Biden presidency likely brings steel tariff tweaks

Protectionist Section 232 tariffs on imported steel — one of the hallmarks of US trade policy under President Donald Trump — appear likely to be adjusted, but not eliminated, under US president-elect Joe Biden.

The tariffs, which took effect in March 2018 and subsequently were adjusted for a handful of countries, have hampered global access to the US market as the 25pc tariff made most steel imports uncompetitive with domestic steel.

That may change under the Biden administration, which could use the tariffs as a bargaining chip, particularly with the EU, which has had a rocky relationship with Trump through his four years in office, according to analysts. Relaxing the tariffs on Europe could quickly regain allies for Biden as he seeks to face down an ever more aggressive China.

Traditional allies like Canada and Mexico eventually negotiated their way out of the 232 tariffs, but the threat of reimposition of the penalties on steel imports from both countries has remained. The EU and Japan have yet to be given broad relief.

"I think, candidly, that Europe thinks about China the same way we do … but they found it hard to work with Trump," said Phil Gibbs, an equity research analyst at KeyBanc Capital Markets.

Prior to Trump imposing the 232 tariffs, Europe exported 10.2mn metric tons (t) of steel to the US in 2017, 30pc of total imports for the year, according to data from the US Department of Commerce. Nearly half of that amount came from EU countries.

By 2019, European exports to the US plunged to 5.7mn t, with the EU making up the majority of European exports while its own totals fell by 18pc year-over-year to 4.1mn t. Total steel exports to the US in 2019 fell by 17pc year-over-year to 25.3mn t.

A Biden administration will face unique challenges dealing with Europe, with the UK moving to split from the EU and the Trump administration currently in a tit-for-tat fight over European subsidies given to airplane manufacturer Airbus, with Europe imposing tariffs on the US' Boeing.

"You do not want to have a rapprochement with the European Union that is going to mess things up with the UK," international trade lawyer Lewis Leibowitz said. "So you have got to clear all that. I am skeptical that there are going to be any immediate breakthroughs, but as far as Boeing and Airbus is concerned I think it may be time for a little cease fire and I think that will be one of the first steps we'll see."

Biden himself ran on a platform emphasizing "Made in America" policies, saying that he would want taxpayer dollars to buy American products and create new manufacturing and jobs in the country.

The closeness of the presidential election — with Biden with 50.8pc of the vote so far — could mean that he and his vice president-elect Kamala Harris will push some form of protectionist policies that could help US steelmakers, according to Cowen analyst Tyler Kenyon.

"I think that Biden and Harris will be hell bent on supporting some level of protectionism and providing some support for the steel industry and metal intensive industries themselves," Kenyon said.

The presidential transition comes as US steel prices rally as global ferrous prices surge. Argus assessed domestic hot-rolled coil (HRC) at $710/st ex-works Midwest on 10 November, the highest since March 2019. Prices have risen by $260/st since bottoming out in August in delayed reaction to automotive and manufacturing shutdowns related to Covid-19.

But under a Biden administration, the principles that the 232 tariffs stand on — that US national security is threatened by unfettered steel imports — could be less of a priority, according to Leibowitz.

"For steelmakers I think it has created more (uncertainty) because the first principles in which the tariffs rely are now open to question," Leibowitz said. "For steel users, I think it creates some hope, and we'll see how much that energy gets them. I think Biden is less inclined to pick winners and losers than Trump is."

US steel market participants generally believe Biden will have a chance to pass some version of an infrastructure bill, and could come to an additional stimulus agreement with Congress to help Americans struggling with the economic fallout from the Covid-19 pandemic. Either of those could help boost steel demand by encouraging additional spending and steel usage that otherwise may not have occurred.

Few expect major changes toward steel trade policy with China, which has faced antidumping and countervailing duties from the US government of steel imported from the country. At the very least, the temperature of relations with the global superpower should cool down somewhat.

By Rye Druzin