GERARD SCIMECA – CHAIRMAN, CASE

June 29, 2018 – https://bit.ly/2KHS7LK

The words “Made in China” now hang in the balance on whether the Trump administration will declare a trade war on imported steel and aluminum, and use tariffs as a sledgehammer for negotiating a better, long-term trade deal.

The president has doubled down on his commitment to enforce tariffs on Chinese steel and aluminum, actions that offer a Pyrrhic victory for America’s 140,000 steel workers but at great cost to steel consuming manufacturers in America who employ 6.5 million workers.

As the U.S. remains on the precipice of a trade war with China, we should examine whether it is wise to barter for the economic vitality of one layer of American industry — a struggling steel industry — while imposing increased costs on many other sectors of our economy, including agriculture, automakers, various manufacturing companies and energy producers.

The United States has frequently tried to go the protectionist route of tariffs, and often with terrible results. Whether it was the more recent Bush administration steel tariffs in the early 2000s or the Smoot-Hawley tariff act going all the way back to the 1930s, it’s clear that strategic trade, not free trade, has a populist political allure.

It’s a line of economic debate and thinking that matches the theme of President Trump’s “America First” drumbeat.

This is what drove the Trump Administration to initiate, in 2017, a Section 232 National Security investigation into whether imports of steel and aluminum were adversely affecting U.S. national security. The investigation focused on China’s decades-long program of subsidizing its steel and aluminum industries, which has resulted in global oversupply of steel and the consequent suppression of global prices.

The Commerce Department’s section 232 findings indicated that imported steel and aluminum “threaten to impair the national security.” The president accepted these conclusions and moved to impose tariffs of 25% on steel imports and 10% on aluminum imports, ensuring that the U.S. industries would be able to sustain sufficient capacity utilization rates to remain competitive. Or so Trump’s economic advisors seem to think.

No one has a crystal ball to predict the future, but by referencing the aforementioned Bush steel tariffs, we can see the likely ill effects. In 2002, President George W. Bush imposed tariffs on imported steel products following a period in which 30 American steel manufacturers declared bankruptcy.

According to a Trade Partnership Worldwide analysis, these steel import tariffs resulted in 200,000 Americans losing their jobs across a variety of industries. Workers lost approximately $4 billion in wages and American steel consumers bore a heavy cost. The tariffs were so disastrous that Bush lifted them just a year after they were implemented.

On a more micro-scale, steel tariffs have severe implications for a variety of industries, for example the oil and gas industry. Oil and gas production is steel-intensive, with steel products needed for drilling, pipeline, onshore and offshore production facilities, refineries, LNG terminals, refineries, and petrochemical plants.

Tariffs on steel pipe and other products will increase the cost of production, particularly with respect to deep water projects in the Gulf of Mexico, and quotas will cause delays because U.S. substitutes are not immediately available or have not been qualified.

Niche Markets

Pipeline-grade steel is a specialty product. It must meet high quality specifications not required for other steel products (pipeline steel can’t be brittle or it could crack and cause a pipeline incident). American steel manufacturers have largely exited the niche pipeline market because it is relatively small and involves higher costs and lower margins.

Today, U.S. steel producers are capable of meeting just 3% of the total steel required by the energy pipeline industry.

There is little doubt that the steel import tariffs will have an effect on the competitiveness of the U.S. oil and gas industry, among others. In fact, these tariffs run counter to the Administration’s policy of U.S. energy dominance.

Steel tariffs could open Pandora’s box. In attempting to revitalize U.S. manufacturing, we shouldn’t risk being drawn into a trade war. The Trump administration must examine the effects of trade policies across the full industrial spectrum. Steel tariffs represent a dangerous blunt foreign policy instrument that could easily do more harm than good, threatening both America’s energy and economic resurgence.