The flatbed trucks come from as far away as Chicago and Minneapolis. They roll past the cornfields and grain silos of northwest Iowa and pull into Kooima Company’s sprawling plant every day. They are loaded with sheets of steel.
Kooima’s workers use lasers and a variety of other machines to cut the steel, bend it, punch holes in it, and weld it to other pieces. The company then sends the intricate parts to makers of agricultural and construction equipment. They head to assembly lines and wind up in trucks, balers, tractors, and other machinery.
The location of Kooima’s plant—four hours northwest of Iowa’s largest city, Des Moines—seems remote. Yet its business is planted firmly in the middle of the two industries, steel and agriculture, that have felt the biggest effects of the Trump administration’s tariffs. The 25 percent tariff on foreign steel imposed in March has dramatically raised Kooima’s costs. Retaliatory tariffs by China and other countries have hurt U.S. farmers, who buy much of the equipment produced by Kooima’s customers.
Kooima, which has grown to 170 workers since its founding 30 years ago, has felt the effects, too. But on a July walk through the plant with owner Phil Kooima, a third-generation metal fabricator, the high-pitched whirs of cutting steel and repeated clangs of metal against metal indicate business is strong. Kooima acknowledges that Trump’s tariffs and foreign responses to them are making steel more expensive, cutting into profits, and endangering some of his product lines. But surprisingly, he’s not too distressed or worried. He says he’s sympathetic to Trump’s goals and sees tariffs as just one part of new federal policies that have led to a surge of orders since the 2016 election.
“It’s going to be a little painful in the short term, but in the long term, there could be a good outcome,” Kooima says. “The little bit of cost is being outweighed by all the positive stuff that is happening.”
Trump’s tariffs are rippling through the U.S. economy, sometimes in unexpected ways. They have made the price of steel more volatile, aggravated people who deal in it, and introduced uncertainty into markets that depend on predictability. But so far, as Kooima’s experience shows, many businesses are weathering the tariffs because of the wider strength of the U.S. economy. That outlook helps explain why Trump remains popular in rural areas even as the fallout of his trade policy seems to land disproportionately on key elements of his base such as blue-collar workers and farmers.
A New Trade Policy
In the 2016 election campaign, one of the many ways Trump broke from tradition was in making trade policy one of his top issues. For many years, leaders from both parties had backed free trade—signing deals such as the North American Free Trade Agreement (Bill Clinton, 1993) and approving China’s entry into the World Trade Organization (George W. Bush, 2001). Trump, though, tapped into public anxieties about the effects of free trade, helping propel him to crucial victories in industry-heavy states such as Michigan, Ohio, Wisconsin, and Pennsylvania.
On the campaign trail, he promised to renegotiate NAFTA and exit the Trans-Pacific Partnership, a 12-nation trade deal negotiated under President Barack Obama that even most of his Republican opponents backed. Trump proposed adding a 45 percent tariff to Chinese imports and a 35 percent tariff on imports from Mexico. He was vague about plans for steel specifically, other than saying he would fight to protect steel jobs and stick up for U.S. industry against trade cheats.
Economists said the Trump trade plans would devastate the stock market and plunge the country into recession—a theme echoed by many of his GOP rivals. In denouncing Trump’s candidacy, Mitt Romney in March 2016 said Trump’s tariff plan would “instigate a trade war that would raise prices for consumers, kill export jobs, and lead entrepreneurs and businesses of all stripes to flee America.”
At the time of the election, hot-rolled steel coil, one of the most common U.S. steel products, sold for around $500 a ton.
Three months after Trump took office, the Commerce Department launched an investigation to determine if U.S. national security was being imperiled by foreign-made steel. If so, Trump could order widespread tariffs or quotas on foreign steel, as opposed to the piecemeal approach of targeting particular countries or products through anti-dumping cases, as had been the usual Washington practice. By then, steel had risen to about $610 a ton.
In May 2017, inside an auditorium at the Department of Commerce, officials held a hearing on steel. More than three dozen witnesses shared their perspectives, including steel-company executives, union bosses, pipe-makers, and heads of trade groups. CEOs testified that their industry was vital to national defense but that it was having to close plants and lay off workers because foreign companies, sometimes backed financially by their countries’ governments, produced a glut of steel that was driving down prices. Nucor CEO John Ferriola, for instance, said that his company’s product winds up in Humvees, Abrams tanks, Bradley Fighting Vehicles, and the Patriot missile system. While acknowledging that military applications constitute “a relatively small share of our overall sales,” he added, “in a time of national crisis, the U.S. cannot afford to rely on imported steel slabs from foreign suppliers like China and Russia.”
