Leave Steel Tariffs In Place

Leave Steel Tariffs In Place
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President Biden understands — and his administration has so far owned up to — trade policy mistakes made by past Democratic administrations. That alone will align him closer to his Republican predecessor than any recent commander in chief, especially as he considers preserving a decisive action to defend the American steel industry.

It will make him unlike Bill Clinton, whose failure to respond to the Asian financial crisis and surges of steel imports led to dozens of plant shutdowns and bankruptcies 20 years ago; he instead left the problem to the Bush administration, which offered relief very late in the game. It will also make him unlike Barack Obama, whose overreliance on dialogue and industry-led trade enforcement to counter overproduction problems in China amounted to too little, too late – and helped lead to another solvency crisis for domestic steelmakers.

In 2018, the Trump administration raised Section 232 trade enforcement tariffs in response to a consistent deluge of steel imports that had led to tens of thousands of layoffs, dozens of factory closures, and precious few makers of metals that secure our nation.

And thus far, while it would have been quite easy for the Biden administration to disavow most of its predecessor’s policies, they have remained. In the words of Commerce Secretary Gina Raimondo, those Section 232 tariffs have been “effective” and “have leveled the playing field.”

They have indeed. Domestic steelmakers have reorganized, reinvested, and hired on more workers. In the approximately two years between the tariffs’ announcement and the onset of the coronavirus pandemic in March 2020, the industry used this relief to restart idled mills and spend more than $15 billion in capital improvements, which in turn created approximately 3,200 new jobs according to the Economic Policy Institute.

In short, the tariffs worked. But they served as a treatment, not a cure, which means it’s not time to lift them.

Ask an American steel company or a steelworker and you’ll still get a direct answer as to why they were necessary then (and remain so now): The tariffs are a response to the still-growing overcapacity problem in the international steel market, which has largely been driven by massive state-owned and -backed Chinese steelmakers. These firms produce approximately half of all steel made in the world, and as such the market itself is deeply unbalanced; there is far more steel being produced than can be consumed, and this chronic glut keeps prices artificially low. That isn’t a problem for mills whose losses are underwritten by a foreign government. It is a problem, however, for American ones that operate without that kind of backstop.

It’s still a problem today. Chinese steel overcapacity has only grown since 2018 and other countries are following its model. According to the Organization for Economic Co-operation and Development, global excess capacity is now nearly six times the entire production capacity of the American steel industry.

Years of discussion at G20 forums and the OECD have failed to curb this problem. And while the 164 separate anti-dumping orders on steel imports the U.S. Department of Commerce had authorized up until March 2018 were necessary compresses, they were not a comprehensive solution.

As I argued when they were first announced by the Trump administration, the Section 232 tariffs were a good first step to safeguard a critical, beleaguered industry that operates in one of the most open markets in the world. That market is still very open, by the way; the United States is still a net importer of steel. President Trump, unfortunately, didn’t take any additional steps, like working with other countries to quarantine imports from overproducers or significantly growing steel markets here at home.

With the new administration, though, there is the opportunity to do that. The Biden White House is initiating a review of its predecessor’s use of Section 232 tariffs, and I’m hopeful it will come to the logical conclusion that they will remain where they are — especially as American steelmakers regain their footing in the economic fallout from the pandemic.

Until then, there is no compelling argument to dropping the tariffs without eliminating global overcapacity first.

Scott Paul is president of the Alliance for American Manufacturing.



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