Articles in Category: Global Trade

Just before the statutory deadline, Commerce Secretary Wilbur Ross on Sunday sent President Donald Trump his report on the Section 232 automotive investigation opened last year.

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The Trump administration launched the investigation May 23, 2018, using Section 232 of the Trade Expansion Act of 1962 — the same statute used to impose tariffs of 25% and 10% on steel and aluminum imports, respectively — to determine whether imports of automobiles and automotive parts are considered injurious to national security.

Once a Section 232 probe is launched, the U.S. secretary of commerce has 270 days to send the president a report with recommendations (if any), after which the president has 90 days to make a decision (in this case making for a May 17 deadline for Trump’s decision).

While Ross did send his report just hours before the deadline Sunday, the report was not made public.

As such, industry groups have made calls for the public release of the report.

The Motor and Equipment Manufacturers Association (MEMA) in a statement said it was “alarmed and dismayed” that the report was not available to the public.

“It is critical that our industry have the opportunity to review the recommendations and advise the White House on how proposed tariffs, if they are recommended, will put jobs at risk, impact consumers, and trigger a reduction in U.S. investments that could set us back decades,” the association said in a prepared statement. “Secrecy around the report only increases the uncertainty and concern across the industry created by the threat of tariffs. MEMA calls for the immediate and full release of the report.”

MEMA also warned of a compounding negative impact if the tariffs were introduced on top of the existing Section 232 tariffs on steel and aluminum.

“If these tariffs are imposed, the first impacts will be felt by smaller suppliers,” MEMA said in the release. “Usually North American-based, smaller supplier manufacturers’ two largest costs are raw materials/inputs and salaries. These suppliers are already paying significantly more for their raw materials due to tariffs on steel and aluminum. If Section 232 tariffs are implemented, suppliers will have no choice but to lay off members of their workforce.”

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Earlier this week, Reuters reported European Commission President Jean-Claude Juncker said Trump had told him he would not impose tariffs on imported automobiles for the time being.

However, Juncker added that Europe would retaliate if the U.S. went forward with tariffs on imports of automobiles and automotive parts.

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This morning in metals, we’re getting up to speed on where the tin market could be in a decade, what U.S. and Chinese trade negotiators are continuing to discuss, and where the EU car market seems to be heading (hint: it’s not good news).

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Tin Metal Use Expected to Boom Due to Batteries

The International Tin Association (ITA) recently said that tin could experience “a surge of new demand from lithium-ion batteries for electric vehicles and energy storage of up to 60,000 tonnes a year by 2030,” according to Reuters.

According to that report, the ITA did not forecast any numbers of overall tin consumption in 2030, but “it has seen rising interest in the metal for energy materials and technologies.” Last fall, the group went on record forecasting a global tin market surplus of 500 metric tons in 2018 mainly due to weaker demand in China, according to Reuters.

U.S.-China Trade Talks Mention Big Semiconductor Moves

Among the things trade negotiators for both countries discussed at the table recently, according to the WSJ (paywall), were a proposal to increase U.S. semiconductor sales to China to a total over six years of $200 billion (although “that increase would be generated in part by moving assembly operations of U.S. semiconductors from third countries like Mexico and Malaysia to China, allowing those products to be counted as U.S. exports rather than those of other countries”…so much for reshoring).

The Chinese also offered “to eliminate a national vehicle-procurement policy that has given consumers subsidies to buy domestically made new-energy, small-engine and other types of cars,” according to the WSJ.

E.U. Car Market Looking Dim

Speaking of vehicles, while carmakers like Ford are worried about what a hard Brexit may mean for their plants, they may have bigger, more systemic issues when it comes to the E.U. and U.K. car markets.

“European car sales declined for a fifth straight month in January,” and “passenger car registrations dropped 4.6 percent compared with last year to 1.23 million vehicles in the European Union and European Free Trade Association, according to the European Automobile Manufacturers Association,” as reported by Bloomberg.

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Of course, all eyes on on China and its auto market to see if glimmers of hope are on the horizon.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

This morning in metals news, Ford Motor Co. announced an investment in its Chicago plants, industry group American Iron and Steel Institute (AISI) reiterated its support for the Trump administration’s Section 232 steel tariffs and finished steel imports through the first 11 months of 2018 were down 10.8% year over year.

