Tariff exemptions as a new ‘export commodity’

United States steel industry has been in steady decline since 1973. It is easy to figure out, the steel that was not produced in country was imported from the abroad. And as production of America’s own steel was falling, the import was growing. The apogee was reached in 2009, when the country produced as little as 33% of what was produced in 1973.

Meanwhile the import grew rapidly. During 2009-2013 it tripled. In 2017, the U.S. steel trade deficit amounted to 24.6 million metric tons. As US turned to «service based economy» other countries used it to grow their production. It was not exactly the bad strategy for the US as most of the money was returned as US debt obligations and thus reinvested. However the process can’t go infinitely. Sooner or later the trade deficit will push for higher unemployment rate and inflation.

Top 10 importers to the US are in order of rank, as for year 2016: Canada, Brazil, South Korea, Mexico, Russia, Turkey, Japan, Germany, Taiwan and China.

Trump decision to rise tariffs on the steel and aluminum imports are meant to revive American steel production, thus stimulating trade balance adjustment and employment. It appeals to the general line to «Make America Great Again» in many ways. However there are doubts about the implementation of the real tariff and the exemption policies. The devil is in the details.

As for example two of top five steel importers are already bargained their exemption. It is Canada and Mexico, in accordance of the NAFTA framework were exempted from the tariff rise. There is big chances that EU, as a single 28-strong countries block will be exempt from the tariff too. While being cautious on the outcome Europeans are sending high-rank delegation to the Washington:

EU Trade Commissioner Cecilia Malmstrom seek an exemption from the tariffs for the entire Union. Trade Commissioner wrote in her Tweeter that she “will insist that EU as a whole is excluded from tariff measures. We should work together to address overcapacity in steel and aluminum.”

Exemption as a service?

Let’s assume that EU will be exempt too. Who else will be punished with tariffs then? Definitely that will be not the strategic partners of the US – Turkey, South Korea, Taiwan and Japan. It can be Russia and China. Is so, all the basis for the tariff rise is deducted to the trade war with two major countries.

US steel producers are not capable to rise their manufacturing to the 1970’s levels. Moreover it is not really necessary. It looks like Donald Trump has used the tariff rise, which will go into effect as soon as this Friday, as a lever to set control to the international trade. It’s even can be viewed as Trump’s attempt to turn the tariff exemptions to next America’s exported commodity. Very soon we could see if this plan will succeed or turns to the nasty trade war with ambivalent looses.


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