AMSCI NEWSLETTER June 2023
June 2023 Market Update
The Federal Reserve in June ended its interest rate hike streak, but this appears to be a pause rather than a reversal of course.
After boosting rates at 10 straight meetings going back to March 2022, the Fed on June 13-14 chose to keep the target range for the Federal Funds Rate unchanged at 5 to 5.25 percent.
In announcing the decision, the Federal Reserve Federal Open Market Committee stated, “Recent indicators suggest that economic activity has continued to expand at a modest pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated. … Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.”
Following the meeting, Fed Chair Jerome Powell said the pause does not reflect a change in the central bank’s aggressive approach to reduce inflation to the target level of 2 percent.
“We’ve covered a lot of ground and the full effects of our tightening have yet to be felt,” Powell said. “In light of how far we’ve come in tightening policy, the uncertain lags with which monetary policy affects the economy, and potential headwinds from credit tightening, today we decided to leave our policy interest rate unchanged and to continue to reduce our securities holdings. Looking ahead, nearly all committee participants view it as likely that some further rate increases will be appropriate this year to bring inflation down to 2 percent over time.”
Year-over-year inflation, which peaked at 9.1 percent in June 2022, has decreased for 11 straight months and was at 4 percent in May, down from 4.9 percent in April, according to the Bureau of Labor Statistics. However, core inflation, which excludes food and energy prices, remained higher at 5.3 percent in May.
On a month-to-month basis, prices increased by 0.1 percent from April to May, but, again, a significant difference was seen between overall and core inflation.
“The index for shelter was the largest contributor to the monthly all items increase, followed by an increase in the index for used cars and trucks,” the bureau stated. “The food index increased 0.2 percent in May after being unchanged in the previous 2 months. The index for food at home rose 0.1 percent over the month while the index for food away from home rose 0.5 percent. The energy index, in contrast, declined 3.6 percent in May as the major energy component indexes fell. The index for all items less food and energy rose 0.4 percent in May, as it did in April and March.”
The labor market continues to be strong, with the economy adding 339,000 jobs in May, according to the bureau, which noted job gains in professional and business services, government, health care, construction, transportation and warehousing, and social assistance. The unemployment rate is now at 3.7 percent.
Some analysts argue that a weaker labor market is, in effect, the Federal Reserve’s (unstated) goal.
“If the Fed really wants to go back to 2 percent price inflation, which is the target, they have to do whatever they need to do to get the wage inflation to be a bit lower,” MIT economics Professor Olivier Blanchard, a former chief
economist for the International Monetary Fund, told PBS News Hour. “And the only way we can do this is by having a slightly less overheated labor market or an unemployment rate which is a bit higher than the one we have today.”
Two leading measures of consumer confidence presented a split decision on the issue in May. The Conference Board reported that its Consumer Confidence Index dipped slightly as, in the words of the board’s chief economist, “consumers’ view of current conditions became somewhat less upbeat while their expectations remained gloomy.” The Index of Consumer Sentiment from the University of Michigan’s Surveys of Consumers, however, increased nearly 8 percent from May to June – and was up nearly 28 percent from May 2022 – reaching its highest point in four months.
The survey’s director, however, noted that “sentiment remains low by historical standards as income expectations softened. A majority of consumers still expect difficult times in the economy over the next year.”
On the business side, confidence in the manufacturing sector remains shaky. The Institute for Supply Management’s Purchasing Managers Index in May decreased for the eighth time in the past year. The index has been at levels indicating contraction in the overall economy for six straight months and contraction in the manufacturing sector for seven consecutive months.
Housing starts in April increased 2.2 percent from March but were down 22.3 percent from April 2022, according to the Census Bureau and the Department of Housing and Urban Development.
Existing home sales fell 3.4 percent from March to April, the National Association of Realtors reported. The association’s chief economist said,
“Home sales are bouncing back and forth but remain above recent cyclical lows. The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
The median price for an existing home in April was $388,000, 1.7 percent lower than the average a year earlier.
The Dow Jones Industrial Average closed at 34,299.12 on June 16, up about 3.5 percent on the year. The S&P 500 Index ended the day at 4,409.59, recording a year-to-date gain of 14.9 percent.
The dollar, on June 16, was trading at 0.92 euros, 0.78 pounds, 141.82 yen and 7.13 yuan.
