Steel Imports and the National Security Myth
Samuel Johnson once called patriotism ‘the last refuge of a scoundrel.” Whether or not that is true, national security is certainly the last refuge of the protectionist. We are seeing that once again in the debate over imported steel. Faux concerns about ‘national security’ are becoming the thin last line of defence of the domestic steel industry.
President Trump is expected to raise the issue of steel imports and national security at the G20 summit later this week. Soon after, the Commerce Department will release the findings of an inquiry prompted by invoking a seldom-used provision of the trade law to investigate whether imposing import restrictions for steel is justified for national security reasons. This could lead to the imposition of broad new quotas and/or tariffs on imported steel. And it could mark the beginning of an Administration campaign to use national security as a club against foreign exporters, as well as the American consumers and industries that benefit from them. The Commerce Department has already launched a similar probe into aluminum, and Commerce Secretary Wilbur Ross has indicated that semiconductors and shipbuilding might be the next targets.
After a similar investigation in 2001, on iron ore and steel, Commerce found no evidence that imports of the two materials threatened to impair U.S. national security, nor the ability of domestic producers to satisfy national security requirements. There is no reason to believe that any fair inquiry would find differently today. Between domestic producers and friendly foreign suppliers, the United States has far more than enough steel to meet security and defense needs. The amount of steel used for national defense and homeland security comes to a small drop in a large domestic production bucket. The American Iron and Steel Institute has estimated that defense and security needs account for only 3 percent of total domestic steel shipments. Last year, that would have come to less than 3 million metric tons, out of the roughly 80 million metric tons of steel that the U.S. industry produced. In 2016, about three-quarters of all the steel used in the U.S. economy was sourced domestically.
And imports overwhelmingly come from friendly sources. Of the 10 leading steel exporters to the U.S. market, eight are NATO allies, NORAD allies, NAFTA partners, and other friendly nations. Among them these countries generate roughly three-quarters of steel imports to the United States (which themselves total only about one-quarter of all steel used in the United States.) The base of foreign steel suppliers to the U.S. economy is diverse, drawing from companies in more than 100 countries and territories, ensuring that Americans are not dependent a small circle of suppliers.
Of course, the bogeyman of domestic steel producers and unions has been China, which is depicted as a threat to security of steel supply. But last year, steel imports from China dropped by almost two-thirds – from about 3 percent to less than 2 percent of U.S. imports. And China fell out of the list of top 10 exporters to the U.S. market.
In the face of the enormous evidence that steel imports do not represent a potential threat to defense, protectionists are changing their excuses for branding steel imports a threat to national security. They are broadening the definition of what actually constitutes national security, beyond military technology and supplies. In fact, they are twisting the definition of national security out of shape to include transportation infrastructure, large domestic products, and power generation – such as steel used to drill for oil and natural gas, or to ship it, or for transformers used to transmit electricity. And Ross is focusing on specific needs such as specialty steel required for industrial transformers. But ensuring that domestic consumers, including the military, have access to the widest variety of specialty products is all the more reason for keeping the U.S. market open. And many importers say that domestic steelmakers do not make the quality steels they need at affordable prices. Moreover, countries that trade with each other and are economically integrated usually have closer and more positive relationships. Open trade borders make for better allies.
In fact, imposing tariffs or quotas on imported steel would actually weaken America's industrial base, and diminish its ability to meet national security needs. The manufacturing companies that consume steel as an input far outweigh those that make it. Steel companies directly employ only about 140,000, a fraction of the more than 900,000 employed in the auto and auto parts sectors alone. Driving up the price of steel would only undermine their ability to meet U.S. needs, including national security. The U.S. benchmark price for steel last year rose 55 percent after a series of successful anti-dumping cases, a cost that flows to the Pentagon.
National security depends on the widest possible circle of friendly suppliers to foster alliances, increase choice and keep prices reasonable – not a tight cartel to narrow choice and drive prices up. It depends on a strong economy, not a weak one. The best way to strengthen the U.S. economy – and national security – is by opening the economy up, not by closing it.