New and ever-increasing tariffs

Summer 2019 has marked a hectic and often baffling series of battles between two giant economic powers, with consequences rippling across the globe. Throughout the past few months, China and the United States have levied new tariffs, increased existing tariffs and imposed ever-higher retaliatory tariffs. Now, nearly all of the two countries' enormous bilateral trade is subject to double-digit tariffs.

China has not been alone in attracting the ire of the US government. Early in Trump's administration, the White House launched its first tariff salvo not on a trading partner, but rather on two import commodities: steel and aluminium products. This Section 232 action imposed a double-digit tariff on these products from any country, with certain narrow exemptions.(1) A much-hailed announcement soon followed exempting imports from Canada and Mexico (with an important caveat, discussed below).

The China (301) and 232 tariff actions have at least been implemented with some transparency. The Trump administration was quick to publish official notices of pending action, invite public comment and proceed with the imposition of calculable duty percentages on a searchable list of commodities. In many cases, the administration has allowed the business community to request tariff exclusions and has agreed to many. So, while the tariffs have undoubtedly caused harm to bottom lines, they have been calculable, both in terms of a company's mathematical projections and its investment calendar.

Yet, there remains looming uncertainty, including regarding whether:

  • Congress will ratify the United States-Mexico-Canada Agreement;
  • the White House will agree on a trade deal with China, Japan or Europe; and
  • the Generalised System of Preferences for India and Turkey will be reinstated.

All of these would have significant implications for companies buying, producing and selling in the United States.

Further, the May 2019 announcement exempting Canada and Mexico from 232 tariffs on steel and aluminium come with strings attached. According to the pact, they could be rescinded if the United States detects a 'surge' of imports.

On 2 September 2019 a US media outlet reported that US steel imports are showing a trend upward, mainly in semi-finished steel products.

In July 2019 imports totalled 2.75 million metric tons. July's imports rose more than 48% compared to June – a significant increase at first glance. Further, imports rose 1.3% year-over-year. While this number is modest at first glance, it was only the second time since April 2018 that imports have risen year-on-year. In absolute terms, July's imports rose to their highest level since April 2018.

Market realist

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

Further, enormous US enforcement resources at the border have been put in place to ensure compliance with the agreements in place with Ottawa and Mexico City. This heightened attention does not end at simply asking for a tariff number; it includes collecting 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 US Customs and Border Protection.

In addition, the array of other trade enforcement tools available to the administration cannot be ignored – for example, the 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.(2)

Comment

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. As such, corporate leaders must take proper pre-emptive action and enlist expert legal advice.

For further information on this topic please contact Birgit Matthiesen, David R Hamill, Matthew Nolan or Nancy A Noonan at Arent Fox LLP by telephone (+1 202 857 6000) or email (birgit.matthiesen@arentfox.com, david.hamill@arentfox.com, nolan.matthew@arentfox.com or nancy.noonan@arentfox.com). The Arent Fox LLP website can be accessed at www.arentfox.com.

Endnotes

(1) For further details see "Status of Section 232 and Section 301 tariffs", "Trump issues Section 232 tariff exemptions, but companies must remain diligent", "Commerce Department issues Section 232 national security investigation reports on steel and aluminium" and "Steel and aluminium Section 232 determinations: boardroom angst".

(2) On 4 September 2019 US Department of Commerce Secretary Wilbur Ross announced a 0% preliminary determination in the anti-dumping investigation of certain fabricated steel from Canada. However, imports from China and Mexico, included in the original investigation, are to face substantial preliminary anti-dumping duties. Read more here.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.