Trump must act now to protect U.S. steel and aluminum

Robert E. Scott

Robert E. Scott Senior Economist, EPI

After long, costly, and unnecessary delays, the Commerce Department has given the White House its reports on the national security implications of steel and aluminum imports. This means that President Trump could finally act to protect U.S. steel and aluminum industries that have been decimated by massive excess production capacity in, and unfair trade by, China and other countries, including South Korea, Russia, India, Japan, Taiwan, Turkey, Brazil, and Vietnam. Action is long overdue. China and other countries have been illegally subsidizing their industries to produce much more steel and aluminum than their domestic markets can consume, and then flooding world markets, especially the United States, with unfairly traded products. Massive amounts of government-supported, excess production capacity is also suppressing prices below sustainable levels, driving domestic producers out of business. The president needs to act promptly to impose tariffs and quotas on a broad range of steel and aluminum products from countries that are responsible for global excess capacity in these industries, as outlined below.

President Trump first gave workers hope for relief last April when he ordered the Commerce Department to conduct special “Section 232” investigations of the risks that imports of aluminum and steel pose to U.S. national security, broadly defined to include disaster preparedness. As the Washington Post explains, “If the Commerce Department finds that imports are threatening America’s industrial base, that [Section 232] legal provision would allow the administration to impose sweeping tariffs or other restrictions” (Swanson 2017a).

While the president promised that the administration would conclude its investigation and act to preserve U.S. steel and aluminum industries before July 1, 2017, those decisions were delayed several times for the G20 summit and talks with China last July, by internal conflicts within the administration (Swanson 2017b), and because of decisions by the White House to put repealing the Affordable Care Act and tax cuts ahead of national security. To be clear, the Trump administration cannot put the blame for this delay on an uncooperative Congress—steel and aluminum trade are purely administrative issues that can be addressed directly through executive action.

The results of the Commerce Department’s steel and aluminum investigations have finally been sent to the president, who has an additional 90 days to decide on any potential action. Relief from unfairly subsidized imports and excess capacity is sorely needed not only to preserve the industries’ capacity to produce the defense equipment and infrastructure needed for national security but also to help save jobs in steel and aluminum. While the Trump administration was delaying taking action, the problem got much worse. Imports of steel and aluminum surged in 2017, as producers in foreign countries raced to get ahead of any potential tariffs or quotas (Swanson 2017b). On top of the hundreds of thousands of steel workers who have lost jobs in the last two decades, thousands of steel workers were laid off between December 2014 and November 2017, and since fall 2017 the press has reported that steel mills will close in Coalton, Kentucky (Associated Press 2018); Ashland, Kentucky; and Conshohocken, Pennsylvania (Gerard 2018; Swanson 2017b). At the same time, production at other plants around the country has been idled or cut back, and additional layoffs have been announced (Swanson 2017b).

The solution to the threats to U.S. national security and jobs must include strong, effective efforts to provide enforceable reductions in global overcapacity in these industries.

Effective relief could spur global industry-wide solutions to rising excess capacity and unfair trade that have become chronic problems in these industries over the past few decades (Paul 2018). As noted by United Steelworkers International President Leo W. Gerard, the Section 232 investigations present an “once-in-a-lifetime opportunity to reset the trade agenda and protect and preserve the jobs of hardworking Americans now and for the future” (Gerard 2018). Arguments against providing relief through the Section 232 process are weak (Scott 2017a). The costs of trade relief have been vastly overestimated (Bivens 2007) and there is little risk that such measures would ignite a “trade war” with China or other countries (Lawder and Walsh 2018). China’s exports to the United States exceed U.S. exports to China by more than four to one, so China has much to lose and little to gain from a tit-for-tat trade war with the United States.

Why immediate action is needed

To date, the trade policies of the Trump administration amount to all talk and no action, and the failure to act has been costly. The prolonged national security investigations in steel and aluminum, which have yet to result in any concrete trade policy actions, have actually injured domestic producers. Imports have accelerated as firms race to beat the clock under the threat of tariffs or quotas, which has hurt the industry more than if the president had taken no action at all.

Surging imports and price suppression of unfairly traded steel and aluminum are decimating U.S. producers.
  • Annual steel production in the U.S. fell 23.0 percent between 2000 and 2016. From January 2000 to November 2017, more than 49,000 domestic jobs were lost in steel mills alone—and the losses rise to more than 64,000 when adding downstream producers of steel products from purchased steel, such as pipe and rails. Surging steel imports, which increased 17.1 percent from 2016 to 2017 (comparing January–November of 2016 with January–November of 2017) have resulted in additional announced layoffs in the steel industry.
  • Aluminum production in the U.S. fell 27 percent between 2000 and 2016. From 2000 to 2017, 18 of 23 domestic smelters shut down and more than 13,000 good domestic production jobs disappeared. Aluminum imports increased 16.5 percent from 2016 to 2017 (comparing January–November of 2016 with January–November of 2017). With only two smelters producing at full capacity left, the domestic industry is literally on its last legs.
Strong domestic steel and aluminum industries are vital to U.S. national defense and infrastructure. But if current trends persist, in time of war or other national emergency, the United States would find itself dependent on unstable import sources.
  • There is now only one domestic aluminum smelter that can make the high-purity aluminum needed for fighter jets and other military aircraft and vehicles and to make rocket fuel.
  • There is only one domestic manufacturer that can make high-quality, grain-oriented electrical steel needed for transmission and distribution transformers for electricity distribution. In the wake of Superstorm Sandy, there were unnecessary delays in restoring power to areas in the Northeast because the United States no longer produced the needed electrical transformers.

Specific actions the Trump administration should take

The Trump administration should impose tariffs and quotas on a broad range of steel and aluminum products from countries that are responsible for global excess capacity in these industries.
  • The solution can’t be China-centric. It must include other major exporters and unfair traders such as South Korea, Russia, India, Japan, Taiwan, Turkey, Brazil, and Vietnam.
  • The solution must reflect a broad and appropriate definition of national security, which should include the electrical grid, pipelines, and disaster preparedness.
  • The solution should come sooner rather than later to avoid continuing surges and additional gaming by importers.
  • The solution must cover a broad range of steel categories and unwrought aluminum products to be effective.
  • The solution must be followed by efforts to restrict circumvention and provide enforceable reductions in global overcapacity.

The Trump administration could use the threat of tariffs and/or quotas to encourage joint action with other countries on excess production by China and other unfair traders (Aleem 2017). The administration could announce global tariffs on all steel imports but offer to change the structure of those tariffs if other countries agreed to a joint plan to crack down on global excess capacity and unfair trade. This would restore steel prices to market-sustaining levels and reduce any competitive disadvantages that could affect downstream steel users in the United States.

The bottom line is that the time has come for the administration to fish or cut bait on steel and aluminum trade. Trump and the Commerce Department have waited too long and further delays will only lead to more layoffs and plant closures and to the permanent loss of steel and aluminum production capacity.

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Reposted from the EPI

Posted In: Allied Approaches

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