Steel and the Trump Twist

<br /> Steel and the Trump Twist – Marc to Market<br />


The US investigation into steel imports is
not particularly novel. 
The US steel industry is highly organized for such purposes.
 The steel sector has the significant
global excess capacity, which makes for intense competition.
What is relatively new about
the investigation is that it is being conducted under Section 232 of the  1962
Trade Expansion Act, claiming that the steel imports are a threat to national
It has
only been used 14 times in its 55-year history.  It has not been used since 2001
when George W Bush launched a year-long
investigation into iron ore and steel, and ultimately took no action under
Section 232.  When the announcement of the investigation was made, the President was not surrounded by
generals, but by industry CEOs.
The threat to national
security seems a stretch.  
 The Pentagon has not sought to restrain imports, and its steel needs are met by domestic producers.
 The US is the fourth largest crude steel producer in the world behind
China, Japan, and India.  It produced nearly 80 mln metric tons in 2015,
down from 88 mln tons in 2014.  In the first 12 weeks of the year, the US
produced an average of about  1.75 metric tons a week, roughly a 5.3% gain
from the same year ago period.    It was utilizing about 73.3% of its
It is interesting to note
that as domestic output was rose, imports also increased. 
  The Department of Commerce estimates that carbon
steel imports (including semi-finished products) were up around 18%
year-over-year though they had fallen by a little more than 4.5% in March.
 In 2014, the US exported 11 mln metric tons of steel and imported 39 mln
metric tons.  Imports account for almost one-sixth
of US consumption.  The value of the iron and steel produced in 2014 was estimated at $113 bln  
The Department of Labor
estimates that the steel industry directly employs about 145k workers in the
United States. 
 At it peak in 1953, 650k workers
were directly employed by the steel industry.   What happened to 80% of
the jobs in the steel industry?  According to the industry association,
labor productivity has increased five-fold since the early 1980s. Then it took
a little more than 10 hours to produce a finished ton of steel.
 By 2014, this had fallen to 1.9 hours.
Now that is productivity.  
Unfair trade practices may
not have helped, but the real culprit, as in so many industries, is technology.
  US steel companies have moved away
from the making steel by reducing metallic iron from ore and making pig iron
and steel. It is less interested in extraction of raw materials and more interested
in recycling.  Mini-mills or specialty steel mills essentially recycle
scrap steel and account for nearly two-thirds of US steel production.
In addition to citing
national security, the other way the Commerce Department’s investigation may
differ from other such investigations is the time it will take. 
 The law allows for a 270-day period. Last week
President Trump said the investigation would
take 50 days.  Don’t be surprised if the US President learns that steel,
like health care and Chinese relations, are more complicated than he thought.
What caught some investors
and observers off guard was that it seemed that the Trump Administration would be favoring consumers over producers. 
 His Administration had granted the Keystone pipeline
an exemption from having to use American made steel.   The rhetoric about
boosting auto production in the US would seem to favor cheap steel.  The
auto industry accounts for a quarter of US steel consumption.   
Tariffs are often the result
of the Commerce Department investigation. 
 That raises the price of imports,
and domestic producers often will raise their prices too (because they can).
 Higher cost steel can boost the sales price of vehicles as the cost is
passed on to the buyer.  This is one
of the problems of such unilateral action.  Multilateral recourse,
available through the World Trade Organization could address the underlying
action:  dumping or selling the steel below the cost of production.
 How many time must we learn that an eye-for-an-eye and a tooth-for-a-tooth kind of justice results in a
village of blind, toothless people?
  Despite assertions that multilateral institutions have been hijacked and
no longer serve their initial sponsor’s (the US) interest, the US has won about
85% of the case it has brought to the WTO.  
When the President signed
the Executive Order regarding the steel investigation, he played down the role
of China. 
 However, Commerce Secretary Ross
seemed to emphasize China, which accounts for around 2% of US steel imports.
  Partly due to the trade policy, which also included tariffs on some
steel products,  US imports of Chinese steel have fallen by half over the
past two years.  Steel, not pharmaceutical or autos, seems to be the first
industry that the Trump Administration will investigate.  
The populist-nationalist
wave was turned back in the third eurozone member (Austria, Netherlands, and
now France). 
 The AfD in Germany appears to be
imploding.  However, last week’s IMF meeting, like the G20 meeting, could
not hammer out language on a trade that
was acceptable to the new US Administration.  The call to avoid
protectionism, and even a compromise, like a reference to fair trade was not included in the IMF statement.
 Still, the anti-dumping action is
not the same species as protectionism.  However, the claim that national
security interests are at stake seems to
be overplaying that hand.  An investigation in a fifth of the time that is allowed may seem like the
conclusion is already known.  


Steel and the Trump Twist
Steel and the Trump Twist

Reviewed by Marc Chandler

April 24, 2017

Rating: 5

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