The Corner

Economy & Business

The U.S. Steel Industry: A Reality Check

Donald Trump signs a presidential proclamation placing tariffs on steel and aluminum imports while surrounded by workers from the steel and aluminum industries at the White House, March 8, 2018. (Leah Millis/Reuters)

During his steel and aluminum import-tax proclamation this afternoon, President Trump repeated his claim that “if you don’t have steel, you don’t have a country.” The president’s tweet from a few days ago makes the same case.

We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!

No offense, but this makes no sense. First, Trump makes it sound as if our choice is between producing 100 percent of our steel (and having a country) or producing no steel (and presumably losing our country). He also implies that we are close to having no steel industry in this country and that, as such, we should panic. Nonsense.

As I wrote for Reason two days ago:

The domestic steel industry is not vanishing — far from it. 70 percent of the steel bought for use in the United States is produced here in the USA. Also, American steel production hasn’t changed much over the past decades. In fact, since 2010 it’s actually increased.

A recent AP story reports the following:

The U.S. steel industry last year earned more than $2.8 billion, up from $714 million in 2016 and a loss in 2015, according to the Commerce Department. And the industry added more than 8,000 jobs between January 2017 and January 2018.

And the steel industry has been doing well in recent years:

Even before Trump mentioned the tariff last Thursday, the price of the benchmark U.S.-made hot-rolled steel had reached the highest level since May 2011, according to S&P Global Platts. The price surged even higher on the tariff news.

“We finished 2017 in a good position. We look forward to 2018,” U.S. Steel CEO David Burritt told industry analysts Feb. 1, according to a transcript at the website Seeking Alpha. He continued: “We’re seeing increased demand from our customers and have rescheduled some projects to ensure that we can make enough steel to support our customers’ needs.”

If you believe that steel jobs would come back to the U.S. if — and only if — China started behaving as a perfect free-market economy and was a free-trade role model, there is this:

In the 1980s, American steelmakers needed 10.1 man-hours to produce a ton of steel; now they need 1.5 man-hours, says Joe Innace of S&P Global Platts.

Have you seen steel factories these days?

Most American steel is now made at super-efficient mini mills, which use electric arc furnaces to turn scrap metal into steel. (Traditional integrated steel mills make steel from scratch, feeding iron ore and coking coal into blast furnaces.) Some mini-mills need just 0.5 man-hours to produce a ton of steel, Innace says.

This explains why steel employment peeked in 1953 at 650,000 and stands at 143,000 today.

Oh, and as Chad Bown of the Peterson Institute shows in a new study with many useful charts, all of that job decline happened despite the fact that the steel industry has been the largest user of government protection for decades. The job decline also took place long before China even was in the picture.

Speaking of China, Bown notes that China was the 10th largest supplier of steel to the U.S. market in 2017 and 94 percent of China’s steel exports were actually subjected to special tariffs (so tariffs are not that great at changing the country’s behavior, I guess).

But back to Trump’s statement that if you want a steel industry, you have to have tariff. I answer that we have a steel industry, we already have many tariffs, and those new import taxes aren’t going to achieve what protectionists tell us they will.

The state of aluminum is even worse. We have imported most of our aluminum for a very long time. The No. 1 exporter to the U.S. is, as with steel, Canada. Imports represent 90 percent of our market. U.S. manufacturers, however, use a lot of aluminum in many products, including high-tech products. This means that tariffs will hurt aluminum-consuming industries throughout our economy.

In addition, everyone seems to agree that aluminum isn’t attracting capital because there are many more lucrative investment opportunities in the U.S. The same is true for steel.

Aluminum and steel would need enormous investments to get back to full production. That isn’t desirable. Assuming those industries managed to get all the capital they need, the steel and aluminum they produce would be too expensive for manufacturers to buy. So there you go.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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