Changes to 232 Tariffs, More Trade Uncertainty and Congressional To Do List

Olivia Dunning: To the Talking with One Voice podcast. This podcast is a production of the National Tooling and Machining Association and the Precision Metal Forming Association. I'm Caitlin Sickles with the Policy Resolution Group at Bracewell. And joining me on this episode is Paul Nathanson, also here at Bracewell. Hey, Paul. Hey, Caitlin. And Omar Nashishibi with Inside Beltway. Good morning, Omar. Hi, everybody. We are recording on June 15th. Where in Washington it's about a billion degrees. There is a UFC ring on the lawn of the White House, and the reflecting pool is blue. So those are the updates. And scaffolding in front of the Kennedy Center. Yeah. It's all going great. Something's going on there, some kind of remodeling. I don't know what's going on. Yeah. Yes. So that's great. President Trump celebrated his 80th birthday. Over the weekend with the aforementioned UFC fight on the grounds of the White House. Well, it was f it was also flag day. Note all the political, you know, podcasts say they did it on his birthday and it was flag day. We mentioned that the president was here this weekend, but he is headed out of town for some key diplomatic meetings. But before we get to that, let's talk about what is happening here in DC, aside from all of the fanfare. Up on Capitol Hill and in Congress. Omar, let me turn it to you. It's been a couple of weeks since we last recorded. And let me ask you to give folks an update on what is happening in Congress. Sure. In the the House and the Senate, they did finally get President Trump's funding bill for CBP and ICE that was known as Reconciliation 2.0. There were a lot of hiccups on it, a lot of fits and starts, especially with last-minute editions. That the White House tried to attach to it, that just ultimately did not have the votes to move through. So it ultimately became what we would consider in this town a clean bill where they did not have a lot of writers that were attached to it, which in many ways leaves a lot of the Republicans, especially those conservatives one, wanting for more. They were promised by House leadership last year when they went along with one big, beautiful bill that Republicans have rebranded as the can't remember. Something about working families. That's their message that's in there. And in that effort now, that there's a lot of talk about a reconciliation 3.0 that would be another measure that would bypass the normal process in the United States Senate and would just need a single party only. So Democrats did on Obamacare, Republicans have done it on taxes, Biden did it on the Inflation Reduction Act. So it's a becoming a common practice when you just want to ignore the other party. But that brings you back to the fight within the Republicans. And it doesn't seem from what I'm hearing that they can get to reconciliation three point ⁓ that would encompass many of those conservatives' priorities that would clearly cause problems with many of those moderates that might be running in tight races in the House that will determine control of Congress coming up. So they've got some real challenges, especially with senators pushing back on some of their House colleagues. After the primaries and after the Cornen loses, Cassidy loses. That, you know, Thun's gonna have trouble maintaining unity in order to pass these things on reconciliation. You know, obviously they got through the ⁓ homeland security funding, but do you see a rocky road moving forward? I mean, there's not I mean, Cornyn had a r an interesting interview in the New York Times where he has said he has been let free, but what's your prediction, sir? Well, in a minute I'd like to bring our resident Texan in to get her thoughts on this as well. ⁓ but from what we're feeling on Capitol Hill, I'll start over on the House side. I had a House Rules Committee member, so they're close to House leadership, tell me that you should expect a lot of just cancellation of votes because they just don't have enough House Republicans showing up to get basic things done. So they just are gonna start getting sent home, for example, on Wednesdays. It's like my kids, ⁓ school's canceled for the day. We get to go home. What what do you mean not Not showing up. Because they lost their primaries. They've got no incentive to come back. And I won't name them here, but folks, you can go online and guess who they are, the United States House of Representatives. But they either lost their race for primary for another office or just not coming back. And they just don't have as much incentive to show up. And with such a slim majority, you might not be able to get them all here with just general absences, illnesses. We just had this happen last Wednesday, I believe it was. They didn't have enough votes, so they they canceled and sent people home. Whereas on the Senate side, people show up, but they're gonna show up and maybe not vote the way that the White House would like them because they feel unshackled. The president opposed enough members of the United States Senate on the Republican side where those votes can