President Trump is ready to escalate his trade war with China by imposing tariffs on almost all Chinese goods shipped to the United States. But his administration is still struggling to manage a pair of smaller trade actions announced more than three months ago, casting doubt on the president’s ability to wage a broader conflict.
At the Commerce Department, officials have been overwhelmed with pleas from U.S. companies for waivers from levies on foreign steel and aluminum that the president introduced in March.
Only last week did the department begin training the roughly 30 evaluators who must review 21,000 petitions from U.S. companies that want to continue importing the metals on a duty-free basis, said one senior Commerce Department official, who spoke on the condition of anonymity because the official was not authorized to speak to the news media.
The department’s predicament highlights the disconnect between the president’s expectation of easy victory in any trade war and what is happening in the real economy, where production at hundreds of factories could be disrupted by Washington’s administrative sluggishness.
Commerce’s struggles come as Trump threatened Monday to impose tariffs on virtually all Chinese goods and continues to actively battle U.S. allies Canada, Mexico and the European Union over trade.
On Wall Street on Tuesday, rattled investors drove the Dow Jones industrial average down nearly 300 points, leaving the investing benchmark in the red for 2018.
Business groups including the U.S. Chamber of Commerce lined up to criticize the president’s threat to hammer Chinese imports with up to $450 billion in tariffs if Beijing doesn’t agree to widespread changes in its state-led economy. Americans by a margin of 59 percent to 10 percent said they expect Trump’s trade hostilities to leave them personally worse off, according to a new CBS News poll.
Amid a storm of unease, the White House remained unruffled. Peter Navarro, one of the president’s closest trade advisers, gave reporters an on-the-record defense of Trump’s high-risk tactics, a sign that for now the administration’s trade hard-liners are in the ascendant.
“Our view is that these actions are necessary to defend this country and that they are ultimately bullish for corporate America, for the working men and women of America, and for the global trading system,” said Navarro, who heads the White House Office of Trade and Manufacturing Policy.
Commerce Secretary Wilbur Ross may face questions about the handling of waiver requests when he appears before the Senate Finance Committee on Wednesday.
Swamped by a flood of applications — more than four times the number initially expected — Commerce Department officials have cobbled together a team of employees and outside contractors with varying levels of technical expertise to review the waiver requests, according to a senior department official.
The evaluators — including trainees with limited experience in complex steel and aluminum markets — have found the subject matter confusing. Some industry executives and department officials expect that the overworked reviewers probably will approve applications that no domestic metals producer contests and reject the roughly one-third that draw objections — whatever their technical merits.
“It’s going to be so unbelievably random, and some companies are going to get screwed,” the senior Commerce Department official said. “These people are making multibillion-dollar, unbelievably uninformed decisions.”
Only metal products that are unavailable from U.S. producers are eligible for the waivers.
The first decisions will be released as soon as this week, said James Rockas, the Commerce Department’s deputy director of public affairs.
Officials have promised to issue decisions within 90 days, but that doesn’t include the month it can take to acknowledge applications on a government website.
The staffing issues cap a cumbersome process that is adding red tape to U.S. manufacturing even as the Trump administration boasts of its deregulation efforts.
The process also will increase manufacturers’ costs. If their waiver bids are rejected, companies will either buy from more expensive U.S. mills or pay the import tax to keep using their current material.
Following a three-hour crash course, evaluators are assigned to review five-page Excel spreadsheet applications from U.S. manufacturers containing detailed descriptions of steel and aluminum products that applicants say cannot be acquired from domestic producers. At issue are metals used to produce auto parts, oil and gas pipelines, factory tooling and other items used through the economy.
Companies must specify the type of metal — including its 10-digit tariff code, chemical composition, finish, strength and dimensions — and explain their efforts to obtain it from domestic sources. Inside Commerce — and among the roughly 300 companies so far that have requested exclusions — there are doubts about the evaluators’ ability to render timely and accurate decisions.
“Knowledge of the market is a lifelong pursuit,” said Lewis Leibowitz, a Washington attorney who represents several applicants. “There are thousands and thousands of different steel products and specifications. . . . Three hours won’t do it.”
The department declined to specify the number of individuals assigned to review exclusion requests, calling it a “Commerce-wide effort.
Congress has approved shifting $1 million from other programs to fund this year’s reviews, and officials are confident the evaluators have sufficient technical expertise, Rockas said.
The department also plans to hire an unknown number of additional contractors to help, but it will take time to bring them on board.
The chaotic exclusions process, and the regulatory burden it imposes on U.S. manufacturers, is the consequence of the president’s hasty announcement of the tariffs. Trump initially planned to announce the tariffs March 1, canceled a ceremony that morning after opponents mobilized and then announced his plans after a meeting later that day with industry leaders.
