Final Thoughts

Final Thoughts

Written by Tim Triplett

John Packard is traveling….

With President Trump making more headlines this week with his tweet calling for new tariffs on steel from Brazil and Argentina, the timing seems right to ask the question: Have the Section 232 tariffs helped your business? Your industry? Your country? Obviously, that depends entirely on the criteria each individual selects to make those judgments.

The price of steel is one obvious metric. When the president first announced the Section 232 tariffs in early 2018, in the name of national security, domestic steelmakers were jubilant. With less competition from imported steel, the benchmark price for hot rolled rose to more than $900 per ton. Since then, the price has plummeted to well below $500 a ton, less than when the tariffs took effect. Only recently have steel prices begun to rebound again. So, were the tariffs a success or a failure in terms of their effect on pricing? It appears a case can be made either way.

The stock price of publicly traded steel companies is another possible measure of the tariffs. The big steelmakers reported record profits in 2018 as steel prices skyrocketed, but since have seen their earnings, and share prices, take a hit. Investors no doubt look upon the tariffs with mixed emotions.

Capital investment by the steel industry is perhaps another yardstick for evaluating the impact of Section 232. With cash to spend from the boom times in 2018, many mills have announced ambitious plans to modernize and add new capacity. In some cases that will entail shuttering old, inefficient facilities. Ask the workers who get displaced if they feel like the tariffs did them any favors.

Steel demand is dependent on a healthy manufacturing economy. By many measures, manufacturing in the U.S. is slowing while steel capacity is poised to increase. If we find ourselves a few years from now in a market where excess steel capacity consistently outpaces consumption—to the detriment of steel prices—some may point back to the role the tariffs played in skewing supply and demand.

Is the U.S. a safer country as a result of the Section 232 tariffs? We have a robust steel industry that can meet the needs of our nation’s defense for the foreseeable future, so perhaps. Have the tariffs had any effect on the predatory trade practices of the Chinese and their state-run steel industry, which is the real problem? Apparently not. Shut out of the U.S. market by Section 232 and various antidumping and countervailing duties, the Chinese continue to overproduce and dump steel on the world market.

In a poll Steel Market Update conducted this week, two out of three respondents said Trump’s Section 232 tariffs have not been beneficial to their businesses. Here are a few of their comments:

“The imposition of tariffs has only created more chaos for the domestic steel market.” Service Center/Wholesaler

“S232 might be good for the country, but it has not been good for my company.” Manufacturer/OEM

“Terrible. Horrible for everyone. Artificial barriers always distort the market and true supply/demand movements.” Trading Company

“S232 helped the mills’ profits for a couple quarters, but many are still their own worst enemy. Imports went down and prices went up and several still couldn’t figure out how to be profitable. Some inefficient facilities need to go away!” Service Center/Wholesaler

Supporters of the tariffs responding to SMU’s questionnaire were just as adamant:

“Trump’s S232s are absolutely a help to the steel industry. Our industry still struggles, but at a profitable level for most.” Service Center/Wholesaler

“There is no doubt about it. They have been very beneficial to our industry. Period.” Service Center/Wholesaler

Is the tariff a legitimate trade tool to level the playing field against unfair foreign imports or it is a crutch that could compromise the competitiveness of American steel? Opinions about Section 232, much like those about President Trump himself, are very polarizing and share little common ground. When it comes to tariffs and Trump, there is only one unimpeachable conclusion—that the best we can hope for is to be civil to one another and agree to disagree.

As always, your business is truly appreciated by all of us here at Steel Market Update.

Tim Triplett, Executive Editor

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