As it has since the massive disruption caused by the pandemic, the economy continues to send mixed – sometimes counterintuitive or, even, conflicting – signals. Inflation has been more than halved in the past year, while job growth has remained strong, yet economic growth has been sluggish. The Fed will have an additional month of data to consider when deciding whether to resume interest rate increases at its July 25-26 meeting. As Powell noted in commenting on lags in the impact of monetary policy, though, it is nearly impossible to determine how much of the effect of prior rate hikes is baked into the current data and how much is still to emerge. Navigating between Scylla and Charybdis never gets easier.
AMSCI 72nd Annual Gala Dinner
Wednesday, December 6, 2023
5:00 PM – 9:30 PM
The Yale Club of New York City
50 Vanderbilt AVE, New York, NY
June 2023 Steel Shorts
USTR Requests Report on Greenhouse Gas Emissions from Steel, Aluminum Production
U.S. Trade Representative Katherine Tai has asked the U.S. International Trade Commission to investigate greenhouse gas (GHG) emissions related to steel and aluminum production.
In a June 5 letter to commission Chair David Johanson, Tai referenced efforts by the United States and the European Union to develop a framework called the Global Arrangement on Sustainable Steel and Aluminum, under which new tariffs would be imposed on imports of metals whose production does not meet carbon emissions standards.
“As a first step, the United States and the EU have created a technical working group charged with sharing relevant data and developing a common methodology for assessing the embodied GHG emissions of traded steel and aluminum,” Tai wrote. She went on to state, “I ask that the Commission conduct
a survey by issuing questionnaires to firms with facilities producing steel and aluminum in the United States, whether the firms are U.S. or foreign owned, to collect data on their production of these goods and associated GHG emissions, to the extent not already reported pursuant to the U.S. Environmental Protection Agency (EPA) GHG Reporting Program (GHGRP) or other publicly available information.”
Tai requested that the report be completed by Jan. 28, 2025.
The United States and the European Union are seeking to complete negotiations regarding the Global Agreement by October 2023. The potential coalition appears to have been designed with China in mind, particularly since it would only allow countries to join who “commit to not overproduce steel and aluminum.” Commerce Secretary Gina Raimondo said in May, “We need a global steel arrangement that preferences higher quality, green steel and aluminum. That’s the right way to disadvantage China in a way that lifts everything.”
7 Senators Seek Changes to Section 232 Aluminum Tariff Exclusion Rules
A bipartisan group of seven lawmakers wrote to Commerce Secretary Gina Raimondo on June 7 to urge that her agency “reform its Section 232 exclusion process for extruded aluminum imports.”
The 10 percent Section 232 tariffs on aluminum imports that have been in place since 2018 can be lifted if the Commerce Department determines that a given foreign product cannot “be produced in the United States in a sufficient and reasonably available amount or of a satisfactory quality.” The senators argued in the letter that the department’s standards for meeting this threshold are “overly broad” and, thus, “have not sufficiently protected aluminum extruders.”
“As a result of these exclusions, extruded aluminum imports have risen 82 percent and American producers have lost millions of tons of possible sales since 2019,” the senators wrote. “Foreign market penetration now exceeds 25 percent, the highest level in over a decade. … American extruders have been forced to cut shifts, capital investment, and production. Since the third quarter of 2022, the Aluminum Extruders Council estimates that America’s extruder industry has been forced to lay off 15 percent of its workforce – costing our nation nearly 9,000 jobs.”
The letter was signed by Sens. Tom Cotton, R-Ark., Mitt Romney, R-Utah, Sherrod Brown, D-Ohio, Debbie Stabenow, D-Mich., Raphael Warnock, D-Ga., Robert Casey, D-Penn., and Marco Rubio, R-Fla.
Biden Extends, Expands Section 232 Exclusion for Ukrainian Steel
President Joe Biden has extended by one year the moratorium on Section 232 tariffs for steel from Ukraine.
Biden initially lifted the tariffs on Ukraine in May 2022, three months after Russia invaded the country.
In a May 31, 2023 proclamation, Biden stated, “Ukraine’s steel industry continues to be significantly disrupted by the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine,” and he noted that imports of Ukrainian steel remain low, accounting for less than 1 percent of the United States’ annual steel imports.
“At the same time, the steel industry has been historically important to Ukraine, and both the United States and Ukraine have an interest in maintaining that industry as an economic lifeline while the country recovers,” the proclamation stated.
Since the Russian invasion has forced the processing of some Ukrainian steel to take place elsewhere in Europe, Biden expanded the tariff exclusion to cover “products from the European Union made from steel originating in Ukraine.”
