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If Trump Wins on Steel, US Manufacturers Lose

Daniel R. Pearson

President Trump and his trade policymakers have made no secret
of their desire to restrict steel imports as part of their
focus on US manufacturing. But the broad US manufacturing community
will not be well-served by such a move. What those limitations will
actually do is increase US steel prices above their already high levels.

Steel is already one of the country’s most protected sectors. US
law allows special duties to be assessed against imports that are
priced at what the Department of Commerce has determined to be
unfairly low levels. Over 200 anti-dumping and countervailing duty orders,
which are intended to “protect” US producers from so-called unfair
competition, currently constrain imports of steel and iron products
from a long list of countries. The effect has been to raise US prices well above
global levels to the great detriment of the large
manufacturing and construction sectors in America that use steel to
make higher-value products.

Although it may not be a wise approach to public policy, it’s
true that governments often pick winners and losers. Policies
intended to help one group of constituents usually hurt another. So
wouldn’t tighter import controls on steel just shift money from
steel consumers to steel producers, while having a more-or-less
neutral effect on the economy overall? Unfortunately, no. The
reason is that the steel-consuming sector is so much larger than
the steel-producing sector.

America can have either
higher steel prices, or more manufacturing and construction jobs.
Mr. President, the choice is yours.

How high do steel prices have to be to make President Trump
happy? And how much unemployment is he willing to inflict on
workers at steel-consuming firms? For a president who campaigned on
a theme of bringing back American industrial jobs, this is a grand
irony, indeed.

A July 24, 2017, report from SteelBenchmarker™, a price reporting
service serving the steel industry, shows the US price for
hot-rolled band (hot-rolled steel in coils) to be $681 per metric
ton, 38% above the world export market price of $491. The US price
for hot-rolled band is even higher, by 19%, than the $573 price in
Western Europe. Restrictive US import policies have forced steel prices to
levels much above those enjoyed by manufacturers in a relatively
high-cost economy such as Germany.

Steel mills add $36 billion of value to the economy each
year, accounting for 0.2% of GDP. Theyemploy 140,000 workers. Taking a conservative
approach and looking just at companies that buy steel as an input
for further manufacturing, we find a broad industry producing
economic value added of just over $1 trillion — or
5.8% of GDP. Those firms employ 6.5 million workers. So downstream
manufacturers are 29 times larger than steel mills in terms of GDP
and 46 times larger in terms of employment.

Manufacturers are particularly vulnerable to artificially high
steel costs because many of them compete directly with goods
produced at lower costs in other countries. It is hard to be a
successful producer of automobiles or air conditioners, for
instance, if US policies give overseas competitors a built-in cost
advantage. Worth noting is that loss of only 2% of jobs at
steel-using manufacturers would equal the size of the entire
steel-mill workforce.

But manufacturers aren’t the only businesses hurt by high steel
prices. Construction activities account for 42% of all US steel consumption and
employ 6.8 million workers. Raising the cost of steel will mean
fewer construction projects started and fewer workers employed, not
the best possible approach to rebuilding American
infrastructure.

What should the Trump administration do, instead of imposing new
import restrictions, to help US manufacturing and construction? Two
policy shifts could make a big difference.

The first would be to announce that the national security review
has concluded that all existing anti-dumping and countervailing
duty measures on steel should be ended. Yes, this would mean that
historically protected steel mills would face increased competition
from overseas firms. The Department of Commerce should consider how
best to facilitate the industry’s transition to free trade in
steel, a task aided by the general resilience of the US
economy.

Ending import controls would be good for the US economy. Gains
to the overall manufacturing and construction sectors would far
exceed any temporary pain borne by the steel industry.

The second policy change would be to rethink the various
adjustment assistance programs intended to help unemployed workers.
The federal government simply isn’t able to make factory jobs
reappear in every town. What it can do, though, is to empower
people as they search for opportunities by ensuring they have
access to education, vocational training and relocation
assistance.

Rather than doubling down on a failed strategy of import
protection, the Trump administration should try working with
economic forces instead of against them. This would mean embracing
the gains to manufacturing and construction that would result from
access to competitively priced steel.

The bottom line is clear: America can have either higher steel
prices, or more manufacturing and construction jobs. Mr. President,
the choice is yours.

Daniel R.
Pearson
is a senior fellow in trade policy studies at the Cato
Institute.