“Blips on the Radar” (Part 1)

The U.S. President has just exercised his prerogative to unilaterally levy tariffs on imports of Canadian, Mexican and EU steel and aluminum. Justification is based on Section 232 of the U.S. Trade Expansion Act of 1962 which gives the President such power when “…. an article is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security”.

Let’s look at aluminum. U.S. production capacity is roughly 850,000 metric tonnes/year while it consumed around 5,980,000 tonnes in 2017. Aluminum smelters, rolling mills and related infrastructure take years to build so domestic production cannot cover the 5,000,000+ tonne annual supply shortfall anytime soon. Canada provides over 36% of current demand but as Canada is now officially a ‘threat’, the U.S. administration must look elsewhere. Its second-largest supplier is China with a 15.1% share of imports. China certainly does have the capacity to replace Canadian aluminum supplies. But that would result in China supplying over 50% of U.S. imports of this strategic metal, and isn’t the entire argument for tariffs based on national security concerns?

Who’s next? Russia, with about 7% share of U.S. imports? Better move on. Next up is the United Arab Emirates with a 6.5% market share followed by Mexico (4.3%). But the former has a capacity problem (could they scale production by around 600% overnight?) and the latter has both a capacity issue and is also deemed a threat to U.S. national security.

This suggests the tariffs have nothing to do with national security. They have everything to do with (1) retaining key districts in Ohio, Pennsylvania and Wisconsin in November’s mid-term elections and (2) adding additional bullets for the guns at the heads of Mexico and Canada in NAFTA negotiations that have not yet yielded a ‘tweet – win’.

©2020 by Centre for Global Enterprise

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