Why Trump tariffs haven't revitalized American steelmakers
U.S. president's fight against foreign steel overshadowed by trade war with China
U.S. President Donald Trump's move last year to tax imported steel triggered jeers but also cheers. Its goal — to raise steel prices — threatened to hurt the legions of U.S. manufacturers that depend on steel.
But at least it would benefit steel companies and the Americans who work for them. That was the idea, anyway.
Yet Trump's 25 per cent tariffs, it turns out, have done little for the people they were supposed to help. After enjoying a brief tariff-induced sugar high last year, American steelmakers are reeling. Steel prices and company earnings have sunk. Investors have dumped their stocks.
The industry has added just 1,800 jobs since February 2018, the month before the tariffs took effect. That's a mere rounding error in a job market of 152 million and over a period when U.S. companies overall added nearly four million workers. Steelmakers employ 10,000 fewer people than they did five years ago.
"Even with these very high tariffs, the industry has not been able to take advantage," said Christine McDaniel, a senior research fellow at Mercatus Center, an economic think-tank at George Mason University.
Trump's pledge to rejuvenate the steel industry had helped him win votes in the 2016 election in such key states as Ohio, Pennsylvania and Wisconsin. His inability to deliver a boom for the industry raises doubts about how he'll fare in those states in 2020. Voters will be weighing whether to move on from Trump or reward him for at least taking the fight to foreign steel mills.
What's caused steel prices to fall are factors ranging from lower demand — thanks to a weaker global economy — to the industry's own rush to boost production after Trump's tariffs took effect.
For the first few months after Trump's tariffs took effect, steel prices did rise. The price of a metric ton of hot rolled band steel hit $1,006 US in July 2018, according to the SteelBenchmarker website, which tracks steel prices. Since then, it has plunged to $557 — lower than before the tariffs.
"Over time, (pricing has) come down, down, down, down, down," said Mark Lash, president of United Steelworkers Local 1066 in Gary, Ind., which represents about 1,400 workers at US Steel's plant there.
The president's campaign against foreign steel has been overshadowed by his trade war with China over Beijing's industrial policies, which are widely seen as predatory. But the steel tariffs came earlier and demonstrated Trump's willingness to overturn seven decades of U.S. free-trade policies and aggressively target imports.
By taxing imported steel, Trump risked raising costs for the many U.S. industries that use steel, straining ties with American allies and defying the limits of his authority to unilaterally punish trading partners.
But Trump was determined to revive heavy industries like steel and protect them from what he termed unfair foreign competition. He installed a veteran lawyer for the steel industry, Robert Lighthizer, as his top trade negotiator.
The impulse to protect steelmakers was in some ways odd. After all, the economic benefits of protecting steel are modest: The industry employs just 142,000 people. By comparison, Home Depot alone employs 400,000. And the newest steel plants are highly automated. They don't need nearly as many workers as steelworks of the past did, so the potential job gains are limited.
Nevertheless, Trump's trade team decided steel was worth fighting for. For decades, good-paying steel jobs had lifted millions of blue-collar workers into the middle class.
One of them, Doug May, spent 43 years working at US Steel's Granite City plant in Illinois before retiring. Since the Great Recession, that plant has idled and restarted its furnaces at least twice. Despite the instability, May says the Granite City plant provided a solid job.
"You can really raise a family," he said. "I sent three boys to college working there."
Initially, steelworkers cheered the tariffs.
"Right after Trump made the announcement, US Steel announced that they'd be restarting one of the two furnaces they'd idled," May said. "Everybody was pretty excited."
Trump had unsheathed an unconventional weapon. Section 232 of the Trade Expansion Act of 1962 gives the president broad authority to tax imports that his Commerce Department decrees a threat to national security. Section 232 tariffs are also hard to challenge at the World Trade Organization. The WTO grants countries broad leeway to determine their national security interests.
In January, Trump boasted on Twitter: "Tariffs on the 'dumping' of Steel in the United States have totally revived our Steel Industry... A BIG WIN FOR U.S."
The good times didn't last.
The first sign of trouble showed up on the stock market. Shares of steelmakers had topped out on Wall Street in February 2018 before the tariffs hit. Since then, the NYSE Arca Steel Index has plunged 32 per cent.
And the tariffs have so far done nothing to blunt China's dominance. China accounts for 54 per cent of world steel production. The United States, five per cent.
What went wrong?
Growth is slowing in the United States and worldwide partly because Trump's own tariffs have raised costs and escalated uncertainties for businesses. Slower growth means less business for steel mills.
"Market demand right now is relatively soft," said Charles Bradford, an independent steel analyst.