Senators Seek to Contrast U.S. Manufacturing Emissions with Those in China
A bipartisan group of senators on June 7 introduced legislation that would compare emissions resulting from the manufacture of certain goods in the United States to emissions in other countries.
The Providing Reliable, Objective, Verifiable Emissions Intensity and Transparency (PROVE IT) Act (summary) would direct the Department of Energy to conduct a study that, lead sponsor Chris Coons, D-Del., said, would “provide reliable data that’s needed to quantify the climate benefits of the United States’ investments in cleaner, more efficient manufacturing practices and to hold nations like China accountable for their emissions-heavy production of goods like steel.”
In a column published in The Hill on June 8, Coons and bill co-sponsor Kevin Cramer, R-N.D., wrote that one goal of the proposal is to have “concrete evidence that goods produced by countries like China require far more carbon to make than goods produced here at home.”
“But this isn’t just an environmental issue – it’s an economic and security issue,”
they wrote. “China’s and Russia’s worst global impacts can be countered if the United States and its allies have a clear understanding of the influence they wield, and use it. Doing so, we can mitigate climate change while bolstering cleaner manufacturing here at home, yielding real benefits for our economies, global security and the health of our planet.”
CUSTOMS CORNER
CIT Provides Classification Lesson in Alloy Steel Bar Case
The U. S. Court of International Trade (CIT) provided a lesson in tariff classification in a case involving heat-treated forged alloy steel rods used to crush ore in mining and mineral extraction operations. The imported product consisted of hot rolled bars processed by a series of forging dies and passed through a water quenching system which resulted in a hard outer surface of martensite and a softer inner core of pearlite to facilitate breaking down ore and mineral structures while retaining sufficient ductility to prevent the bars from breaking while being used in the mill. The importer claimed that the rods are properly classified as “[o]ther articles of iron or steel: [f]orged or stamped, but not further worked: . . . [g]rinding balls and similar articles for mills,” in HTSUS subheading 7326.11.00. U. S. Customs and Border Protection (CBP) had classified the items at the time of entry in HTSUS subheading 7228.30.80 as “Other bars and rods, not further worked than hot-rolled, hot-drawn or extruded . . . Other;” at trial, CBP amended its claim for classification to subheading 7228.40.00 as “[o]ther bars and rods, not further worked than forged.”
The underlying issue for the importer was that both of the classifications asserted by CBP were subject to the 25% additional duty under Section 232, while the claimed provision for grinding balls and similar articles was not. The court did not consider the Section 232 coverage, making its decision using standard tools of tariff classification. The importer argued “that the subject rods do not fall within the scope of HTSUS heading 7228 because they have assumed the character of goods classified under HTSUS chapter 73, heading 7326, subheading 7326.11.00, covering “[o]ther articles of iron or steel: [f]orged or stamped, but not further worked: . . . [g]rinding balls and similar articles for mills.” CBP asserted that under GRI 1 the imported rods are prima facie classifiable under HTSUS subheading 7228.40.00 because they are “[o]ther bars and rods”of “[o]ther alloy steel”and are not further worked than forged as defined in the chapter notes to chapter 72.
Issues discussed by the court included among others the General Notes, Chapter Notes, and General Rules of Interpretation (GRIs) for the HTSUS, the
Explanatory Notes, evaluation of headings without reference to their subheadings, concepts of “eo nomine” and actual use classification, basket provisions, final form, “assumption of the character of” and new and different article, further working, and uniform cross section.
Sorting through the various claims and rules of interpretation, the court explained that GRI 1 requires that classification be determined in accordance with the terms of the headings and any relative section or chapter notes. The scope of the headings cannot be expanded by reference to any of their respective subheadings; accordingly the actual use of the rods for grinding purposes was irrelevant. As an eo nomine provision heading 7228 applied because the rods met all of the requirements of the controlling chapter notes – the importer’s claim that the rods were not “of uniform cross section” failed as the notches at the ends used to align them for insertion were within the chapter notes description of “grooves’ or ”indentations.” Because the rods were specifically covered by heading 7228, they could not be included in a “basket” provision such as heading 7236.
The court then considered the two subheadings under heading 7228, finding that subheading 7228.40.00 was more specific because the rods had been forged after hot-rolling and it thus described the rods in their final form.
The case is ME GLOBAL, INC., v. UNITED STATES, Court No. 19-00179, Slip Op. 23-68, decided May 2, 2023, Judge Eaton presiding.
Steven W. Baker
AMSCI Customs Committee Chair
swbaker@swbakerlaw.com