President Trump’s 25 percent tariff on steel imports has, as promised, been a boon for U.S. metal producers.
The price of hot-rolled coil, an industry benchmark, has surged 42 percent to $863 a ton in the past six months, benefiting companies from U.S. Steel to Steel Dynamics and Nucor.
Such highs are likely to prove unsustainable; however, says Andreas Bokkenheuser, an analyst with the Swiss bank UBS. If the Trump administration decides to loosen or drop the steel levy amid a global backlash, imports will increase and push prices down, and if the charges remain in place, demand for steel is likely to fall due to higher costs.
“One way or another, we see downside risk to domestic steel prices” in the next three to 12 months, Bokkenheuser said.
The tariff, along with a 10 percent duty on aluminum imports, was imposed on national security grounds that have been questioned by a key Senate panel and drawn scorn from U.S. allies such as Canada, which is one of the largest U.S. suppliers.
Economists and corporate executives have cautioned that Trump’s attempt to revive the U.S. steel industry’s fortunes may hurt the country’s consumers and businesses in other ways, prompting retaliation from traditional allies and driving up supply costs.
The administration’s simultaneous, and occasionally bombastic, talks with China have only heightened such worries.
The long-term effects, however, aren’t altogether clear, with some trading partners in limbo. Canada and Mexico have been exempted from the metals duties while the Trump administration tries to renegotiate the 20-year-old North American Free Trade Agreement, and the European Union has won a temporary reprieve as well.
Meanwhile, dissatisfied with Commerce Secretary Wilbur Ross’s response to questions about the tariffs, U.S. Sens. Ron Johnson and Claire McCaskill, the chairman and ranking member of the chamber’s Homeland Security and Governmental Affairs Committee, threatened a subpoena last week if he doesn’t supply more details.
“Your response is incomplete and ignores what should be the basis for all trade discussions — to do no economic harm,” the senators wrote in a May 3 letter to Ross. “You wrote that you ‘do not believe the economic impact in the form of higher input costs will be as dramatic as many claim.’ However, you did not offer statistical justification or data to support your statement.”
Johnson and McCaskill, who represent the states of Wisconsin and Missouri, respectively, have received complaints from a number of manufacturers and other companies that may be hurt by the charges, they said.
“American people and American industries deserve to know the consequences of the steel and aluminum tariffs,” they wrote, adding that the effects, “will ripple throughout the entire U.S. economy.”
Although international trade deals benefit consumers in a variety of ways, politicians usually find them a tough sell to voters whose jobs have been eliminated as a result, says Warren Buffett, the billionaire investor who heads Berkshire Hathaway.
The advantages are largely invisible, he said: “You don’t know what you’d be paying for the clothes you’re wearing today if we had a rule that they all had to be manufactured in the U.S., or what you’d be paying for your television set.”
On the other hand, he noted, “the negatives are very apparent and very painful.”
Consequently, it’s vital not only to understand the price paid by workers who lose positions in textile mills and shoe factories but to take care of those “who make up the road kill in something that’s collectively good for the country,” Buffett said. “That takes society acting through its representatives to enact the policies that will get us the right results and not kill too many people economically.”
While the immediate benefits of the tariffs that attempt to counter what Trump calls bad deals are difficult to quantify, even for steelmakers, his administration is “providing much-needed support for American manufacturing,” said David Burritt, the chief executive officer of U.S. Steel, which has worked with the White House on exemptions.
“We are passionate about the importance of the strong manufacturing base to the the security of our country and are counting on the administration to take the necessary actions to establish a fair and level playing field,” Burritt said.
That it hasn’t been either for several decades is an opinion that Buffett’s partner, Charlie Munger, a Republican, wholeheartedly concurs with.
“Conditions in steel were almost unbelievably adverse to the American steel industry,” he said. “Even Donald Trump can be right on some of this stuff.”
