Imports Are Not Shrinking Steel-Industry Jobs, Progress Is
Last week, President Trump informed several lawmakers that he was considering imposing new tariffs on imported steel. The reaction was overwhelming – alarm. Most Republicans and Democrats in the room warned, in effect, be careful what you wish for – new steel tariffs would hurt the U.S. economy and cost Americans more jobs than they save.
A couple of days later, Commerce Secretary Wilbur Ross outlined three options for tariffs, ranging from targeting 12 countries to imposing them on all to imposing quotas. Nothing could be further from the views Republican legislators conveyed to Trump. Sen. Pat Toomey, despite representing the steel state of Pennsylvania, urged caution and stressed the importance of access to steel for the defense industry. Sen. Mike Lee of Utah warned that tariffs could lead to job losses in the United States. But Trump emphasized that he wants to rebuild the steel industry to create jobs.
There are two things wrong with that goal: The steel industry is doing quite well, and the better it does the fewer people it will need to employ. There are few jobs at the end of the steelmaking rainbow – just a more automated industry than ever.
Let’s start with a simple fact: The steel industry is not losing jobs because of imports. Last year, U.S. steel producers satisfied 75 percent of domestic steel demand. It is true that U.S. production of steel has declined since its peak. But job reductions have far outstripped declining production, dropping at least 80 percent since 1953.
If steel jobs are not primarily being lost to foreign competitors, what is responsible for their sharp reduction? Progress – or at least progress in the way steel is made. Since the 1980s, super-efficient mini-mills that make steel largely from scrap metal have largely supplanted integrated steel mills that use raw materials. As a result of this exponential change and other technological advancements, the steel industry has driven up labor productivity dramatically. In the 1980s, when the industry directly employed over a half-million people, it took over 10 person-hours to produce a ton of steel, Now, it takes less than 2 person-hours to produce the same amount of steel.
An industry under threat? Hardly. While steel workers are fewer and farther between, many steel companies are doing quite well. Last year, Nucor Corporation reported its net earnings increased by 65 percent over 2016. Similarly, Steel Dynamics reported record steel shipments in 2017 with record operating income.
Although fewer people than ever earn a living in steel plants, far more workers than ever earn their living in industries that depend on steel. There are only at most 150,000 Americans earning a living full-time in the steel industry, but more than 6 million work in industries that depend on steel, industries likes autos and construction that would be hurt badly by steel tariffs.
Faced with the argument that steel tariffs would drive up the cost of steel and make leading industries less competitive – endangering many of those jobs – Trump tried to tell the legislators that when faced with tariffs, many foreign competitors would “eat a lot of the tax” rather than pass the cost on to American companies. But if that’s the case, what is the point of imposing tariffs in the first place? If they won’t result in a higher price for foreign steel, how does that help the domestic steel industry or spur the creation of more jobs? If a tariff fails to raise the price of foreign goods, doesn’t that just make it a tax – one that fattens the government’s revenue base without creating or saving a single job?
Actually, we can dispense with that worry because foreign producers have consistently made it clear they will pass on costs to Americans rather than absorb them themselves. President George W. Bush reacted to competitive problems in the U.S. steel industry in 2002 by imposing tariffs, only to lift them after 20 months. Foreign producers most certainly did not cut their prices, but domestic producers raised theirs. The result? A study concluded that higher steel prices cost the United States 200,000 jobs – more than 6 times as many as the steel industry claimed the tariffs saved. Many small machine-tool and metal stamping shops were decimated by steel costs that rose as much as 30 percent.
Similarly, when President Obama imposed special duties on tires imported from China in 2009, the measure increased costs in the auto industry by about $900,000 per job saved.
The problem with tariffs on steel or any other product is that your own people pay them. Imposing them is cutting off your own nose to spite someone else’s face. The bigger problem is that the people who actually pay the tariff, in the form of higher prices, include the very industries an economy depends on to thrive.
There is a reason that most of the legislators who met with Trump last week – Republican as well as Democratic – were worried by the prospect of a new steel tariff. They have seen this movie before, and they don’t like the way it ends.