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Ford Announces Chicago Investment

The Detroit automaker announced a $1 billion investment in its Chicago plants that it says will create 500 jobs.

“We are proud to be America’s top producer of automobiles. Today, we are furthering our commitment to America with this billion dollar manufacturing investment in Chicago and 500 more good-paying jobs,” said Joe Hinrichs, president of global operations. “We reinvented the Explorer from the ground up, and this investment will further strengthen Ford’s SUV market leadership.

AISI: Section 232 Trade Remedy is ‘Critical’

Last week, four members of Congress introduced the Bicameral Congressional Trade Authority Act, which seeks to curtail the executive branch’s — that is, the president’s — authority to impose Section 232 tariffs on imports by virtue of requiring Congressional approval.

The U.S. Chamber of Commerce came out in support of the proposal.

“The Chamber is deeply concerned by the unrestricted use of Section 232 to impose new tariffs,” said in a prepared statement. “Tariffs imposed on steel and aluminum imports have harmed U.S. industry and elicited retaliatory tariffs from our closest allies, inflicting serious harm on U.S. workers, farmers, and small businesses, and undermine U.S. efforts to build an international coalition of like-minded countries to combat the use of unfair trade practices.”

However, the American Iron and Steel Institute (AISI) has again expressed its support for Trump’s use of Section 232 to impose steel tariffs.

“The Administration’s trade actions and tax and regulatory reform policies, in addition to the strong economic climate enabled by those policies, have allowed the American steel industry to begin to recover after more than a decade of low capacity utilization and weaker earnings due to repeated surges in imports fueled by global steel overcapacity,” said Thomas J. Gibson, president and CEO of AISI, in a prepared statement.

“Capacity utilization at existing mills has increased in recent months to over 80 percent — levels not seen in the last ten years. Some shuttered plants are being re-opened, laid-off workers are going back to work and companies are making investments in new steel production facilities.”

Gibson added that “recent progress” will disappear if the tariffs are “prematurely terminated.”

“The massive overcapacity in steel still exists globally,” Gibson said. “And China in particular is producing steel at record levels – exceeding one billion net tons in 2018. This means there is plenty of excess supply that will flood into our market but for the continuation of the Section 232 tariffs.  The Section 232 trade remedy is critical to ensuring steel remains a vital asset for our national and economic security.”

Steel Imports Down 10.8%

Speaking of AISI, its recently released steel imports report showed U.S. steel imports last year through November were down 11% year over year.

In November, the U.S. imported 2.39 million tons of steel, which marked a 27.2% year-over-year decrease.

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Meanwhile, through the first 11 months of 2018 steel imports reached 31.83 million tons, down 10.8% from the same period in 2017.

[Editor’s Note: This is the second part of our three-part series on how tariff impacts — positive or negative — are perceived, the history of Section 232, and China’s role in the global steel marketplace (and how that has affected the U.S.). In case you missed it, Part 1 can be read here.]

The Bush tariffs of 2002 came as a result of a Section 201, as opposed to a Section 232 investigation. The Trade Act of 1974 covers Section 201 investigations, whereas Section 232 derives its authority as part of the Trade Expansion Act of 1962, based on national security grounds.

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MetalMiner conducted an analysis of every single Section 232 case initiated since the passage of the Trade Expansion Act of 1962. The results suggest market observers need to dig into the details further to see why various presidents have taken action on imports of particular commodities, as well as what types of action they have taken.

Section 232 has been invoked 26 times.

Source: MetalMiner analysis of ITC data

Of the seven times in which a primary metal industry initiated a Section 232 investigation, in only one case — this most recent one — did the president determine action was necessary to adjust imports. However, in one of the cases, President Ronald Reagan agreed to update the National Defense Stockpile.

Of the seven times in which a derivative metal industry (nuts, bolts, bearings, parts) initiated a Section 232 investigation, in no cases did the president conclude action was necessary to adjust imports. However, in one case, for metal cutting and metal forming machine tools, Reagan deferred a decision on Section 232 and instead sought voluntary agreements with foreign suppliers; indeed, one went into effect for a period of five years and was extended for two additional years.

In all other cases, the only industry that received Section 232 relief has been petroleum or oil. Now that the U.S. has achieved energy independence, MetalMiner suspects the U.S. will not see a case made under Section 232 for this commodity (so long as the U.S. remains energy independent).

