The current outlook for the American steel industry and industries that rely on steel presents yet another punishing lesson on trade. The 25% tariffs on imported steel, put into effect in March 2018 with the express goal of saving the American steel industry, may have had the opposite effect. In the past month, U.S. Steel has announced layoffs and disruptions for multiple plants across the country, as well as a bleak Q3 profit forecast. It’s time to admit that steel tariffs aren’t delivering salvation for our steel industry, nor are they making China buckle.
The Trump administration, to its credit, has done an admirable job fighting to break up unfair foreign trade practices, but the desired outcomes of certain tariffs aren’t materializing. In fact, the just the opposite has occurred.
One of the goals of the administration was to help rid the market of cheap foreign steel, which in turn would theoretically insulate American steel production from anti-competitive global trade practices. A 25% tariff on foreign steel was the means to accomplish this goal but it isn’t working.
After an initial rise in prices after the tariff was imposed, American steel prices have returned to pre-tariff levels, and employment opportunities aren’t growing. Steel not only remains immobile, but the market no longer has faith in American steel manufacturers either. Stock prices for major steel companies have fallen precipitously across the board. Investors aren’t confident the industry is able to thrive without being artificially propped up by tariffs, and those tariffs may go away with Trump’s presidency.
Steel is a commodity, and commodities don’t exist in a vacuum. Commodity price increases have a ripple effect across all the products that use the commodity. Many of these are unintended consequences. The overall price increase of steel has forced steel-consuming industries to restrict their projected activity to adjust to the higher prices by cutting employment, scrapping expansion projects, or reducing output altogether. In turn, that means less business for the steel companies in the long run, even though they have a temporary and artificial corner on the market provided by the 25% tariff.
The major steel companies and their employees are starting to feel this strain. U.S. Steel, America’s second-largest steel producer behind Nucor, has announced they will be laying off almost 200 workers and idle two furnaces due to a “multitude of factors” that include low demand and lower steel prices. Other industries are affected, too.
American Keg, a stainless-steel beer keg manufacturer, laid off one-third of its employees due to increased prices which they have also passed along to their customers, some of which are switching to foreign vendors.
The oil and gas industry relies on highly specialized steel generally unavailable from domestic steel mills for critical equipment. Steel is used in rigs, pipelines, oil fields, refineries, and fuel storage; all of which become more expensive to construct and maintain when steel is more expensive. In fact, steel tariffs have already affected energy producers. All American Pipeline LP, a pipeline operator, has recently announced they will be tacking a fee on energy companies using their new pipeline to recover steel tariff losses. When the cost of recovering oil and natural gas becomes more expensive for energy companies, the cost the consumer pays for those products will naturally rise as well. That usually means more out of your pocket in monthly energy bills and at the pump.
The most important thing to consider is that steel tariffs hurt the American consumer. Because steel is in so many of the products we use, from oil rigs to safety razors, a tariff means price hikes for you and me. Steel is used in farming equipment, and if farmers are paying more for their equipment then we will be paying more for our food. Energy companies use steel in almost all their projects. Higher expansion and operating costs for the energy sector will create higher electric, gas, and heating bills.
If the steel industry isn’t being revived as was intended by these tariffs, then the rest of America is taking a serious financial hit with zero benefits. It’s time we call on the administration to end these ineffective tariffs on foreign steel. When U.S. Trade Representative Robert Lighthizer soon meets with Chinese Vice Premier Liu He for talks, it could create a perfect opportunity to end steel tariffs within the broader context of fostering healthier U.S.-China trade relations.
Colin Hanna is president of Let Freedom Ring, a conservative nonprofit based in Pennsylvania. Their website is LetFreedomRingUSA.com.