Latin America Advisor

A Daily Publication of The Dialogue

Will New U.S. Tariffs on Some Metals Harm or Benefit Latin America?

U.S. President Donald Trump on March 8 signed into law new tariffs on imported steel and aluminum despite anxious warnings from leading members of his own party, global trading partners and liberal economists. At the same time, he announced that Canada and Mexico would be exempt from the tariffs, pending the outcome of the renegotiations of the North American Free Trade Agreement. The tariffs have support from a diverse coalition of interests ranging from the largest labor union in the United States to right-wing advocates of Trump’s “America First” political ideology. What would the tariffs mean for Latin American and Caribbean countries? Which players stand to gain or lose the most? How will concerns about a global trade war come to bear on the current talks to renegotiate the North American Free Trade Agreement? 

Frank Samolis, partner and co-chair of the international trade group at Squire Patton Boggs in Washington: “The steel and aluminum tariffs have been the source of significant concern for stakeholders around the world, including steel/aluminum consuming industries in the United States, U.S. lawmakers and foreign leaders. They are especially concerning for Mexico, a major U.S. trading partner and a critical ally in the Western Hemisphere. Affected parties include: U.S. consumers, due to expected price increases on a wide variety of goods that use steel or aluminum somewhere in the supply chain; the oil and gas industry, which relies on large quantities of these products to expand their operations; and U.S. relations across the globe, as the specter of a trade war increases. It is likely that these tariffs will ultimately be challenged at the World Trade Organization (WTO). In fact, a number of U.S. trading partners are reportedly beginning to construct their arguments. Such challenges will take years to work their way through the WTO dispute settlement and appeal procedures, but the impacts of increased tensions will be felt today. The European Union has pledged to respond with retaliatory tariffs within weeks; while E.U. officials argue that their response will be WTO compliant, any WTO challenge by the United States would similarly take years to conclude. Tariffs from both countries would remain in place in the interim. At this time, it is unclear how the threat of tariffs may affect the renegotiation of the North American Free Trade Agreement (NAFTA). Canada and Mexico are officially exempt from the president’s proclamation, but the president left the door open to tariffs for both countries open. Thus, with NAFTA talks ongoing, the administration may use the ongoing threat of tariffs as a leverage point as talks proceed.”

Celeste Drake, trade and globalization policy specialist at the AFL-CIO in Washington: “For years, firms and workers in both the developed and developing world have supported action against unfair trade practices. In this century, China, in particular, has engaged in currency manipulation, denial of labor rights and overproduction—trade issues that the WTO and other multilateral forums have failed to address. The tariffs to protect U.S. national and economic security are overdue. They are a good step toward strengthening firms and protecting workers in the steel and aluminum industries, providing they are targeted to the countries that caused the problem, such as China. It is important to distinguish between trade enforcement and a trade war. Wall Street’s ‘chicken little’ rhetoric comparing this action to the Smoot-Hawley tariff has no basis in fact. More important, however, is that the global trading system needs comprehensive changes to prevent the kind of game-playing we have seen in global steel markets. Unions across the Americas are united in calling for sustainable, equitable trade rules that strengthen economies and create wage-led growth. In our globalized economy, workers are always better off with international—not unilateral—solutions. Since the United States, Canada and Mexico are already working to fix NAFTA, the three countries should develop a coordinated response to global economic challenges like dumping, overcapacity, tax avoidance and currency misalignment—even as they work on improving existing NAFTA labor and investment regimes. Just as inaction in the face of illegal trade practices harms working people, so will a go-it-alone strategy. If President Trump has an interest in hemispheric shared prosperity, he should abandon the nationalist rhetoric that plays into the hands of Wall Street critics of trade enforcement. Now is the time for the countries of the Americas to come together to address beggar-thy-neighbor trade strategies, abandon the race to the bottom, and build economies that work for ordinary families, not just the global investor class.”

Alberto Pfeifer, visiting professor at the Institute of International Relations of the University of São Paulo and member of the board of the Argentina-Brazil Chamber of Commerce: “Trump’s corollary for his nationalist economic policy, protectionism, so far has been more about what the United States won’t do—the Trans-Pacific Partnership, for instance—than what it will do. NAFTA’s termination was turned into a renegotiation. Steel and aluminum tariffs will be balanced under strategic considerations. It may be the case that the final effect will be softer than expected, and several countries may not be targeted at all. To start with, Canada and Mexico (the number-one and number-four steel exporters to the United States, respectively) were spared while NAFTA is being discussed. Brazil, the number-two steel exporter to the United States, with a $3 billion value, is the first in line to suffer. The E.U. market is no promising alternative for Brazilian steelmakers. Last year, Brussels imposed anti-dumping measures against Brazilian steel and, right after Trump’s move, announced emergency safeguards in case cheap steel is diverted to its market. A recovering domestic market can absorb part of this production. Trump’s aim at steel and aluminum is actually taking the world back into mercantilism. For most Latin American countries, the direct effects will be residual. But structural effects from an escalation of protectionism may come from fewer trade opportunities and the ineffectiveness of the multilateral trade system, increasing the region’s economic vulnerability. This might be countered by moves toward more and better regional agreements within Latin America and by getting closer to China. So Trump’s real target—China—may be the final beneficiary of this unfortunate trade move.”

Luis Rodríguez, managing partner at Monarch Global Strategies: “For more than a decade, the North American steel industry has been facing a global oversupply of steel, a drop in international prices and unfair imports, leading to an unprecedented increase of steel imports under unfair trade practices. Such unfair trade practices affecting the North American steel industry have triggered job and investment cuts. Overcapacity in the steel sector and disruptions in the financial markets have triggered an increase in anti-dumping investigations surrounding the importation of steel products. Most of the investigations of unfair trade practices in Mexico and the United States have resulted in anti-dumping duties on steel imports, mainly from China and South Korea; nevertheless, such trade remedies have proven insufficient to address distortions in the steel trade. North American governments, mainly the United States and, to a lesser extent, Mexico, have increased their use of trade remedy measures to protect domestic steel producers from imports under unfair trade practices, causing severe harm to such producers. Dumping is not an isolated phenomenon; it represents challenges to the industry, such as job losses and an impact on security. Moreover, competitiveness and quality could be diminished regionally. Steel companies at a regional level urgently require a mechanism to counter the economic harm, allowing them to strengthen regional competitiveness and promote a unified response to unfair trade practices that affect the regional industry. The measure to impose tariffs on steel imports across the board is not origin-specific and therefore, increases the cost of doing business for all steel imports. The temporary relief for Mexico and Canada provides a unique setting for a regional approach.”

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