Read the original text at 112.ua.
March 8, US President Donald Trump signed a decree on the introduction of import duties for steel and aluminum at a rate of 25% and 10%, respectively. The document comes into force 15 days after the signing (March 23). The White House report states that the duties became the result of the investigations under Section 232, the norm in US legislation that allows introducing any restrictions on imports if it poses a threat to the country's national security.
The Trump administration did not hide the fact that the duties are of a protective nature and are introduced with a view to reducing the import of steel and aluminum to a level that will “allow the US steel industry to achieve stable profitability.”
Wood Mackenzie calculated that after the introduction of duties, the total volume of imports, in particular, steel in the US, could be reduced by 18 million tons per year (now import is more than 35 million tons), Reuters reported. The import of steel in the United States accounts for about 30% of consumption (the main supplier is the European Union), Brazil and Russia also have significant shares. In the supply of aluminum, the import of which accounts for about 80% of consumption, the main supplier is Canada, which is not subject to Trump’s fees. About 20% of the total imports of aluminum are shared by China, Russia, and the UAE.
In the US, Trump's decision was perceived ambiguously. American metallurgists would have to approve of the decision of the White House, which in the future should allow them to increase production volumes. But companies that use metal for the construction will suffer since after the introduction of duties they will face the inevitable increase prices, Bloomberg reports. The decision caused protests among American machine builders, many of whom have already warned that in the event of a rise in metal prices, they will have to raise prices, which will fall on the shoulders of consumers, Politico writes. President and CEO of the American International Automobile Dealers Association (AIADA), Cody Lusk, also commented on the increase in prices for cars produced in the US. Even the producers of aluminum cans for beer and soup warned about a possible increase in prices.
Large representatives of the agrarian business said that they were seriously concerned about the possible response measures that could be imposed on their products by countries whose enterprises would suffer from the introduction of duties. And their fears are not at all groundless. Even last week, when Trump announced the introduction of duties, the European Union threatened to introduce retaliatory measures against American whiskey, jeans, and motorcycles. With a final decision on possible reciprocal steps, the EU has not yet decided.
Trump is not so much seeking to win the sympathy of American producers, but rather planning to use duties as a tool for bargaining with the external partners. Trump does not hide his real intentions. During a visit to Pennsylvania last Saturday, he urged the European Union to abolish duties on the import of American cars. "Take off the barriers and cancel the tariffs. If you do not do it, we will introduce duties for Mercedes-Benz and BMW," Trump threatened.
"The steps taken by Trump are the realization of his election promises, the main of which was to return large industrial production to the US," said Gennady Ryabtsev, a leading researcher at the National Institute for Strategic Studies.
At the same time, experts warn that having decided to go all-in, Trump can get the opposite effect. In connection with the threat of reducing margins, the US companies can freeze investments and begin to reduce employees, Bloomberg claims. For example, China might transfer large-scale contracts planned for the United States to other countries, in particular, decide to buy aircraft from Canada, rather than from American manufacturers, the agency writes. "No one is obliged to him (Donald Trump), therefore for partners there is nothing easier than to introduce retaliatory measures," said Bill Reinsch, Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS) and is a senior adviser at Kelley, Drye & Warren LLP.
Hyundai Motor Co, one of the largest car manufacturers in South Korea (located in the list of countries that might be most affected by the introduction of duties), has already said that it could review plans for manufacturing cars in America.
European steel producers will suffer the most, as a result of the introduction of duties on the import of aluminum and steel in the US, Moody's rating agency writes. Each year they supply about 5 million tons of steel in the US (the total volume of imports in the US is more than 35 million tons). Europe's largest steel producer Eurofer has already called the US decision to impose duties "damaging and unproductive for both the EU and the US economy." The German Steelworkers' Association stated that by its decision, Trump violated the rules of the World Trade Organization, and called upon the EU to immediately begin the process for using the WTO instruments to remove the trade barriers. Let us note that Japan and South Korea have already threatened to appeal to the WTO.
Trump's decision also affected mining companies that produce bauxite and iron ore used in the production of aluminum. The head of the International Association of Mining and Metallurgical Industries (ICMM) Tom Butler said that for this reason, the most painful decision will affect the poorest countries, whose economic development will eventually slow down. Among those affected could appear the countries of South Africa, the agency Reuters reports.
The US is not the main market for the Ukrainian metallurgical industry, about 80% of which is exported. Flat and long products, tubular products, semi-finished products of steel are exported from Ukraine to the USA. According to the Ministry of Economic Development and Trade, in 2015, Ukrainian steel products for $ 119.6 million were exported to the United States, in 2016 – for $ 89.7 million, in 2017 – $ 175.6 million.
At the same time, Ukraine does not supply aluminum to the United States. It has not been produced in the country since 2012, since the Zaporizhia Aluminum Combine, which belonged to the Russian holding, ceased to function.
Most of all, Ukrainian companies Metinvest and Interpipe will suffer from the introduction of duties, the experts predict. To a lesser extent, "Arcelor Mittal Kryvyi Rih" would suffer, whose parent company - Arcelor Mittal - owns production facilities in the US and builds a plant in Mexico.
In addition to Arcelor, no Ukrainian manufacturer has capacity in the US. Evraz group did, but it has recently sold her Ukrainian assets to DCH of Olexander Yaroslavsky.
Thus, in Ukraine, the issue of duties directly affects only the interests of the steelmakers. At the same time, their market share in the US market cannot be called significant. "In 2017, Ukraine delivered 1.3 million tons of pig iron and 200,000 tons of rolled metal to the United States. If we speak about the rental level, it is about 1.3 percent of the total production in the country," said Olexander Kalenkov, president of the Ukrmetallurgprom association of enterprises.
