Trump’s steel tar­iffs plan car­ries se­ri­ous risks

Re­strict­ing for­eign im­ports could lead to higher prices and job losses in the U.S.

Los Angeles Times - - BUSINESS - By Don Lee

WASH­ING­TON — Pres­i­dent Trump was stand­ing on the banks of the Ohio River, and as barges loaded with West Vir­ginia coal floated by, he noted that half the United States’ steel is pro­duced within 250 miles and told the crowd that soon “the steel folks are go­ing to be very happy.”

Within that same dis­tance lies the bulk of the U.S. auto in­dus­try, which the pres­i­dent also has promised to pro­tect. But car­mak­ers are dread­ing what Trump ap­par­ently was al­lud­ing to: plans to im­pose sig­nif­i­cant puni­tive tar­iffs or quo­tas on steel im­ports.

Trump has promised to crack down on un­fair for­eign traders and re­store the for­tunes of Amer­i­can man­u­fac­tur­ing. Few in­dus­tries are as im­por­tant as steel­mak­ing, and Trump sees steel as an em­blem of in­dus­trial power as well as be­ing vi­tal to the coun­try’s na­tional se­cu­rity.

But the pres­i­dent faces a co­nun­drum: Mak­ing good on his Cincin­nati pledge this month may help do­mes­tic mills by re­strict­ing for­eign steel and boost­ing U.S. steel prices. But that same ac­tion al­most cer­tainly will mean higher costs for Amer­i­can mak­ers of cars, ap­pli­ances, ma­chin­ery and con­struc­tion ma­te­ri­als, and for many other man­u­fac­tur­ers that cut, bend and oth­er­wise fab­ri­cate steel. That could lead to higher prices for con­sumers and job losses.

“I’m sym­pa­thetic to Amer­i­can steel mills, but if they pro­tect do­mes­tic steel, they’re go­ing to be hurt­ing steel fab­ri­ca­tors, which em­ploy a hun­dred times more peo­ple,” said Drew Green­blatt, chief ex­ec­u­tive of Mar­lin Steel Wire Prod­ucts, a Bal­ti­more com­pany that buys only U.S.-made steel. Green­blatt has been pay­ing more for the metal since Trump’s elec­tion, as prices have risen partly in an­tic­i­pa­tion of com­ing mea­sures.

Oth­ers, such as Cal­i­for­nia Steel In­dus­tries in Fon­tana and the Port of Los An­ge­les, have voiced op­po­si­tion to blan­ket re­stric­tions on steel im­ports, say­ing the kinds of slab steel that are im­por­tant for their busi­nesses and em­ploy­ment are not read­ily avail­able from do­mes­tic pro­duc­ers. Nor do an­a­lysts think that tar­iffs would ad­dress the key prob­lem — ex­cess steel out­put in China that has caused a global glut and down­ward

pres­sure on prices.

None of that may mat­ter to Trump and his trade of­fi­cials. Two months ago, the pres­i­dent or­dered a study of for­eign steel ship­ments, and its find­ings and rec­om­men­da­tions could be is­sued as early as this week, giv­ing him the green light to put his “Amer­ica first” pol­icy into ac­tion and re­make a global trad­ing sys­tem that he thinks has un­der­cut the U.S.

“It’ll be the first big one,” said William Rein­sch, a vet­eran trade spe­cial­ist in Wash­ing­ton, D.C., not­ing that till now, Trump’s tough talk on trade has been just that, mostly talk.

If Trump fol­lows through as ex­pected, his­tory sug­gests U.S. steel prices will go higher, do­mes­tic steel pro­duc­ers will be hap­pier and some work­ers laid off from mills will be called back — at least for a while. U.S. steel man­u­fac­tur­ing has gone through waves of re­struc­tur­ing and is more pro­duc­tive to­day, but the in­dus­try shed 14,000 steel jobs in the prior two years, thanks to ex­cess global pro­duc­tion and un­fair trade, ac­cord­ing to the Amer­i­can Iron and Steel In­sti­tute, a trade group for 18 pro­ducer com­pa­nies. The in­dus­try now em­ploys about 140,000, the group said.

