Months after the Trump administration announced it would be implementing a 25 percent steel import tariff under Section 232, rumblings that the tariff may be replaced with a global steel import quota are beginning to make their way through the marketplace.
As of the time of publication, SteelOrbis has received information from multiple credible steel industry sources indicating they’ve heard that government officials are considering this shift in policy.
Sources in Washington DC, however, have not been able to confirm or deny that such a move is pending.
USA-Mexico-Canada trade negotiations might be a clue
In early-October, the Trump administration announced that a new trade deal had been reached with Canada and Mexico, and while the agreement, known as the USMCA, has not addressed Section 232 tariffs, Donald Trump has been quoted that steel and aluminum tariffs would remain in place until they “can do something like quotas, perhaps.”
Brazilian, Argentinian and South Korean mills have already agreed to limit steel exports to the US as a means of avoiding Section 232 tariffs.
A move toward quotas “seems to make sense”
One Washington DC source questioned by SteelOrbis said that while they could not confirm or deny the Trump administration was considering such a move, they suggested a late-August article by Reuters might provide insight, adding the article “has the heart of what many in this administration and steel industry believe to be the direction.”
In the article, Reuters notes that the Trump administration has made rebuilding the US basic metals industries a key promise to voters, and views trade barriers as a tool to achieve that.
One metals industry source quoted in the article noted that “to make sure this is effective, you need to have a tariff or a quota. South Korea is an example of how the administration is approaching this. That’s our expectation.”
Overall domestic steel production, however, has only climbed by a mere 1.5 percent since the Section 232 tariffs were announced. In early March, the American Iron and Steel Institute (AISI) reported that domestic capacity utilization was 78.7 percent. Today, AISI reported capacity utilization is at 80.2 percent.
Steel industry experts chime in
Sources who have heard talk about quotas say they’ve received the information from varying sources, including traders, friends in Washington DC and steel industry executives. One discussed hearing about at least one major US steelmaker pushing for the policy shift.
Others say that while they had not yet heard talk about replacing tariffs for quotas, they would “not at all be surprised” if this is what the administration wanted.
“[Moving toward global quotas] makes sense since Section 232 is predicated on national security concerns, which would eventually be unjustified with the rebounding domestic steel industry,” a source said.
Other sources across the steel product spectrum agree.
“As long as domestic production doesn’t meet demand, the tariffs will never curb imports, as many customers buy purely on demand and shortage of supply rather than price—a quota would curb that,” said one distributor source, agreeing that if quotas were implemented, domestic mills would have to increase production to keep supply and price levels stable.
Whether domestic mills can meet this demand has yet to be determined.
“They are running at about 80 percent right now which is the max for most mills when you consider maintenance shutdowns and holidays,” the source continued.
Another source expressed widespread concern that global quotas could become the new rule.
"If this happens, slab converters will be caught between a rock and hard place. If a quota system is put in place and quotas are 70 percent like Brazil’s is, they could run into a situation where if the quotas are met, they’ll have nothing to roll for 30-35 days,” the source said.
“If quotas are implemented, all of the slab converters would place massive orders, and when the last ship comes in and the quotas have met, everyone is going to be stuck.With tariffs, at least they can pay the tariff and get their steel. If the Trump administration implements hard quotas, it’s going to cause a lot of problems. If they implement a yearly quota, things could be even worse, because buyers industry wide could be sitting 1-2 months without their steel.”
Another source also expressed concerned over a yearly quota, adding that should quotas happen, it would make more sense to implement monthly quotas instead of annual quotas in order to prevent a supply shortage at the end of the year.
However, the source agreed with SteelOrbis’ assessment that US mills are likely to prefer annual quotas, allowing them to increase prices when import supplies start to dwindle.
Whether the DOC decides to implement monthly or annual quotas, or instead maintain tariffs for most sources of import steel to the US, the decision could come “at any time,” sources agree, deepening the uncertainty that has prevailed over the market for most of the year.