Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.
U.S. President Donald Trump has ordered an urgent review of whether his country’s dependency on steel imports is a threat to national security. Yes, you read that right. If the administration finds in the affirmative, it could impose sweeping import restrictions on steel.
This is a simplistic, antagonistic and oddly-timed solution to a complex problem. Mr. Trump’s gambit isn’t altogether surprising, though.
The U.S. is the world’s largest steel importer and foreign steel accounts for about 30 per cent of the market. In the Trumpian world view, exports are good, while imports are evidence of weakness. His nostalgia for fallen industries such as coal and steel is well-documented. But while the collapse of U.S. steel employment was painful for those affected, the country is no longer such a force in the industry. Today, steel making employs about 140,000 people, a fraction of the 160 million strong U.S. labour force.
So Mr. Trump is risking a lot for a small industry. The last time the United States imposed broad-based tariffs on steel in 2002, it caused international uproar and Europe threatened $2-billion (U.S.) in retaliatory sanctions.
And is relying on steel imports really a security threat? National defence accounts for just 3 per cent of U.S. steel consumption, according to Jefferies. Last time I checked, Canada wasn’t planning an invasion.
The President insisted on Thursday that the review had “nothing to do with China.” And, in one sense, he’s right. The United States accounts for about 2 per cent of China’s steel exports, whereas 60 per cent goes to countries neighbouring China, according to Citi Research. But in steel markets, China is everything. Its massive surplus capacity – a legacy of over-investment – inflicts pain on everybody by putting downward pressure on global steel prices.
China claims to have shuttered 65 million tons of steel capacity last year and is promising to axe another 50 million this year. That clearly isn’t enough: In 2015, there was about 300 million tons of surplus capacity. Plus, the recent fall in China’s domestic steel prices is worrying because it might encourage more exports. But Beijing has at least realized that its steel industry is a problem and started to do something about it. U.S. interests are best served if that continues.
Meanwhile, the lot of U.S. steel makers is improving. That’s partly because the country has already imposed anti-dumping curbs on imports. These seem to be taking effect. U.S. steel imports fell last year, domestic capacity use has improved and the price difference between American and Chinese steel has widened, analysts at Jefferies note.
True, those higher prices are catching the eye of foreign producers who’ll doubtless try to sell more stock to the United States. But for now the local improvements will probably support local profits. The performance of U.S. steel stocks shows that investors agree.
Besides making allies angry, sweeping tariffs would probably push United States steel prices even higher. While that would be nice for steel makers such as Nucor Corp. – which forecast better earnings this week – and United States Steel Corp., it would also raise the price of Mr. Trump’s vaunted $1-trillion infrastructure plan. Steel-dependent industries such as car making would suffer, too.
Mr. Trump probably can’t help Pittsburgh without putting a dent in Detroit.