The governments of China, Russia, South Korea, Brazil, and Turkey prop up their steel companies, he claimed, and such subsidies harm U.S. production. “When we’re not making money, it’s very difficult to continue to invest in new machines and invest in our teammates in order to help them be ready when we have a need for national defense,” Ferriola said.
Not all those testifying favored tariffs. Some consumers of steel, such as tin-can makers, warned of higher food costs. And representatives from the Chinese and Russian embassies assured the panel that their countries’ steel industries caused no harm to U.S. national security. The United States produces more than enough steel to supply its military, they pointed out.
When the Commerce Department released the results of its investigation in February 2018, it sided, unsurprisingly, with the president’s policy preference. Foreign steel, it found, accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017. Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants. U.S. steel plants in 2017 ran at just 72 percent of capacity—below the 80 percent level they needed to be profitable—the report said, and “excessive imports of steel in the present circumstances do threaten to impair national security.” By then, steel had risen to $750 a ton.
In March, Trump imposed a 25 percent tariff on products made by foreign steel mills. He initially excluded some U.S. allies but later applied the tariffs to them, too. By then, U.S. hot-rolled steel coil had shot up to more than $850 a ton. U.S. steelmakers had been able to aggressively raise their prices because demand was improving and the prospect of tariffs on foreign steel meant they didn’t have to worry as much about being undercut by overseas competitors.
Tariffs at Eye Level
There’s little disagreement that the tariffs have been good for U.S. steel companies, which are investing in new plants or expanding old ones in Illinois, Ohio, South Carolina, Arkansas, and Florida. Sales are up. Profits are strong. New workers are being brought into mills by the hundreds, adding to the estimated 140,000 U.S. steel-company employees.
Of course, that’s not the end of the story. China, Canada, Mexico, Turkey, the E.U., and others retaliated with tariffs on all sorts of U.S. products—including soybeans, pork, motorcycles, whiskey, and steel. Economists say this is what the start of a trade war looks like, with countries taking turns piling up the levies, inhibiting trade, driving up prices for consumers, and slowing economic growth.
Then there’s the matter of the U.S. industries that depend on steel. There are far more workers engaged in shaping steel than in making it: Federal data says there are 1.5 million metal-fabrication jobs, a figure that doesn’t include work such as auto assembly that is closely tied to steel. This summer, the price of hot-rolled coil hit about $900 a ton—80 percent higher than when Trump was elected. Metal-fabrication companies are now engaged in a high-stakes guessing game in which Washington largely holds all the cards: Where will steel prices be in a month? In three months? Will the tariffs come off Canadian steel and when? The answers determine how much steel to buy and how much to stockpile.
To comprehend the complex effects of the tariffs, it helps to understand the typical path that steel takes from its origins into something most consumers would recognize. An alloy of mined iron ore (or scrap metal) and carbon, steel is forged in a mill. The vast majority of U.S. steelmaking capacity is controlled by six companies: Nucor, U.S. Steel, ArcelorMittal (based in Luxembourg), Gerdau (based in Brazil), AK Steel, and Steel Dynamics. Most of the steel Kooima uses in his Iowa plant originates from U.S. Steel, Nucor, and Steel Dynamics. Until tariffs made its steel too expensive, Algoma, a smaller company in Ontario, Canada, was a fourth supplier for Kooima.
From the mills, the steel typically goes to a distributor, also known as a “service center.” Distributors process the steel and prepare it for the next step. In Kooima’s case, a distributor receives hot-rolled steel coil from the mill, which is spooled like a roll of paper towels, and flattens it into slabs or sheets. These are what are trucked to Kooima’s plant in Rock Valley.
Distributors depend on strong relationships with the mills. They jockey for favorable prices, of course, but also to ensure they are at the front of the line to receive steel when supplies grow tight. The relationships are friendly but not always harmonious. At a Chicago meeting of steel distributors in June, some suggested that the financial success the mills are reaping has failed to trickle down.
Inside a packed meeting room at the historic Union League Club in downtown Chicago, about 60 people turned out to hear Jean Carroll Kemp, a senior vice president with the Steel Manufacturers Association, which represents mills, talk about the tariffs. Most of the audience were from steel-distribution firms. But at a back table sat Jack Biegalski, a sales director with ArcelorMittal, who stood up and introduced himself. He added, to laughs: “There’s a lot of people smiling in here, so it must be a good time to be in the steel business!”
