Leibowitz: Trump's tariffs confront a weakening market

I was recently at a gathering of steel pipe distributors. Namely, the fall conference of the National Association of Steel Pipe Distributors (NASPD) in Charleston, SC. NASPD members are a sample of the uncertainty that prevails in business these days. Most businesses in that space are doing fairly well, even if not spectacularly so.

But signs of weakness are already appearing in the tariff wall. The economy has slowed to the point that the Federal Reserve cut interest rates by 0.25%, or 25 basis points, last week. The cut came even as the rate of inflation continues to hover well above the Fed’s 2% target rate. The slowing economy is, according to Fed Chairman Jerome Powell, due in part to the vastly increased tariffs imposed by presidential fiat.

The August jobs report, issued on Sept. 5, revealed an anemic 22,000 new jobs created. In addition, the Bureau of Labor Statistics revised downward the June jobs report to a net gain of 23,000 jobs in that month. Manufacturing employment was essentially flat from July to August. The unemployment rate ticked up to 4.3%.

Anemic.

Chairman Powell has been under intense pressure from President Trump to lower interest rates, so the rate cut last week comes as no surprise. The president succeeded in naming Steven Miran as a new member of the seven-member Board of Governors of the Federal Reserve. He was sworn in last Tuesday and participated in the September meetings. Board member Lisa Cook, who President Trump is attempting to fire, also participated.

If the president is legally entitled to impose tariffs of any amount, for any duration, and if they are changeable at any time, American businesses will not be able to predict their own costs or prospects – and therefore will postpone major decisions regarding building new plants or ramping up employment. In this sense, the tariffs are clearly counter-productive in securing increased manufacturing activity.

The administration and its supporters ask for patience to permit the protective tariff wall to create an economic paradise. But waiting is futile if the tariff wall will not yield fabulous economic growth. The growth won’t happen, because American business is and will remain integrated with the world economy. And the loss of that integration will not create more wealth—it will destroy more than it creates.

Tariffs may work for some, but they will hurt many others. A high and inflexible tariff wall will more likely collapse the economy than energize it to new heights. While the president and his team might not realize that, perhaps they (or their successors in January 2029) will.

Like any disruptor can argue (as President Trump has done) that a court decree striking down his tariffs will cause severe pain to the economy, courts are not likely to rule in his favor just for that reason. The law is the law.

It’s like some of the steel pipe distributors noted. Segments of the economy are seeing signs of weakening.

The steel industry has added some production capacity, but nowhere near enough to supply all the steel that the market needs. And, in a bow to politics over economic rationality, U.S. Steel has canceled plans to halt production at the venerable rolling mill in Granite City, Ill. US Steel’s new owners succumbed to pressure from the White House, but defying that pressure is not the Japanese way of addressing it. Because the workers in Granite City will get paid either way, it was a reasonable way to address the holder of the “golden share.”

Even with high prices in the US and a couple of million tons of new capacity coming on line, steel companies cannot produce enough to meet demand. Persistent high prices won’t put this right, because steel consumers will not be able to compete with international rivals who pay much less for the metal. New steel specifications that domestic companies either can or don’t want to make will make the problem worse.

If the problem is “global excess capacity,” high tariffs in the US will not cause other countries to cut their own production to raise global prices. The US will remain an island of high prices for steel and render uncompetitive many domestic manufacturers that rely on steel production inputs. Their Hobson’s Choice: go out of business, move overseas, or find substitutes for steel.

Aluminum is an even tougher nut to crack. Primary aluminum production in the United States has sharply declined and will not come back any time soon. Between 2019 and 2024, according to the U.S. Geological Survey, aluminum smelting declined nearly 50%, while global smelting nearly doubled. This global shift will not be reversed by a tariff wall.

The courts can start the process of unwinding what has emerged as a major policy mistake by the administration. If they do, players will be able to have a more sober debate about workable solutions. Tariffs may go up or down, but these problems and creative solutions will still exist.

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.