uploads/2019/05/part-2-24-1.png

Steel Tariff Exemptions: Will Safeguards Be Enough?

By

Updated

Section 232 exemptions

Last week, the Trump administration announced Section 232 exemptions for steel and aluminum imports from Canada and Mexico. The exemption was long expected, as both Canada and Mexico were adamant about their demand for an exemption, and had apparently linked it to USMCA. A lack of quota could be seen as a victory for Canada and Mexico, as the Trump administration was trying to push for a quota for Section 232 exemption.

Article continues below advertisement

Canada and Mexico

Canada and Mexico are the top two steel exporters to the United States and together accounted for a little over 26% of total US steel imports in the first quarter. After a complete exemption for Canada and Mexico, steel imports rise from these countries. The argument looks particularly strong given the fact that US steel prices are still quite high as compared to global steel prices. The spreads between US and international steel prices are the key driver of US steel imports.

Safeguards

To be sure, the United States has tried to incorporate some safeguard measures while granting Section 232 exemptions for Canada and Mexico. The joint statement has talked about measures to prevent transshipments and monitor any surge in imports after the exemption. While these measures look positive, steel imports from Canada and Mexico could still rise.

The year started on a positive note for steel stocks, but they have come under pressure in the second quarter. U.S. Steel (X), AK Steel (AKS), and Nucor (NUE) have lost 24.9%, 14.2%, and 8.7%, respectively, in the second quarter. Cleveland-Cliffs (CLF) is almost flat for the quarter.

Advertisement

More From Market Realist