US Steel Tariffs Expand

The Trump administration’s steel and aluminum tariffs are placing unexpected burdens on businesses. The US government has designated goods using steel and aluminum as “derivatives” for tax purposes, and has so far designated approximately 720 items, ranging from construction machinery to tableware. The list of eligible items is being expanded in stages, impacting all sectors.

The tax structure for derivatives is complex. First, the product is divided into the steel and aluminum components and the rest. A 50% tariff is imposed on the purchase price of the steel and aluminum components. A corresponding tariff is then imposed on the portion of the transaction price excluding the steel and aluminum purchase price. For Japanese-made construction machinery, the corresponding tariff is 15%.

When the US government fully implemented its steel and aluminum tariffs in March, it designated over 280 items as derivatives. From April to June, it added canned beer and white goods. In August, it added over 420 categories, including construction machinery, machine tools, lawn mowers, and tableware. To date, the number of items designated as derivatives has exceeded 720.

The US Department of Commerce accepts applications for new targeted goods three times a year. The over 420 categories included in August were filed in May, and applications for September close on the 29th.

If goods that should only be subject to reciprocal tariffs become subject to steel and aluminum tariffs, the costs borne by businesses will increase. Makino Milling Machine Co., Ltd. believes that since one type of machine tool will be subject to tariffs in August, price increases in the US are inevitable.

Yamahiko, a Japanese power tool company that exports lawn mowers to the US, has not yet fully understood the tariff calculation criteria and cannot accurately estimate the impact. A representative from a major Japanese bearing manufacturer stated, “If the steel and aluminum tariffs are not clearly defined, it will be difficult to pass on the price.”

The mechanism for expanding steel and aluminum tariffs to include derivative products has been in place since Trump’s first term. The original purpose was to combat “tariff evasion,” where steel is processed into screws and then exported to avoid tariffs.

In his second term, the scope of the policy has expanded to include goods that meet the requirements of US industry groups and businesses, giving the US production preferential treatment an increasingly strong tone.

The sense of crisis among businesses and industry groups is growing.

In early September, the Japan Construction Machinery Manufacturers’ Association (Minato-ku, Tokyo), a construction machinery industry group, submitted a petition to the Japanese government requesting that the United States exclude construction machinery from steel and aluminum tariffs.

Japan’s exports of construction and mining machinery to the United States in fiscal 2024 will exceed 800 billion yen, accounting for 4% of Japan’s total exports to the United States. August exports to the United States in this sector decreased by 26% year-on-year.

The Tsubame-Sanjo area of ​​Niigata Prefecture, home to a concentration of Western tableware companies, has also been impacted. Spoons, forks, and knives were subject to tariff increases in August.

Yamazaki Metal Industries (Tsubame City, Niigata Prefecture), whose exports to the United States account for 20% to 30% of its sales, is concerned that price increases will reduce sales of its classic products. “If consumers don’t accept the price increase, President Trump will consider suspending sales in the United States during his term,” said Yamazaki Vice President Shuji, expressing frustration.

Asahi (Tsubame City, Niigata Prefecture), which manufactures spoons and other items under original equipment manufacturer (OEM), expressed concern that “orders may decrease.” Small and medium-sized enterprises also face difficulties in obtaining information about tariffs. Groups such as the Japan Metal Western Tableware Industry Association and the Tsubame Chamber of Commerce and Industry in Tsubame City will visit the Ministry of Economy, Trade and Industry in October to gather information on tariff response plans.

According to the July agreement reached between Japan and the United States, the reciprocal tariff rate for automobiles and auto parts will be 15%. With the tariff rate finalized, it should be easier for companies to formulate business strategies that can absorb the costs of the tariffs.

However, the steel and aluminum tariffs have disrupted this plan. Companies will continue to bear the risk of being included as derivative products. At a press conference following a cabinet meeting on September 19th, Japanese Economy, Trade and Industry Minister Yoshiharu Muto stated regarding the expansion of the US steel and aluminum tariffs, “We will work with relevant industries to diligently assess the impact.”

The same problem could arise for products that do not use steel or aluminum. In the United States, tariffs on auto parts also include an additional application system for derivative products. The Trump administration is also considering tariffs on semiconductors and lumber. If lumber tariffs are introduced, establishing a similar system could potentially target all products using lumber.

In September, in addition to the steel and aluminum tariffs, the United States began investigating whether tariffs are necessary in areas such as machine tools and medical devices. The machine tool industry is confused about what tariffs will ultimately be imposed.

US courts are currently debating whether reciprocal tariffs are unconstitutional. Many experts believe that even if they are found unconstitutional, “by expanding the scope of derivative goods, the majority of reciprocal tariffs can be covered by industrial tariffs,” according to Jon Lang of APCO Worldwide.