(Photo via hlf.com.ar)

Following the US Department of Commerce’s preliminary tariff increase on Argentine biofuels from 4.5 to 57 percent, the Macri’s administration has appealed to the US government to halt the increase.

Macri sent a message to US Vice President Mike Pence to express his dismay at the new tariff and to appeal for a reduction. Although the text of Macri’s message to Pence was not public, the government said that it would “look to revert this decision in order to defend the interests of Argentina, evaluate all of the available options, and reserve the right to take legal action.” According to La Nación, the tariff has “created the first diplomatic crisis between President Mauricio Macri’s administration and that of his friend, Donald Trump.”

The US Department of Commerce’s August 22 announcement occurred after Pence visited Macri in Buenos Aires on August 15. During his visit, the US vice-president lauded Macri for his free market reforms and seemed positive about the prospect of warmer bilateral trade ties. “We believe that Argentina’s turn toward free market principles – re-entering global capital markets and bringing about the kind of reforms that President Macri is advancing – will support jobs and opportunities in the United States, and it will invite more foreign direct investment from our country here,” Pence said.

Evidently, the US Department of Commerce’s preliminary decision reflects the Trump administration’s effort to nudge Argentina toward its vision of free market principles.

Specifically, the US Department of Commerce stated that Argentine biodiesel exporters have been receiving subsidies of 50.29 to 64.17 percent. Since Jan. 20, the US has initiated 56 antidumping and countervailing duty investigations, a clear indication of the Trump administration’s policy to increase measures to protect the US economy. As a result, the US maintains “404 antidumping and countervailing duty orders which provide relief to American companies and industries impacted by unfair trade,” according to the US Department of Commerce.

The potential tariff imposition could have immense consequences for Argentine exporters. Exports to the US from Argentina have exploded since 2014, a year when Argentina exported 156,497 metric tons of biofuel worth US $136.03 million. In 2016, Argentina exported 1.48 million metric tons worth US $1.2 Billion. Since biodiesel exports represent 25 percent of all Argentine exports to the US, the imminent negotiations will be critical for Argentina.

The US is set to make final tariff decisions on Nov. 7, enough time for Argentina to negotiate the tariff down or take its dispute to the World Trade Organization (WTO). In fact, the WTO ruled in favor of Argentina in an anti-dumping dispute against the EU last year. Although Argentina’s dispute with the US is far different in terms of volume and the players involved, if Argentina is unable to change the tariff without mediation, it will likely make use of the WTO.

However, it is also possible that the 57 percent preliminary ruling is a negotiating strategy. After all, the US National Biodiesel Board (NBB) only asked for a 23.3 percent tariff when it denounced Argentine dumping. “We’ve received information of potentially 75 million gallons of biodiesel flooding our ports soon — a significant increase from the import levels we saw in January, February and March,” said Anne Steckel, vice president of federal affairs at NBB, on June 28. “We filed the petition to level the playing field for US producers, and the NBB Fair Trade Coalition will use every legal tool available to address these unfairly traded imports.”

The US government already provides heavy subsidies to national biodiesel producers. Most notably, the Renewable Fuel Standard program requires that a certain percentage of biofuel must be mixed into the fossil fuel supply. As Tim Worstall, a Fellow at the Adam Smith Institute in London noted, “Refiners who don’t [mix in biofuels] must buy credits from those who do. These credits have a positive value and are therefore a subsidy, from consumers’ pockets, to the production of those biofuels.”

Because the Trump administration has strong political incentives to increase tariffs in order to advance its “America First” agenda and keep campaign promises, Argentina may find it difficult to negotiate the tariff down. Although the specific amount may change as the two countries negotiate, it is just as likely that Argentina takes the dispute to the WTO.