National Security

A Matter of Steel Industry Security

Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips.

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President Trump activated a seldom-used provision in U.S. trade law last week that could result in sweeping tariffs on imported steel, all in the name of U.S. "national security." The initiative only proves that the argument for industry protection has become as bankrupt as an abandoned steel mill.

The law invoked by the president is Section 232 of the Trade Expansion Act of 1962. It allows the U.S. Secretary of Commerce to investigate whether certain imported goods "threaten to impair the national security." How would they do that? By becoming so dominant in America that they drive out indigenous producers, thereby forcing the American military to rely on precarious foreign sources rather than reliable indigenous ones for its needs. If the conclusion is "yes," the president then decides whether to accept the recommendation, and if so, what actions to take, including import restrictions, to remove the threat.

In this case, the entire exercise is a waste of resources and a sop to the relatively small domestic steel industry and its unions. If patriotism is the last refuge of a scoundrel, then national security is the last refuge of domestic producers that want to hobble their foreign competitors.

Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips. While it's true that steel imports have risen to about a quarter of U.S. consumption, domestic steel output remains robust. During the past decade, according to the World Steel Association, annual output at U.S. steel mills has been trending slowly downward but it was still an impressive 78 million tons in 2016. That ranks the United States as the world's fourth largest steel producer.

Domestic steel production far exceeds any foreseeable need by the U.S. military, which is a relatively small customer for domestic steel. The American Iron and Steel Institute reports that, in 2015, national defense and homeland security accounted for only 3 percent of domestic steel consumption. The Pentagon still needs steel for ships, tanks, and warplanes, but the demand has been flat or trending down for years.

A Section 232 investigation was last undertaken in October 2001. In its final report, the Commerce Department determined that "there is no probative evidence that imports of iron ore or semi-finished steel threaten to impair U.S. national security. There is neither evidence showing that the United States is dependent on imports of iron ore or semi-finished steel, nor evidence showing that such imports fundamentally threaten the ability of domestic producers to satisfy national security requirements."

The 2001 report found that the Department of Defense's annual requirements for steel "comprise less than 0.3 percent of the industry's output by weight (i.e., 325,000 net tons of finished steel per year)." It also found that the steel that was imported came mostly from a diverse and "safe" list of foreign suppliers, such as Canada, Mexico, and Brazil.

Fifteen years later, nothing fundamental has changed. China, one of the big trade bogeymen for this administration, accounts for only a small share of U.S. steel imports, largely because the domestic steel industry has already made effective use of anti-dumping and anti-subsidy duties to curb its imports to the United States.

The biggest threat to U.S. national security is not steel imports, but new steel protectionism. The other 97 percent of domestic steel production is consumed by a broad swath of U.S. industry, including construction, and such manufacturing sectors as automobiles, machinery & equipment, energy, and appliances.

If the Trump administration imposes new barriers to imported steel, it will drive up the domestic price of steel, imposing higher production costs on those other sectors of the economy and making their products less competitive in global markets. Economists estimate that for every U.S. worker in the steel industry, there are 60 workers in steel-consuming industries whose jobs will be made less secure by any new steel tariffs. Those tariffs will weaken, not strengthen, America's industrial base.

President Trump's Section 232 investigation is all about domestic politics, not national security. The impetus for the investigation was not from the U.S. military or defense experts, but from executives and union leaders in the domestic steel industry, who were standing at the president's side in the Oval office last week during the ceremony launching the investigation. Their overriding interest is to protect their bottom line and to pad their union membership by crippling their foreign competitors and driving up domestic steel prices, whatever damaging effect it will have on their fellow Americans.

Trade policy should be about maximizing the freedom and well-being of the American people, and happily a policy of free trade does both. But instead this administration is pursuing a trade policy based on narrow special interests—a policy of the steel industry, by the steel industry, and for the steel industry—and cloaking it in the flag of national security.

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  1. So it sounds like the courts would likely prevent Trump from enacting a tariff on this bogus pretext.

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  2. what happens to consumption in a time of war?

  3. “The American Iron and Steel Institute reports that, in 2015, national defense and homeland security accounted for only 3 percent of domestic steel consumption. ” “The 2001 report found that the Department of Defense’s annual requirements for steel “comprise less than 0.3 percent of the industry’s output by weight” So what percent is it? 0.3% or 3%.

    1. It can’t have changed in 14 years?

    2. The difference is likely between primary and secondary consumption. ‘The DoD requirements for steel’ are surely very much smaller than the amount of steel in the items they purchase with steel as an input several stages back in the production process.

    3. a.) The first is a percentage of domestic steel consumption.
      b.) The second is a percentage of the industry’s output.
      c.) The figures are separated by 14 years.

  4. Yeah I find the “national security” arguments for protectionism to be particularly weak and dishonest. “But but but, we might get catastrophically invaded at some point and therefore we need to have instantaneous WW2-era industrial production capacity in order to fight off this perceived threat, just in case

  5. The biggest threat to national security in regards to trade policy certainly isn’t from a lack of domestically imported steel. The best thing in the world for American security is trade.

    Before China joined the WTO circa 2001, they were still in the business of destabilizing third party nations. Nowadays, when people talk about “Maoist rebels”, they’re talking about their ideology–not about their funding, training, and support.

    China has gone from being a huge force to instability in the third world to being criticized for expanding its stabilizing influence in the developing world. They don’t care about ideology anymore–they care about stable countries being a reliable source of raw materials for manufacturing to fuel trade with Europe and the United States.

    Nothing has done more to fuel stability in the developing world than trade. Show me a nation we don’t have much peace with, and I’ll show you nation with which we don’t have much trade. Cutting off trade, hence, is a huge threat to national security–and the biggest threat to our national security is anything that denigrates America’s appetite for free trade.

    Is there anything a Trump supporter hates more than a “globalist”? Is there anything that hurts the appeal of free trade like elitism?

    Elitism is a threat to national security by way of free trade.

  6. RE: A Matter of Steel Industry Security
    Steel imports are no more a threat to U.S. national security than imported sugar or lumber or tulips.

    It never ceases to amaze me that Dear Leader Trump, a republican, took a page from the democrats by embracing protectionism.
    What’s the difference between the republicans and democrats again?

  7. What is a threat to national security with regards to our steel industry is the lack thereof. If we were to get into a major war, we would NOT have the capacity to manufacture ships, aircraft, tanks, etc. that we had in WW II. I firmly believe our capacity to produce is a huge part of what gave us the edge we needed to win.

  8. China has overproduced steel for more than a decade, and subsidizes its production. Korea’s Po Hung Steels’s joint venture with US Steel in California was closed due to China’s steel dumping. Existing US Steel workers to a pay freeze for years to keep the plant operating until the joint venture was profitable. The closed state of the art facility was the only West Coast producer for sheet steel with the quality to make car and truck bodies in the US. Its employees were consistently underpaid for their skills afterwards. Their dual trained electricians wrote programs for industrial computers, worked with 6KV 3 phase power, networked computers, and ran new service for the entire plant. After completing their apprenticeship, most left 5 years later after completing their agreement for training vesting their pension. Good industrial electricians in the area typically earned $10 and hour more, and didn’t possess the skill set for companies like Tesla. Labor wasn’t a factor in US POSCO’s closing, it was China’s dumping.

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