Analysts: Commerce Trying to Thread the Needle on Section 232s on Pharma, Metals Derivatives
A former Trump National Economic Council trade expert, Kate Kalutkiewicz, said the changes to the Section 232 derivatives methodology "does reflect an acknowledgment by the administration that there was a lot of confusion by importers around how they were supposed to calculate the value of steel, aluminum or copper in a good and apply a tariff. Customs, I think, was also struggling to come up with formulas that made sense here."
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
Kalutkiewicz said that while some products were moved from the scope of the action, as she has talked to McLarty Associates clients, the move from a 50% tariff on the value of metals to a 25% tariff on the value of the product "was a mixed bag."
She said when goods that had only a tangential relationship to steel and aluminum were removed, and when the 15% by weight de minimis provision was created, it did benefit certain companies that had been arguing that the minuscule amounts of metals in their goods "were not worth any sort of compliance under the tariff framework."
She added that that list of derivative products includes parts that are subject to pending Section 232 investigations -- the ones on wind power and industrial robots.
She said she wonders how those future reports will address the lack of domestic capacity in robotics, for example, since that has "really important impacts for their goals" of reviving U.S. manufacturing.
Kalutkiewicz was on a panel assembled by the Washington International Trade Association, which hosts a weekly podcast on trade.
Former career staffer in economics in the Office of the U.S. Trade Representative, Ed Gresser, pointed out that there has already been a decision to favor primary aluminum producers over manufacturers that use the metal, despite the lack of domestic supply and the larger headcounts among sectors that buy aluminum.
Gresser, who advocates for trade liberalization at the center-left Progressive Policy Institute think tank, noted that domestic customers of steel are paying more than in other regions. Steel market followers say that the global average is $495 per metric ton for hot-rolled coil; $416 for the product in China, $840 in Europe, and $1,133 in the U.S.
Aluminum prices had been higher in the U.S., too, but the war in Iran has driven costs up around the globe.
Gresser said, "So every car made in the United States is starting off about $1,500 in a hole behind cars made in Europe and Korea and Japan" due to higher metal prices. "This is having an overall effect on manufacturing, which I don't think is the one the administration anticipated or promised to the country a year ago."
Moderator Joe Damond, from the Center for Strategic and International Studies, asked if the changes to the metals derivatives program should be seen as listening to businesses.
Gresser said it was the previous approach that was a result of listening to the steel industry. Players there complained that whipped cream producers were exporting cream to be put in canisters there because domestic steel was too expensive, and that was shrinking the market for their products.
"So the solution to that was: Well, we'll tax the canisters, too. That has proven really not workable. So each piece of this creates new problems somewhere else."
Kalutkiewicz agreed that the growth of derivatives was a result of listening to domestic metal interests. "I think nobody expected that the derivatives inclusion process would just be a [case of] 'submit your item and it'll be added,'" she said.
She said that she did think the changes to the derivatives are an attempt to listen to industry, but while also following the president's directive not to allow exemptions to tariff actions.
She said that with future Section 232 investigations, the Commerce Department probably will not have exemptions, but she thinks they will be creative and try to design "some sort of ramp up in tariffs to address the fact that we don't have sufficient capacity."
Damond noted that the planned Section 232 tariffs on branded pharmaceuticals will be complex if they come to pass.
"There are not tariff lines for specific medicines, innovative medicines. So, too, especially newer ones, they're under broad categories. So how you break them out is not simple," particularly because the action carves out products from specific countries. Moreover, the rates would be different for drugs produced in the EU or the U.K., which is the source of most imported branded drugs.
"I just get the sense the administration kind of wants to put a bow on this [Section] 232 and maybe move on from it," he said.