Andy Gross, president of the Association of Steel Distributors as well as head of the Chicago-based Alliance Steel, deadpanned in response, “I know ArcelorMittal is happy to be in the steel business.” The crowd roared with laughter.
In a 30-minute talk, Kemp showed a slide presentation defending the steel tariffs to a skeptical crowd. She said the root of the problem is global “excess supply,” driven mainly by China, which makes half of the world’s steel and 10 times as much as the United States. China has increased production faster than the worldwide demand for steel has grown, she said, resulting in “excess capacity” at U.S. mills that has not been relieved through negotiations. Tariffs were a sensible tactic, she said: “Sometimes, you have to break a few eggs in order to make your perfect French omelet.”
The distributors pressed Kemp in the question-and-answer session. One said the tariffs created “significant pain in the distribution world.” Another said the situation is “very stressful for everybody in this room—except for Jack.” Kemp replied that the goal of the tariffs is not to harm steel users but to ensure that the steel industry and those who depend on it are around in the future: “Consuming industries do not benefit if large portions of the U.S. steel industry close.” And, she added: “It is not our intent to see our customers disappear.”
In an interview after the event, Gross, the distributor-association president, said the effect of the tariffs has been complex and unpredictable. While the steel mills are “coining money,” among his folks, “I don’t think anybody feels they are on solid ground right now.” He says distributors are filled with “angst and uncertainty.”
Gross figures he lost a couple hundred thousand dollars because he had a deal to buy Canadian steel when the Trump administration unexpectedly included our northern neighbor in the list of countries subject to the tariffs. But overall, he says, business has been solid while the price of steel has risen: His costs are higher, but so are his revenues because he’s selling at higher prices, and his customers are still demanding lots of steel. “It has helped us, though I don’t want to admit that, because you are going to pay 10 to 20 percent more for that barbecue when you go to Home Depot,” he says. “For the country, maybe it’s not so great. For us as a service center, it has helped us in certain ways.”
From Distributor to Fabricator
As workers in Kooima’s Iowa plant unload the sheets of steel coming from a distributor, Phil Kooima, 54, reminisces about his family’s history in this business. During World War II, his grandfather, Charles Kooima, moved to Michigan to make armaments. When hostilities concluded, he moved back to Rock Valley and started his own small metalworking plant, what’s known in the industry as a “job shop.” It became the family business.
In 1988, Kooima’s father suggested his son become an entrepreneur and start his own business. When he launched Kooima Company, it wasn’t an acrimonious split, just the chance to start something new. Kooima’s business wasn’t a competitor: The family business was a machine shop that made round metal parts, while Kooima Company is a fabrication shop that works with flat metal.
Around the country, there are thousands of job shops like Kooima’s. Some are mom-and-pop operations with a handful of workers, while others have hundreds of employees. Most occupy niches and don’t compete with each other. Kooima is strong in agricultural and construction equipment. Another job shop might specialize in pieces for residential housing or commercial construction. Some places might have employees work on the metal by hand, while bigger operations such as Kooima rely more heavily on automation.
In a town of 3,800 residents, Kooima and his plant stand out. “He’s a big fish, let’s put it that way,” says David Miller, Rock Valley’s economic development director. Outside the town, in Sioux County, farming is dominant, but closer in, there are around two dozen shops that specialize in steel fabrication and related specialties such as metal plating and heat treating. With 740 workers in 2016, manufacturing is the town’s biggest industry. The average salary for these workers is $64,200, more than double the average U.S. individual income. “It’s a one-stop shop, where if you’ve got a part you need to have made and finished, we can do it all in-house within a mile of each other,” Miller says of the town.
Like most of rural America, the area is solidly pro-Trump. Of Iowa’s 99 counties, Sioux County gave the president his most lopsided win in the state in 2016—a 69-point victory, 82-13, over Clinton.
Within days of the election, Kooima says, new orders started pouring in, especially from his customers in the construction-equipment business. He won’t name his customers but says they include all the household names. Business confidence surged in late 2016, largely on the expectation that a Republican-controlled White House and Congress would cut regulations and taxes.
Even with growing concerns about trade, that favorable outlook continues. In June, the National Association of Manufacturers reported that 95 percent of companies surveyed in the second quarter had a somewhat or very positive business outlook—an all-time high. The U.S. economy has added manufacturing jobs each of the last 12 months. Fabricated-metal jobs are up about 4 percent over a year ago and kept increasing even after the steel tariffs took effect.
With Trump talking up U.S. manufacturing, Kooima says some big companies are “getting nervous and saying, ‘Do we really need to buy this in China and is it worth the risk if something goes wrong? Let’s buy this in North America, where we can control it.’ ” That translates to more orders for his Iowa firm.
