The Commerce Department's Tariff Waiver Process Encourages Cronyism, Creates Shortages

U.S. Steel and other manufacturers are lobbying to block waivers, creating chaos along supply chains.


Aaron Josefczyk/REUTERS/Newscom

Cronyist steel manufacturers are helping to guide the Commerce Department's opaque system for determining which American companies get exemptions from a 25 percent tariff on imported steel. In the process, they are creating potential shortages and hiking prices along the supply chain.

Steel-consuming businesses are worried about the influence being exerted by domestic manufacturers such as U.S. Steel and Nucor, which have an economic incentive to limit the number of exemptions granted by the Commerce Department. The department allows steelmakers to comment on waiver applications but does not give steel-consuming businesses an opportunity to rebut those claims or to challenge the department's final decisions in court. With little transparency or due process, the entire waiver procedure is open to abuse.

"The current exclusion process is broken—it's opaque, unfair, and breathtakingly inconsistent," says Rep. Jackie Walorski (R-Ind.), whose office has conducted a review of the waiver applications granted and denied by the Commerce Department.

After the Trump administration imposed a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum, the Commerce Department began accepting applications from American businesses seeking exemptions from those tariffs, which can be granted if domestic supply is insufficient to meet a company's needs. When a company applies, there is a 30-day comment period that allows anyone, including competitors, to argue for or against the waiver. More than 20,000 waiver applications have been filed, but the department has made decisions on only about 1,100 of them.

Of the applications where decisions have been made, the Commerce Department has yet to approve a single application that prompted U.S. Steel or Nucor to raise an objection, according to Walorski.

In the 550 applications that have been denied, the department routinely provides no explanation for its decisions beyond stating that there is sufficient quantity and quality of domestic supply, or that the application was incomplete. The department provides no explanations of how it reached its decisions and it does not disclose its analysis, Walorski says.

The whole process seems to deliberately favor steelmakers over steel-consuming businesses. That shouldn't be surprising, since that's exactly what Trump's tariff policy does: punish anyone who buys steel in order to prop up domestic steel manufacturers. In more than 5,000 public comments reviewed by Walorski's office, U.S. Steel and Nucor were the two most prolific commenters.

Steel-consuming businesses believe those manufacturers are manipulating the process to limit exemptions.

"It's hard not to interpret that the Commerce Department wants domestic suppliers to have an edge," Daniel Shackell, vice president of Crown Cork & Seal, a Philadelphia-based manufacturer of metal packaging, tells the Associaed Press. The company has made 70 waiver requests to the Department of Commerce; so far, eight have been granted and 12 denied.

In testimony to the House Ways and Means Committee last week, the executive of a Texas-based pipeline builder said the process did not allow adequate time for businesses to respond to objections raised by U.S. Steel and other manufacturers. Once an application is submitted, there is little interaction between the government and the applicant, and there is no opportunity for businesses to "state their case," said Willie Chiang, vice president of Plains All American GP.

Those are "due process flaws that do not exist with respect to most other government procedures," Chiang complained.

Out of more than 5,700 objections submitted in response to steel and aluminum exclusion requests, only 54 were posted before the end of the comment period, leaving businesses no opportunity to respond.

"There are major structural issues that are causing uneven outcomes," says Walorski. "The deck seems to be stacked toward one side right now and it needs to be rebalanced."

The confusion and cronyism on display in the tariff waiver process is not exactly unexpected. Shortly after the applications started coming in, an unnamed Commerce Department official told The Washington Post that the review process was "going to be so unbelievably random, and some companies are going to get screwed."

The companies getting screwed include more than just those that have waiver applications denied. With imported steel suddenly much more expensive, domestic suppliers are being overrun with orders and cannot meet demand. That's causing delays, shortages, and other supply chain problems.

"For us to get the raw plate material to fabricate it used to be we would order steel today and get the steel two months later. Now, it's five to six months," said Evan Morrison, vice president of Ohio Structures, Inc., tells the Akron Beacon Journal. The paper reports that these tariff-caused delays are affecting public projects, such as a major highway renovation near Columbus.

And so the Commerce Department is quite literally picking winners and losers. It's not all that different from what's happening to American farmers: Many of them stand to lose from a trade war with China, and some of those many are now supposed to receive a $12 billion bailout. Trump's tariffs are distorting the economy and extending the government's authority to decide which businesses succeed and which fail. Once upon a time, conservatives would have protested that.