The U.S., however, is not steel independent, meaning the U.S. does require some level of imports to satisfy domestic demand.

Historical analysis suggests the U.S. has filed about the same number of anti-dumping cases today as it did in the late 1950s-1970s. The difference today, though, comes down to the imposition of duties; far more are implemented today than during that earlier time period.

Logically, as tariffs have steadily declined, imports have grown, while today the number of products targeted for anti-dumping measures has declined since the 1980s.

What Has Changed and Why Should Anyone Care?

In a word: China.

In 1960, China produced a total of 18.5 million tons of steel, whereas the U.S. produced about 6 million tons. Incidentally, the price of a ton of steel in 1962 was $144/ton — or $1,180/ton in today’s dollars!

It wasn’t until 1996 when China first produced 100 million metric tons of steel. And the real growth happened after China ascended to the WTO in 2001, growing steel production from 128.5 million metric tons in 2000 to nearly 495 million metric tons in 2007.

Source: MetalMiner analysis of World Steel Association data

Obviously, as China’s economy began to grow, steel demand also grew. Any market observer would also expect production to increase to support economic growth.

Perhaps the more interesting statistic to examine is production against demand. By looking at the production figures above, one might assume that demand also steadily increased since 2007.

But did it?

Source: MetalMiner analysis of World Steel Association data

In a word: no.

China’s demand peaked in 2013 at 772 million tons, declined and then reached 767 million tons in 2017, whereas China produced 779 million tons in 2013 (a little higher than demand). But in 2017 China produced 831.7 million tons for a surplus of 64.7 million tons.

2018 statistics show China produced more steel than any year in its history — 923 million metric tons, according to Reuters, against a demand projection that is at best flat to slightly up from 2017, based on a MetalMiner analysis. Assuming demand of 780 million tons, that would suggest a surplus of over 140 million metric tons.

U.S. demand and production, in contrast, appears paltry.

It should come as no surprise that the Trump administration has taken significant steps to shore up the domestic industry against Chinese imports.

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The only study that takes into consideration these factors, such as actual demand and actual supply, involved the original Department of Commerce studies on Section 232.

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This morning in metals news, ArcelorMittal  on steel demand in China (and elsewhere), copper lost ground after several upward sessions in a row and Mexico’s steel industry is not happy with the government’s decision to not renew steel safeguards protecting against steel from countries with which Mexico does not have a trade agreement.

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Chinese Steel Demand

ArcelorMittal expects the steel sector to come back down a bit after a run of strong prices, according to a Bloomberg report.

Unsurprisingly, much of that expected decline has to do with softening demand in China. Per the report, the firm expects steel demand growth to slow around the world,  and contract in China for the first time since 2015.

Copper Falls

After three straight upward sessions for London copper, the price fell back Thursday, Reuters reported.

LME copper fell 0.2% Thursday, according to the report. Meanwhile, Chinese markets remain closed over the Lunar New Year holiday break.

Mexico’s Steel Safeguards

According to an S&P Global Platts report, Mexican industry groups are not happy with the government’s decision to let a 15% steel safeguard lapse.

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The safeguard applied to imports from countries with which Mexico does not have a trade agreement, according to the report.

[Editor’s Note: This is the first part of a three-part series that will analyze the state of mainstream perspectives of the impact of tariffs, as well as delve further into the history of Section 232 and China’s role in the current trade dialogue.]

Consultants internally often pose a question to one another – do you want a client who knows he doesn’t know something, or would you rather have a client who doesn’t know what he doesn’t know?

It turns out that phrase came from the famed economist John Kenneth Galbraith, who actually used it to describe forecasters: “We have two classes of forecasters: Those who don’t know … and those who don’t know they don’t know.”

Most consultants (and forecasters) would likely argue one would rather have the former — it’s better to work with someone who knows he doesn’t know something than one who doesn’t know what he doesn’t know.

The same argument applies to trade and tariffs.

The mass media and much of the public has embraced the notion that tariffs are bad and continued “free trade” — with China — is good.

But is it? Does the mainstream press know what it doesn’t know?

We will come to this question shortly — but first, the conventional thinking.

