Articles in Category: Public Policy

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Many had hoped the announcement last month of 10% tariffs on China would be the signal for serious negotiations between the two trading partners, that China may come to the table and be willing to discuss some of the U.S.’s genuine concerns about theft of intellectual property and reciprocal access rights to each other’s markets.

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While much was made about the trade imbalance, most realized there was no quick fix to the U.S. addiction to low-cost Chinese imports or the Chinese state-sponsored export model – both would take years to correct.

But a road map as to how that may be achieved would in itself be a major win from the confrontation. Indeed, a resetting of those issues to a more equitable position would be a legacy that would seal President Donald Trump’s place in history, without any advance on the myriad other battles he has started with friends and foes alike.

Alas, no such progress is being made.

According to a recent Financial Times article, if anything the opposite seems to be the case.

Negotiations have stalled at a low level, the report states, with discussions now limited to, at best, “conversations about whether we are going to be able to have a fruitful negotiation or not,” according to one senior administration official quoted by the news source.

China really had little alternative if it wanted to maintain face than to announce reciprocal tariffs to those originally applied by the U.S., but in so doing the tables were balanced in the view of U.S. negotiators. The president announced his intention to extend tariffs on $200 billion in annual imports from China, plus a possible increase from 10% to 25% on that $200 billion to give U.S. negotiators room to maneuver.

Unfortunately, the decision now seems to have stalled what little progress was being made. On Friday, China announced plans to impose tariffs on $60 billion of U.S. goods, according to a statement on the Ministry of Commerce website.

Beijing seems in no hurry to capitulate, despite the Shanghai stock market down 3.6% and Hong Kong’s Hang Seng index down 2.6% to the lowest level in 10 months. Opposition at home is muted to non-existent. Chinese media and much of the industry see themselves as the victims of an unprovoked attack and, as such, support Beijing in what is seen as resistance to an external threat.

In the U.S., however, opinions are more diverse.

Some among the president’s traditional hardcore supporters are still staunchly behind him, but criticism has been growing from other quarters, not least farmers who see themselves in the firing line as China switches buying from the U.S. to South America.

The president’s case may garner more national support if the case were articulated more comprehensively.

There is only so much national consensus that can be achieved via Twitter. The case for nurturing domestic industry has huge merit and, in reality, the cost to U.S. consumers could be relatively low. However, rather than debate and persuade, the barrage of tweets — mixed in with tweets about building a border wall and FBI investigations into Russian attempts to influence voting — creates a chaotic message board. As a result, trade – the most important issue of the day – is subsumed in a barrage of messages and policy priorities.

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To give the “Art of the Deal” space to work on the international stage, the president needs, whether he realizes it or not, the ongoing support of voters, impacted communities (farmers, for example) and the manufacturing sector he purports to represent. As negotiations stall and the process drags on, this imperative will only intensify.

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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®:

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This morning in metals, U.S. Trade Representative (USTR) Robert Lighthizer said Canada is a national security threat with respect to steel, the U.S. posted 4.1% GDP growth in Q2 and The Coca-Cola Company says it is raising prices on account of the Trump administration’s 10% aluminum tariff.

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Canada…Steel Threat?

Answering a question regarding whether Canada presents a national security threat to the United States, USTR Robert Lighthizer responded in the affirmative — in the case of steel, according to a report in the Globe and Mail.

GDP Growth Rises to 4.1%

The U.S. posted GDP growth in Q2 of 4.1%, up from 2.1% in Q1, the Bureau of Economic Analysis reported, marking the highest quarterly growth level since 2014.

The figure represents an estimate; according to the BEA, a second estimate encompassing more data will be released Aug. 29.

According to the Bureau’s analysis, the Q2 increase reflected “positive contributions” in personal consumption expenditures, exports, nonresidential fixed investment, federal government spending, state and local government spending, and residential fixed investment.

Coke Raises Prices Because of Tariffs

Beverage giant Coca-Cola is raising prices on account of the 10% aluminum tariff, CEO James Quincey said during the company’s earnings call this week, CNN reported.

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“Obviously, while [customers] may understand the cost pressures that are out there on freight, on the increases in steel and aluminum and other input costs that affect the bottling system and affects some of our finished products, clearly, these conversations are difficult,” he was quoted as saying on the call.

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After last week’s hearings on the Department of Commerce’s Section 232 investigation of automobile and automotive part imports, this week the Office of the United States Trade Representative (USTR) will holding public hearings on the proposed list of items to be subjected to tariffs pursuant to Section 301.

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The USTR hearing begin Tuesday, July 24, at 9:00 a.m. ET. The hearings will cover the $16 billion in proposed tariffs, the second tranche of the previously announced $50 billion in tariffs.

