The international trade community and raw metal supply chain were shaken up last May when President Donald Trump used Section 232 of the Trade Expansion Act to enact steep tariffs on imported steel and aluminum — 25% and 10%, respectively.
While most of the uproar has come from the leaders of Canada, China, the European Union (EU), Mexico, and others, many American business owners have expressed their own concerns about the possible effects of these tariffs on their companies.
The main issue is material availability; some forms of aluminum and steel are scarce or not manufactured in the U.S., but are readily available in other countries. Forcing companies that rely on these specific types of metals to comply with these tariffs could seriously disrupt businesses’ ability to produce and sell their products.
With the rising costs of domestic aluminum and steel, many manufacturers will end up spending more than in previous years, no matter where they source their metals. This puts significant financial strain on these companies and, ironically, negates any benefits the tariffs were originally intended to produce.
While many companies have already formulated contingency plans to tolerate and manage worst-case scenarios, there is growing apprehension concerning the future of American economic stability and growth.
Understanding the Tariff Exemption Application Process
To protect against major financial fallout and alleviate increasing anxieties, the U.S. Department of Commerce created a process in which American companies can request exclusions from the tariffs.
The department officially announced this procedural application in mid-March, with Secretary of Commerce Wilbur Ross saying that the process would assist the Trump administration in “taking a balanced approach that accounts for the needs of downstream industries while also recognizing the threatened impairment of our national security caused by imports.”
On March 18, the application for steel tariff exemption and the application for aluminum tariff exemption were posted on the Bureau of Industry and Security’s website — it didn’t take long before the applications started pouring in.
A month later, more than 1,200 applications had already been submitted. General Counsel to the American Iron and Steel Institute (AISI) Kevin Dempsey said, “A tsunami is coming,” adding that he anticipated “several thousand exclusion requests” would end up being filed.
Since then, over 55,000 applications have been submitted for review, dwarfing Dempsey’s prediction.
In addition to the applications, the Department of Commerce also reviews objections to proposals, which have been submitted by domestic steel and aluminum manufacturing companies.
The tariff exclusion application features a highly detailed questionnaire designed to generate a comprehensive description of a requesting company’s need for offshore steel. Businesses must meticulously describe the specific types and configurations of metals needed, why their work depends on the use of these exact materials, and why the company is unable to use materials produced by domestic mills.
Questions Arise Over Efficacy of the Tariff Exemption Process
With the volume of applications was much higher than anticipated, some analysts have questioned whether the Department of Commerce was truly prepared to handle a project of this magnitude.
According to The Washington Examiner, 48,602 steel and 6,504 aluminum tariff exclusion applications had been submitted as of November 12th. Initially, the department was forced to cobble together a last-minute team of approximately 30 evaluators in order to handle the influx of applications. However, the number of evaluators has now jumped to about 100.
At the time of this article’s publication, only 12,356 steel and 830 aluminum requests had been approved. The first companies receive tariff waivers were Hankev International, Inc., Zapp Precision Wire, U.S. Leakless, Inc., Woodings Industrial Corp., PolyVision Corp., and Schick Manufacturing, Inc.
Conflict Between Manufacturers and Domestic Metal Manufacturers
While there are a handful of companies who have been granted exemptions, many are displeased about being rejected and some have even expressed that they feel the process seems arbitrary and unfair.
For example, the U.S. division of Turkish pipe manufacturer Borusan Mannessmann was recently denied a temporary exemption from the steel tariffs.
The application proposed that the company be granted two years of exemption in order to construct a $75 million facility in Baytown, Texas; after completion of the facility, the company planned on only using U.S. steel.
The rejected application was a big hit to Borusan, who considered their request similar to an application submitted by energy company Chevron, which was approved by the Department of Commerce.
According to Reuters, Borusan’s exemption request was denied because several US steel producers argued against it, saying that Borusan’s required products could be supplied by domestic steel manufacturers.
Questions Arise Over Fairness and Transparency of the Tariff Exemption Process
Although the exemptions are intended to relieve much of the pressure currently felt by various industrial companies, many analysts, experts, and business owners are deeply concerned that the exemption process itself may have adverse effects on manufacturers.
The process of applying for exemption and getting approval is yet another layer of red tape being added to an already highly complex, multitier bureaucratic system — and this may ultimately lead to increased complications and disruptions to production, shipping, and other facets of industrial business.
As for companies whose exemption requests have been denied, many of these businesses fear that a rejected application could induce a severe domino effect, resulting in shrunken budgets, raised product prices, customer loss, layoffs, and possibly bankruptcy.
Some lawmakers have even called into question the fairness of the process; in November, Republican senator Pat Toomey of Pennsylvania reached across the aisle to team up with two centrist Democrat senators, Doug Jones of Alabama and Tom Carper of Delaware, to request the process be reviewed by the Government Accountability Office.
Pennsylvania and Alabama manufacturers have been hit particularly hard by a combination of the metal tariffs and the retaliatory tariffs imposed by China, as well as allies such as Mexico, the European Union, and Canada.
According to the US Chamber of Commerce, the escalating trade war has rendered approximately $4.1 billion worth of Pennsylvania’s and $4.4 billion worth of Alabama’s exports vulnerable.
The Road Ahead
Slowly but surely, the Department of Commerce is combing through the mountain of applications, though it remains difficult to predict exactly how things will play out.
Many industries have been impacted, as well as consumers. The retaliatory tariffs, which are temporarily on pause, have also contributed significantly to anxieties for a wide variety of industries, ranging from motorcycle manufacturers to almond farmers.
For now, experts and analysts continue to monitor the situation and its related issues.
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