Koch Companies Trade Study

According to a recent Koch Companies study on trade, the U.S. economy will see some very negative impacts on the economy as a result of President Donald Trump’s trade war, including:

  • Macroeconomic losses, which project declining GDP of 1.78% and a long-term impact in 2030 of 1.25%
  • Household financial losses of $2,357 per household in 2019, which compound to $17,276 in spending power over a 12-year time frame (2018-2030) in the form of lower wages, higher prices and lower investment returns
  • Increased unemployment
  • Production losses by 2030 modeled as a loss of 1% against the baseline for agricultural and services sectors and a manufacturing production decline of 2.5% from baseline

All of the above appear as reasonable conclusions one might make based on a standard methodology using the GTAP model and database, which ironically was the very same model used by the Department of Commerce to come up with the rationale for imposing Section 232 tariffs in the first place! Other countries have also used the GTAP model to formulate trade policies.

The Koch Companies’ study stands in good company. Multiple additional governmental and pay-to-play studies have come out arguing similarly against tariffs. Here are just a few:

So why in the world should we question these studies?

Because the studies don’t tell the whole story.

Media Bias, Not Fake News

Forget about fake news: legitimate studies have confirmed anti-tariff media bias.

A study conducted in 2005 — after the Bush steel tariffs of 2002 — sought to test a prediction that, “newspapers will devote more space to the costs of tariffs than to their benefits…” The study sampled 123 stories on trade from The New York Times and 177 stories from the Wall Street Journal (the stories ran during the Bush steel tariffs of 2002 from Jan. 1 through Sept. 10).

The WSJ also showed a “slant” toward free trade as measured by more sentences criticizing tariffs than supporting them, compared to The New York Times, according to the study methodology.

Not surprisingly, the results showed newspapers covered the “costs” of steel tariffs more than the benefits and the authors concluded the results suggest “that mass media will weaken the power of special‐interest lobbies relative to unorganized interests.”

Simply put, one should expect more anti-tariff media coverage than pro-tariff coverage.

Before we dive further into the studies, let’s re-examine the history of Section 232 and what cases have resulted in presidential trade action.

Part 2 of this series will be published Friday, Feb. 7. 

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This morning in metals news, copper rises for third straight session, President Donald Trump’s State of the Union addresses China, NAFTA and more, and Japan’s Nippon Steel & Sumitomo Metal Corp. reported its quarterly earnings.

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Copper Picks Up

According to Reuters, the copper price rose for the third straight session Wednesday.

With a March deadline approaching — after which Trump has pledged the U.S. will increase the tariff rate from 10% to 25% on $200 billion worth of Chinese goods coming into the U.S. — the report states another round of U.S.-China trade talks is scheduled next week in Beijing. As such, the copper price picked up, as it has when the news cycle shifts toward the easing of trade tensions between the two economic powerhouses.

Trump Talks China, NAFTA During State of the Union

After a delay due to the partial government shutdown, President Donald Trump delivered his State of the Union address before members of Congress Tuesday night.

As U.S.-China trade talks continue — with talks scheduled for next week in Beijing after a recent visit from Vice Premier Liu He to Washington, D.C. — Trump again cited U.S. trade gripes against China.

“We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end,” Trump said. “Therefore, we recently imposed tariffs on $250 billion of Chinese goods — and now our Treasury is receiving billions of dollars a month from a country that never gave us a dime. But I don’t blame China for taking advantage of us — I blame our leaders and representatives for allowing this travesty to happen. I have great respect for President Xi, and we are now working on a new trade deal with China. But it must include real, structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs.”
On the North American Free Trade Agreement (NAFTA), Trump touted its pending replacement, the United States-Mexico-Canada Agreement (USMCA), which must be ratified by the legislatures of the three countries.

“Another historic trade blunder was the catastrophe known as NAFTA,” he said.

“I have met the men and women of Michigan, Ohio, Pennsylvania, Indiana, New Hampshire, and many other States whose dreams were shattered by NAFTA. For years, politicians promised them they would negotiate for a better deal. But no one ever tried — until now.

“Our new U.S.-Mexico-Canada Agreement — or USMCA — will replace NAFTA and deliver for American workers: bringing back our manufacturing jobs, expanding American agriculture, protecting intellectual property, and ensuring that more cars are proudly stamped with four beautiful words: made in the USA.

“Tonight, I am also asking you to pass the United States Reciprocal Trade Act, so that if another country places an unfair tariff on an American product, we can charge them the exact same tariff on the same product that they sell to us.”

