Trade Cases

EPI, USW Insist S232 Must Remain in Place Despite Opposition

Written by Michael Cowden

Section 232 tariffs should remain in place because they backstop a stable U.S. steel industry, the benefits of which will outlast a temporary price spike, a panel of industry experts and trade union members said.

“These typically last six to nine months. So we can expect that these price bubbles–and that’s really what they are–are going to go away when capacity comes back online,” said Robert E. Scott, senior economist and director of trade and manufacturing policy research at the Economic Policy Institute (EPI).

Scott made the comments during a press conference on Wednesday, March 24, to mark the unveiling of an EPI study on the effectiveness of Section 232 in reducing imports. He was one of two co-authors of the report.

The EPI supports the Trump-era trade action, which was rolled out in March 2018, claiming that it reduced import penetration in the U.S. market from 35% in 2017 to 27% in 2019.

It was not entirely clear which capacity Scott was referring to in calculating the import share. But some U.S. blast furnaces remain idle. And a wave of new domestic capacity is slated to come online in the second half this year and into early 2022.

bubble pop

Section 232 tariffs–25% in the case of steel and 10% on aluminum–have to date received support from the Biden administration as well. But pressure is mounting from steel and aluminum consumers to remove the trade measure amid record high prices.

Case in point: Steel Market Update’s average U.S. hot-rolled coil price stands at $1,315 per ton ($65.75/cwt), an all-time high. That figure is also up 33.5% from $985 at the beginning of the year and nearly triple a 2020 low of $440 per ton.

Indeed, uncertainty over the direction of the market appears to have led to a surge in open interest in hot-rolled coil futures

The Expert Take – High Prices Will Fade

The U.S. saw similar bubbles in the mid-2010s in the aftermath of the Great Recession. And it’s not just steel that has seen “tremendous spikes” over the last four to six months, so too have prices for an array of basic commodities including corn, wheat and copper, Scott said.

The spikes are less the result of Section 232 than of a lower U.S. dollar, which results in higher commodity prices, and of rebounding economic activity following a steep downturn in the immediate aftermath of the COVID-19 pandemic, he said.

Adam Hersh, director of Washington Global Advisors LLC and another of the report’s authors, also said price spikes and the difficultly securing tonnage are the result of a “temporary supply chain disruption.”

That price surge will pass. But the need for certainty provided by Section 232 in a capital-intensive, high-fixed-cost industry like steel will remain, he said.

And Section 232 must stay in place if the U.S. is to continue to invest in existing capacity and to build out new capacity. “If we relax the 232s, we are going to take away that certainty, and you are going to see more facilities idling because they don’t know what the future is going to be,” Hersh said.

The domestic steel industry has invested nearly $15.8 billion to build new capacity or to expand existing capacity since the tariffs were put in place. Those expansions have created at least 3,290 jobs. And another $5.9 billion has been spent on steel mergers and acquisitions, according to the EPI report.

Such investments will create a more stable supply base for domestic consumers, which is where discussions should focus. What’s not fair is to hammer U.S. steelmakers for reducing production last year in the early days of the COVID-19 pandemic, a time when it was not clear whether or when demand might return, said Scott Paul, president of the Alliance for American Manufacturing (AAM).

“They (mills) did the very responsible thing in decreasing their output at a time when all the economic signals were indicating that, so to somehow penalize them for responding to market forces is something that is both untenable and unwise,” Paul said.

Paul was adamant there should be no easing of Section 232 trade measures beyond the exclusion process already in place. Any supply-demand imbalance is a “temporary blip.”

“It will align. … The steelmakers are ramping back up,” Paul said. “But there is a lot of uncertainty as we head into the future as well.”

The uncertainty stems in large part from excess global steelmaking capacity, not only in China but also in a host of other nations, officials on the call said. 

The View from the Shop Floor

Two United Steelworkers (USW) union officials on the call talked about how Section 232 had benefitted their mills and their members.

Pete Trinidad, president of USW Local 6787, which represents workers at Cleveland-Cliffs’ Burns Harbor steel mill in northwest Indiana, said that while steel prices are at record highs, it doesn’t feel like cause for celebration on the shop floor.

“We have yet to really enjoy that or understand that. It seems like the frontline management that we’re working with are a little shellshocked, and it seems like it’s not going to be there for long,” Trinidad said.

Section 232 has at least given steelmakers the chance to begin to catch up on long-overdue maintenance and repairs, he said.

Trinidad didn’t mention any specific projects. But Cleveland-Cliffs has already announced plans to make repairs to multiple blast furnaces in the weeks and months ahead.

“If unfair imports were allowed to come back into the United States, then this would be all for nothing. We would go right back to where we were. Repair or maintenance would continue at a slow pace,” he said.

Section 232 has also given union members a reprieve from the “on-off switch” that seemed to loom over certain facilities whenever imports surged. The trade action has meant those plants have remained “on” for a change–and their members consistently employed and productive.

“We want to make sure that there is a good product out there and that we can make a decent living so that we can actually purchase some of these products when we go home,” he said, noting that Burns Harbor makes steel not only for battleships and submarines but also for cars and appliances. “If the 232s are lifted, we feel that the opportunity to do that would once again be put on pause. … We need our government to have our back on this.”

Dan Simmons, president of USW Local 1899, which represents U.S. Steel’s Granite City Works in southern Illinois, agreed. He said Section 232 resulted in the mill coming back to life after being left largely idle for nearly two and a half years.

“It helped us get the doors back open again.” And Granite City still has some capacity idle, Simmons noted.

U.S. Steel has two furnaces at Granite City: “A” and “B.” U.S. Steel announced in late March, following the outbreak of the COVID-19 pandemic, that it would temporarily idle the “A” furnace. It has remained idled since. 

By Michael Cowden,

Michael Cowden

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