Policymakers Must Act Fast to Bolster Steel Sector Amid Coronavirus Shock

While the immediate economic impacts of the coronavirus pandemic have been disruptive to markets and some supply chains, the longer-term impacts are still coming into focus. 

The view from 30,000 feet is dire. The OECD is expecting global growth to brake hard this year, and finance ministers across the globe are now pledging monetary assistance to their respective economies.

The view from your front porch, though, probably doesn’t look too different yet. Some stores are beginning to have trouble keeping hand sanitizer on the shelves. There are runs on facemasks. Price-gouging for these items is taking place on Amazon. 

But if you want to find an industry that is already concerned, look no further than the steel sector, which seems hardly logical until we examine why. While short supplies are a concern for most American industries like pharmaceuticals, for steel, it’s just the opposite.

In steel you can see the trouble brewing from afar, and right now we’re watching what happens when a massive downturn runs into the brick wall that is state-led capitalism. The pace of the global steel market is set by the state-dominated Chinese steel industry, which accounts for 53 percent of the world’s output. And during the first months of a viral outbreak that caused an economic standstill in mainland China, the state-led steel sector only tapped its brakes.

While steel output slowed in China, but its steelmakers took no furnaces offline. The result: record stockpiles of products like rebar.

So between the looming virus-related slowdown and the glut of Chinese steel poised to enter the global market, what’s in store for American steelmakers?

We can’t afford to allow the mistakes of the past to repeat themselves. During the Asian Financial Crisis in the late 1990s, the answer from regional economies was to ramp up industrial production, devalue their currencies, and dump their steel in America, which is the world’s top steel importer. These economies essentially exported their unemployment problems to the United States, and our steel industry collapsed. The result was dozens of bankruptcies and tens of thousands of layoffs across the country.

Something similar happened just over a decade ago, in the aftermath of the Great Recession. American steelmakers slowed their production in step with demand while the Chinese competition, which was fast becoming the world’s dominant industry, was not nearly as nimble. Overcapacity in the steel sector drove prices down domestic steel was again pushed toward a breaking point.

Now on the cusp of another slowdown, the steel industry’s only saving grace are the substantial steel tariffs already in place on Chinese and some other imported steel. The “Section 232” tariffs President Trump raised in 2018 now cover about 20 to 30 percent of all steel imports,  and they come on top of anti-dumping and countervailing duties the Obama administration placed specifically on many types of Chinese steel, citing the raft of subsidies showered on the industry there.

The U.S. produced 88 million tons of steel last year, with capacity levels floating close to market demand. But all of those American tariffs, however, still haven’t had much effect on reducing the overcapacity in the Chinese steel industry, whose production ticked up 8.3 percent last year on the way to churning out nearly one billion tons – again, more than half of the world’s total output. 

To stave off another steel crisis, we should carry forward the lessons from slowdowns past. There are two big ones that spring to mind.

First, we shouldn’t take the steel tariffs off and invite an import surge. Surges have proven disastrous for American steelworkers before. They must not be asked to drown in another one. 

Second, we should boost demand on our own terms. We’ve starved our bridges, railroads, ports and highways of maintenance long enough; Washington should pass an infrastructure package. That means repairing what we have, like municipal water and electric infrastructure that can be made “smart” and more efficient; and building out the foundation for what we don’t, like a national 5G telecommunications network that will be necessary for the next decade of economic competitiveness.

Public investment like this makes sense now. It’s cheap to borrow, and private sector demand is likely to be soft as we look ahead. One trillion dollars or more of new infrastructure investment would help our economy through what could be a turbulent few years and keep America working.

In some crises there’s a kernel of opportunity. That’s the case with this one. The formula for the steel industry is simple: Keep the import surges out; don’t weaken the tariffs. And create demand by boosting infrastructure spending now. The economic shock caused by the coronavirus will require a bold and strategic response from policymakers.

For America’s steelworkers, this means the government has their backs on imports and infrastructure.