Korea Steel Deal Means More US Steel Barriers Lie Ahead

The Peterson Institute explains why we should expect more steel tariffs and quotas in the coming weeks.

As trade attention shifts to the actions that will be imposed over the findings of Section 301, steel and aluminum tariffs introduced under Section 232 (National Security) should not be ignored.

In late March, South Korea agreed to reduce steel exports to the United States and, in return, Korea gets a permanent exemption from the Administration’s 25 percent tariff on steel imports. Expect more of these deals ahead. Why? The arbitrary US goal of reducing imports to help boost capacity utilization of the domestic steel industry to 80 percent, which the Trump administration argues is needed to safeguard national security, cannot be met without reductions by exempted countries. Quotas will be the preferred restriction because they both reduce direct steel shipments to the US market and deter transshipments from non-exempted countries seeking to evade the new US trade measures.

Thirty-four countries—Canada, Mexico, the 28 members of the European Union, South Korea, Argentina, Australia, and Brazil—were exempted from the tariffs until May 1. But these countries have been given only a temporary reprieve and over the coming weeks will be pressured by US trade officials to cap or reduce their steel exports to the US market.

The US restrictions already are being challenged in the World Trade Organization (WTO).WTO rules afford countries broad authority to impose restrictions that they regard as necessary for their national security, so the United States may prevail in litigation that could take years to adjudicate. But other countries contest the national security rationale for the US steel restrictions and argue instead that they are safeguard measures that first require a finding that the domestic industry has been seriously injured before the protection can be imposed.

Will other major steel suppliers follow Korea’s example? Canada and Mexico will likely get an extended exemption pending conclusion of the renegotiations of the North American Free Trade Agreement (NAFTA), which could continue throughout the year.
But whether the European Union, Japan, and Brazil, together accounting for almost a third of US steel imports, would accept a similar deal or propose other solutions is unclear.

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