Biden's EU trade dilemma: more pain for Harley, distillers or back off
metals tariffs?
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[April 29, 2021] By
David Lawder and Rajesh Kumar Singh
WASHINGTON/CHICAGO (Reuters) - The Biden
administration faces a major dilemma in its dispute with the European
Union over Trump-era steel and aluminum tariffs: back down to avoid
acute pain for Harley-Davidson Inc and whiskey distillers or stick with
the duties even though they are now exacerbating acute shortages for
U.S. manufacturers.
The EU has threatened to double the tariffs on Harley-Davidson
motorcycles, American-made whiskey and power boats to 50% on June 1,
cutting off any residual hope of exports to the continent.
President Joe Biden has pledged that he will maintain the tariff
protections for the steel and aluminum industries until the problem of
global excess production capacity - largely centered in China - can be
addressed.
His sentiments were echoed by U.S. Trade Representative Katherine Tai on
Wednesday, and his Commerce secretary, Gina Raimondo, said
https://www.reuters.com/
article/usa-tariffs-biden/update-1-u-s-commerce-chief-metals-tariffs-helped-save-some-u-s-jobs-idUSL1N2M027O
earlier this month that the tariffs "helped save American jobs in steel
and aluminum industries."
Harley-Davidson has also been hit by a European court ruling that its
bikes produced in Thailand will be treated as U.S. made, subjecting them
to the 50% tariff as well - on top of the normal 6% tariff.
"If not for the tariffs, which are now threatening our recovering export
potential, we could be investing in jobs at our American facilities,"
Harley Chief Executive Jochen Zeitz told an earnings call. "Instead, we
are facing huge tariffs in a trade war - in a trade war not of our
making."
The Milwaukee-based company is betting heavily on Europe, its
second-largest market, to help fuel its turnaround strategy. But higher
tariffs would give its rivals including Triumph, Honda and Suzuki a
massive pricing advantage.
In Bristol, Pennsylvania, the craft distiller of Dad's Hat Pennsylvania
Rye Whiskey recently managed to ship its first pallet to a European
distributor in over two years after the current 25% tariffs stunted a
growing export business in 2018.
"If you double those tariffs, forget about it. It would be done,"
Mountain Laurel Spirits LLC owner Herman Mihalich said of his export
prospects.
STEELWORKERS: HOLD THE LINE
The United Steelworkers union and the mills that employ its members are
urging the administration to continue backing the Section 232 tariffs on
steel and aluminum, arguing that lifting them would allow subsidized
Chinese steel to flood back into the U.S. market via third countries.
USW President Tom Conway acknowledged the pain for Harley but said the
protections needed to remain in place until Chinese excess capacity was
reduced.
"Some people get hurt when this sort of stuff goes on. So, I understand
what they're saying. But I don't think the 232 can be lifted," Conway
told Reuters, adding that perhaps the issue could be settled with steel
import quotas for Europe.
U.S. Trade Representative Tai told senators that she is working with EU
counterparts to find a solution, but they must address the issue of
excess capacity in China, which produces half the world's steel.
She said she hopes that EU officials see the problem "as serious a
challenge to their ability to produce and compete in steelmaking as we
see it, and working together we will be able to resolve these sets of
tariffs so that we can join forces on the bigger picture."
The EU has never accepted the premise of the 25% steel and 10% aluminum
tariffs imposed by former president Donald Trump in March 2018, duties
based on a Cold War-era trade law to protect domestic industries deemed
critical to national security.
Critics from the EU to metals-consuming industries and the U.S. Chamber
of Commerce argued that the metals were commodities available in ample
quantity to meet U.S. defense needs and that European producers in
countries that are trusted U.S. allies present no threat to U.S.
security.
Sabine Weyand, director general of the European Commission's trade
section, said earlier this month that she feared the two sides were
"running out of time."