cause that place to just shut down and stop his priorities from going forward. And in some of those, let's say in Maine, you've got Susan Collins, that's gonna be the probably one of the tightest or this one of the top two races in the country is it's shaping up. That's gonna be difficult. You look at other places. In North Carolina, Tillis clearly feels unshackled from the administration that hasn't supported him in a long time. And it brings you also to Senator Cornyn. Now does he feel liberated to vote his mind? He's already starting to mention that on a few tax issues related to the president's IRS audits that are out there. So absolutely, these primaries that are ongoing by the time you hear this, another one will have gone through in Georgia as well. The it's it's certainly making a difference in both the House and certainly in the Senate. Caitlin, changing the A little bit. I mean, the Senate race in Texas now, the everybody's watching. And Hugh and I over the years have always seen, yeah. It's turning purple. Texas is turning blue. ⁓ hope springs springs eternal for the Texas Dems. What do you see what do you ⁓ what do you see in that race so far? So as Omar said, I'm a Texan. And so people often throw the the Texas questions to me. And I'm not unfortunately an elections expert other than to say that That's all right. It's like weather. They they make predictions and they're wrong and then they've everybody forgets. But you know, people the I think the clearest thing is that, you know, the the Dems keep believing in Texas that they are just a hair away, you know, ⁓ and going to the battle Aurora campaign to the, you know, is it almost missed it. But then You know, here's here's the truth of it. Ken Paxton isn't is a more flawed candidate than John Cornyn would have ever been. He has a lot of baggage, you know, allegations of corruption plus a messy divorce. I mean, just things that like you wouldn't choose. Certainly the Republicans didn't want to choose. And because of that, the Republicans are gonna have to spend a lot more money in Texas than they would have had been John Cornyn running for reelection. James Talerico, who Is the Democratic nominee is a compelling figure. You know, he's good articulate spokesperson for the Dems in Texas. He is a little bit of an unusual candidate in that he has a heavy emphasis on his personal faith life, which could be powerful in a state where you have to win some significant Christian votes, you know, significant evangelical votes that had turned to Trump over the years. So, you know, he tries to tackle some of the difficult issues that that are uniquely salient in a state like Texas, like immigration. At the same time, he's a young candidate who probably committed some unforced errors. There's some unfortunate tape of him saying things that I think now he wish he hadn't said. Some pretty far out progressive positions that like are unlikely to be popular with a Texas electorate candidly might be difficult. To be popular in any state. So I think it was gonna be an uphill battle for Taller Rico no matter what. It is always an uphill battle for statewide election in Texas for a Dem, but they did him a solid by by flipping it to Paxton instead of John Cornyn, who still enjoyed broad, you know, certainly mainstream support. What does it mean? I don't know. In another day and age, I might have said, listen, you know, Paxton's foibles are too much. But I think we can see with the sitting president that there's a loyalty to the to the R behind the name that goes way deeper than, you know, what what somebody's limitations look like on paper. And the fact that Trump threw his name or threw his weight in for Paxton, it's a major factor with a lot of voters. And It will be certainly interesting to see how it plays out. Here's one thing I think then it's the last thing I'll say about it, but I think here's one thing that it really tells us. This president cares a lot more about himself and the people who are loyal to him than he does about the future of the Republican Party because he was willing on a personal vendetta. He did not need to make an endorsement in that race. He waited until the 11th hour and he threw his ⁓ weight behind Paxton, which Whether the Republicans can pull it out with him or not, time will tell, but it certainly means that they will have to spend a ton more money, a ton more resources in Texas, making it a real battleground, which takes their money away and time away from other states where they planned to wage more battles. So the the Trump vendetta campaign wages on. And it'll be interesting to see what the Dems down in Texas can make of it. Yeah, I agree with you. You know, you look at Democrats still haven't recovered from when Obama was in office and really just totally ignored the entire what we will call the the minor leagues and and getting people ready to go and putting infrastructure behind Democrats. And now Trump's even done the reverse. It's not even he's not investing it. He's almost just going back to attacking some of them there. And that's with Democrats just needing to net four seats to take the Senate, with the battleground