Tariffs vs Quotas: Which is Better to Import Steel Products?

Since the federal government imposed tariffs on steel products imported from Canada, we’ve had quite a few people ask us what we think of the policy, the impact it has on the American steel industry, and if it affects our ability to bring you abrasion resistant steel and other products whose raw materials come from across the border.

Obama-Era Tariffs

To understand what these new tariffs mean, we need to understand the tariffs that were already in place. In November 2016, at the end of the Obama term, the US Commerce department imposed a series of “Anti-Dumping” duties on a number of countries who were deemed to be dumping steel and aluminum into the US. These duties ranged from 54% for Austria, 69% for China, 51% for France, 21% for Germany, and 15% for Japan. These duties were both company and country specific. For example, a steel company in France was singled out and hit with 159% on all its steel while the rest of France’s steel industry was hit with 51%.

While these tariffs were well-meaning, the Commerce department had made the mistake of looking at it from the perspective of the politicians, and not the steelworkers. Rather than protecting the local economy, the tariffs cost a lot of American workers their jobs.

Most of the steel coming from Europe and Japan is specialty high alloy steel that is not made in the US, such as that used in wear-resistant materials. For example, some of these steels are used to make tooling and dies which are used to make parts which go into automobiles, machinery, appliances, and a number of other American-made products. With these duties, the tool and die makers have to pay upwards of 50% more for these specialty steels, which are not available in the US. Consequently, many of the OEM’s and end users moved all their tool and die business to Canada and Mexico—nearby countries who do not have any duties on these specialty steels.

Many tool and tool makers in the US are closing down while Canadian makers cannot keep up.

The Trump Tariffs

In May 2018, President Trump and the Commerce department decided to impose even more duties on steel (25%) and aluminum (10%), on top of the duties mentioned above on its closest allies: Canada, Mexico, and Europe. He could never have gotten these tariffs passed by Congress, so he found an obscure law from the 1950’s that allowed him to impose duties if he said there was a “risk to National Security”. Canada and Europe are imposing countervailing duties, which could very quickly spiral into a trade war that hurts both countries.

The big losers, however, are the US consumer. These tariffs are paid not by the foreign producers or manufacturers, but by the company buying the steel when it enters the country. The Trump tariffs drive their costs up by 25%–which is passed along to the consumer.

Most important US jobs are lost because competing imported “FINISHED” products made in China, Asia, Europe or Canada are not taxed, have zero duty when imported into the US, and will now sell for less in the US than the US made products (which have to factor in a 25% increase in its cost of steel or aluminum).

So, for example, stainless steel Beer Barrels (a product made using specialty stainless steel) is not produced in the US. Consequently, US manufactures will have to pay a 25% duty on this steel. On the other hand, Chinese-made Beer Barrels are entering the US duty free.

Is There an Answer?

A much better method for any country to balance its trade, level the playing field, and encourage local industry and build jobs is to impose quotas on individual countries and specific products, not tariffs. A quota limits the amount of material that countries ship in, making sure that foreign steel does not flood the US market to devalue American-produced steel, without increasing the prices for the consumer or forcing factories that employ thousands of Americans to shutter their doors.

What’s more, with a quota system in place and tariffs no longer forcing companies out of the country, domestic steel will become more valuable as the growth will increase demand that is not filled by the quotas.

How Can I Help?

We still live in a democracy—a government of the people, by the people, and for the people. We encourage everyone who these tariffs will impact to write to their Congressman asking that they look into replacing these tariffs—both Obama-era and the new Trump ones—with a quota system that doesn’t hurt American manufacturing.

Have Your Services Changed?

While the cost of raw materials for abrasion resistant and wear resistant steel products have changed due to the tariffs, we still provide a full range of specialty steel products. To learn how these tariffs will impact your project, please contact us today.