Leibowitz: Utilities brace for higher Section 301 tariffs - and higher costs

Players in the utility industry face a number of challenges to maintain electric generation and distribution. Demand for electricity has surged and is very likely to increase dramatically from here because of the increasing demand for electric vehicles and the proliferation of data centers, which gobble up huge amounts of electricity.

The power grid is becoming more obsolete, and retrofitting existing power lines with more efficient wiring and transformers (and the steel towers that hold them) will demand more materials.

China is an important source of vital materials for these efforts. The Biden administration seems to propose tariff increases to “punish” Chinese manufacturers by reducing demand for their products.

That does not work, because the tariffs are ultimately paid by US consumers, not Chinese producers. The skyrocketing demand for such materials as rare earth metals and electrical steel assures that Chinese producers will not pay the tariffs. But price increases will be passed along to customers.

The administration also hopes that the increased tariffs will cause companies to turn to non-Chinese suppliers or build facilities in the US. This is a “chicken and egg” problem. There are serious obstacles, for example, to new mining of lithium and rare earth metals in the US. Environmentalists oppose new mining as a matter of principle, and the administration needs their votes in November.

On balance, increasing tariffs to encourage domestic manufacturing doesn’t really work in a 21st-century economy. A better way is to encourage production through incentives to – wait for it – increase production. The administration has picked a couple of industries to do this. The CHIPs Act to subsidize production of semiconductors in the US is perhaps the clearest example.

Here is an idea: Maybe our leaders should focus more energy (pun intended) on supporting new production of electrical steel so that it becomes economic to make more transformers and electric motors in the US.

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.