Japan plays it cool on response to US steel tariffs

Posted on 05 April 2018

Source: Financial Times

Tokyo has opted for a low-key response to Donald Trump’s tariffs on steel because Japanese mills believe US rivals cannot make the high-grade metals they export.

The lack of retaliation threats from Japan, despite anger and frustration at the US president’s decision to target a close ally, reflects confidence that many of the country’s steel exports can win product-by-product exemptions from the tariffs.

Japan’s calculated response highlights its determination to keep good relations with Mr Trump and the difficulty of using tariffs as a tool to force trade concessions when so many US industries rely on imports.

“The US steel industry is quite technologically backwards,” says one official at a large Japanese steelmaker, who argued it would take years for US manufacturers to win customer certification for the speciality steels used in oil and automobiles, even if they invested in technology.

Mr Trump last month ordered punitive tariffs of 25 per cent on steel and 10 per cent on aluminium, claiming that imports were a threat to US national security. He later announced temporary exemptions for Canada, Mexico, Australia, Argentina, Brazil, South Korea and the EU — but Japan was not on the list.

That threatens roughly $2bn in Japanese exports from companies such as Nippon Steel & Sumitomo Metal, JFE Holdings and Kobe Steel.

According to industry officials, out of 2m tonnes of Japanese steel exported to the US, about 190,000 tonnes are high-grade piping used deep underground in oil wells. Another 320,000 tonnes are speciality steels for the automotive industry and 170,000 tonnes are hard-wearing railway track.

Much is supplied under long-term contracts with customers such as leading oil companies or Japanese carmakers with plants in the US. The applications are often critical to safety or performance.

Mr Trump’s tariffs include a process for users to request an exemption if they cannot buy the steel they need within the US. Japanese producers believe they will be able to win such exemptions for at least some of their exports.

“Many of the products we export from Japan either cannot be made in the US or not in sufficient amounts, so we will be explaining that and seeking individual exemptions,” said Kosei Shindo, chairman of the Japan Iron and Steel Federation, at a recent press conference.

Japan’s trade ministry is seeking a broader exemption from the tariffs but refuses to link the issue with US demands for bilateral trade talks. Shinzo Abe, Japan’s prime minister who struck up a warm relationship with Mr Trump, is likely to raise the steel tariffs with the US president when the pair meet this month.

“Japan’s exports have not harmed, and will not harm, the US security base in any sense,” said a senior official at the ministry of economy, trade and industry. The official said the level of Japanese exports has been stable and they complement US steel production.

He also said there was little potential for Chinese steel, Mr Trump’s main target, to reach the US via Japan.

Last year, almost 80 per cent of Japan’s 38m tonnes in steel exports went to Asia, dwarfing the US market in importance. 

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