US-Japan steel tariff deal: What does it hold for Indian steel industry?

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Washington and Tokyo have reached an agreement to reverse the sanctions imposed during the presidency of Donald Trump on steel imports from Japan. Under the new deal, the US will repeal the 25 percent levy imposed earlier on steel imports from Japan of up to 1.25 million metric tonnes a year, officials from the Commerce Department and US Trade Representative’s office said on Monday.

The new agreement, which will come into effect on April 1, will maintain some protections for American steel producers by transforming the current 25 percent tariff on Japanese steel into a so-called tariff-rate quota, whereby higher levels of imports are met with higher duties.

Up to 1.25 million metric tonnes of Japanese steel will be allowed to come into the US duty-free each year, with volumes above that level subject to a 25 percent tariff.

In order to qualify for duty-free treatment, the agreement mandates that the steel products must be entirely made in Japan, which means that these will need to be melted and poured entirely in Japan. This is to ensure that the deal is not providing a back-door entry to cheap metal from China and other countries into the US.

Trade restriction will be applicable on products that use steel from other countries for manufacturing in Japan.

According to the data released by US Commerce Department, imports from Japan had fallen to 1.1 million tonnes by 2019 from close to 1.7 million tonnes in 2017, when the tariffs were not there.

Based on this data, in terms of volume, this only accounts for about 4 percent of all steel imported into the US, and about 1 percent of all metal consumed in the country.

To be sure, this is the second such deal signed by the US to provide relief on imports from any other country. The first deal was signed with the European Union in October 2021 that ended restrictions/imposition of levies on as much as $10 billion of each other’s goods.

While the European Union had subsequently retaliated to the US and had targeted products including Harley-Davidson Inc motorcycles, Levi Strauss & Co jeans and bourbon whiskey, Japan did not tread that path and focused on negotiating a to cover some agricultural and industrial products.

How does this impact the Indian Steel Industry?

Experts are of the opinion, that this deal will be ‘neutral’ for a country like India which along with China, Japan and Korea is one of the biggest exporters of steel in Asia.

India is the world’s third largest steel producer after China and Japan and continues to remain one of the lowest cost producers of steel in the world.

In March 2018, India was part of the first round of countries that were hit by Trump’s national security tariffs. Trump imposed tariffs of 25 percent on $761 million worth of steel and of 10 percent on $382 million worth of aluminum imported from India. Combined, these tariffs covered roughly 2.3 percent of India’s exports to the US in 2017.

India’s exports of steel products have fallen by 46 percent in the 12 months since the tariffs were imposed.

“Like China, India’s steel exports to the United States were small because they had already been curtailed prior to the 2018 tariffs through a series of antidumping cases”, said Deepak Jasani, Head of Retail Research, HDFC Securities.

The initial tariffs levied in 2018 did not impact China too badly. “So, this deal may really be more about reparations of relations in a longer trade game,” Jasani said. “There will be no major impact of the latest US-Japan Steel Tariff agreement on the Indian Steel industry.”

The agreement is aimed to stamp out "unfair practices" in the global steel industry, which is dominated by China.

“Japanese steel will become more attractive compared to Indian steel which is an alternative to Japanese steel,” said Sonam Srivastava, Founder, Wright Research. This may lead to a loss of business for Indian Steel exporters as Japanese exporters stand to gain from this deal.

However, the steel demand is robust globally and locally due to the infrastructure push, and the steel exporters like Tata Steel and SAIL will have ample growth opportunities, Srivastava said. “In the current high-demand metal cycle, we expect this news to have a neutral impact on the Indian steel industry.”

“This deal to a certain extent would help to cool US steel prices which are higher than the rest of the world and thus address some commodity inflation in US,” said Vivek Gupta, Director GEPL Capital.

For India, he feels that the deal will be neutral and will not have any major impact.

“India could try to get exemption from tariffs by US like EU and Japan did,” Jasani said.