Tar­iffs on steel im­ports are noth­ing new, but this time they could carry even greater po­lit­i­cal and eco­nomic risk. Trump aims to slap tar­iffs on steel im­ports, which he says con­sti­tute a threat to U.S. na­tional se­cu­rity, us­ing a rarely in­voked power granted the pres­i­dent un­der a 1962 trade law.

Steel im­ports ac­counted for about 25% of the metal used in the U.S. last year, down slightly from the prior two years. An­a­lysts note that U.S. steel mills cur­rently churn out more than what’s needed for the De­fense Depart­ment and its pro­grams for fighter aircraft, sub­marines, tanks and other mil­i­tary equip­ment.

But the Trump White House has sug­gested that it would be defin­ing na­tional se­cu­rity much more broadly and that en­sur­ing the abil­ity to make am­ple sup­plies of do­mes­tic steel is cru­cial to safe­guard­ing the na­tion’s eco­nomic se­cu­rity.

Com­merce Sec­re­tary Wil­bur Ross has said that the coun­try has just one do­mes­tic maker of trans­form­ers, an es­sen­tial part needed for the na­tion’s elec­tri­cal grid. That con­sti­tutes a “le­git­i­mate na­tional se­cu­rity is­sue,” he told a re­cent Wall Street Jour­nal con­fer­ence.

Gary Huf­bauer, a trade ex­pert at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics, called the na­tional se­cu­rity pro­vi­sion, Sec­tion 232, the “nu­clear op­tion” as it would ba­si­cally al­low Trump to cir­cum­vent le­gal chal­lenges un­der do­mes­tic trade rules.

For­eign par­ties could bring a com­plaint to the World Trade Or­ga­ni­za­tion, but the global ad­ju­di­cat­ing body may be re­luc­tant to in­ter­vene, given the long ac­cep­tance of a na­tional se­cu­rity ex­cep­tion in in­ter­na­tional trade, how­ever sel­dom it has been used.

An­a­lysts worry about what might hap­pen next. Should Trump clamp down on steel im­ports, other coun­tries could strike back by tak­ing sim­i­lar ac­tion on Amer­i­can goods. They too could jus­tify such mea­sures in the name of na­tional se­cu­rity. All of that could spark a trade war and desta­bi­lize the in­ter­na­tional trad­ing or­der.

“I think Europe will for sure re­tal­i­ate,” Huf­bauer said.

In March 2002, Pres­i­dent George W. Bush levied tar­iffs of up to 30% on var­i­ous types of im­ported steel. Like Trump, Bush had promised on the cam­paign trail to come to the aid of U.S. steel pro­duc­ers and work­ers who had been ail­ing amid ris­ing im­ports and de­pressed prices. Bush took the ac­tion, which was sup­posed to last for three years, on the more com­mon ba­sis that a surge of im­ports had caused in­jury to the do­mes­tic in­dus­try.

U.S. steel prices rose im­me­di­ately, jumping nearly 70% by mid-sum­mer, ac­cord­ing to data from S&P Global Platts. But Bush lifted the tar­iffs 16 months be­fore they were sched­uled to ex­pire, shortly af­ter the WTO ruled the ac­tion il­le­gal and Europe threat­ened to re­tal­i­ate with tar­iffs of its own — on citrus from Florida, mo­tor­cy­cles made in Wis­con­sin and other U.S. goods.

Bush said the pro­tec­tive mea­sures were a suc­cess in al­low­ing the do­mes­tic in­dus­try to get back on its feet, but by some es­ti­mates, the steel tar­iffs cost some 200,000 do­mes­tic jobs in 2002, about one-fourth of them in metal-mak­ing, ma­chin­ery and trans­porta­tion equip­ment and parts sec­tors.

