Steel, Aluminum Plants Resurrected, but at What Cost?

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By Jaclyn Diaz

The U.S. steel industry is on an upswing since President Donald Trump announced tariffs of 25 percent on imported steel and 10 percent on imported aluminum. Some workers started feeling the benefit even before tariffs against China hit this month.

But economists told Bloomberg Law that workers, unions, and employers shouldn’t be popping the champagne just yet. By weakening cheaper import competition from foreign manufacturers, U.S. steel producers are allowed to gain more market share and sell at higher prices. Doing this puts more financial pressure on industries that rely on steel, which could force them to cut jobs.

There’s no sign of tariffs ceasing any time soon. This week the administration said it would impose another round of 10 percent tariffs on $200 billion of Chinese goods as part of a dispute over alleged Chinese theft of U.S. intellectual property.

Among the winners in the recent tariff war are Century Aluminum and U.S. Steel. Both plan to reopen or expand production at existing mills. Other companies even have plans to build new facilities. More than 20 steel and aluminum plants intend to boost production and will return more than 7,000 jobs, by Bloomberg Law’s count.

These older, retooled plants “are not the future of steel making,” John Magnus, president of TradeWins LLC, a trade law and policy consultancy in Washington, said. Some steel producers may be able to operate in the black for a while, “but it’s not sensible for the long term” because of higher prices and retaliation, he said. “It is good to see a domestic supply response, but the details matter a lot.”

Tariffs punish foreign countries for engaging in unfair trade practices, but they also bring retaliation. U.S. allies caught up in President Donald Trump’s flurry of tariffs have instituted tariffs on products imported from the U.S.

The Good

Almost 19,000 steelworkers were laid off in 2015 as steel production idled, according to the United Steelworkers. From 2000 to 2016, 48,000 domestic steel jobs and 17 million tons of domestic steel production capacity were lost. Labor has largely supported Trump’s actions, but it has urged the administration to focus on major violators like China rather than U.S. allies. The administration has also imposed tariffs on Canada, Mexico, and the EU.

“There’s no question” that the steel and aluminum industries were in trouble, Robert E. Scott, director of trade and manufacturing policy research at the Economic Policy Institute, said. “This intervention happened at a critical moment for both industries.”

Three years ago, Century Aluminum, a U.S.-based producer of aluminum, had to curtail production by 60 percent at its Hawesville, Ky., smelter in response to cheap aluminum imports. Given the dramatic fall of aluminum prices, the company was eventually forced to lay off 300 workers, Jesse Gary, the company’s executive vice president and general counsel, told Bloomberg Law.

Post-tariffs, Century has plans for a production restart at the smelter. It’s set to be fully online by 2019 and can bring back those 300 jobs, Gary said.

“What we had been calling for was a fair environment we can operate in,” and the tariffs achieved that, he said.

The Not So Good

The tariffs were implemented under Section 232 of the Trade Expansion Act of 1962 out of concern about the threats foreign imports posed on national security, the White House has said. There have been arguments that a weaker domestic steel industry would hinder the country’s ability to build military equipment should a war break out.

“There’s a legitimate debate over the national security benefit,” Magnus said. “Most people think that benefit is pretty slim. And whatever the national security benefit is, we’re paying a big price to get it. Not just higher prices to U.S. steel users, but also retaliation against important categories of U.S exports. Is it worth it?”

The rest of the economy, especially industries that depend on steel and aluminum, will see a decrease in jobs, investment, output, and profits, said Mark Perry, a scholar at the American Enterprise Institute and a professor of economics and finance at the University of Michigan.

Perry has already seen some businesses struggle in the wake of tariffs like with New England lobstermen who use steel traps and brewers who fill aluminum cans with beer. Most notably, Harley Davidson said it intends to shift more production to international facilities to offset the tariffs. The International Association of Machinists represents several hundred Harley production workers in U.S. facilities. It’s not clear how many jobs could be lost.

Perry says tariffs have failed before. In 2002, President George W. Bush placed tariffs ranging from 8 percent to 30 percent on certain steel from all countries except Canada, Israel, Jordan, and Mexico. The tariffs were repealed in 2003 after an estimated 200,000 jobs were lost, analyses from that time show.

Close to 17 million people are employed in businesses, like manufacturing and construction, using steel and aluminum, the Bureau of Economic Analysis shows. A Goldman Sachs analysis from May shows tariffs could cost automakers an additional $1 billion a year, for example.

The Future

Economists who spoke to Bloomberg Law expressed different opinions on the effects of the tariffs, but they all said more needs to be done to improve U.S. trade policy to establish long-term changes.

The Aluminum Association appreciates Trump’s attention to trade but believes tariffs aren’t “a good long-term solution for the industry,” Matt Meenan, the association spokesman, said. The organization would much rather see a dialogue between the Chinese and U.S. governments, for example, to address trade problems across the industry.

There won’t be steel mills operating in every town in the U.S. anymore, Scott Paul, president of the Alliance for American Manufacturing, said. The peak steel output for the U.S. was 1974. But it is possible, with improved trade policies, to have an industry that is regularly adding new jobs, operating at a higher rate of capacity, and that allows for future investment.

“That’s a future I could imagine,” Paul said.

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