Kooima has been forced to make some adjustments. Sioux County’s unemployment rate is half the national average, and qualified workers are scarce. So he gave his employees the option to work an hour of overtime a day and a half-day on Saturdays, which could boost their pay by more than one-quarter. The offer stands as there is so much work to do.
But the tariffs are eating into Kooima’s profits. Steel prices rose so fast this spring and summer that his quotes to customers didn’t fully reflect his costs. Only now is he regaining the ability to estimate more accurately. He says he’s happy to pay overtime as long as there is work to support it, and for now, he’s seeing no slowdown and feels confident in managing the company’s risks. His biggest fear, he says, is a “black swan” event—something terrible that nobody can anticipate.
As his prices rise, he anticipates losing some work, ironically, to foreign competition. Walking into the plant’s welding shop, he picks up a piece of metal resembling an empty cube with the top missing and holes in its sides. Welded from four different pieces, it is designed to hold a truck battery in place. With the price of U.S. steel surging, his cost to make the battery tray has risen dramatically. But a competitor in China can buy steel there at around $550 a ton (40 percent less than the U.S. price), weld the pieces together, and ship it to the United States for cheaper than Kooima can make it. While there’s a 25 percent tariff on Chinese hot-rolled steel coil, there’s no tariff on battery trays made of Chinese steel. One Kooima customer has already told him he’ll be switching to a Chinese supplier in the fall.
“Why wouldn’t there be a tariff on this?” he says. “Trump needs to figure that out.” Kooima says he gave his congressman, Republican Steve King, a tour of the plant in May to make the same point.
Another issue he would like to see addressed is intellectual property. Kooima holds about 25 patents for such products as a “bar with enhanced rigidity,” a “segmented knife assembly with replaceable wear segments,” and a “composite harvester spout.” He says a version of the knife his company developed showed up in the States with a “Made in China” stamp on it less than a year after he introduced it. He’s uncertain whether a Chinese firm copied his knife or found the design by hacking into company computers. Trump has cited China’s theft of U.S. intellectual property as justification for many of the non-steel tariffs imposed on China in July. It’s one more reason Kooima seems comfortable with the steel tariffs.
A Manufacturing Boom
A lot of the plant’s work is performed with 35 high-tech lasers. These are programmed to cut shapes from a sheet of steel with great precision—similar to using a cookie cutter, though slicing into quarter-inch-thick steel instead of dough. But some areas require more human attention, like making the 180 different kinds of knives needed for harvesting machines. Workers in that area have had to hustle to process the steel they need to keep up with a rash of new orders.
“With the dollar going down, our overseas orders have gone crazy,” says Mike Kooima, 43, who has worked at the plant for 21 years. (He is not related to Phil Kooima—around here the name is “like Smith,” Mike jokes.) “Germany and France are buying a lot of products.” The dollar is down more than 6 percent against the euro since Trump’s tariff decision, which makes U.S. products more attractive to foreign buyers. As for the tariffs, he says: “It is what it is. I don’t think we can do anything about it. We can complain, but that doesn’t do nothing.”
Phil Kooima figures the tariffs will be “short term.” While there have been stories in the news of steel users blaming the tariffs for drops in business—such as Harley-Davidson’s announcement that it would shift some motorcycle production abroad and the nail plant in Missouri that laid off more than 100 workers and blamed rising steel costs—Kooima knows of nothing similar in his industry. The economy is booming, and nobody is suffering.
“Eventually, Trump will get what he wants, and that is China and the other countries to drop any tariffs on the American stuff, then we’ll go back to level pricing,” he predicts.
For now, the tariffs might not be helpful for his business. But Kooima is buoyed by what he says is an overdue discussion Trump is leading of the merits of U.S. manufacturing.
Free-market economists say the negative effects of tariffs can be hard to detect in the short term. It’s tough to see orders that are not placed, investments that are not made, innovations that are not designed, and jobs that are not created. But on the factory floor in Rock Valley, it’s like the old Marx Brothers line: Who are you going to believe, me or your own eyes? From Phil Kooima’s vantage point, things are heading in the right direction for his company, his community, his industry, his country.
“It’s just good to have somebody support manufacturing,” Kooima says. “If the president says it’s good, it’s really easy for me to come out here and say, ‘Hey, guys, we’re making the stuff America needs. They need us.’ That’s really uplifting. For a guy like Mike, slogging away at the machine all day long, I can say, ‘America needs harvesting knives.’ It feels good for him. It’s positive. The national conversation has changed.”
