Tariffs are taxes, which distort investment and limit growth. And like taxes, when tariffs are high they create a political incentive for exemptions and favoritism. Behold the Commerce Department’s new and tortuous process for reviewing exemptions to steel and aluminum tariffs. This is everything Republicans typically claim to hate.
First, companies must submit a request attesting that their imports aren’t made in the U.S. in “a satisfactory quality” or “sufficient and reasonably available amount.” Companies must state the uses for their steel product, their average annual consumption of the product, as well as the number of days required to take delivery, manufacture and ship the product. They must also estimate the maximum and minimum composition of 24 chemical elements in their products including molybdenum, antimony and vanadium. There are dozens of other queries, but we’ll spare you.
Oh, and a separate request is required for each width, length, grade shape, and form of steel or aluminum product. A single company, Primrose Alloys, has submitted more than 1,200 steel product requests, according to Commerce’s database. All 14 that have been reviewed so far were denied.
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Businesses may also submit statements to support their requests, which naturally turn political. California Steel Industries writes that “our workforce is made up of about 50 percent minorities and 20 percent U.S. veterans. We pay excellent wages and benefits (annual average above $100,000), plus profit-sharing that has averaged more than $7,000 annually over the past five years. We offer outstanding benefits, including an onsite Family Health Center staffed with excellent doctors and nurses.” Is it trying to recruit employees or persuade the bureaucracy?
, the largest vegetable canner in the U.S., highlights that it contracts with 2,000 agriculture producers and its primary facility is in Baraboo, Wisconsin—i.e., a swing state that voted for Mr. Trump. Seneca, like many U.S. steel consumers, has complained about the inferior quality of domestic supplies. Its customer product rejection rate for domestic suppliers was 32 times higher than for imports. Auto-parts maker O&K American says its reject rate for Japanese steel is 0.001% compared to 0.174% for U.S. supplies.
Product quality can be a matter of life-or-death.
the world’s largest manufacturer of seat-belt and air-bag components, notes that it requires a particular type of tubing involving “a specialized quenching and tempering operation to yield the desired [sic] microstructure” that ensures its pressure vessel “will work for 25 years under a variety of temperatures and humidity conditions.”
Once exemption requests are filed, they are subject to a 30-comment period so U.S. steel and aluminum suppliers can object. Commerce had to provide a crash-course for four dozen or so workers tasked with reviewing the more than 21,000 requests. Many have no expertise in metals, so they rely on the not-unbiased counsel of domestic suppliers.
Commerce has granted more than 1,300 steel exemptions—about twice as many as it has rejected—but it has yet to approve a request challenged by
AK Steel Holding
, which have the ear of Commerce Secretary
and U.S. Trade Representative
Domestic steel manufacturers say that they have the capacity to produce the steel products that are being imported. But as California Steel Industries noted in its exemption request, domestic mills “can and do choke off the supply of slab and thus can largely eliminate the competition.”
Turkish steel-pipe manufacturer Borusan Mannesmann had pledged to invest up to $75 million in expanding production in Texas if it won an exemption. The new factory would have allowed the company to produce the products it now imports. But Commerce rejected its applications after U.S. Steel and a domestic tube manufacturer complained that the imports would endanger “the precarious U.S. industry situation.”
Due to a huge backlog of applications, there’s often a long lag between the filing of the request and its public posting. The review process is supposed to take only 90 days, but companies have to pay the tariff while bureaucrats sift through the paperwork. California Steel Industries requested an exemption in March. The request wasn’t published until mid-May, with no decision posted to date.
This Commerce mess illustrates that in addition to the harm tariffs do economically, they also create new opportunities for crony capitalism and corruption. Far from draining the swamp, tariffs feed the swamp.
Published at Mon, 06 Aug 2018 23:24:19 +0000