EPI.org | March 24, 2021
Executive summary
A strong domestic steel industry is critical to U.S. national defense, to the health of America’s critical infrastructure, and to the competitiveness of many domestic manufacturing industries. Beyond supplying high-quality steel in sufficient quantities to meet national defense needs, the U.S. steel industry also plays a critical role in supporting the welfare of other industries essential to the broader health and operation of the economy and government. For decades, chronic global steel supply gluts have undermined the U.S. steel industry with surging imports to U.S. markets undercutting prices, domestic production, employment, and investments. This oversupply jeopardizes the fundamental health of the U.S. steel industry—one of the cleanest and most energy-efficient steel industries globally.
Global steel surpluses are the result of chronic global excess steelmaking capacity in major exporting countries, including China, India, Brazil, Korea, Turkey, the EU, and other nations, much of it from state-owned and state-supported enterprises that are heavy polluters. In 2018, the United States determined that steel imports posed significant risks to national security and imposed a 25% tariff and other trade remedies on certain steel products under Section 232 of the Trade Expansion Act of 1962. This report examines the impacts of these measures on domestic steel production and consuming industries, and it recommends that these measures be retained until a multilateral solution to the problem of global excess steel capacity can be achieved.
Key conclusions of this report include:
- The U.S. steel industry is a vital component of the American economy. In 2017, prior to Sec. 232 import measures, the U.S. steel industry supported nearly 2 million jobs that paid, on average, 27% more than the median earnings for men and 58% more than the median for women.
- Global steel markets are plagued by chronic excess capacity. Measured by the Organisation for Economic Co-operation and Development (OECD), global excess capacity is 5.8 times the productive capacity of the entire U.S. steel industry. Massive overcapacity driven by subsidies and other anti-competitive policies can only be disposed of by these producers flooding U.S. and other markets with exports, posing material harm to U.S. steel producers and risking the U.S. industry’s ability to maintain operations, grow, and invest in areas essential to national defense, critical infrastructure, and broader economic welfare.
- The economic picture for U.S. steel producers brightened considerably beginning in 2018 until the pandemic began. Following implementation of Sec. 232 measures in 2018—and prior to the global downturn in 2020—U.S. steel output, employment, capital investment, and financial performance all improved. In particular, U.S. steel producers announced plans to invest more than $15.7 billion in new or upgraded steel facilities, creating at least 3,200 direct new jobs, many of which are now poised to come online. 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.
- Administrations dating back to the mid-20th century have worked to mitigate the effects on U.S. steel producers of unfair global practices. For decades, unfair trade practices have threatened the U.S. steel industry with repeated crises. In this context, the recent Sec. 232 import measures simply continue a long thread of executive policy actions to provide relief for the damages wrought on U.S. producers by unfair competition and global surplus capacity in steel. For example, President Obama pressed the excess capacity issue through diplomatic channels at the G20 and in the U.S.-China Strategic and Economic Dialogue and under U.S. law, overseeing 370 trade remedy actions on imported steel products.
- China has massively and rapidly expanded its steel production capacity. China, the world’s largest steel producer, used subsidies and other forms of distortionary government support to expand steel capacity by 418%, or 930 million metric tons (MMT), since 2000, such that by 2019 it controlled just shy of half of global steel capacity. Chinese steel firms are also investing in developing capacity overseas, including in Europe, Asia, and Latin America, in efforts to evade trade enforcement actions.
- Countries across several continents followed in China’s footsteps, developing more excess capacity. Rapid growth in overcapacity is not limited to China. Other major steel-producing countries achieving rapid capacity growth between 2000 and 2019 include India, Turkey, Iran, South Korea, Vietnam, Russia, Brazil, Mexico, and Taiwan, with increases ranging from 8 MMT in Taiwan to 95 MMT in India. 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 U.S. market. Governments are also intervening in markets to maintain capacity, including in the EU.
- Rapid expansion elsewhere comes with falling domestic production. In the United States, by contrast, total steel production capacity fell by 5.5 MMT to 110 MMT in 2019, with world market share shrinking to less than 5% in 2019 from 10% in 2000.
- Section 232 measures delivered near-immediate benefits. Once implemented in 2018, such Sec. 232 steel import measures as 25% tariffs on imported steel and import quotas on select countries helped curb U.S. steel imports by 27% by 2019. Import penetration of the U.S. market fell to 26% of all steel consumed in the United States in 2019, from 35% in 2017.
- Section 232 measures have had no meaningful real-world impact on the prices of steel-consuming products (such as motor vehicles). Econometric analysis shows that price changes in basic steel products had statistically zero or economically negligible causal effects on prices of “downstream,” or steel-using goods, including new motor vehicles, construction equipment, electrical equipment and household appliances, motor vehicle parts, nonresidential construction goods, food at home, and durable goods more broadly—industries accounting for the majority of U.S. steel consumption. This lack of impact is unsurprising, given that steel is just one cost in a long list of inputs to production.
- Widespread exclusions to Section 232 measures mitigate positive economic impacts. Despite benefiting U.S. steel producers and having no discernible impact on steel consumers, Sec. 232 import measures have been progressively undermined by nearly 108,000 product-specific exclusions through July 2020 alone and broad, countrywide tariff exemptions for roughly one-third of all imports.
- Jobs, national security, and the steel industry itself are at risk if Section 232 measures are discontinued or weakened in the post-pandemic economy. The diminished global economic outlook as the world emerges from the COVID-19 pandemic means that the brief reprieve from a global supply glut and nascent recovery enjoyed by U.S. steelmakers is likely to evaporate. Premature relaxation or elimination of Sec. 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 U.S. steel industry at risk, imperiling new investments and hundreds of thousands of good jobs in steelmaking and in other indirect and induced jobs supported by steelmaking activity.
- Relaxing or reversing Section 232 measures also would provide an advantage for low-priced, high carbon-polluting producers overseas.
- A permanent global solution is the best answer. The Biden-Harris administration should press for a permanent multilateral solution to the chronic problem of excess global steel production capacity. But until such a solution is achieved, national security concerns and ensuring a sustainable economic recovery for the steel industry require the continuation of comprehensive Sec. 232 import measures and other policies to preserve the U.S. steel industry.