Update: Scrap metals included in emergency tariffs on Canada, Mexico

President Donald Trump proceeded to implement tariffs on Canada and Mexico under the International Emergency Economic Powers Act (IEEPA) Sunday, March 2, saying the moves were designed to combat the threat to U.S. national security, including public health, posed by drug trafficking.

The tariffs apply to most products entering the U.S., including recycled materials. However, the White House said Thursday, March 6, that it would grant a one-month delay for tariffs on automakers with vehicles that comply with the United States-Mexico-Canada Agreement, and Commerce Secretary Howard Lutnick indicated that one-month exemptions for additional products were likely.

The Trump administration then announced the afternoon of March 6 that it is pausing the emergency border tariffs on other Canadian and Mexican imports that comply with the United States-Mexico-Canada Agreement (USMCA) for one month. ReMA notes that it is seeking clarification about whether recyclables are included in this exception.

Tariffs on recyclable materials threaten significant disruption for U.S. recyclers, according to Adam Shaffer, assistant vice president of international trade and global affairs at the Recycled Materials Association (ReMA), Washington.

“Our membership is quite diverse, so even though the U.S. is a net exporter of recycled materials to both Canada and Mexico across the commodity spectrum, many of our members are also importing from these countries, too,” he says. “Additionally, Canada has already announced its consultations for retaliatory tariffs—and that second list of proposed retaliation includes a significant number of U.S. exports of recycled materials that would be subject to new tariffs.”

Shaffer says Canada implemented CA$30 billion in retaliatory 25 percent tariffs on U.S. exports as of March 6. “While recycled products were not on that first list, many manufactured goods containing recycled materials are now subject to import tariffs in Canada, so there is an indirect effect. But the bigger concern is the second list, which was released earlier this week and is currently under a 21-day consultation period by Finance Canada.

That list includes dozens of tariff lines for recycled materials across the product categories and includes recycled steel, aluminum, copper, plastics, electronics [and] paper. While we haven’t looked at each specific line, the U.S. exports about $5 billion of recycled commodities to Canada, and the vast majority of these exports will be subject to retaliation if this list goes into effect.”

According to the Associated Press, which cites two senior Canadian government officials, Canada’s initial retaliatory tariffs against the U.S. will remain in place despite Trump's most recent action.

Mexico has yet to announce retaliatory tariffs as of March 6 but plans to release details about its plans Sunday, March 9, according to published reports.

Because the president initially delayed implementing the tariffs on Canada and Mexico by one month from the original date of Feb. 4, the “on the water” exemption was removed, Shaffer says. “This means that anything that was in transit that had not yet cleared Customs by 12:01 a.m. on March 4 is now subject to the import tariffs imposed to address emergency border concerns.”

Now that enforcement has been delayed a second time, any tariffs paid from March 4-6 will not be reimbursed, the White House indicates.

The White House also announced that the 10 percent tariff on all Chinese imports into the U.S. doubled from 10 percent to 20 percent March 4. The 20 percent duty is on top of additional duties imposed on imports of Chinese goods, such as Section 301 tariffs or antidumping/countervailing duties, Shaffer notes. 

“We saw the Chinese government retaliate against U.S. recycled materials (primarily aluminum and copper) during the 2018-19 period,” he says.

However, China’s retaliatory tariffs to this point have not targeted scrap. Instead, the country will impose additional tariffs of up to 15 percent on imports of key U.S. farm products, including chicken, pork, soy and beef, and has expanded controls on doing business with key U.S. companies, according to the Associated Press, to take effect starting March 10, with goods already in transit exempt until April 12.

While shipments of shredder wear parts to the U.S. from China are excluded from Section 301 tariffs, ReMA says the new 20 percent emergency border tariffs include these products.

“Tariffs are cumulative, or ‘stackable,’ so even though there is an exclusion from the Section 301 tariffs for shredder wear parts, that same exclusion does not apply for the emergency border tariffs,” Shaffer says. “The president has also added shredder wear parts to the Section 232 aluminum derivatives list, despite most of these materials being produced from steel and alloy products, so beginning March 12, that will be an additional 25 percent, on top of the 20 percent emergency border tariffs.”

He adds that while ReMA cannot predict how the administration will handle exclusions beyond May 31, further guidance is expected in April once the administrative agencies have reviewed existing trade and tariff policies.

“One hint may be that the president eliminated the entire product exclusions process from the Section 232 steel and aluminum program, so that may foretell where the administration is headed on the Section 301 tariffs,” Shaffer says.

“As with any of these tariffs, it is likely to significantly increase costs to U.S. recyclers and ReMA members, particularly as the tariffs on shredder wear parts from China continue to increase. We will continue to push for exclusions for products not produced domestically, particularly since without the necessary equipment to operate shredders, the U.S. recycled materials cannot supply the key inputs necessary to help manufacturers in the U.S. succeed.”

The tariff situation is likely to remain uncertain for the time being, as Lutnick indicated to CNBC that Canadian and Mexican goods might only face reciprocal tariffs as of April 2 if the two countries make progress on fighting fentanyl.

“My expectation is the president will come to the agreement today that USMCA-compliant goods will not have a tariff for the next month until April 2,” he added, which proved to be true. 

A recycler’s perspective

An executive with a scrap processing company that has two plants on the U.S.-Mexico border to bring scrap in from Mexico, described the situation as of Tuesday, March 4, as interesting, saying he is hopeful the situation will change.  

“I thought all this was bluster and BS,” he says of Trump’s intentions to put tariffs on Canadian and Mexican imports, but they have the potential to significantly affect some U.S. recyclers as the tariff on a $40,000 load of scrap would be $10,000. Recyclers operate on thin margins and can’t absorb a 25 percent increase, he adds.

His company has responded to the emergency tariff on Mexico by slowing down operations at its Texas plants, hoping the situation is resolved quickly.

He adds that he’s taking Mexico’s delayed response regarding retaliatory tariffs as a good sign that the country's government is further along in negotiations with the U.S. than Canada is.

However, if that is not the case and the tariffs remain in place, the executive says his company’s business in Texas will be significantly affected given the amount of material it receives from Mexico. “Once the aluminum tariff comes to pass next month, that will make things even a little bit hairier.”

For now, it appears his company likely will have a one-month reprieve.

The current business environment comes with a lot of uncertainty and sitting and waiting, he adds. “It’s an interesting way to have to run a business. I’m hoping sanity takes over at some point.”

This article was updated the evening of March 6 to add information about Trump delaying the tariffs on USMCA-compliant goods from Canada and Mexico until April 4.