Make No Mistake, the Steel Industry Was Harmed by Steel Tariffs
President Trump has repeatedly cited the steel industry as an example of the effectiveness of his import taxes. Unfortunately, it is proving how ineffective - even counter-productive - they are.
Just a few days ago, U.S. Steel illustrated the industry’s problems when it idled a plant in Michigan, laying off about 200 workers. This follows the company’s announcement in July that it would also idle a plant in Gary, Indiana. The two moves will cut U.S Steel production by about 200,000 tons.
The industry is mothballing plants, laying off workers, eliminating jobs, dropping prices and taking a beating in the stock market. Since Trump imposed tariffs of 10-25 percent on steel and aluminum 16 months ago, steel has become a textbook example of the costs of protectionism.
Ironically, while the tariffs were intended to save the steel industry, they have actually sped its decline.
Just last week, Trump told a rally in Pennsylvania that the American steel industry is rebounding, and his 25 percent import taxes in foreign steel had turned a “dead business” into a “thriving industry.” Last month, he told steelworkers in Illinois that “workers are back on the job, and we’re once again pouring American steel into the spine of our country.” He has claimed in the past that U.S Steel was opening as many as eight new plants. The company disagreed, and no new plants are being constructed.
Unfortunately, the promises have been belied by reality - a reality that the industry is being remade, with mixed results at best and jobs for fewer workers.
Trump’s tariff increase on imported steel has offered short-term gain for long-term - or even medium-term - pain. The industry boomed briefly when domestic auto and construction companies stocked up on steel. But it turned out to be a sugar high, as companies inventoried what they purchased only for demand to dampen. While stronger steel companies such as Nucor aggressively boosted capacity to grab market share, older, less nimble companies like U.S Steel struggled to compete.
Jobs are down. In November, the American Iron and Steel Institute reported that employment in the steel industry had declined by 4 percent in four years. In fact, the industry’s attempts to rejuvenate itself have eliminated jobs because of increased automation. For every job gained as a result of the tariffs, in aluminum as well as steel, about five jobs will be lost in other industries, according to estimates provided by The Trade Partnership. In fact, the association calculates, the tariffs will cost the U.S economy about 150,000 jobs.
Prices are down. Last year’s glut in supply, combined with a drop in demand, has sent prices tumbling.
Perhaps most alarmingly, share price is down precipitously. U.S Steel lost almost 70 percent of its market value - or $5.5 billion. The company - like rivals Nucor and Steel Dynamics - has just reduced its earnings outlook.
Make no mistake, the market is voting with its feet - or its stock portfolios. The judgment? The tariff isn’t helping the domestic industry; it is more likely hurting it.
Ironically, the steel industry has been harmed, rather than helped, by the import duties, as its most important customers have taken a severe hit. The raw material cost of a U.S-built vehicle is up 10 percent. Ford has said the tariffs, on aluminum as well as steel, have cost the company a billon dollars. GM has reported a quarterly jump of about $300 million in commodity prices, year-over-year.
The construction industry has also felt the pain, with the cost of residential and industrial construction both up by about 5 percent as of November, according to the Associated General Construction Association. The cost of fabricated structural metal had shot up by 12 percent, metal strips and rebar by 12.6 percent, and structural steel for non-residential buildings by 13.1 percent.
Costs are up. Jobs, prices, and the steel stock ticker are down. As an experiment in industrial planning, the steel tariff has failed miserably. Isn’t it time to admit that and call an end to it?