states somewhat expanding a bit to now cover Iowa. ⁓ Alaska's gonna be amusing. There are ⁓ the senator from Alaska's name is Dan Sullivan, and someone by the name of Dan Sullivan has now also filed to run in that Senate race against Dan Sullivan. And so ⁓ we'll see how how that one goes. The Democrats have a real credible candidate ⁓ up there. That's gonna cause some issues. In addition to Iowa, we've got Maine as a toss-up. Ohio is difficult for Republicans right now, especially with the economy depends on trends. North Carolina's already been moved over to a lean Democrat. column by the Cook political report. So it's the politics are certainly catching up to the US Senate in some ways here. And we're starting to see it in the legislating. Yep. It's a time. It it'll be a time of the midterms. And then, you know, Paul, you alluded to John Cornyn's interview in the New York Times over the weekend. It's a really interesting interview. I mean, obviously ⁓ must have been a lengthy conversation to to, you know, generate the articles that it did. But the most interesting thing that he said is that Trump's in for a terrible two years going into the midterm. So, you know, it gives you a sense of how he's thinking things might shake down. And it goes to what you were saying, Omar, about ⁓ you know, people feeling I think I heard you say people feeling unshackled or unbound. You also hear a lot of ⁓ political folks talking about wounded bears, right? Up on the hill that they've lost their primaries. They've been injured by the Trump machine and now they're stumbling around creating chaos up there. So There's some factor of that too. Yeah. There's a lot of talk on the Hill last week, especially about a post-election lame duck massive legislation. And that talk kind of talk usually comes along with folks expecting the party and majority to lose at least one chamber. So we've been hearing that for some time, but really in the last week it's been picking up quite a bit. Yeah. Yeah. Okay. Let's take a quick break here, get a message from NTMA and PMA, and then we can talk about a couple of other issues that listeners to this show care about. This podcast is brought to you by the National Tooling and Machining Association. With nearly 1,200 member companies and 29 chapters across the country, NTMA is the national representative of the precision custom manufacturing industry. NTMA member companies design and manufacture special tools, dyes, jigs, fixtures, gauges, special machines, and precision machined parts. Together, They produce the products and services that are vital to our nation's economy, serving industries from aerospace to electronics, from oil and gas to nuclear power. NTMA is committed to fostering the competitiveness of member companies through innovation and expertise, while building a bridge to recruit, train, and promote the next generation of highly skilled workers and highly motivated leaders. Learn more at NTMA.org. This podcast is also brought to you by the Precision Metal Forming Association. PMA is the full service trade association representing the nearly 800 member companies that comprise or supply to the $137 billion metal forming industry of North America. This industry creates precision metal products using stamping, fabricating, spinning, slideforming and roll forming technologies, and other value-added processes. PMA is committed to innovation and to technology that shapes the environment of the metal forming industry. Through networking opportunities, training programs, and advocacy efforts, PMA unites and leads innovative member companies towards superior competitiveness and profitability. PMA invites listeners to visit them online at PMA.org. Okay, we are back. Before the break, we talked about the president having been in Washington over the weekend, celebrating his birthday, but now is headed to the G7 summit. Imagine there'll be a lot of discussion, both in the formal proceedings, but also in sideline conversations about key trade and tariff negotiations that continue to be ongoing. One of the updates I know folks who listen to this show care a lot about is USMCA and what's gonna happen next. Why don't I turn that to you, Paul? ⁓ I know you're following these issues closely, perspective on that. And then ⁓ just putting a note here that we are gonna talk about 232 changes as well for folks who are listening in for that. I think we first have to talk about his tweet over the weekend threatening a hundred percent tariffs on French wine. That hits home. Priorities. Yeah. That hits home. Like our many of our members and steel, I drink mostly domestic wine, but If we cut up supplies of foreign wine, then prices are gonna go up with domestic wine. So it's very concerning for me. So I mean, you know, that the trade environment continues to be unstable. We have a deadline of July first, which they're gonna blow past as far as ⁓ the US MCA deal. It seems, Omar, that Mexico still is doing a little bit better than Canada, that the president just can't help himself with the taking shots at the Canadians, and the Canadians are really, I think, have now two years of experience of