U.S. exempts some allies from tariffs, but may opt for quotas

The exemptions would provide a reprieve to top trading partners, but a person familiar with the administration’s thinking cautioned that the United States is likely to impose quotas on the overall level of metals sent into the United States.

Peter Navarro, a top trade adviser to Trump, confirmed in a television appearance on Thursday that the White House would impose quotas.

“Every country that is not facing tariffs that we’re going to negotiate with will face quotas so that we protect our aluminum and steel industries. For all countries, there has to be a quota,” Navarro said on CNN. “If you don’t put a quota on, then any country that can do whatever they want will become a transshipment point for every other country.”

On Thursday, the Trump administration said it would temporarily exempt the European Union, Canada, Mexico, Argentina, Australia, Brazil and South Korea from the tariffs. Notably absent from the list was Japan, one of the United States’ closest allies, as well as China, which was hit with a separate round of tariffs on as much as $60 billion in imports to the United States.

Many of the countries that were exempted are engaged in trade talks in which the United States is trying to win concessions, including Canada and Mexico, which are in the midst of renegotiating the North American Free Trade Agreement, and South Korea, which is renegotiating its free-trade pact with the United States.

Japan has been a source of ire for Trump, who has criticized its trade practices going back to the 1980s. The two nations made only modest progress in their economic dialogue last year, with the United States pushing for a new bilateral trade agreement that would ease restrictions on American exports of beef and cars to Japan.

The tariff exemptions could help prevent retaliatory trade barriers that other trading partners had threatened, including the European Union, which said it would target U.S. exports like Florida orange juice, peanut butter and motorcycles.

It would also provide some relief to American companies who use foreign metals in the products they use and make, like oil and gas pipelines, beer cans and food packaging.

But the move caught those who support the tariffs, including the U.S. steel industry, by surprise.

“Everyone is kind of freaking out,” said Philip K. Bell, president of the Steel Manufacturers Association. He said he was waiting to see the final details of the policy but would have wanted the exclusions to be much more narrow. “This represents a lot of tons of imports that find their way to our shores, and this could have the effect of watering down” Trump’s trade action.

Imposing quotas would offer some help, Bell said, because without the limits, American companies would face incentives to start buying their steel from excluded countries and domestic mills would be right back where they were pre-tariffs. The exempted countries account for more than half of the $29 billion in steel sold to the United States in 2017.

Quotas are viewed as less aggressive than tariffs because foreign exporters tend to benefit from the constraints, in the form of higher prices, while in the case of tariffs, the U.S. government picks up the higher duties.

“It may be more palatable for countries to accept quotas in the form of voluntary export restraints than accept an increase in tariffs,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics. “Tariffs are seen as very unfriendly by other countries because it’s a unilateral action rather than a negotiated action.”

The U.S. trade representative, Robert Lighthizer, outlined the exemptions during questioning Thursday morning in the Senate Finance Committee.

“The idea that the president has is that, based on a certain set of criteria, some countries should be out,” Lighthizer said. “What he has decided to do is pause the implementation of the tariffs in respect to those countries.”

The White House imposed the tariffs by citing a section of trade law that gives the president authority to limit imports to protect national security. The Commerce Department said the metals were a national security risk because they were degrading the U.S. industrial base.

The administration then floated the potential for exemptions, intimating that nations could be excluded if they found other ways to resolve the national security concerns and to reduce their trade deficit with the United States.

The United States runs a trade deficit with many nations, including China and Japan, importing more goods from those country than it exports. Last year, Japan sent about $1.7 billion in steel mill products to the United States, according to IHS Markit Global Trade Atlas. Without an exclusion, it will be the only one of the top six foreign suppliers of steel to the United States to face steep tariffs.

Japanese steelmakers argue that they hardly compete with American steel mills, because they make niche, specialized products that are not replicated here, rather than undercutting prices by flooding the market with a cheap commodity.

Tadaaki Yamaguchi, chairman of the Japan Steel Information Center, a New York-based trade group, said failing to give Japan the same exemption that was extended to South Korea and Brazil was “an outrage and a travesty.”

If the exempted countries are not subject to any export limits, the administration may need to raise tariffs on all the others if it wants to keep its promise to protect American producers on price. That would hit Japan harder than anyone.

The leaders of several countries with close ties, including military alliances, with the United States had warned that the restrictions could touch off a trade war and undercut a global economic recovery. They also argued that the tariffs would be mutually destructive and ignore the complexity of modern supply networks.

For example, the German carmaker BMW operates its largest factory in Spartanburg, South Carolina, buying about two-thirds of the steel it needs in the United States and importing the rest. BMW is also the largest exporter of cars made in the United States, with China being one of the main buyers, said Harald Krüger, the company’s chief executive. “None of this would be possible without free trade,” Krüger said in Munich on Wednesday.

This article originally appeared in The New York Times.

U.S. exempts some allies from tariffs, but may opt for quotas

The shift in strategy reflects a few chaotic weeks in which foreign governments lobbied, cajoled and threatened Washington to win exemptions from the 25 percent tariffs on steel and the 10 percent tariffs on aluminum.

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