Trump White House's focus on trade quotas criticized by some industries, could raise prices

John Fritze | USA TODAY

WASHINGTON — Industries that rely on steel and aluminum that have been lobbying for weeks against President Trump's proposed tariffs are increasingly shifting their focus to the administration's plan to pursue trade quotas instead.

In announcing its decision this week to delay a 25% tariff on steel and a 10% tariff on aluminum, the White House signaled it would seek quotas to protect domestic metal makers that would also potentially raise the price of cars and household goods.

“We simply cannot allow government policies to stand in the way of our growth, and quotas would do that,” said Jeff Henderson with the Aluminum Extruders Council.

Henderson’s Illinois-based trade association, whose members make thousands of parts and products from aluminum, opposes both tariffs and quotas. But quotas, Henderson stressed, present a unique challenge: They not only increase the price of metals, they could also severely limit supply if the caps are reached early in the year.

That possibility, he said, has already led to “panic buying,” in which manufacturers are seeking to scoop up certain kinds of aluminum in anticipation of trade barriers.

Delegation heading to China to begin talks on the Massive Trade Deficit that has been created with our Country. Very much like North Korea, this should have been fixed years ago, not now. Same with other countries and NAFTA...but it will all get done. Great Potential for USA! — Donald J. Trump (@realDonaldTrump) May 1, 2018

Thom Dammrich, president of the Chicago-based National Marine Manufacturers Association, said it is hard to decide whether tariffs or quotas would be more damaging to the recreational boating industry.

“The inevitable increases in price that come with tariffs are a grave concern,” he said. “But choosing quotas over tariffs would threaten to disrupt supply, which is also problematic for manufacturers ... who often have trouble sourcing the materials they need.”

Trump has vowed to reset trade relations with much of the world, arguing U.S. manufacturers have suffered from the “terrible” agreements his predecessors signed. His administration is renegotiating the 1994 trade pact between the U.S., Canada and Mexico, and it walked away from a trade deal with Pacific Rim nations last year.

On steel and aluminum, the focus has been on the tariffs the president announced in March. At the time, he offered temporary exemptions to the European Union, Canada, Mexico and other allies. The White House said Monday it extended those exemptions by a month for some countries and that it is nearing longer agreements with others.

Trade officials did not disclose details of the new agreements, but the White House has made clear it wants quotas in exchange for relaxing tariffs. White House trade adviser Peter Navarro reiterated that point in a meeting with the steel industry Tuesday.

The guiding principle of this administration, from the president down to his team, is that any country or entity like the European Union which is exempt from the tariffs will have a quota and other restrictions," Navarro said.

It’s not yet clear how an increased reliance on quotas would impact consumers. That will depend on the details of the individual agreements. But some analysts say it could have a more pronounced effect on industries that rely on raw metals, such as automakers.

“We’re against anything that drives up the cost of a vehicle,” said Libby Newman with the Virginia-based American International Automobile Dealers Association. “Call it a quota, call it a tariff — it’s all a tax on consumers.”

Quotas limit the amount of metal a country may export, which creates an incentive for overseas steelmakers to craft more expensive, specialized products. That way, they get more money per ton. Analysts said that shift to higher-end products could increase supply of stainless steel for medical equipment or appliances.

“If a country is faced with a quota, producers start making more higher-value stuff,” said William Reinsch with the Center for Strategic and International Studies in Washington. “It alters the product mix.”

That partly explains why contractors think quotas could be slightly better for their industry tariffs, said Brian Turmail with the Associated General Contractors of America. Turmail stressed that his members would prefer no trade barriers at all.

“The main reason (quotas) would be less damaging than tariffs is because most construction firms are purchasing steel products that have been processed in one form or another, instead of raw steel or aluminum,” he said.

“The assumption is countries that agree to put in place a quota would likely prioritize ‘higher-value’ steel and aluminum products instead of raw products.”

U.S. steelmakers said they were disappointed by the White House decision to continue the tariff exemptions this week but they applauded the administration for taking steps to protect the U.S. steel. One industry leader predicted the administration would ultimately rely on both tools to do so.

“I think you’re seeing a combination of the use of tariffs and quotas to successfully support U.S. steelmakers,” said Philip Bell, president of the Washington-based Steel Manufacturers Association. “I don’t think you’re going to see just tariffs or just quotas.”

Though analysts widely agree Chinese oversupply of steel has harmed domestic manufacturers, many have also pointed to the impact trade barriers could have on the rest of the economy. About 140,000 Americans work in steel manufacturing, according to census data, compared with 6.5 million employed in industries that purchase steel.

Quotas might be more palatable to other countries because they allow foreign governments to raise revenue by auctioning export rights. Tariffs, by comparison, would mean more revenue for the United States.

For consumers, the difference may be negligible.

“There’s one thing we can say with certainty,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics. “Prices are going to go up.”