7 November 2019

Steel Redux


Some of you know that I have spent a lot of time on steel issues over the years, mostly some time ago. For 17 years in the late 70s through the early 90s, I was the staff director of the Senate Steel Caucus, first for Senator Heinz and then for Senator Rockefeller. (It’s easy to call yourself the director when there is no other staff.) I then had a vacation from steel, first in the Clinton administration, where my portfolio was export controls, and later at the National Foreign Trade Council, where we had only one steel company member during my tenure. Recently, I’ve returned to it because the law firm I am affiliated with, Kelley Drye & Warren, does a very effective job of representing steel companies, among others, in trade complaints against foreign imports.

Those complaints have, for the most part, had successful outcomes for more than 30 years for two fundamental reasons.

Steel is important. You cannot be a modern industrial economy without a steel industry. It is hard, dirty, dangerous work, but it has been essential to our growth and prosperity for over 100 years. Governments ignore the industry’s concerns at their political and economic peril.
The industry has effectively made the case that it is a victim of unfair trade practices. While some would argue that they should not get the relief they periodically seek, few would claim they are not the victims of dumping and subsidization by foreign producers. As with many things in trade, there is widespread agreement on the diagnosis, if not on the prescription.


These two factors have combined over the years to create substantial sympathy for the industry’s plight and willingness to address it through our trade laws and sometimes through executive action, as is the case with the Trump administration.

However, looking at the long history of antidumping and countervailing duties (AD/CVD) applied to steel imports and other actions by a number of administrations, one is struck by how little permanent relief all that protection has accomplished. The most recent episode involving the section 232 national security tariffs is telling—and typical. When the tariffs were first imposed, steel prices went up significantly, which is exactly what is supposed to happen. You want to remove the foreigners’ unfair advantage and at the same time, give your own producers some space to raise their prices and return to profitability. Today, however, they have declined more than 40 percent to the point where they are lower than they were before the relief was imposed. The same up and down has happened to some steel company stock prices. 

As for jobs, it appears that steel employment is either slightly up or slightly down depending on how and when you count and whom you believe. Either way, the predicted employment bonanza has not emerged, and currently, we are starting to see layoffs again.

The reason that is happening is simple; the overall demand for steel is declining and is predicted to continue to decline. In its October 25 issue, the Washington Post noted that while steel demand grew 2.1 percent last year, it is down to 1 percent this year and projected to grow only 0.4 percent next year, according to the World Steel Association. The lesson from this is equally simple—you can mess with the market all you want, but in the end, economic fundamentals prevail. Protection provides a short-term rush, but the realities of demand and supply triumph in the end. 

The other reality the industry has had to contend with is technology. Like virtually all industries, however old, steel is constantly having to deal with new, more efficient ways of production. Adopting new technologies enables the industry to improve productivity and produce more efficiently. The winners there are consumers who benefit from lower prices, and management, which benefits from increased profits. The losers are the workers who are displaced by the new technology. That, in turn, creates unhappy voters and the political problems we are dealing with. A popular political response is to provide protection, as the Trump administration has done, which, as noted, may help in the short term; but ultimately, companies are faced with the reality that if they don't keep up to date technologically, they will fall behind their competitors, which will mean the very layoffs they would like to avoid. When I was working for Senators Heinz and Rockefeller, they spent a lot of time trying to save jobs in the steel industry. They won a lot of their battles, but it appears they lost the war, at least as far as jobs are concerned. Today we are making roughly much steel as we made about 30 years ago—with less than half the steel mill and steel furnace workers. 

That does not mean the battles were in vain. The unfair trade practices are a reality, and they have allowed others—these days China, but in the past, Japan and Europe—to export their unemployment to us and make the market less efficient. It is right to go after those practices, but at the same time, it is smart to be realistic about their limitations.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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