Risks of asking US for tariff-hikes exemption
Obtaining exemption from US President Donald Trump’s steel and aluminium tariff hikes is far from guaranteed for a country such as SA. Just requesting it could trigger a review of SA’s trade preferences with the US.
The Trump administration shocked the global community by announcing last week that the US would be imposing tariffs of 10% on imported aluminium and 25% on imported steel from March 23.
The EU and China have said they are considering imposing retaliatory tariff hikes against US goods, sparking fear of a global trade war.
Trump’s proclamation makes provision for domestic users and exporting countries to obtain exemption from the new tariff regime. This is something the Department of Trade and Industry believes SA should be afforded.
It is to make a formal submission for exemption, arguing that since South African steel and aluminium exports account for just 1.4% and 1.6% respectively, “SA’s exports do not impose a threat to US industry and jobs”.
In fact, since South African exports are in some cases used as inputs in the US manufacturing sector, they contribute to US jobs, the department says.
However, trade expert Peter Draper, the MD of Tutwa Consulting, thinks it is unlikely SA will obtain an exemption. More likely, he says, is that the US will use the impending tariff hikes as leverage to pry open the local market for US firms, especially in chicken and other meat products.
The US could do this by triggering a review of SA’s trade preferences under the Africa Growth and Opportunity Act (Agoa). This is the strategy the US adopted towards Canada and Mexico, among the biggest exporters of steel to the US. Both countries are being offered exemption from the steel and aluminium tariff hikes if they agree to negotiate a new North Atlantic Free Trade Agreement (Nafta) favourable to the US.
Trump’s move appears to be a naked attempt to protect US steel and aluminium producers from foreign competition. However, the wording of the tariff proclamation portrays the decline in these domestic smoke-stack industries as a threat to the US’s national security. But why is Trump, who was elected on a protectionist ticket, being so opaque about his motives for wanting the tariff hikes?
Draper says the General Agreement on Tariffs and Trade (Gatt), gives countries have wide latitude to engage in trade protectionism if it is motivated by national security concerns.
“It provides a loophole so wide you can drive a bus through it,” he says, “but no country has ever used it. We’re in uncharted territory.”
Japan has threatened to take the US to the World Trade Organisation (WTO) for abusing the national security clause. If the WTO’s dispute resolution body rules against Trump there are indications he might pull the US out of the multilateral body altogether. But if the WTO rules in the US’s favour, it would open the flood gates for other countries to follow suit.
“Then it’s back to the dogeat-dog world of trade protectionism,” says Draper.
The Trump administration has hit back. “We are the freest trader in the world, hands down,” Peter Navarro, who heads the White House Office of Trade and Manufacturing Policy, told Bloomberg TV last week. “All we get for that is a half-a-trillion-dollars-a-year trade deficit that offshores our wealth, offshores our jobs.”
SA exports about 5% of its raw steel production (about 300,000 tonnes) to the US and a further 10% of value-added steel, another 100,000 tonnes.
“These numbers are significant, so we are concerned,” says Paolo Trinchero, head of the South African Institute of Steel Construction. “The South African economy is still subdued, so any business out there you don’t want to lose.”
SA’s largest steel producer, ArcelorMittal SA, says it exported about 70kt to the US in 2017 — less than 2% of its total sales volume of more than 4-million tonnes in 2017.
‘GATT PROVIDES A LOOPHOLE SO WIDE YOU CAN DRIVE A BUS THROUGH IT. BUT NO ONE HAS USED IT’ WE ARE THE FREEST TRADER IN THE WORLD. ALL WE GET IS HALF A TRILLION DOLLARS DEFICIT