The first tranche of the tariff package, amounting to $34 billion, went into effect July 6. China responded in kind with $34 billion in tariffs on U.S. goods, sparking harsh words from the U.S. and threats of more tariffs.

Trade tensions have only escalated in the weeks since the implementation of the $34-billion tranche.

“As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports,” UTSR Robert Lighthizer said in a prepared statement earlier this month. “This is an appropriate response under the authority of Section 301 to obtain the elimination of China’s harmful industrial policies. USTR will proceed with a transparent and comprehensive public notice and comment process prior to the imposition of final tariffs, as we have for previous tariffs.”

President Trump ramped up the stakes even further this past week, as he said in an interview with CNBC that he would be willing to impose $500 billion in tariffs on Chinese goods — or, essentially, tariffs on all Chinese imports.

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The schedule for the Tuesday hearing, including a list of individuals giving testimony, can be found here.

The U.S. Department of Commerce. qingwa/Adobe Stock

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®:

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MetalMiner’s Annual Outlook provides 2018 buying strategies for carbon steel

The U.S. Department of Commerce. qingwa/Adobe Stock

This morning in metals news, the Department of Commerce launched another Section 232 investigation, the Section 232 auto probe hearings kicked off earlier this morning and Turkish steel production increased during the first six months of the year.

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Commerce Launches Uranium Investigation

As the Department of Commerce prepared to host hearings related to its automotive probe, the DOC announced yesterday that it was launching an investigation of uranium imports.

“Our production of uranium necessary for military and electric power has dropped from 49 percent of our consumption to five percent,” Secretary of Commerce Wilbur Ross said in a release. “The Department of Commerce’s Bureau of Industry and Security will conduct a thorough, fair, and transparent review to determine whether uranium imports threaten to impair national security.”

In January, U.S. uranium mining companies, UR-Energy and Energy Fuels, formally petitioned the DOC, asking it to initiate a Section 232 investigation into imports of uranium ore and products.

Section Auto Hearings Underway

Speaking of the automotive and automotive parts probe, public hearings began earlier this morning.

Those interested can check out the live stream of the hearing on the DOC website, www.commerce.gov.

Turkish Steel Production on the Rise

Steel production in Turkey through the first six months of the year jumped 3.7%, according to a report from the Anadolu Agency.

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Production through the six-month period hit 18.9 million tons, according to Turkish Steel Producers’ Association data cited by the report.

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Announced by the European Commission yesterday, provisional steel safeguard measures went into effect today, covering 23 steel product categories.

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The measures were instituted in response to a challenge about which European leaders have frequently expressed concern: diverted steel as a result of the U.S.’s Section 232 steel tariff.

The provisional measures can only remain in place for a maximum of 200 days. After review, the European Commission will decide by early 2019 if permanent measures are needed.

“There are already indications that, as a consequence, steel suppliers have diverted some of their exports from the US to the EU,” the European Commission release states. “In order to avoid a sudden increase of imports that would cause further economic problems for EU steel producers – who are already suffering from global overcapacity – the Commission considers that provisional safeguard measures are necessary and justified.”

A 25% quota will be imposed on products from each of the 23 categories once imports have exceeded the previous three-year average.

Members of the European Economic Area (EEA) — including Norway, Iceland and Liechtenstein — are exempted from the measures, in addition to “some developing countries with limited exports to the EU.”

E.U. Trade Commissioner Cecilia Malmström emphasized that the U.S.’s steel tariff has left Europe with no choice but to act.

“The US tariffs on steel products are causing trade diversion, which may result in serious harm to EU steelmakers and workers in this industry,” Malmström said in a prepared statement. “We are left with no other choice than to introduce provisional safeguard measures to protect our domestic industry against a surge of imports. These measures nevertheless ensure that the EU market remains open, and will maintain traditional trade flows.

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“I am convinced that they strike the right balance between the interest of EU producers and users of steel, like the automotive industry and the construction sector, who rely on imports. We will continue to monitor steel imports in order to take a final decision by early next year, at the latest.”

Axel Eggert, director general of the European Steel Association, offered praise for the institution of the safeguard measures.

“The Commission has received overwhelming support for this vital safeguard measure from both member states and business,” Eggert said in a prepared statement. “The measure will go someway to ensuring the continued stability of the internal market for steel and ensure that EU steel producers do not suffer extreme surges of imports of steel deflected away from the now constricted US market.”

The U.S. Department of Commerce. qingwa/Adobe Stock

The U.S. Department of Commerce launched a new investigation, under the aegis of the little-used but now ubiquitous Section 232 of the Trade Expansion Act of 1962, this time investigating imports of automobiles and automotive components.

