Downside for downstream industries

It’s a different story for US downstream manufacturers, who say quotas have entailed “severe supply constraints” and “created even more business uncertainty than tariffs”.¹²

Importers may no longer guarantee that their goods can enter under the quota, or at all. They may encounter unanticipated costs if the quota is filled while goods are in transit or unpredictably higher prices for goods subject to a quota. They may have to find new suppliers and bear all the costs of negotiating new contracts, building new relationships, and shipping from a new location. The exclusion process may provide some relief for importers under supply pressure, though its application may also introduce more uncertainty.

More generally, downstream manufacturers argue that Section 232 quotas and tariffs raise prices inhibiting their competitiveness, and have a chilling effect on growth, employment, and investment. Although many businesses have been buoyed by the strong US economy, they say that employment and sales in their industries would have increased even more were it not for tariffs and quotas raising prices. Moreover, downstream industries using steel and aluminum products employ more Americans than steel and primary aluminum manufacturers.

In fact, the 2023 ITC study found that for downstream industries, the impact of Section 232 tariffs was largely negative.¹³

Addressing global excess capacity is key

Though in general, the Biden administration has embraced the Section 232 quotas¹⁴ and tariffs,¹⁵ in late 2021 and early 2022, the Biden administration negotiated agreements with the EU, Japan, and the UK to lift Section 232 tariffs in favor of TRQs.

As part of its negotiations with the EU, the Biden administration has also proposed a Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade.¹⁶ While promoting the trade of steel and aluminum produced with fewer carbon emissions, the arrangement would establish barriers to goods produced with higher carbon emissions, an effort that also targets excess capacity in steel and aluminum production.¹⁷

Though they are not fully liberalizing, these agreements represent a stepping away from more restrictive tariffs and absolute quotas and lifting retaliatory tariffs while focusing on the underlying cause of US industry distress—global excess capacity.¹⁸

Though tariffs and quotas may provide short-term relief, solving underlying global excess capacity problems is critical to addressing US industries’ long-term challenges. Any long-term solution will require more than the mere application of protectionist measures. The United States will have to work closely and creatively with its trading partners to address this challenge directly and to persuade the world’s largest producers, including China, to reduce global excess capacity.

Holly Smith is a lawyer and consultant. From 2009 to 2015, she served in the Office of the United States Trade Representative as a Director for Intellectual Property and Innovation, a Director for China Affairs, and a senior policy advisor to the Deputy U.S. Trade Representative.