dealing with the Trump threats and everything. So I think USMCA is an example of kind of a disconnect between the business community and ⁓ Republicans on the Hill and the president in that there is widespread support, I think, among ⁓ Republicans to renew the deal and A reminder that the whenever the president criticizes this deal, it's a deal that he made because it is USMCA, it's not NAFTA, and USMCA was negotiated during the first Trump term. So the ⁓ thought of having to unwind the three plus decades of business relationships between Canada, the United States, and Mexico that have been promoted by all three governments over the last three decades is something that I think the business community doesn't even want to think about but Omar, do think this is just a lot of bluster or do you think there's gonna be something more significant to blow up the USMCA? Well, here's the quote from the president. I'm not looking to renew it. So that can be read in a number of ways, obviously, with this president from negotiating standpoints and pressure points on the ⁓ either side. The Canadians, for their part, did come out and say that they would like to see the extension, the sixteen year renewal, and that is their formal position. You referenced July the first. And that is the point where everyone's got to say, well, are we in? Are we out? Are we leaving in 10 years? Are we going to seek changes and modifications? Annual reviews. And this is to your point, we are going to go past this July 1st deadline. There's some considering that some negotiations in certain areas might drift into 2027. And that will create a quite a bit of uncertainty for certain sectors and certain industries. As to your point as well, Mexico is much further along. Than is Canada on the Canadian side. There's still a lot of personality issues that are getting in the way of political issues, so to speak. But it is there's that animosity is is not gone away. And we know how the president can be with certain things, and and those have stuck, especially from some of the conversations that happened back in late October on the World Series. And that brings us to where we are today. US and Mexico have now met on several occasions formally in negotiations and talks on May the twenty eighth and twenty-ninth Mexico City. The US went down there and presented and put forward several proposals. These are public, so we can say that we know they've put forward on automotive, on steel. I shouldn't say on automotive, on steel, on aluminum, and on economic security. They're talking on rules of origin. They've begun that. I don't know if there have been formal proposals beyond what we've seen on that 82% for the regional value content. That would be a 75% increase that they put forward. To Mexico. Note that Canada's not been part of this conversation. So from what we've seen in public, that 82% regional value content, meaning it had to be made in North America, would be split 50-50 between Mexico and the United States. Now, of course, that'll that'll change with Canada coming in. The U.S. would envision that they would take a portion of Mexico. So there's a long way to go here. And it seems that at least that they're talking in a very formal way. The U.S. has put pen to paper. has formally tabled, which means they put forward proposals to Mexico. The next rounds are happening now here in Washington, DC, June fifteenth, sixteen, seventeen, and maybe extended, but again limited to just the United States and Mexico, with the next and third round coming July the week of July twentieth back in Mexico City. So now to that point, we're past that July first deadline. We're drifting well into the summer. The other major partner is not at the table yet, which means we are slipping into the fall. I mean, that's only one aspect of what's going on in the trade world. We have the court case with the one twenty two tariffs that are set to expire. We have three ⁓ one tariffs where one a recommendation by USTR has been announced ⁓ regarding forced labor. Three ⁓ one, we're still waiting for the second one. Again, the one hundred twos are set to expire in July. I don't think, Omar, we're gonna have a court Final court decision by the time those expire, so that'll be a fight that will keep going even after they are probably replaced by 301 tariffs. Well, yeah, before you leave that, on the court cases, I I think you're right. You don't know you'll have solutions, but where we're heading right now, maybe the Supreme Court seems to be the trend where we're going. Just to refresh here, there's the Court of International Trade is the one that's assigned to handle these. It's the one that initially ruled against. The International Emergency Economic Powers Act tariffs that ultimately the Supreme Court held were illegal. Where we are right now is the federal government, Department of Justice has appealed the 122 decision. These are the current 10% tariffs that Paul mentioned are expiring July 24th. That appeal has been allowed to move forward in a decision by the Court of International Trade that the 122s also violated the law using the tariffs for the 122 purpose. Said that