Daily Management Review

The US lifts restrictions on steel and aluminum supply from Canada and Mexico, wants to renew the USMCA


05/20/2019


The United States abolished protective duties on imports of steel and aluminum from Canada and Mexico, thus removing the main obstacle to ratifying the renewed USMCA free trade agreement in North America. Also the US Ministry of Trade on Friday reported that the decision on duties on the import of cars and parts will be postponed for six months. If implemented, it would entail trade conflicts not only with China, but also with Japan and the European Union countries, experts say.



U.S. Department of State
U.S. Department of State
The US administration has removed protective barriers to the import of steel and aluminum from Canada and Mexico, Donald Trump said last Friday. In accordance with the agreements, Canada and Mexico will also cancel the retaliatory duties. In a joint statement, the parties indicated that they would prevent "the entry of cheap steel into the North American market." At the same time, the protective duties on steel imports from Turkey were reduced by half, from 50% to 25%, but the preferential regime for the country was no longer valid (it was previously associated with the status of a developing economy).

At the same time, on Friday, the White House postponed introduction of import duties on cars for six months (deadline was on Saturday). Increasing tariffs would be detrimental, first of all, to manufacturers in Japan and the European Union. The administration’s message also notes that “if agreements are not reached during this period, President will decide whether any actions will be taken and what they will be”. Previously, the Ministry of Trade of the country came to the conclusion that, as in the case of metals, the basis for increasing duties on cars could be the provision for the protection of national security - the share of American automakers in the market decreased from 67% in 1985 to 22% in 2017. This figure, however, does not coincide with industry data, according to which the share is more than 44.5%). In 2018, total imports of cars amounted to $ 192 billion, spare parts to another $ 159 billion.

Recall, duties on steel at a rate of 25% and aluminum at a rate of 10% were introduced by the United States in March 2018, but they were extended to Mexico and Canada in early June, although negotiations on the revision of the NAFTA conditions continued. The duties affected imports from Canada by $ 12.8 billion, from Mexico - by more than $ 2.9 billion. As a result, both countries increased the duties on similar volumes of supplies. In early October, three countries announced the successful completion of negotiations on an alternative to NAFTA - the Free Trade Agreement in North America - USMCA (the United States — Mexico — Canada Agreement); the parties signed the document on December 2.

The main requirement was to increase the share of automotive products produced in the region from 62.5% to 75%. In addition, the two countries have agreed that at least 45% of the parts must be made by workers whose remuneration is at least $ 16 per hour. The Peterson Institute of International Economics previously noted that such requirements will de facto give an advantage to suppliers from third countries who are currently subject to an import tariff of just 2.5% without any requirement for a share of product localization. The USMCA also still requires approval of the parliaments of all three countries, which was impossible under the conditions of the duties. Now the deal is likely to receive the support of the majority in the US Congress.

In the context of the trade conflict with China, "increasing car duties would also mean a conflict with the EU and Japan," ING Bank says. The United States is seeking to expand access for export of agricultural products, but the EU is not ready to make concessions, the bank explained, noting that this does not exclude a scenario of a possible increase in car duties in the future.

source: reuters.com, bloomberg.com






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