Nippon Reports Quarterly Results

Nippon Steel & Sumitomo Metal Corp. released its third quarter fiscal year 2018 (Oct. 1-Dec. 31) financial results today, cutting its 2019 profit forecast by 6%, Reuters reported.

For Q3 2018, Nippon reported ordinary profit ¥256.4 billion, up from ¥225.4 billion for Q3 2017.

The firm’s steel segment picked up in sales and profit in Q3 2018.

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“In the Steelmaking and Steel Fabrication segment, domestic steel demand remained solid, especially for shipments to the automotive sector, and overseas steel demand as a whole was on a rising trend,” Nippon’s financial report states. “In the domestic steel markets, prices were at a generally high level against a background of stable demand, while prices declined in the overseas markets in the third quarter of fiscal 2018, due to uncertainty over China’s economic outlook.”

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This morning in metals news, U.S. steel mills’ capacity utilization rate inched up this past week, India’s steel sector looks to the government for protection from diverted steel, and the Office of the United States Representative (USTR) released its annual report on the WTO compliance of China and Russia.

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Steel Utilization Rate Hits 80.5%

Steel mills in the U.S. have operated at a capacity utilization rate of 80.5% through Feb. 2, according to this week’s report by the American Iron and Steel Institute (AISI).

Adjusted year-to-date production reached 8.95 million tons. Meanwhile, for the same period in 2017, steel mills produced 8.12 million tons at a 73.8% capacity utilization rate.

India’s Steel Sector Leery of Diverted Steel

According to a Reuters report, the Indian steel sector is looking for assistance from the Indian government via import duties to ward off diverted steel supplies.

Recently, the E.U.’s member states voted to impose new steel safeguards that will remain in place as late as July 2021. The move came as European producers worried steel supplies that would have been destined for the U.S. would be diverted elsewhere following the Trump administration’s Section 232 tariffs on steel and aluminum.

As for India, according to the Reuters report, Indian steelmakers have complained to the government that China, Japan, South Korea and Vietnam are allegedly dumping cheap steel in India, eating into domestic producers’ market share.

USTR Release Report on China, WTO Compliance

Pursuant to the U.S.-China Relations Act of 2000 — by which the USTR must present an annual report to Congress on China’s compliance with WTO rules and regulations — the USTR released its 17th report vis-a-vis China.

“The United States’ approach to China is more aggressive than in the past,” the report’s executive summary states. “Out of necessity, the United States is now using all available tools – including domestic trade remedies, bilateral negotiations, WTO litigation and strategic engagement with like-minded trading partners – to respond to the unique and very serious challenges presented by China. But the goal for the United States remains the same. The United States seeks a trade relationship with China that is fair, reciprocal and balanced.”

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The full report is available here.

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This morning in metals news, the White House released a statement about the recent round of trade talks with China, Zambia plans to enforce a copper import tax and Australian miner Fortescue says the impact of a dam breach at one of Vale’s Brazilian iron ore mines remains unclear.

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Trade Talks

The U.S. and China renewed ongoing talks on trade last week, as China’s Vice Premier Liu He led the Chinese delegation.

The White House released a statement last week on the progress of the talks and listed various topics of discussion, including forced technology transfer, intellectual property rights and the production of excess capacity due to market-distorting forces.

“While progress has been made, much work remains to be done,” the White House said. “President Donald J. Trump has reiterated that the 90-day process agreed to in Buenos Aires represents a hard deadline, and that United States tariffs will increase unless the United States and China reach a satisfactory outcome by March 1, 2019.  The United States looks forward to further talks with China on these vital topics.”

Zambia to Enforce Copper Import Tax

According to a Reuters report, Zambia’s mining minister said the country plans to enforce a 5% copper import tax.Zambia is Africa’s second-biggest copper producer.

Vale Impact

A Jan. 25 dam breach at Brazilian miner Vale’s Corrego do Feijao mine has left 134 dead, according to a recent Reuters report (with many people still missing).

After consideration of the significant human toll, iron ore watchers are also wondering what impact the disaster will have on that market segment.

However, according to Australian iron ore miner Fortescue, it’s still too early to tell.

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“We are not 100 percent clear yet on the net impact on supply of iron ore, but certainly there will be some impact,” Chief Executive Elizabeth Gaines was quoted as saying by the Hellenic Shipping News.