he could not. So now what that brings us, the appeals court said yes, that the administration does have a likelihood of success, which is one of the four pillars of test that they've got to check before they allow an appeal to go through. So it seems like this is going to drift and also gives the administration time all the way to July 24th, likely to iron out what tariff rates they're going to be imposing under these 301s. Because as you said, Paul, they've already said some countries are going to be at 10%, others at 12.5%. And that's only one segment. of those three ⁓ one tariff investigations, the other one still hasn't come out yet. Aaron And then Caitlin, we had some more changes to the two thirty two tariffs that were announced. And you know, I think w as we've talked about on our webinar and as Omar talks about to our our clients all the time, I I think that this is an example of the complicated nature of tariffs in general, where you know, the two thirty two tariffs were first imposed during the first Trump administration in twenty eighteen. So they're eight years old when Biden did some tweaking to him, made a c tariff rate quotas for a couple countries, the EU and Japan and the UK, ⁓ and talk about the 232 steel and aluminum tariffs. And then the president came back, got rid of the TRQs, got rid of the exclusion process, made an inclusion process, doubled the tariffs to 50% for steel, and then got rid of the inclusion process. Omar, what's your advice for ⁓ our the members who are listening to this who, you know, need to keep track of what's happening with the two thirty-two? Maybe you could talk a little bit about the latest changes, the latest tweaks, which sounds like somebody from the ag sector got in the White House's ear about the issues that are coming forward with thr ⁓ regarding machinery. Yeah, let's let's set the stage with what they did starting on April the sixth. There's a new structure for the two thirty-twos where they've sorted the different tariffs on imports into annexes. Annex 1A will be largely steel, aluminum, the materials you all use. Annex 1B can be products, derivatives made out of those aluminum and steel and copper. And then you'll get into Annex 3, which was going to be machine tools, industrial equipment, and products that are used to manufacture the goods you all do. Those were going to be at a temporarily reduced 15% rate instead of the 25% for the derivatives on 1B. And the 1A were at 50%. What they've done since, and note that some of those machine tools and some of those other equipments that were on there and the derivatives, they're now would be subject to a tariff at that 15 or 25% on the entire value of the import and not just the metal inside of it. So that could have been a price increase for some people that were bringing in those products or protected them if they're competing against such. What Paul's referring to also just occurred in now in the last couple of weeks. where they've now added on an annex one C. And that allows for a temporary reduced rate down to 15% for certain products, as you said, agriculture, but it also includes mobile trucks and that would cover forklifts. Those that are motorized, non-motorized, electric, non-electric motors. So think of those some sometimes they're orange or they're going to be yellow, where they've got the one arm that you're picking up and manually moving, others that are clearly driven. Those are going to be at a temporarily reduced rate as well. So just when you thought you could settle in on the new August ⁓ sixth regime, they come out with another update. And we're still within the ninety day review period that they announced that USTR and Commerce were gonna report back to the president on how this new system is going. And we know commerce is actively looking at import numbers to see what impact, positive or negative, that April sixth action has now had. Yeah, I know. It's a lot. Paul's just shaking his head for all you walked in on News Channel 8. Yeah, it's a lot to watch, a lot to take in. Both of you Briefly mention, I thought I'd I'd draw attention to it. You mentioned webinars. There are webinars on these topics. ⁓ we have one once a month for PMA and NTMA members. You can contact either association to get either signed up to attend or go on onevoicinfo.org and you can find recordings and other materials related to those webinars. There are also weekly policy conversations that are open to NTMA and PMA members. So if you're interested in learning more, you want more in-depth information, those opportunities are available to members. You can ask either association about it. And our next webinar is going to be Friday, June 26th at noon Eastern. And again, you can register with either of your association there. We will get a lot more detail on the latest on tariffs as well. A lot more detail. What a sell. All right. Okay. Well thanks everybody for tuning in. ⁓ we will be back ⁓ in another couple weeks' time with another episode. In the meantime, please rate and review the show which helps other people find it. Thanks, we'll be back soon. This podcast was recorded in the studios of Policy.