The widely-publicized trade war with China, in which some imports are being slapped with tariffs of 25 percent, has grabbed the headlines.
The Tariff End-Run!
Yet when trade war tariffs are imposed on countries, those countries don’t just sit around and take it. Either they slap tariffs on US imports or they attempt to circumvent the rules.
The best way to circumvent the rules is to ship items to a country that is not subject to tariffs, do some fig-leaf cosmetic “processing” to those items, and ship them to the US.
That is what is going on with steel shipments from Korea and Taiwan. They are being routed through Vietnam before being shipped to the US, and Donald Trump and The Commerce Department aren’t having any of it.
The Commerce Department responded by slapping tariffs as high as 456.23 percent on those imports.
Cue exploding heads.
Commerce Department Goes Draconian
The Commerce Department issued a press release saying:
“Commerce will instruct Customs and Border Protection to begin collecting cash deposits on imports of corrosion-resistant steel products and cold-rolled steel produced in Vietnam using Korean- or Taiwanese-origin substrate… U.S. law provides that Commerce may find circumvention of antidumping duty (AD) or countervailing duty (CVD) orders when merchandise that is the same class or kind as merchandise subject to existing orders is completed or assembled in a third country prior to importation into the United States.”
What tipped off the US? Shipments of corrosion-resistant steel from Vietnam increased more than four-fold from $220 million to $950 million. That alone would be enough, but then cold-rolled steel shipments increased by a factor of ten from $49 million to $498 million.
The major US steel companies that ordered this steel are probably shuffling their feet right about now. They include Steel Dynamics, Inc., California Steel Industries, AK Steel Corporation, ArcelorMittal USA LLC, Nucor Corporation, and United States Steel Corporation.
Donald Trump’s Clear Trade Message
The message being sent by Donald Trump is as clear as can be. He wants trade balance. He wants China and other countries to level the playing field.
Donald Trump has been roundly criticized for the trade war, as it threatens to harm numerous industries and the economy in the short-term. Yet Donald Trump has always been a long-term strategist. He believes he can win this fight and improve trade conditions.
It’s also a lesson in geopolitics, where crosscurrents and multiple moving parts make it difficult to assess how these same geopolitical issues will affect the markets in the near-term.
South Korea, where much of the steel is coming from, is an ally of the United States. The stakes are also high because Donald Trump is trying to get North Korea to end its nuclear programs and enter the 21stcentury. It shows that Donald Trump or any leader cannot look at any one issue in a vacuum.