WASHINGTON—President Donald Trump announced on Dec. 2 renewed steel and aluminum tariffs on Brazil and Argentina, a measure aimed to defend U.S. producers and workers.
The recent devaluation of the Brazilian and Argentine currencies prompted him to take action, the president said.
Brazil’s real dropped to an all-time low against the U.S. dollar last week; since July, it’s been devalued by more than 10 percent.
Argentina’s economic crisis significantly weakened the value of the country’s currency. The Argentine peso has lost half of its value against the dollar since August 2018.
Brazil accounted for the largest share of U.S. imports of steel this year, followed by Canada and Mexico, according to the U.S. Department of Commerce.
The import volume from Brazil increased by about 50 percent in the first six months of this year compared to the same period last year. However, the volume of U.S. imports from other top sources such as Russia, Canada, and Mexico have dropped significantly.
“Brazil has been stepping in and taking advantage of the decline of imports from other countries,” said Robert Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute, a nonpartisan think tank.
Both Brazil and Argentina were exempted from 25 percent steel and 10 percent aluminum tariffs last year. And deepening bilateral relations benefited both countries, particularly Brazil.
This year through September, Scott said that the “total imports are down about 3.3 million tons and yet, imports from Brazil are up about 3.4 million tons. So they really have had a significant impact on total steel imports.”
However, Argentina isn’t a large source of metals for the United States and hence, the tariffs won’t have a significant impact on the country’s economy. It accounted for less than 1 percent of total imports this year through September, Scott said.
The tariffs are an “effective strategy,” particularly when industries are hurt by unfair trade practices and excess capacity, according to Scott.
Countries such as China, Brazil, India, South Korea, and Japan have been illegally subsidizing their industries and producing far more metal than global demand. The excess capacity in steel and aluminum has become a chronic problem for decades and created a destructive ripple effect on U.S. producers and workers.
‘Lower Rates & Loosen’
Trump announced his decision to restore the metals tariffs on imports from Brazil and Argentina with an early morning tweet.
“Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers,” Trump wrote.
“Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries,” he added.
Trump also called on the U.S. central bank to lower interest rates to tackle currency manipulations by other countries.
“The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods. Lower Rates & Loosen – Fed!”
Trump has been implementing or threatening tariffs against a number of countries in an attempt he describes as rebalancing an unfair global trade imbalance.
Trump has repeatedly said that other countries have been unfairly exploiting the United States for years and the tariffs are a way to combat that.
“It’s a political decision,” Scott said.
“He uses tariffs as central to his strategy,” he said, adding that through tariffs, Trump wants to preserve his electoral standing in states, particularly in the upper Midwest, where there has been intensive production of steel and aluminum.
Brazil Responds to Tariffs
In response to Trump’s tweet, Brazil President Jair Bolsonaro said on Dec. 2 he had an “open channel” to discuss tariffs with Trump.
He told reporters that he would discuss Trump’s decision first with Economy Minister Paulo Guedes.
“I’ll talk to Paulo Guedes now. If it’s the case, I talk to Trump, I have an open channel with him,” he said.
When the tariffs on steel and aluminum were first announced in March 2018, the Trump administration exempted several countries, including Brazil and Argentina. The administration reached an agreement with both countries to cap their metal shipments to the United States under a quota system.
“On mid-2018, Brazil and Argentina were able to negotiate a quota to their steel exports that exempts both countries from the 25 percent import tariff,” a Goldman Sachs report stated. “It is not clear if this measure would represent a reduction/removal of this quota or another further measure.”
“The news is marginally favorable for U.S. steelmakers and marginally negative for Brazil,” a Citi report said.
According to Citi, the main impact is on the slab (a semi-finished steel product) market, as the United States represented 55 percent of Brazil’s slab production.
Zachary Stieber contributed to this report
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Author: Emel Akan