By Robert E. Scott & Adam S. Hersh
May 12, 2021 at 5:00 am ET
American-made steel has been essential to our national security and our economy for decades. Now, with our economy beginning to recover from the COVID-19 crisis, it’s essential that the Biden administration continue supporting the U.S. steel industry by keeping Section 232 steel measures in place.
For decades, chronic global steel overcapacity has undermined the U.S. steel industry by flooding U.S. markets with foreign steel. This has undercut prices, impacting domestic production and investments and costing us good-paying American jobs. For example, China, the world’s largest steel producer, has used subsidies and other forms of government support to expand steel capacity by 418 percent since 2000. By 2020, China was responsible for 56.5 percent of global crude steel production, producing more than 1 billion tons of steel while much of the rest of the world reduced production throughout the COVID-19 pandemic.
This problem isn’t just limited to China. India, Turkey, Iran, South Korea, Vietnam, Russia, Brazil, Mexico, Taiwan and many countries in the European Union have all achieved rapid capacity growth thanks to state intervention and trade-distorting policy.
American steel is coming back, but the global overcapacity problem persists today, and it jeopardizes our national security. The Department of Defense and our broader national security apparatus have ongoing needs for a range of steel products that are used to defend our country. Without a viable U.S. steel industry, America is forced to rely on other nations – potentially hostile nations – to supply the raw materials that fuel our national defense. That’s why Section 232 steel measures were implemented in March 2018 on national security grounds: A strong American steel industry is critical to our defense.
A new study from the Economic Policy Institute, which we co-authored, shows that these Section 232 national security measures have been effective and must remain in place. Following their implementation in 2018 – and prior to the global downturn in 2020 – American steel output, employment, capital investment, and financial performance all improved. U.S. steel producers created thousands of new jobs and announced plans to invest more than $15.7 billion in new or upgraded facilities.
A significant ancillary benefit of Section 232 steel measures has been to divert steel production to more environmentally sustainable producers here at home. The American steel industry is one of the cleanest and most energy-efficient steel-producing countries. A 2019 report measuring the CO2 emissions intensity of steel industries in 15 major steel-producing countries found that American steelmakers are among the least CO2-intensive industries. Relaxing Section 232 steel measures would reverse this progress as the Biden administration seeks to achieve net-neutral emissions by midcentury.
Critics contend that these national security measures have hurt downstream industries that use steel in their production process, but econometric analysis shows that hasn’t been the case. Our study found price changes in basic steel products had negligible causal effects on the prices of steel-using goods like motor vehicles, construction equipment, electrical equipment, household appliances, motor vehicle parts, nonresidential construction goods, food and other durable goods – the vast majority of the industries accounting for the majority of U.S. steel consumption.
Section 232 measures have a long history of bipartisan support. When President Donald Trump put these measures in place in 2018, it was the latest action from a series of Democratic and Republican presidents – including President Barack Obama – seeking to redress unfair trade practices that for decades have kept the U.S. steel industry on the brink of crisis.
President Joe Biden and his administration are right to review the policies of their predecessors, and so far, they’ve indicated that Section 232 steel measures are effective. U.S. Trade Representative Katherine Tai called tariffs a “legitimate tool,” and Commerce Secretary Gina Raimondo said that the data show that they’ve been effective and “helped save American jobs.”
Retreating from Section 232 measures now, particularly after so many U.S. companies have committed to new investments in production, would leave U.S. steel producers in untenable financial positions, further jeopardizing their capacity to meet national security needs and hurting our economic recovery.
Section 232 measures have been effective. The Biden administration should keep them in place so that American-made steel can help our country “Build Back Better.”
Robert E. Scott is a senior economist and director of trade and manufacturing policy research at the Economic Policy Institute. Adam S. Hersh is an economist at EPI.
This research was made possible by support from the Partners for American-made Steel.
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