To­day Amer­i­can farm­ers, among oth­ers, worry that any new steel tar­iffs will spill over to them. U.S. Wheat As­so­ciates, in writ­ten com­ments to the Com­merce Depart­ment, said it was “ex­tremely con­cerned” and urged the Trump ad­min­is­tra­tion to “con­sider the fall­out if other coun­tries fol­low suit and im­pose re­stric­tions on U.S. wheat or other prod­ucts as a re­sult of their own na­tional se­cu­rity con­cerns, whether real or imag­ined.”

U.S. wheat grow­ers, like pro­duc­ers of corn, soy­beans and other farm goods, are heav­ily de­pen­dent on ex­ports and are con­sid­ered par­tic­u­larly vul­ner­a­ble in a trade war. Dis­rup­tion of cru­cial food sup­plies would have rip­ple ef­fects glob­ally, Wheat As­so­ciates said, sug­gest­ing that in pro­tect­ing steel, the Trump ad­min­is­tra­tion could threaten the flow of food ship­ments that may be as in­te­gral to na­tional se­cu­rity as steel pro­duc­tion.

An­other tough ques­tion fac­ing Trump is how broadly would any such steel tar­iffs ap­ply. Which coun­tries would feel the sting of its mea­sures?

Most of the steel im­ports come from coun­tries that have long been among Amer­ica’s clos­est al­lies, in­clud­ing Canada, South Korea, Ja­pan, Ger­many, France, Bri­tain and Aus­tralia. In his 2002 steel tar­iffs, Bush ex­cluded Canada and Mex­ico, and an­a­lysts ex­pect the same from Trump, es­pe­cially as the U.S. is gear­ing up to rene­go­ti­ate the North Amer­i­can Free Trade Agree­ment.

The U.S. al­ready has in place some tar­iffs on var­i­ous steel from China and some other coun­tries, for sell­ing prod­ucts be­low cost or with the un­fair ben­e­fit of gov­ern­ment sub­si­dies. As a re­sult, steel from China ac­counted for just 3% of to­tal U.S. steel im­ports last year, although that does not tell the whole story. Steel ship­ments to the U.S. from Turkey, for ex­am­ple, have dou­bled since 2013, and the Amer­i­can steel in­dus­try says Turkey has been buy­ing cheap Chi­nese steel bil­lets, turn­ing them into prod­ucts and then load­ing them onto boats to Amer­ica.

It’s one thing to im­pose tar­iffs on China and Turkey, a NATO part­ner, but quite an­other if Trump de­cides to ap­ply tar­iffs or quo­tas broadly on friends and al­lies alike, said Rein­sch, the trade ex­pert at the Stim­son Cen­ter think tank in Wash­ing­ton.

“We’re do­ing this at the same time we’re trying to get Korea to make op­er­a­tional the U.S. anti-mis­sile sys­tem,” he said. “We’re go­ing to push them on steel at the same time we’re trying to get Ja­pan to ne­go­ti­ate a free­trade agree­ment, and EU the same thing.” There will be con­se­quences, he said.

Green­blatt, the CEO of Mar­lin Steel Wire, said it’s hard enough al­ready com­pet­ing with Euro­pean ri­vals. If Trump im­poses tar­iffs, he reck­ons that he will be pay­ing even more for Amer­i­can steel, while Ger­many and oth­ers may con­tinue to buy China-made steel at a cheaper price, mak­ing it even tougher to win busi­ness in the global mar­ket.

“My heart bleeds for the steel mill guys,” he said. “But the steel fab­ri­ca­tors are go­ing to get their heads handed to them if ev­ery­body else buys from China.”

John Minchillo Associated Press

PRES­I­DENT TRUMP aims to slap tar­iffs on steel im­ports, which he says con­sti­tute a threat to U.S. na­tional se­cu­rity, us­ing a power granted the pres­i­dent un­der a 1962 law. Above, Trump speaks in Cincin­nati this month.

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