Trade Cases

Zekelman: “Tariffs are Working Well”

Written by Tim Triplett

Editor’s note: The following commentary in support of the Trump administration steel tariffs was contributed by Barry Zekelman, chairman and CEO of Zekelman Industries, the largest steel pipe and tube manufacturer in North America.

We often hear that the Trump administration’s steel tariffs are hurting the U.S. economy. News commentators certainly think so. They talk about a trade war with China—and how the tariffs are costing jobs while raising prices.

My company has 2,700 employees, including 600 in the Chicago area alone. We’re a major steel buyer, and we purchase more hot-rolled steel coil each year than General Motors. We think the tariffs are working well.

The steel we buy is used to manufacture tubing and piping at 16 facilities across the United States. Our products are used in everything from commercial construction and apartment buildings to energy infrastructure and data centers. Since 2017, we’ve hired 750 new employees while increasing our sales by 20 percent.

The tariffs matter because steel is important. It’s a key measure of a nation’s economic security. Steel is the bedrock commodity needed to build transportation, infrastructure, housing and power distribution. Unfortunately, America’s steel industry has been declining in recent decades, and the United States is now the world’s largest steel importer.

What really hurt America’s steel mills is years of China massively subsidizing its state-owned steel industry. In fact, China has driven an enormous global oversupply of steel. China now produces 56 percent of the world’s steel, including an estimated 400 million tons of excess steel each year. All of that oversupply has reduced steel prices worldwide, leading to high levels of imports that have progressively swamped America’s steelmakers. Chinese steel also makes its way into the U.S. through transshipment and end-use products like washing machines, lawnmowers, and barbecues.

Last year, the Trump administration imposed tariffs on steel imports. And the net effect has been to level the playing field, allowing America’s steel producers to make major improvements and increase plant utilization. When the tariffs were first announced, there were short-term price spikes as America’s steel mills took stock. But steelmakers subsequently invested in world-leading electric arc furnaces to boost capacity and better compete with China. Even though my company’s primary component cost is raw steel, I supported the tariffs. I knew that in the long run it would lead to a more sustainable domestic steel industry.

Now, we’re seeing America’s steel industry investing $14 billion to transition from older blast furnaces to newer minimills. Ironically, media coverage has portrayed the closures of these older steel plants as evidence that the tariffs have failed. But actually, these are smart, logical moves by a steel sector now reinventing itself and making major capital investments in high-tech minimills. Fears about higher prices have proven to be overblown, too. Steel prices have fallen 50 percent from peak levels last year and are now below pre-tariff levels.

Since the tariffs were imposed, my company has been expanding. We’ve doubled our capital expenditures to $160 million annually. And we’re even looking to hire 400 new workers across the eight states where we operate manufacturing facilities.

Clearly, we’re doing better, our workers are doing better, and many struggling communities are starting to get back on their feet. But all of that could turn around again.

Despite global calls for Beijing to reduce steel supply, production has continued to rise. China now produces more steel than the rest of the world combined—and it continues to overproduce in order to maintain its world-leading capacity while exporting steel at prices often set below the cost of production.

China has made no meaningful effort to curb its overproduction, and Washington must remain focused. The tariffs should continue, as a tool for subsequent negotiations. However, tariffs can be skirted by currency moves. Not only is the U.S. dollar rising in value—which makes imports cheaper—but China has also lowered its own currency in response to the tariffs. That’s why quotas on steel imports should be considered since they function independently of currency fluctuations.

If some critics got their way, they’d simply eliminate the tariffs. But that would wipe out the very helpful gains made by America’s steel industry in the past two years. And it would kill the momentum of companies like mine that have been expanding operations and hiring new workers based on the certainty of trade intervention.

To fix the damage caused by China’s aggressive overproduction, strong trade remedies like tariffs and other measures will be needed for years to come. Anything less would be an unrealistic response to an aggressive global competitor.

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