The biggest threat from the introduction of duties is not even in the loss of the US market for Ukraine, but mainly the situation at the world market after Trump’s decision. “Despite the fact that Ukraine does not export so much rolled metal directly to the US, the introduction of duties can have very far-reaching consequences for our country. The duties affect the markets of countries that provide Ukrainian producers with export products,” says the president of the Ukrmetalurgprom association of enterprises. According to him, the decision of Donald Trump opened a Pandora's Box.
Another negative consequence is that they could be beneficial for the largest Russian producers, which, unlike the Ukrainian ones, have their own production facilities in the US. They can occupy a niche freed up after Ukrainian steelmakers have left the American market, experts say. Production facilities in the US are owned by Evraz, NLMK, and TMK. Russian newspaper Kommersant also wrote about the fact that duties could be useful to them.
This will happen if Russian companies find an alternative and inexpensive opportunity to load the capacities of their American enterprises. Until recently, they have been supplying them with Russian slabs (cast billets used for the manufacture of finished products, in particular, flat products).
The metallurgical industry is of strategic importance and is critical for the Ukrainian economy. At the same time, the state of affairs in Ukrainian metallurgy and before the introduction of duties could hardly be called successful. During the past two years, the price environment on the world market has been favorable for increasing export volumes. After the fall, observed in 2014-2015. (the prices were at the lowest levels) the prices have raised for the last 13-15 years. However, despite this, Ukraine produced 21 million tons of steel in 2017 - this is the smallest amount since Ukraine gained independence, 112.ua the president of the association of enterprises "Ukrmetalurgprom" said.
In January 2018, Ukraine ranked tenth among 67 countries producing steel in the ranking of the World Association of Steel Producers (Worldsteel). In the best of times, our country took the seventh place in the world in terms of steel production and the third - in terms of metal exports.
According to Olexander Kalenkov, the situation in the industry has become more complicated due to the increased competition, as well as the upheavals that have occurred due to Donbas blockade. "We lost some of the assets that remained in the uncontrolled territory, were registered in Ukraine and paid taxes to the country's budget. In addition, Ukraine lost the opportunity to supply coal from the mines that remained in the temporarily occupied territory. Coking coal, which is now transported due to the border, is much more expensive - at least $ 30-50 per ton. According to our estimates, Ukraine has produced about 2 million tons of metal products less than it could. It seems that we have not obtained billions of dollars of foreign exchange earnings," said Kalenkov.
Ukrainian authorities reacted to the introduction of duties in the US almost instantly. Already on the day after Trump signed a decree on their introduction, Deputy Minister of Economic Development Natalia Mykolska stated that the Ukrainian government was taking all measures to ensure that products from Ukraine were excluded from the protection measures introduced by the US. She wrote that the government is in constant dialogue with the US government and works with the Ukrainian producers.
March 12, Ministry of Economic Development and Trade of Ukraine hosted a closed meeting with the participation of First Deputy Prime Minister, Minister of Economic Development Stepan Kubiv and representatives of the metallurgical industry, dedicated to the need to make allowances for Ukrainian metal products. The Ministry of Economic Development and Trade refused to give details about the proposals of the Ukrainian side in the press service.
"Over the past two weeks, the Ministry of Economy hosted two meetings with the participation of Deputy Prime Minister and Minister of Economic Development Stepan Kubiv and Deputy Minister of Economic Development Natalia Mykolska, who joined the process in a timely manner,” told Olexander Kalenkov, who also took part in the meetings.
The president of the association of enterprises "Ukrmetallurgprom" did not disclose the details of the discussion and what concessions Ukraine was ready to go for the cancellation of duties. "The process is underway, there will be bilateral meetings, but I do not want to go ahead and comment on it, I can only repeat some theses voiced by Stepan Kubiv: we are partners with the US, we are interested in the safe economic development of the US, especially as Ukraine's share in the metal products market so insignificant that we cannot seriously affect the situation, let alone damage to the American metallurgical companies. If we take the balance between the export of Ukrainian products to the US and the import of American products in Ukraine, the balance will be in favor of the US. We buy more than we sell. If we separately consider the products of the mining and metallurgical complex, including coking coal, then this imbalance is in favor of the US. Therefore, the fewer restrictive measures, the more opportunities we have," said Kalenkov, adding that the likelihood of Ukraine's positive solution to this dispute is not very high.
The introduction of duties on steel and aluminum also did not affect Canada and Mexico, which were recognized as a "special case". At the same time, the message of the White House on the introduction of duties also said that the US president is open to discussions with representatives of other countries. In addition, he reserves the right to change tariffs for other countries with which, in particular, alternative ways of solving the threat of the American metallurgical industry will be found.
The chances of Ukraine to achieve release from the US experts are assessed as low. "I do not think that Ukraine can count on concessions or release from the US, until at least one reform, mainly anti-corruption is successful," Ryabtsev said.
The trouble is also that Ukraine has nothing to offer Trump, experts say. "The Ukrainian market is not the biggest and not the most significant for the US, so in the case of Ukraine, it will most likely refer to some things that are important for the American business operating in the country," says Ryabchenko, director of the Institute for Economic Security.
Ryabtsev agrees with him: "The US has never viewed Ukraine as a promising market, especially a market for products. The country has nothing to sacrifice for the abolition of duties for steel. The only thing the US can demand is speeding up reforms and tightening in a fight against corruption."