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The Petroleum Industry’s Sticky Situation: Section 232 Steel and Aluminum tariffs, Section 301 Trump tariffs, and the US China Trade War

The Petroleum Industry’s Sticky Situation: Section 232 Steel and Aluminum tariffs, Section 301 Trump tariffs, and the US China Trade War

UPDATE: June 1, 2018

Effective June 1, 2018, all countries of origin on steel products will have an additional 25% duty rate imposed except Argentina, Australia, Brazil and South Korea.

Effective June 1, 2018, all countries of origin on aluminum products will have an additional 10% duty rate except Argentina and Australia.

Canada, Mexico and the European Union have all announced retaliatory trade measures against the U.S.

A U.S. – China trade war was sparked on March 23, 2018, when President Trump imposed worldwide tariffs on steel and aluminum imports in the interest of “safeguarding national security” and protecting U.S. steel jobs. The Section 232 steel and aluminum tariff increased to 25% for steel and 10% for aluminum. Though the goal is to put American jobs first, the new tariffs may have mixed results for U.S. petroleum and other industries.

Trump’s steel and aluminum tariffs are effective worldwide, with some temporary exceptions to the new rule. For the period of March 23, 2018 through May 30, 2018, the administration allowed an exemption of the tariffs for the following countries of origin: Canada, Mexico, Australia, Argentina, South Korea, Brazil and member countries of the European Union (Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom).

Energy groups are pressuring the Trump administration to consider the economic risks of the new tariffs on Chinese goods. After the U.S. imposed Section 232 duties on steel and aluminum, the Chinese retaliated with import duties on 128 U.S. exported goods imported to China, including agricultural products such as fruit, nuts, and pork. Trump announced Section 301 tariffs on additional Chinese products, which could result in $100 billion in tariffs. China also submitted a formal complaint to the World Trade Organization (WTO) about the U.S. tariff hikes.

In addition to the steel and aluminum tariffs set by Section 232, the Trump administration released the 2018 Special 301 Report on Intellectual Property Rights, adding China, among 12 other countries, to the Priority Watch List. In Section 301, the Trump administration investigates whether China’s policies and practices related to intellectual property and transfer of technologies are restrictive to U.S. commerce. China disputes the investigation.

The Trump steel tariffs may initially prove beneficial to the U.S. steel industry, but ultimately could end up hurting the petroleum industry. After the initial tariffs took place, the domestic steel industry saw a 5% increase in prices. “A temporary drop in steel imports triggered by Section 232 has supported prices,” UBS analyst Andreas Bokkenheuser wrote in a note to clients. But as projects for pipelines and other energy projects increase, so has the demand for steel. American steel companies are limited in their ability to meet demand for larger pipelines. Domestic steel providers may become backed up in production, leading to delays or cancellations of pipeline projects. The 25% fee on imported steel could add roughly $76 million to a typical pipeline project, according to a 2017 Association of Oil Pipe Lines report. The petroleum industry also relies on steel for infrastructure projects, drilling equipment, refineries, and natural gas terminals.

President Trump’s recent proclamation also stipulated that drawback will not be available with respect to Section 232 duties imposed on articles of steel and aluminum. While no drawback can be claimed on Section 232 and Section 301 tariffs at this time, Charter Brokerage’s substantial experience and expertise, especially in the steel and petroleum industries, can help you navigate through the ever-growing sea of increasingly complex rules and regulations that govern the international trade and customs processes. Our team of customs and international trade attorneys, licensed clearance brokers and expert staff assist our clients in understanding their customs and export obligations and in adopting and implementing policies and programs that ensure compliance with the applicable laws and regulations.

Call Charter Brokerage today!

 

Sources:

1) Kaja, Aswhin; Adams, Christopher; and Vetere, Gina M. (2018, April 3). China Raises Tariffs on 128 U.S. Imports in Retaliation for U.S. Section 232 Steel and Aluminum Tariffs. Retrived from https://www.globalpolicywatch.com/2018/04/china-raises-tariffs-on-128-u-s-imports-in-retaliation-for-u-s-section-232-steel-and-aluminum-tariffs/

2) DiChristopher, Tom (2018, March 2). Steel tariffs won’t help Trump achieve his goal of ‘American energy dominance,’ oil industry warns. Retrieved from https://www.cnbc.com/2018/03/02/steel-tariffs-wont-help-trump-achieve-american-energy-dominance.html

3)Bloomberg News (2018, April 6). Timeline of the Escalating U.S.-China Trade Dispute. Retrieved from https://www.bloomberg.com/news/articles/2018-04-06/tit-for-tat-timeline-of-the-escalating-u-s-china-trade-dispute

4) Sonenshine, Jacob, Business Insider (2018, May 21). US Steel is tumbling after Trump does a 180 on trade (X). Retrived from https://finance.yahoo.com/news/us-steel-tumbling-trump-does-151600382.html

5) Weija, Hu Global Times (2018, May, 22). China’s purchases of US farm products reflect consumer demand, not US pressure. Retrieved from http://www.globaltimes.cn/content/1103633.shtml

6) Trump, Donald J. (2018, April 30). Presidential Proclamation 9704, 9705, 9739, 9740 Adjusting Imports of Steel into the United States. Retrieved from https://www.whitehouse.gov/presidential-actions/presidential-proclamation-adjusting-imports-steel-united-states-3/