CCR2 International Credit Management
Just the opening salvo?
US announcements on tariffs on imported steel are relatively marginal, but may be the beginning of a wider confrontation
Mike Salice Director of research, SKY Harbor Capital Management
On March 1, President Trump announced that the US would impose tariffs on imports of steel and aluminum at rates of 25% and 10%, respectively. The action would be conducted under
the terms of Section 232 of the Trade Expansion Act of 1962, and was taken in line with recommendations from the Department of Commerce, headed by Secretary Wilbur Ross, who considered that such imports “threaten to impair national security”. Originally pertaining to all countries, the
administration later made exemptions for goods imported from Canada and Mexico, and left the door open for other concessions going forward. The initial market reaction, as could
certainly have been expected, was positive for the primary metal producers, while broad indices and Treasury yields fell on fears of a trade war.
Caution required Despite ensuing financial-market volatility and tense media coverage, we caution that the directly-impacted sectors are relatively modest in size. Aggregating data from the Department
of Labor, Department of Commerce and the Federal Reserve, steel and aluminum’s share of total imports appear modest at roughly 1.6%. The sectors employ relatively few workers and the impact on industrial production is quite small. As such, despite the expectation of higher
steel and aluminum prices in the near term, these measures do not appear likely to meaningfully contribute to any inflationary pressures, or even to vastly alter the pace of economic growth. Furthermore, North American Free Trade
Agreement (NAFTA) members are slated to be exempt from such tariffs. Looking at steel and aluminum imports into the US,
Figure 1: US total imports and aluminium imports by country
Canada ranks number one and Mexico is in the top five, further muting the scope of current proposals (see Figure 1). Japan, a top-10 steel exporter, has already
begun to challenge the aforementioned national-security rationalisation – given its status as a US ally – and could join the list of exemptions in the near term.
Originally pertaining to all countries, the administration later made exemptions for goods imported from Canada and Mexico, and left the door open for other concessions
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www.CCRMagazine.com
April 2018
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