When the plans were finalized a week later, the president said U.S. dependence on imported metals — even from close allies — threatened national security and justified tariffs of 25 percent on steel and 10 percent on aluminum. The exclusions process was established only after an additional 11 days had elapsed. In a March 19 Federal Register notice, Commerce said companies would be allowed to continue importing steel and aluminum products duty-free only if they could not be obtained from domestic producers.
The European Union, Canada and Mexico were temporarily exempted from the levies, but the president on June 1 added them to the target list, ensuring thousands of additional waiver requests. Some Commerce Department officials expect the number of applications to reach 40,000 — increasing the likelihood of manufacturing disruptions.
Many companies will be effectively encouraged by the government to use higher-priced U.S. metals. Boltex Manufacturing of Houston, which makes parts for the auto and petrochemical industries, wants permission to keep importing specialized steel from Italy.
“We love to buy American steel. Sometimes, it’s not feasible,” said Frank Bernobich, Boltex president.
Two U.S. steelmakers — Nucor and TimkenSteel — have objected, insisting they can produce what he needs. “Price is not a legitimate basis for granting a product exclusion and should not trump national security considerations,” Nucor said in its objection.
Bernobich said in an interview that he has tried to place orders with Nucor but that the steelmaker sometimes takes weeks to return his calls. Nucor said in its filing that sales talks have run aground over price.
If the Commerce Department agrees that Nucor or Timken can make what Boltex needs, it will reject Bernobich’s exclusion request, and he will face higher costs — whether paying more for a U.S. alternative or paying the 25 percent tariff on his preferred Italian steel.
Industry complaints have reached Capitol Hill. Last month, Rep. Jackie Walorski (R-Ind.) and 38 colleagues wrote Ross seeking several changes in the program’s administration. Walorski, who represents a manufacturing-heavy district in a state Trump carried with 57 percent of the vote, said she backs the president’s tariffs. But she was critical of Ross, who met with House Republicans on Thursday, for failing to address obvious shortcomings in the exclusion program.
“The Commerce Department could make this much more efficient and streamlined,” Walorski said in an interview. “We’re still going back and forth with the secretary. . . . He’s very reluctant to really see there is a problem.”
Industry representatives blame some of the backlog on the way that Commerce designed the exclusions process. In 2002, when President George W. Bush imposed tariffs on steel, in response to a surge of imported metals the administration released a list of product exclusions on the same day it announced the measures.
This time, companies are required to file separate exclusion applications for each steel product they import, even if they differ only in size. Waivers apply only to the company that requested them, so a second company using an identical product must file a separate request. And the exclusions expire in one year, meaning that most companies will need to repeat the process.
One company has filed 1,168 exclusion requests, with the average company having filed more than three dozen, according to figures compiled by Walorski’s office.
The department has moved slowly to address the mounting backlog. “Not only are they understaffed, there’s no direction to move anything,” said one industry executive, who spoke on the condition of anonymity to avoid alienating administration officials. “We’re not getting a lot of positive vibes.”
While they wait for decisions, companies must pay Trump’s import tax. Exclusions are retroactive to the date Commerce posts them online, so companies expect to eventually have their tariff payments refunded.
“We’ve been concerned about the process from the outset,” said Ann Wilson, senior vice president for the Motor and Equipment Manufacturers Association. “It’s an enormous burden for small companies.”
Zapp Precision Wire of Summerville, S.C., asked the government on April 3 for permission to continue importing German steel that it exports to Mexico, where it is used to make windshield wiper blades and a product used in medical implants. The tariffs could cost the company tens of millions of dollars annually.
“We’re befuddled by the process,” said Bill Brebrick, U.S. sales manager for Zapp.
The company said in its application that no U.S. mill produces the specific type of steel it needs: “AISI C1065 high carbon flat wire that is zinc coated and painted. Chemical Properties: C 0.60-0.65 percent, Minn. 0.50-0.80 percent, Si 0.1-0.3 percent, P 0.03 percent maximum, S 0.03 percent maximum. Zinc analysis of >99.5 percent, the surface must have a black dull (matte) surface, near to the color of rubber. The surface must be free of injurious defects. Edges must be rounded and obtained by rolling. No burrs are permitted. Tensile strength of 1500-2300 N/mm2, yield strength must be greater than 90 percent Rm. The coated wire has a 7.17-7.27 mm width and 1.03 — 1.09 mm thickness.”
A Commerce Department evaluator will have to determine whether the company is correct.
“Why would any government agency have that kind of specific expertise? It’s not plausible,” said Leibowitz, the attorney, who represents 10 companies seeking exclusions. “They’re going to have to make some rough and crude decisions.”