Steeling for the Uncertain

But the forecast for cooler weather doesn’t mean the Trump Administration's trade agenda will be any less heated.

The summer of 2019 marked a hectic and often baffling series of battles between two giant economic powers, with consequences rippling across the globe. Throughout the past months, Beijing and Washington levied new tariffs, increased existing tariffs and imposed ever higher retaliatory tariffs. By August, nearly all of the two countries enormous bilateral trade was subject to double-digit tariffs.

China has not been alone in attracting the ire of Washington. Readers will recall that early in the Administration, the White House launched its first tariff salvo not on a trading partner, but rather on two import commodities: steel and aluminum products. This “232” action imposed a double-digit tariff on these products from any country, with certain narrow exemptions. A much hailed announcement soon followed exempting imports from Canada and Mexico (with an important caveat – read on).

The China (301) and 232 tariff actions have at least been implemented with some transparency. The Administration was quick to publish official notices of pending action, invited public comment, and proceeded with the imposition of very calculable duty percentages on a searchable list of commodities. In many cases, the Administration has offered the business community with the option of seeking tariff exclusions and has agreed to many. So while undoubtedly the tariffs have caused harm to bottom lines, they have been calculable, both in terms of a company’s mathematical projections, as well as its investment calendar.

Yet, there remains looming uncertainty.

As we move into September, the list of what keeps executives awake at night remains long:

• Will Congress ratify the USMCA?
• Will the White House clinch a trade deal with China, Japan or Europe?
• Will Generalized System of Preferences for India and Turkey be reinstated?

Any of these will have significant impacts for companies buying from the United States, producing in the United States, or selling to the United States.

There is turbulence ahead. Our objective here is to keep readers apprised of developments.

Remember the reference above to the May 2019 announcement exempting Canada and Mexico from 232 tariffs on steel and aluminum? They come with strings attached. According to the pact, they could be rescinded if the United States detects a “surge” of said imports.

On September 2, an American media outlet reported that US steel imports are showing a trend upward, mainly in semi-finished steel products.

In July, imports totaled 2.75 million metric tons. July imports rose more than 48% compared to June. That’s an incredibly high figure at first glance. Furthermore, imports rose 1.3% YoY (year-over-year). While the number was modest, it was only the second time since April 2018 that imports had risen YoY. In absolute terms, July imports rose to their highest level since April.

Market Realist, September 2, 2019

There is much behind these figures of course, but this Administration is fixated on numbers. It will therefore be important to remain vigilant to these upward trends of steel imports.

As we have reported in previous alerts, enormous US enforcement resources at the border have been put in place to ensure compliance with agreements that are in place with Ottawa and Mexico City. This heightened attention does not end at simply asking for a tariff number, but also scoops up company data on sourcing, pricing, and manufacturing processes by companies seeking preferential tariffs or exemptions.

Hence the concern that any reports of increases in US steel imports will result in more intensive import inspections and more intrusive audits by the United States Customs and Border Protection.

Nor can we ignore the array of other trade enforcement tools available to the Administration: longstanding authority in US dumping and countervailing actions. A recent decision to investigate imports from Canada for certain fabricated steel structures should be a warning that more investigations are to come.^[1]

In this era of uncertainty, company executives understand that due diligence must be based on a fulsome understanding of the threat that lies ahead. In today’s world, no single product is “safe” nor is any country “special”.

Nerves are frayed and anxiety levels are understandably high. Corporate leaders know that in order to take proper preemptive action, they must enlist expert legal advice.

That is where we come in. Steeling for the uncertain is a given, but preparing for the uncertain has to be top of mind. Where to start?

Arent Fox Partner Matt Nolan is well known for his broad experience in trade issues, complex case management skills, and his deep understanding of clients and industries especially the international steel sector. A conversation with Matt, even if introductory, will be well worth the time investment.

Partner David Hamill came to Arent Fox from the Office of General Counsel at the Department of US Treasury where he counselled the US NAFTA automotive rules of origin negotiating team. He now leads a group of experts that advises companies on the NAFTA/USMCA rules and enforcement mechanisms, including changes proposed by the current renegotiations.

Arent Fox Partner Nancy Noonan has represented a wide variety of clients in antidumping, countervailing duty, Section 201, Section 232 and Section 301 proceedings before the US Department of Commerce, the US International Trade Commission, US Customs and Border Protection, and the Office of the US Trade Representative.