How Is the Tariff Working Out for the US Steel Industry?
U.S. Steel, one of America's largest metal makers, just announced it'll idle two blast furnaces in the coming months. That could put hundreds of workers out of a job.
The announcement is just the latest indication that President Trump's 25 percent tariff on steel imports may have unintended consequences.
When the president announced the tariff in March 2018, he predicted the taxes on foreign steel imports—taxes that Americans, not foreigners, must pay—would "help our domestic steel industry to revive idled facilities, open closed mills, preserve necessary skills by hiring new steel workers, and maintain or increase production."
The tariff failed for two main reasons. First, they raised production costs for thousands of companies ranging from auto manufacturers to oil and gas firms. Many companies scaled back their expansion plans and therefore had less need for steel products, whether foreign or domestic.
Second, the trade war has cooled the global economy, depriving U.S. steel plants of export opportunities.
To be sure, the tariff did give the U.S. steel industry an initial boost. United States Steel Corp. reopened two blast furnaces. And many domestic plants began raising prices. Thanks to the tariff, they could charge more and still be less expensive than foreign manufacturers.
Preliminary data from the Bureau of Labor Statistics shows that the number of people working in iron and steel mills grew from 82,087 in April of 2018, just after the steel tariff implementation, to 84,913 last December. That's an increase of about 2,800 jobs. And U.S. steel manufacturer stock prices initially surged.
But those initial job and share price gains proved fleeting. U.S. Steel's stock hit a record $45.39 in early March of last year. Today it's $15.00—about a 70 percent drop.
And the firm is not alone.
Nucor Corp.'s stock dropped from its peak of nearly $70.00 a share in January of last year to $55.50 today. And Steel Dynamics Corp. has declined from its peak of $50.74 in early June of last year to $31.00 today.
These firms' share prices are plummeting even as most stock indices are hitting record highs. Why? Steel prices are falling. The price of hot-rolled steel has declined 35 percent since reaching a near-decade high last summer, according to S&P Global Platts.
Steel manufacturers' fortunes are tied to the health of a number of other industries. Steel companies can't succeed if those industries are struggling—and many of them are.
Consider agriculture. China responded to President Trump's steel tariff by imposing its own tariffs, including many on agricultural products. Sales of soybeans and many other products have tanked since the implementation of tariffs. And decreased sales means prices have also tanked—so much so that the president has twice announced that he is making federal tax dollars available to farmers who have been hardest hit.
Agricultural firms use steel in everything from barns to combines. When farmers suffer, so do steel manufacturers.
Likewise, the energy industry is a major buyer of steel. Energy firms use steel for drilling rigs, pipelines, refineries and tankers that carry liquefied natural gas to other countries. Almost every aspect of energy production requires steel.
The automotive industry is also facing economic headwinds. After bottoming out in early 2009, due to the recession, auto sales rose steadily until early 2016. Since then they have remained flat, which is odd given the relatively strong economy.
President Trump has complained, correctly, that other countries imposed higher tariffs on the United States than the United States did on them. And he was the first to aggressively call out China for its tech transfer and intellectual property indiscretions.
But it isn't clear that pulling the steel tariff trigger so quickly—and so often—was the best and wisest way to address these foreign policy challenges. We are well over a year into the trade war and it's not clear that an end—especially a desirable end—is in sight.
President Trump presumably wants to help the steel industry prosper. To do that, his administration needs to find an acceptable tariff exit strategy as quickly as possible.
Merrill Matthews is a resident scholar with the Institute for Policy Innovation in Dallas, Texas. Follow him on Twitter @MerrillMatthews