Trump's steel tariffs could be a big boost to Biden's infrastructure push

While most experts consider former President Trump’s trade policies to be largely unnecessary and even harmful to U.S. interests, a new study from a left-leaning think tank found that steel tariffs implemented in March 2018 clearly helped American workers.

A report from the Economic Policy Institute (EPI) found that Section 232 measures under Trump, which applied a 25% tariff on imported steel products and a 10% tariff on imported aluminum, protected the domestic steel industry from chronic global excess capacity in major exporting countries.

“These tariffs were directly and simply good for steel producers and their workers,” Robert Scott, a senior economist at EPI, told Yahoo Finance. “It generated more jobs and more investment and more output than the domestic steel industry. … The fact is there was no significant negative impact on the prices of downstream products like cars, one of the biggest users of domestic steel.”

The tariffs improved conditions and encouraged investments, according to the EPI report, while creating 3,200 net new jobs in the steel industry. Furthermore, the report noted, U.S. steel imports fell by 27% in 2019 “with no meaningful real-world impact on the prices of steel-consuming products, such as motor vehicles.”

Those benefits become more relevant in light of President Biden's massive infrastructure plan, which emphasizes both the need for more sustainable materials (including cleaner steel) and the priority of sourcing these products from within the U.S.

“If we want to rebuild our infrastructure in the greenest way possible," Scott said, "then we have to make sure we do it with American-made steel." (U.S. Steel touts a plan to become "a sustainable, carbon-free steel producer.")

'A long-standing problem in steel'

EPI's Scott attributed much of this issue of oversupply to other countries with governments that get involved in the steel industry.

“What happens is that steel is very, very capital intensive,” Scott explained. “It takes billions of dollars to build a steel plant. Once you have the plant in place, it’s relatively cheap to keep it running. If countries like China and Japan and Korea have too much capacity, they have an incentive to protect their own home markets, put up tariff walls, and other kinds of non-trade barriers, non-tariff barriers, and export the excess to the rest of the world."

China is by far the world’s leading producer of steel: In 2019, the country produced 996.3 million tonnes, with India in second at 111.2. Japan, U.S., and Russia rounded out the top five, followed by South Korea, Germany, Turkey, Brazil, and Iran.

"A strong steel and aluminum industry are vital to our national security, absolutely vital," Trump said in March 2018. "Steel is steel. You don't have steel, you don't have a country."

Despite China in the top spot, Scott stressed that the issue is not just about China.

“Countries like Brazil and India and Korea and Turkey have been massively expanding capacity and in almost every case, it’s state supported,” Scott said. “There are many ways in which the state or the government in China and these other countries provide illegal support for steel they view as a critical national champion industry for their industrial planning strategies. This kind of intervention thwarts natural market-driven adjustment."

Scott noted that it's an open debate as to "what kind of intervention is warranted or not," but the fact is that "there’s too much capacity weighing on world demand.” And steel oversupply leads to a drop in prices that hurts countries like the U.S., where there is no government ownership of steel mills and no subsidies to keep them afloat.

“We’ve gone through cycles where — especially after big economic crises in other parts of the world that caused demand for steel to drop — we’ve seen a series of incidences where you have a surge of excess steel production in the U.S. leading to layoffs, closed plants, and in some cases bankruptcy,” Kevin Dempsey, president and CEO of the American Iron and Steel Institute, told Yahoo Finance.

Governments want to have their own steel industries, Dempsey noted, to both support critical infrastructure and export excess steel to the U.S. and other countries.

“Until we get governments out of the business, out of investing in and running steel mills, we’re going to have this global overcapacity problem," he said. "If all the governments agree that there’ll be no more subsidies and we’ll allow the free market to work, we can get to a global market for steel that operates like the market does for steel in the United States where it’s based on market forces, not government policy.”

That's not how the industry has played out historically, however.

“I’ve worked in steel industry trade cases for some 30 years, and the steel industry has been fraught with excess capacity and dumping and other kinds of unfair trade for probably twice as long as that, at least since the 1950s,” Scott said. “It takes a long time to get these tariffs imposed. When they are imposed, they do work, they do constrain imports, and that does help the domestic industry.”

'The tariffs were very important'

In 2014 and 2017, prior to the Trump tariffs, the U.S. saw a wave of imports from outside the U.S. that harmed domestic steelmaking.

“The industry initially tried to fight back and try to get some trade relief and got some tariffs on a few countries, but imports just kept flooding in from other countries,” Dempsey said. “Basically that led to a large number of mills being idle, temporarily closed, and led to thousands upon thousands of layoffs at steel mills around the United States.”

One steel mill in Granite City, Illinois, had to entirely shut down and lay off thousands of workers. But the effects of the section tariffs — higher prices for domestic steel and reduced import competition — enabled the reopening of the Granite City Mill and the rehiring of its workers.

“We’ve been very supportive of the tariffs that have been put in place,” Dempsey said. “We’ve been convinced for some time that the tariffs were very important, especially because of this issue of global overcapacity in steel, which has been a big issue in the steel industry for a number of years.”

Adriana Belmonte is a reporter and editor covering politics and health care policy for Yahoo Finance. You can follow her on Twitter @adrianambells and reach her at adriana@yahoofinance.com.

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