the Trump in campaign mode. As a businessman and a politician it can’t be lost on him that the trade deficit numbers with China are far worse than those with Mexico… and we just might need each other yet.