Pittsburgh — The US Section 232 tariffs on steel have been effective and have had no meaningful real-world impact on the price of steel-consuming products, the Economic Policy Institute said in a report issued March 24, stating that the trade measure should remain in place until a multilateral solution to address global steel excess capacity is reached.
The EPI, a non-profit, non-partisan Washington-based think tank, which carries out economic research and analyzes the economic impact of policies and proposals, looked at the Section 232 tariffs issued by former President Donald Trump in March 2018 and the impact the measure has had both on domestic steel producers and consumers.
“We found that the import restraints helped save domestic jobs and resulted in substantial domestic investment,” said Robert Scott, EPI’s director of trade and manufacturing policy research and co-author of the report.
Following implementation of Section 232, and prior to the global downturn of 2020 caused by the coronavirus pandemic, US steel output, employment, capital investment and financial performance all improved, the EPI reported at a March 24 virtual press conference.
“In particular, US steel producers announced plans to invest more than $15.7 billion in new or upgraded steel facilities…In addition more than $5.9 billion was invested by nine firms in plant acquisitions as part of industry restructuring to increase efficiency, preserving additional jobs at those facilities,” according to the report.
The 25% steel tariffs also were effective in curbing US imports, the EPI said, noting that US steel imports fell by 29% in 2019, with import penetration of the US market falling to 26% of all steel consumed in the country that year, down from a 35% penetration rate in 2017.
Looking at the impact on downstream steel consumers, the EPI said its economic analysis showed that price changes in basic steel products had statistically zero or economically negligible causal effects on prices of steel-using goods. Its research focused on new motor vehicles, construction equipment, electrical equipment and household appliances, motor vehicle parts, nonresidential construction goods, food at home, and durable goods, which account for the majority of steel consumption in the US.
“When these measures were announced a lot of industry lobbying groups made a big stink about the import measures and yes, domestic steel prices have gone up, but what our analysis shows is that there was no meaningful effect on downstream prices, and therefore no meaningful harm to consumers,” said Adam Hersh, director of Washington Global Advisors and co-author of the report.
Global excess capacity issues persist
Looking ahead, however, a diminished global economic outlook as the world emerges from the pandemic means that the brief reprieve from a global supply glut and nascent recovery enjoyed by US steelmakers is likely to evaporate, according to the EPI.
“Premature relaxation or elimination of Section 232 measures, in the absence of any concrete measures to eliminate excess capacity and trade-distorting policies that contribute to the global steel glut, would put the US steel industry at risk,” the report states.
Pete Trinidad and Dan Simmons, who serve as presidents of their respective local United Steelworkers unions, said US steelmakers are only just beginning to be able to really undertake the repair and maintenance needed to realize the gains that have been made through the tariffs and lifting the tariffs would likely lead to a surge in imports.
Hersh, who noted the global overcapacity issue is only getting worse, said it isn’t limited to China, with other major steel-producing countries achieving rapid capacity growth between 2000 and 2019 including India, Turkey, Iran, South Korea, Vietnam, Russia, Brazil, Mexico, and Taiwan.
“These are all countries where the state dominates or plays a significant role directing steel and other heavy industries, where government policies provide trade-distorting support to steel producers, or where producers have histories of unfair trade the in US market,” the report states. “Governments are also intervening in markets to maintain capacity, including in the EU.”
President Joe Biden’s administration needs to press for a permanent multilateral solution to the chronic problem of excess global steel capacity, but until one is found, national security concerns and ensuring a sustainable economic recovery for the steel industry require the continuation of comprehensive Section 232 import measures and other policies to preserve the US steel industry, the EPI report states.
Biden’s administration has stated it would be conducting a full review of the Section 232 tariffs.
“The context this research provides should convey to the administration that a thorough and complete review of 232 will conclude that the tariffs must be maintained and that supplemental actions to manage global overcapacity should also be put into place,” said Scott Paul, president of the Alliance for American Manufacturing.