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Unsurprisingly, while no decisions have been made as of yet regarding the imposition of new tariffs, the investigation in and of itself has led to outcry from automakers. In fact, as part of the Department of Commerce review process, more than 2,300 public comments were submitted in relation to the Section 232 automotive probe.

So, now that all parties involved are all revved up, what’s next?

The Department of Commerce will hold public hearings on the issue, beginning Thursday, July 19, and concluding Friday, July 20.

The first day of the hearing will kick off at 8:30 a.m. and include testimony from individuals “representing domestic and international companies, industry groups, labor, and foreign countries.”

The full agenda can be found here.

Jennifer Thomas, vice president of federal governments affairs for the Alliance of Automobile Manufacturers (AAM), will be the first speaker Thursday. The AAM released a statement late last month in response to the Trump administration’s decision to look into auto imports.

“While we understand that the Administration is working to achieve a level playing field, tariffs are not the right approach,” the statement read. “Tariffs on autos and auto parts raise vehicle prices for all customers, limit consumer choice and invite retaliatory action by our trading partners. Automakers support reducing trade barriers across the board and achieving fairness through facilitating rather than inhibiting trade.”

The Association of Global Automakers (AGA) will be represented by President and CEO John Bozzella. In May, the AGA released its own statement.

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“Contrary to the assumption underlying the investigation on import vehicles, the U.S. auto industry is thriving,” the statement read. “To our knowledge no one is asking for this protection. If these tariffs are imposed, consumers are going to take a big hit because they will have fewer vehicle choices and higher car and truck prices. This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners.”

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This morning in metals, China’s biggest steel city has ordered five-day output curbs to tackle pollution, the deputy USTR criticized Indian retaliatory tariff measures and it was another down week for copper.

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Tangshan Launches Cuts Ahead of Expected Smog

China’s top steelmaking city, Tangshan, has begun industry output cuts that will last five days, Reuters reported.

According to the report, the city has ordered steel mills to shut down sintering plants. In addition, coke and cement factories have been asked to cut their outputs.

USTR Criticizes Indian Trade Measures

Jeffrey Gerrish, the deputy United States Trade Representative, said this week that India’s retaliatory tariff measures are not “appropriate” and that India has not done enough to bring down the U.S.’s trade deficit with it, the Economic Times reported.

India is among the group of World Trade Organization (WTO) members to have requested consultations with the U.S., through the WTO dispute settlement mechanism, over its steel and aluminum duties.

Copper Down Again

It was another down week for Dr. Copper, as general trade anxiety continues to weigh on the market.

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According to Reuters, this week marked copper’s fifth consecutive week of price declines, as simmering trade tensions between the U.S. and China have impacted copper demand in China (the world’s top copper consumer).

This is not the first time critics have lined up to suggest Glencore is on the ropes, but close to the wind as the trader often sails, the firm will likely find solutions to its current challenges, substantial as they are.

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And let’s not belittle the challenges the firm is facing. The U.S. Department of Justice, no less, is investigating the company’s business dealings in the Democratic Republic of the Congo, Venezuela and Nigeria as part of a corruption probe, Reuters reports.

If wrongdoing is proven, then Glencore and its executives could face huge fines or even criminal prosecution under the Foreign Corrupt Practices Act the U.S. is pursuing.

Some have speculated that the DoJ’s action was triggered by Glencore’s announcement that it would settle a case for mining debts with Dan Gertler — a mining billionaire on a U.S. sanctions list — in Euros to avoid the sanctions, which forbid payments in dollars. It is suggested the authorities would have taken a dim view of circumventing the sanctions by switching currencies, even though Glencore claims it had taken advice from the appropriate authorities.

Source: Financial Times

Not surprisingly, the share price reacted negatively to the news, dropping 12% and suffering its worst day in over two years following this week’s announcement of the U.S. subpoena.

The share price is down about 18% this year and was hovering near one-year lows as the company’s share price continues to underperform its peers, despite producing healthy profits and slashing its debts. The company reacted by announcing a $1 billion share buyback. Some critics saw that as an act of hubris, but the announcement helped the share price recover (at least in the short term).

In the longer term, investors will want to see a lower risk profile, but in life you can rarely have your cake and eat it too. Much of Glencore’s success and phenomenal growth has been down to successfully managing a high-risk profile, operating in unstable parts of the world and dealing with less scrupulous regimes in the process. That doesn’t make Glencore unscrupulous themselves, but it does open them up to the attention of authorities keen to ensure such a major corporation is behaving responsibly.

Suggestions that this investigation is the beginning of the end of Glencore are far overdone, but the investigation will prove lengthy, absorbing of management time and has the potential to unearth connections and dealings that the firm may not even be aware of (guilty by association, if you like).

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Still, Glencore has been here before and will no doubt weather this storm as it has previous ones.