Trump tariff exemptions give Americas briefrespite

326Views 0Comments Posted 04/04/2018

Tariff exemptions offer brief respite for US trade partners in the Americas, but bilateral negotiations remain key says a Moody’s report, issued on Wednesday, April 4.

ON MARCH 23 , the United States (Aaa stable) enacted tariffs on imported steel and aluminum products, raising their prices by 25% and 10%, respectively. The US originally only granted exemptions from the tariffs to Canada (Aaa stable) and Mexico (A3 negative), seeking broader trade concessions from both as it renegotiates the North American Free Trade Agreement (NAFTA).

However, the US administration later extended additional exemptions to key trading partners Argentina (B2 stable), Australia (Aaa stable), Brazil (Ba2 negative), Korea (Aa2 stable) and the European Union (Aaa stable) through 1 May, with exclusions subject to bilateral negotiations in the interim.

The direct credit impact on tariff-exempted trade partners in the Americas would be limited in the event that tariffs were imposed given relatively small contributions of steel and aluminum to exports and overall economic activity. However, the Americas’ heavy reliance on the US market to consume its metals exports would weigh negatively on manufacturing sectors in respective countries while increased barriers to trade raise the specter of retaliation, particularly for countries without bilateral trade agreements through which they can negotiate.

While the US administration noted that it would decide whether or not to extend the exemptions by  May 1, it also stated that it may impose quotas on anyone exempted in order to combat transshipment – the practice by which metal producers would reroute their exports through third countries in order to avoid tariffs. Quotas would be less damaging to these industries than tariffs in the short run because foreign exporters would be able to offset some of the loss in demand by raising prices.

The list of tariff-exempted trade partners comprises five of the US’s top 10 import sources for steel and three of the top 10 import sources for aluminum).

Tariff increases would effectively raise the price of steel and aluminum products entering US borders, likely reducing demand for the foreign-produced goods and challenging industries and export sectors that are an important source of employment for these countries in the event that they lose exemption status.

Though US steel imports have historically been relatively diversified, the EU, Canada, and Brazil have supplied close to half of all imported steel since 2002. Together, the seven tariff-exempt nations have supplied over 60% of US steel imports since 2010.

Although broadly limited, the impact of tariffs on sovereigns in the Americas would be mixed.

The effect of tariffs on key trade partners in the Americas would vary. Canada’s steel and aluminum sectors comprise close to 3% of total exports and approximately 0.8% of GDP, much more than its NAFTA partner, Mexico. Similarly, Argentina and Brazil’s steel and aluminum exports contribute small amounts to GDP, and they constitute about 1.2% of exports in each country.

In all four countries, steel industries rely heavily on the US to absorb their output, with Canada, Mexico, Argentina and Brazil exporting 90%, 65%, 45% and 33% of their total steel exports to the US in 2017.

Register now for FREE Newsroom email updates

Comments 0

The comments are the responsibility of each author who freely expresses his opinion and not that of Newsroom Panama.
Please enter a valid email.
Please enter username.
Please, enter a valid message.
Please validate that it is not a robot.