Leibowitz: When the shutdown should end

Labor encompasses such current debates as wage growth, work-life balance, profit motive (see also capitalism), health care, work safety, and the roles of manufacturing, farm labor, and services. Capitalism encompasses the regulation of the economy and its associated goals, the concentration of wealth in our society, and preparing our children for future employment, as well as the employability of young people in the age of artificial intelligence and technology. Health care includes the role of universal health insurance, environmental regulation (also affecting capitalism), addressing climate change (or global warming), and gun violence, to name only a few.

Current polling indicates that the country is divided into three almost equal groups: Democrats, Republicans, and independents. The last three presidential elections were very close, and Republicans have been fortunate: three of the last four Supreme Court Justices were nominated by Republicans and confirmed by a Senate controlled by the president’s party. (Justice Ketanji Brown Jackson, confirmed in 2022, is something of an exception: the Senate was 50-50, with Vice President Kamala Harris being a potential tie-breaking vote. In the event, three Republicans voted for Jackson, preventing the vice president from casting a tie-breaking vote.)

Political dynamics drive extremists to make demands that are entirely unacceptable to the opposite party. The result is not only gridlock, in which the ultimate weapon is a government shutdown; it also drives moderate voters to the sidelines. To further elevate the extremists, primary elections are mostly “closed,” meaning that only members of one political party can vote. Extreme candidates and their supporters thrive in that environment—look at the recent Democratic primary in New York City. Moderation, compromise, and civil discourse are rendered irrelevant. Why not let everyone vote in primaries? They are, after all, state elections run by state governments bound by the First Amendment.

When extremes propose solutions to our problems, the result is usually an impasse. When the governing majorities in Congress are very thin, the result is always an impasse. No “give” is possible because the donors (disproportionately extremists) will shun politicians who “give in” to the other side. We are seeing this play out every day in the news.

In the tariff realm, the extremists have won the day. No moderates on tariffs occupy positions of power in the government, and companies affected by them have been largely silent. The two political parties do not agree on much, but they appear to have achieved consensus on tariffs, particularly for steel, aluminum, and several other products, as a policy tool.

More trade means more wealth. Now, manufacturing is the political holy grail, while other workers (farmers, service providers like doctors, lawyers, bankers, technicians, computer programmers) are pushed to the sidelines. (The idea that ‘the steel industry will disappear if the tariffs are withdrawn’ has run into a literally unassailable counter-argument, the acquisition of U.S. Steel by Nippon Steel).

Steel is a key example of this trend. While steel trade associations, in league with organized labor, have convinced politicians that unscalable tariff walls are the only way to save the steel industry, the rest of us see the problem very differently. Personally, I admire the lobbyists who sold this theory, because they should not have won this debate. The current regime in steel (Section 232 tariffs, anti-dumping and countervailing duties, Section 301 tariffs on China) has not increased employment in the steel industry. The total employment in steel production in the US is about the same now as it was in 2016.

In the meantime, tariffs have caused serious dislocations in downstream manufacturing that uses steel, including the automotive, construction, and heavy machinery sectors. And steel producers in this country, thus far, have not resumed production of categories of products—light gauge steel sheet, energy-related pipes, proprietary alloys, and others.

The tariffs have driven other markets to retaliate and to impose tariffs equal to those of the US (not their best move). Ironically, negotiations for tariff adjustment have been scheduled for Canada and postponed.

The jobs of the future will continue to increase beyond traditional manufacturing. Tariff policy can play around the edges, as the steel tariffs have done, but it will never reverse these trends. As the jobs of our grandfathers disappear (my grandfathers were a clergyman and a local merchant, both of which are declining along with manufacturing jobs), young people (graduating from college or trade school, or not graduating at all) will face a job market out of touch with their skills and goals. Something will give. Immigrants have been supplying entry-level workers for many years—but now ICE raids are depleting their ranks too.

Shutdown politics will not address these problems. The Democrats have drawn the line at a reduction in Medicaid benefits and the termination of COVID-era subsidies for health care. These are major budgetary issues with no obvious quick fix. Other issues will not be faced in the near term as part of any bargain to end the shutdown.

Having created a craving for subsidies during the pandemic, Democrats are refusing to countenance their withdrawal (some were ended in the Big Beautiful Bill, others are set to expire at year-end). Perhaps some health subsidies should be retained for now and then reduced or phased out.

But there needs to be a deal to keep the government functioning for 330 million Americans while the details are worked out. In this climate, it is hard to compromise—but the current situation demands it. Expect congressional leaders to work out a schedule for discussing medical subsidies while reopening the government. Democrats will have to find other ways to exercise their leverage beyond grinding the government to a halt, which, by the way, plays directly into the hands of those who want government to be smaller. The shutdown over this is the wrong hill to die on.

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.