TIGHT MARKET
When the tariffs were imposed, the steel industry looked very different
from its current supply-constrained condition. Imports were flooding in,
taking nearly 30% of the U.S. market, and holding U.S. Midwest
hot-rolled steel spot prices below $600 per ton.
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The logo of U.S. motorcycle company Harley-Davidson is seen on one
of their models at a shop in Paris, France, August 16, 2018.
REUTERS/Philippe Wojazer
The goal of the tariffs was to return U.S. steel mills to 80% of capacity use, a
level at which they could thrive, and imports sank to around 15% of the U.S.
market in January.
But this week, amid severe shortages caused by the coronavirus pandemic, that
spot price is pushing $1,500 a ton, making it cheaper in some cases to import
steel and pay the 25% tariff, some steel users say.
Steel imports jumped 20.7% in March over February to 2.3 million tons, even
though the year-to-date total was up just 3.1%, according to American Iron and
Steel Institute data https://www.steel.org/
2021/04/steel-imports-up-
more-than-3-year-to-date-through-march.
"I think you just have a perfect storm going on in terms of capacity constraints
with demand surging. And the mills, rightly or wrongly, are managing it with
price," said Todd Leebow, president of Majestic Steel USA, a Cleveland-based
steel service center firm that specializes in supplying American-made steel.
"If we want to go buy spot (steel) from the mills right now, we can't get it,"
Leebow said, adding that supplies are tight worldwide, with long waits for
imports.
The industry had shut down as much as 30% of its capacity during the coronavirus
pandemic, and it has been slow to reopen. Several blast furnaces shut last year
remain idled, and newly built electric-arc furnace mills prompted by the tariffs
have been slow to ramp up production.
The industry has also consolidated, increasing its pricing power, with iron ore
miner Cleveland-Cliffs Inc last year acquiring both AK Steel and the U.S. assets
of Arcelor Mittal, while U.S. Steel bought Arkansas mini-mill producer Big River
Steel. Both are still idling older plants.
Nucor Corp, the largest U.S. steelmaker, last week reported the highest-ever
first quarter profit in its history, citing strong demand and higher prices.
JOBS MIRAGE
The Trump administration had promised a rust belt jobs revival when it imposed
the tariffs in 2018. But after rising in 2019 followed by COVID-19 shutdowns,
iron and steel mill employment in February was down about 2,300 jobs from
pre-tariff levels, according to Labor Department data.
Graphic: Impact of Tariffs on Steel Employment ,
https://graphics.reuters.com/USA-ELECTION/STEEL/
bdwvkkxyxvm/chart.png
Kevin Dempsey, president of AISI, which represents major steelmakers, argues
that the consolidation is a sign of health and increased investment for the
industry, and the current supply shortage is a temporary bottleneck being
experienced by many other industries, including semiconductors.
He cited a March study https://www.epi.org/publication/why-global-steel-surpluses-warrant-u-s-section-232-import-measures
by the Economic Policy Institute showing the industry has committed to $15.7
billion in new or upgraded American steel facilities since the tariffs were
implemented in 2018, which will add 3,200 direct new jobs.
With the Biden administration now pushing a massive $2 trillion infrastructure
plan, the demand for steel is expected to grow, and some doubt that demand can
be met if the tariffs remain in place.
"It's going to become largely unaffordable to build all of these new
infrastructure assets or upgrade infrastructure assets if the price of steel is
$1,300 a ton," said Kip Eideberg, who heads government and industry relations at
the Association of Equipment Manufacturers, which represents over 1,000
companies including Caterpillar Inc and Deere & Co.
Leebow, the Cleveland steel distributor, said he supported the Section 232
tariffs, but it was now time to modify them.
"I would remove the tariffs from Europe and put a quota system in place for
Europe and keep the tariffs in place on countries that are bad actors," he said.
(Reporting by David Lawder in Washington and Rajesh Kumar Singh in Chicago;
Additional reporting by Phil Blenkinsop in Brussels; Editing by Steve Orlofsky)
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