U.S. President Donald Trump has signed an executive order calling for fresh tariffs on steel and aluminum imports. The new tariff rule is expected to weigh heavily on South Korean steel exports to the U.S. Today, we’ll discuss how to deal with the Trump administration’s growing protectionist policies. Here is Dr. Je Hyun-jeong from the Center for Trade Studies and Cooperation at the Korea International Trade Association to analyze what the U.S.’ new tariff policy is all about.
The U.S. decided to impose a 25 percent tariff on steel and 10 percent tariff on aluminum imports. Mexico and Canada were the only countries to be exempted from the new tariffs, and the other steel exporters to the U.S. are pretty upset about the regulation. The U.S. made an exception for Mexico and Canada, as negotiations are ongoing on the North American Free Trade Agreement, or NAFTA, with the U.S. Apparently, the U.S. wants to end the negotiations to amend NAFTA within this month and gain what it wants from it by not applying the tariff rule to those two countries. On the other hand, the U.S. is not in a rush for the negotiations to revise a free trade agreement with South Korea, which was not exempted from the new rule.
On March 1, President Trump announced a plan to impose tariffs on steel and aluminum imports. A week later, as expected, he signed proclamations calling for restricting those imports. Based on Section 232 of the Trade Expansion Act, the stiff tariffs will apply to all countries, except Mexico and Canada, with negotiations on NAFTA currently underway. Section 232 allows emergency trade sanctions on “national security” grounds. South Korea had actually requested that the U.S. exempt it from the new steel tariff, in consideration of the ongoing negotiations to revise the Korea-U.S. FTA and their bilateral alliance. Unfortunately, the South Korean government’s efforts didn’t turn out well, and the tariff regulation will inevitably cause damage to the Korean steel industry.
A 25 percent tariff is considered quite steep. On a more pessimistic note, the U.S. has already been imposing anti-dumping and countervailing duties on Korean steel products, which will now be subject to an additional 25 percent tariff. The move will certainly come as a huge burden to Korean steelmakers.
Last year, South Korean exports of steel products to the U.S. amounted to 3.54 million tons worth 3.2 billion US dollars. When a 25 percent tariff is imposed, however, South Korean steel exports are expected to decrease by about 880 million dollars annually, as a one percent rise in steel prices is estimated to reduce Korean steel exports to the U.S. by 1.42 percent. The U.S. has already imposed anti-dumping and countervailing tariffs on 88 percent of South Korean steel products. When the new tariff is implemented, South Korean steel exports to the U.S., which already fell a whopping 38 percent in 2017 from three years earlier, will face even more difficulties. But there is still room for further negotiations.
The new tariffs go into effect in 15 days after signing, so they will take effect starting from March 23. But Trump said that his country is willing to negotiate with countries that share security concerns with the U.S. on a possible exemption before the duty implementation, so there is a possibility that exemptions could be given to more countries, including Korea. The Korean government should optimize its negotiation ability and companies need to make their own preparations during the period. In fact, the trade action is affected by the U.S. president’s decision. So, even if Korea is not given the exemptions, the government will have to continue its outreach efforts so it could get an exemption even after the period, or at least some Korean steel products might be excluded from the high tariffs.
Trump said that he would negotiate with countries hoping to be exempted from the new tariff measure, before it comes into effect. The U.S. granted Australia an exemption on March 9, a day after Trump signed the tariff measure, citing that the country poses no threat to U.S security. With the possibility of an exemption in mind, South Korean trade authorities will once again stress that Korean companies’ investment in the U.S. can contribute to the American economy and that Korean steel exports do not affect the U.S.’ security and economy negatively. In a meeting with officials from Korean steelmakers on March 9, the government said that it would consult with the U.S. to discuss tariff exemptions or reductions. It will also consider filing a complaint with the World Trade Organization, or WTO, through international cooperation. Other countries affected by the move are also seeking ways to cope with the situation properly. But if the negotiations do not proceed smoothly, the U.S.’ trade actions might send shockwaves throughout the global economy.
When Trump announced the plan for the new tariff regulation, not signing it yet, the European Union and China mentioned retaliation and even said that a trade war has begun. Apparently being conscious of that, Trump left room for further negotiations over exemptions for more countries. But we still have to watch the responses from the nations that are subject to the new action. There might be some changes in the global economy, depending on how flexibly the new measure will be taken.
In response to Trump’s decision to impose hefty tariffs on steel and aluminum imports, the EU and China warned of reciprocal action. On March 7, the European Commission said that it would impose retaliatory duties on American products. On a similar note, China showed its determination to lead the counteraction of WTO members affected by the new U.S. tariff policy. What worries us is the ripple effect of the global trade row. If major economies raise a tariff barrier against the U.S., Korea’s exports will be hit hard. China accounts for 24.8 percent of Korea’s total exports, while the U.S. and the EU make up 12 percent and 9.4 percent, respectively. The three major economies take up nearly half of South Korea’s total outbound shipments. If the U.S.’ new trade action ignites a tariff war among them, the amount of global trade will decrease, dealing a blow to Korean exporters overall. That’s why Korea needs to view the trade issue from a broader perspective, not just asking the U.S. to exclude South Korean steelmakers from the new tariff measure.
The U.S. has been intensifying trade protectionism since last year. The trend will likely continue, as mid-term elections will take place in the U.S. this year. South Korea needs to closely monitor its exports to the U.S. as well as American companies’ move to file a complaint against Korean firms.
For now, South Korea has to deal with American tariffs on steel imports. But the U.S. will certainly continue to strengthen its trade pressure against Korea. The new tariff action came about a month after the U.S. introduced safeguard measures against South Korean washing machines and solar panels in January. South Korea needs to work with the international community to develop practical measures to tackle Washington’s growing trade protectionism effectively and also sharpen the global competitive edge of the local steel industry.