Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

U.S. President Donald Trump has ordered an urgent review of whether his country's dependency on steel imports is a threat to national security. Yes, you read that right. If the administration finds in the affirmative, it could impose sweeping import restrictions on steel.

This is a simplistic, antagonistic and oddly-timed solution to a complex problem. Trump's gambit isn't altogether surprising though.

The U.S. is the world’s largest steel importer and foreign steel accounts for about 30 percent of the market. In the Trumpian world view, exports are good while imports are evidence of weakness. His nostalgia for fallen industries such as coal and steel is well-documented. But while the collapse of U.S. steel employment was painful for those affected, the country is no longer such a force in the industry. Today, steel-making employs about 140,000 people, a fraction of the 160 million strong U.S. labor force.

Spent Force
U.S steel production is dwarfed by China. India and Japan also produce more
Source: World Steel Association

So Trump is risking a lot for a small industry. Last time the U.S. imposed broad-based tariffs on steel in 2002, it caused international uproar and Europe threatened $2 billion in retaliatory sanctions.

And is relying on steel imports really a security threat? National defense accounts for just 3 percent of U.S. steel consumption, according to Jefferies. This chart shows which countries export most steel to the U.S. Last time I checked Canada wasn’t planning an invasion. 

No Threat
These countries export the most steel to the U.S.
Source: IHS Global Trade Atlas
Data reflect first nine months of 2016

The president insisted on Thursday that the review had “nothing to do with China”. And in one sense he’s right. The U.S. accounts for about 2 percent of China’s steel exports, whereas 60 percent goes to countries neighboring China, according to Citi Research. But in steel markets, China is everything. Its massive surplus capacity, a legacy of over-investment, inflicts pain on everybody by putting downward pressure on global steel prices.

China claims to have shuttered 65 million tons of steel capacity last year and is promising to ax another 50 million this year. That clearly isn't enough: in 2015, there was about 300 million tons of surplus capacity. Plus the recent fall in China's domestic steel prices is worrying because it might encourage more exports. But Beijing has at least realized that its steel industry is a problem and started to do something about it. U.S. interests are best served if that continues.

Meanwhile, the lot of U.S. steelmakers is improving. That's partly because the country has already imposed anti-dumping curbs on imports. These seem to be taking effect. U.S. steel imports fell last year, domestic capacity use has improved and the price difference between American and Chinese steel has widened, analysts at Jefferies note.

Waning Imports
Tariffs have helped stem U.S. steel imports, but these could rise again
Source: US Census, Jefferies
2017 is an estimate

True, those higher prices are catching the eye of foreign producers who'll doubtless try to sell more stock to the U.S. But for now the local improvements will probably support local profits. The performance of U.S. steel stocks shows that investors agree.

Steeled for Success
Shares in big U.S. steel producers have performed well over the past year
Source: Bloomberg

Besides making allies angry, sweeping tariffs would probably push U.S. steel prices even higher. While that would be nice for steelmakers such as Nucor Corp. -- which forecast better earnings this week -- and United States Steel Corp., it would also raise the price of Trump's vaunted $1 trillion infrastructure plan. Steel-dependent industries such as carmaking would suffer too.

Trump probably can't help Pittsburgh without putting a dent in Detroit. 

David Fickling assisted with this column

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. The tariffs were later withdrawn

     

To contact the author of this story:
Chris Bryant in Berlin at cbryant32@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net