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Nail Maker News Issue No. 16

Updated: Nov 14, 2021

Pressure Increases on Biden Administration Over Section 232 Tariffs on Steel The pressure is increasing on the Biden Administration to decide soon whether to continue the tariffs that were imposed on steel and aluminum with President Trump’s Proclamation 9705. At the same time, cases are moving through the courts to affirm that the White House has the authority to extend that presidential decree to finished products like nails. The original tariffs were justified under Section 232 of the Trade Expansion Act of 1962 because, said Trump, steel and aluminum were “being imported into the United States in such quantities and under such circumstances as to threaten to impair the national security of the United States.” The questions now are whether the tariffs have done their job and whether lifting them will cause the U.S. steel industry, considered a national security bulwark, to wither. From both sides, the rhetoric is heating up, and the tariff issue is already playing a role in the 2022 Congressional elections. On Sept. 1, the Coalition of American Metal Manufacturers and Users asked the Biden Administration to remove the tariffs, claiming that the U.S. has become “an island of high steel prices” and that “domestic steel producers [are] enjoying record profits.” The group concluded, “It’s clear this tariff protection is no longer needed.” A few days later, Rep. Jerry Moran (R-Kansas), the ranking member of the Senate Appropriations commerce, justice and science subcommittee, argued in a letter to Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai that repeal or modification of Section 232 tariffs was necessary because U.S. infrastructure projects would require “large quantities of raw materials,” and America’s manufacturers aren’t producing enough to meet the coming demand. Moran wrote, “I support our nation having a strong and reliable domestic steel and aluminum industry. However, U.S. steel and aluminum producers simply cannot meet the current demand despite protectionist tariffs being in place on imports for over three years.” A letter from the American Iron and Steel Institute, the United Steelworkers union, and the Steel Manufacturers Association took the opposite position. “We are writing,” said the presidents of the three organizations, “to emphasize the importance of maintaining effective trade measures to prevent new surges of steel imports fueled by global overcapacity, including from the EU.” The letter noted that a McKinsey & Company study found that the European steel industry needs to reduce its own excess capacity by 20 to 30 million metric tons “to achieve a sustainable capacity utilization rate.” The letter added that “certain EU governments have also announced aggressive new subsidy programs” and that “semi-finished steel from Russia, Ukraine, China and elsewhere” enters the EU to be “rolled, finished, and exported – all too often to the U.S. market.”

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Europe Is Now the Focus The reference to Europe goes to the heart of the matter. European countries, like nearly all other nations, were hit by the tariffs three and a half years ago and are pushing hard to have the duties lifted. The European Union (EU) agreed June 1 to wait six months before proceeding with plans to add U.S. goods such as athletic shoes to the list of products subject to retaliatory tariffs and to increase duties on such goods as bourbon and motorcycles. The Administration and Europeans will hold a ministerial-level meeting of the new transatlantic Trade and Technology Council later this month in an effort to resolve the tariff issue by early November. Moran wants the U.S. to reach a deal with Europe and then extend it to other “major treaty allies” like Japan. At the same time, there are reports that the U.S. and EU may be seeking to revive a broader agreement. According to Politico on Sept. 9: Activists may have thought the politically explosive Transatlantic Trade and Investment Partnership (TTIP) negotiations between Europe and America were dead and buried. But one of the most important elements of those talks, which collapsed in 2016, is back from the grave: regulatory alignment between Washington and Brussels. The Biden Administration may decide not to let Section 232 stand in the way of a TTIP revival. Still, strong signals from the Administration indicate that the tariffs will stay, though they could be replaced by steel quotas for the EU.. As we noted in our newsletter last month, Secretary Raimondo said that Section 232 tariffs “helped save American jobs in steel and aluminum industries” and that “we can’t say we are going to get rid of the tariffs because we need to protect our streel industry and those workers.” She added that to “simply to say ‘no tariffs’ is not the solution.” But, as Marc Busch, professor of international business diplomacy at Georgetown University, noted in an opinion piece in The Hill, “In claiming that the steel and aluminum tariffs are ‘very effective,’ Raimondo talks a lot about China. But it is Brussels, not Beijing, that is threatening more retaliation if the U.S. doesn’t end these tariffs.” In fact, even before Section 232 tariffs were imposed, the U.S. was not a major consumer of Chinese steel, ranking 26th among China’s export markets with just 0.8 million metric tons purchased in 2017. That’s less than 1% of total U.S. consumption. Of course, China is a master at circumvention and its steel often flows to other markets before ending up in the United States, as the three steel association presidents wrote in their letter. The main point, however, is that steel enters the U.S. from all over. In 2017, Brazil, South Korea, Germany, Japan Turkey, and Russia were among the many countries that shipped more steel to the U.S. than China. Section 232 tariffs were meant to be comprehensive, for good reason. If the Biden Administration decides to pick and choose among nations, the ability of the tariffs to protect national security will undoubtedly be weakened, argue those who want to maintain the duties.

