Global markets

What effect, if any, will US President Donald Trump’s proposed tariffs have on the global recycling market for steel and aluminium? Waste Management Review reports.

On 19 January, 2018, the US Secretary of Commerce, appointed by US President Donald Trump to promote local industries, provided the President with a report into an investigation into the effect of imports on aluminium and steel on the nation.

In a 8 March proclamation, the President wrote that the Secretary advised him of his view that aluminium was being imported into the US in such quantities and circumstances which threaten to “impair” its national security. The current quantities of aluminium imports and the circumstances of global excess capacity were “weakening” the nation’s internal economy leaving the US “at risk of becoming completely reliant on foreign producers of high-purity aluminium that is essential for key military and commercial systems.”

Likewise, excess global capacity for producing steel was also said to be “weakening” the economy, resulting in the persistent threat of further closures of domestic steel production facilities.

In drawing this and several other conclusions, the US government responded with a 25 per cent tariff on steel and 10 per cent tariff on aluminium imported from all countries except Canada and Mexico. Trump has so far hinted Australia may be exempt by mentioning its strategic relationship with the oceanic nation, but not explicitly absolved. The White House in March confirmed Australia, Europe, South Korea, Canada, Mexico, Argentina and Brazil would be exempt until 1 May.

In a February statement, Namik Ekinci, Chairman of the Turkish Steel Exporters’ Association, said it would hamper the development of US industry and inflict harm on the domestic industry in the medium run.

“Both during the election process and after assuming office as the president, President Trump issued statements that new investments will be made,” he said.

“Considering that the US production stood at 72 million tons in the first 11 months of 2016 according to the USITC data, while consumption was 100 million tons and imports stood at 38 million tons in the same period, we estimate the US will have to import steel in order to realise the promised investments.”

In a March statement from Cecilia Malmström, the European Commissioner for Trade, she said the US measures will have a negative impact on transatlantic relations and global markets.

“In addition, they will raise costs and reduce choice for US consumers of steel and aluminium, including industries that import these commodities,” the statement said.

While the World Trade Organization has the ability to sanction nations that impose arbitrary tariffs, international recyclers wait patiently in anticipation of its effect.

Figures from 2017 by the American Iron and Steel Institute show the amount of finished and semifinished steel shipped by China into the US had reduced since 2016 at 813,000 tonne, with other nations forming the majority, such as Brazil at 987,000 tonne, Taiwan at 1.2 million, Germany at 1.4 million, Japan at 1.5 million, Turkey at 2.2 million and South Korea at 3.7 million.

According to an economic impact study by the US-based Scrap Recycling Industry 2017, the activities of the scrap recycling industry in the US generate nearly $117 billion in the country, accounting for 0.63 per cent of the nation’s total economic revenue. Scrap commodities are the nation’s largest exports by value.

George T. Haley, Professor of Marketing & International Business, University of New Haven, told American Recycler that the tariffs will probably affect the US recycling industry favourably in the short term. Following that, it depends on how negatively the global economy is affected by a potential trade war. He said US steel and metal prices are generally competitive, but the US metals industries won’t be able to satisfy demand on their own, so prices will go up due to scarcity and costs associated with paying tariffs.

Doreen Edelman, co-leader of Baker Donelson’s Global Business Team legal firm, told the publication the impact of tariffs on recyclers depends on where the recycler gets the materials.

“There are many sides of this problem,” she said.

“For example, will there be more work for recyclers because more US metal will be recycled and reused?

The Aluminum Association also released a statement in March saying the organisation appreciates the President’s commitment to strengthening the US aluminium industry.

“We look forward to working with the President on implementation and to creating a more level playing field,” the statement read.

While Trump has hinted Australia would be excluded from the protections, figures show the nation relies more so on eastern nations for its exports.

Australia’s waste exports of metal have been mainly to China, which account for 31 per cent of total exports.

The next major partners are Taiwan, Malaysia, Indonesia, South Korea and Vietnam, according to 2011-12 Australian Bureau of Statistics data. The National Waste Report 2016 also noted the local metals recycling industry depends on exports markets, which have been under pressure over the years.

Tony Makin, Professor of Economics at Griffith University, tells Waste Management Review Australia isn’t a large exporter of steel or aluminium and therefore it will only have a small effect on the local economy. These exports are also covered by Australia’s Free Trade Agreement, which should ensure adequate protections.

“It’s not going to impact Australia unless exports from other steel and aluminium producing countries are diverted here for sale at very low prices. In this case, the federal government’s Anti-Dumping Commission can impose duties on those dumped at below cost of production prices,” Tony says.

Tony says that, generally speaking, tariffs only benefit favoured industries in the short term, but at a cost to households, other industries and exporters in the longer term.

“If tariffs become sizeable and widespread it forces companies to put their prices up, and that could also be inflationary.”

Overall, Tony notes the irony that the US manufacturing sector could suffer greater damage from losing its international competitiveness, rather than due to cheap steel and aluminium imports.

This article was published in the June issue of Waste Management Review.