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Steel and the Election in Ohio What the Administration does about Section 232 – as well as the expansion of 232 to include nails (as related below) – will impact elections next year, as well, perhaps, as the presidential contest in 2024. One of the most important Senate races in 2022 is in Ohio, where at least a half-dozen strong candidates are vying for the seat being vacated by Republican Rob Portman. Ohio is a major steel state. According to the Ohio Steel Council, steel production totals 14.5 million tons annually, or about 15% of U.S. output. Overall, 22,000 jobs in the state are in direct steel production and 96,000 are “tied to steel.” Already, J.D. Vance – one of the more prominent candidates in the Senate race in Ohio – has weighed in. Vance, a Republican, is author of the 2016 bestseller, Hillbilly Elegy, about Appalachian culture and economic challenges. He launched his Senate bid on July 1 at a steel tube factory in Middletown, Ohio, his hometown. In a Sept. 9 Akron Beacon Journal opinion piece, written with Robert Lighthizer, the former U.S. Trade Representative, Vance said the U.S. should continue our polices of tariffs on China “and expand upon them.” According to the piece, “Some in Congress and the Biden administration seem desperate to turn the clock back. Under influence from many American multinational companies, Treasury Secretary Janet Yellen and others want to reduce or eliminate tariffs that were part of a long overdue effort to combat China’s industrial warfare on the United States.” Vance and Lighthizer added: It would be regrettable if the Biden administration were to cave to this pressure and sell out the very workers it claims to champion. As we’ve learned the hard way over the last decades, there is no more important foundation for American workers than a strong manufacturing base. China is subject to other U.S. tariffs besides steel duties. The article makes no specific mention of Section 232, nor does it name any of the countries to which it applies besides China. Also, rather than using national security as a rationale, the piece stresses that the tariffs are necessary as a way of “offsetting China’s unfair economic advantages and sending a clear signal to U.S. companies that the time has come to bring jobs home and reduce our dependence on China.” But the serious threat posed by global excess steel capacity, against which the Section 232 steel tariffs are designed to protect the U.S. steel industry, is primarily caused by China’s unfair trade practices. It is clear, therefore, that the issue of steel tariffs will be a critical factor in the Ohio Senate race. Among the other candidates are Democratic Rep. Tim Ryan, a five-term Congressman, and Republicans Josh Mandel, former Ohio Treasurer; Jane Timken, former state GOP chair; and wealthy businessmen Mike Gibbons and Bernie Moreno.

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Imports Continue to Harm Nail Manufacturers Continuing Section 232 tariffs on steel is not the only trade issue in Ohio. There is also the matter of extending 232 to include finished products like nails. A flood of nail imports from such countries as China, Oman, Taiwan, Thailand, Turkey, India, Sri Lanka, and South Korea has been overwhelming the U.S. market. “Foreign companies are circumventing Section 232,” says Cliff Mentrup, CEO of KYOCERA SENCO Industrial Tools, Inc., a Cincinnati-based global manufacturer of nails, other fasteners, compressors and tools, founded in 1948. “They are using steel produced abroad to make their nails and selling them in the U.S. in an unfair work-around.” Foreign nails now account for about 80% of all nails sold in the United States, and Mentrup, whose company is a member of the American Steel Nail Coalition, worries that the situation will only get worse, destroying domestic jobs. Nails imported by the U.S. in July were up 32% over the same period last year. “As long as 232 is in place,” said Mentrup, “steel derivative products like nails and staples also must be covered or, as we have seen, imports will devastate those markets.” President Trump took action to end the circumvention in January of last year with Proclamation 9980, which extended the 25% tariffs on imports of steel and aluminum to “derivative articles,” including steel nails. Foreign nail makers and U.S. distributors quickly went to court to stop the extension of Section 232 to nails. On April 5 of this year, the U.S. Court of International Trade (CIT) ruled in PrimeSource Building Products, Inc. v. United States, that Proclamation 9980 was invalid because it went beyond the statutory time limits of Section 232. The Government, now under the Biden Administration, took the case to U.S. Circuit Court of Appeals. Meanwhile, on July 13, the Federal Circuit Court of Appeals, in Transpacific Steel v. United States, a case with similarities to the PrimeSource case, reversed a CIT decision involving tariffs on Turkish steel. According to a Congressional Research Service summary, the appeals court ruled that “Congress intended for the President to retain at least some authority to modify a tariff action even after the deadline passed.” Then, on Aug. 2, the CIT found that, in light of the Transpacific decision, the government had demonstrated that it was likely to succeed in overturning the PrimeSource decision. So the CIT issued an order granting the government’s motion to stay implementation of the court’s judgment pending the appeal. The CIT, as we noted last month, was careful to highlight the differences between the cases, but the Aug. 2 order was significant.

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Latest Developments in Court Cases Involving Tariffs on Nails At the end of August, the Transpacific plaintiffs, including several Turkish steelmakers, filed a petition with the Circuit Court asking for either a rehearing by the same three-judge panel that ruled against them or for a hearing by all the appeals judges sitting en banc. On Sept. 7, the Circuit Court consolidated cases involving other plaintiffs – including Oman Fasteners, a manufacturer in the Arabian Gulf nation, one of the top nail exporting countries, and Huttig Building Products, a St. Louis-based distributor – with the PrimeSource case. On the same day, Oman, Huttig and a few others filed an amicus brief, supporting the petition of the Transpacific plaintiffs for a new hearing. Meanwhile, the Circuit Court extended the deadline for the U.S. Government’s opening brief from mid-September to Oct. 25. Also of importance: The U.S. Government on August 9 filed a motion that included a declaration from the Acting Executive Director for Trade Policy and Programs, U.S. Customs and Border Protection (CBP) that notes that collection of estimated Section 232 duties that would have been due from Oman Fasteners’ and Huttig’s subject imports was forgone under a consent agreement. Instead, the companies posted a bond covering payments. But the duty liabilities have accumulated to the point where those liabilities are effectively unsecured. Oman’s potential liabilities, if the court issued a final unfavorable ruling, now exceed its bond, and Huttig’s have reached 82% of the bond amount. CPB stated that the companies continue to export substantial volumes of nails to the U.S., and unless the CIT agrees to a stay, “the United States stands to lose potentially millions of dollars in lawful revenues should the Government ultimately prevail in this action.”




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