THE AMERICAN steel industry is not what it used to be. Once the world’s largest producer, the United States is now No. 4, behind China, which makes half of the world’s steel, Japan and India. Under pressure from imports, which now supply about a quarter of the U.S. market, the U.S. industry has shed 78 percent of its labor force since the end of the Korean War — a time when steel was so vital to national security that President Harry S. Truman nationalized the mills to stop a labor dispute he deemed dangerous to military efforts. However, that same foreign competition has enabled Americans to enjoy cheaper products, while forcing efficiency gains on the U.S. industry. Today’s 142,000 American steelworkers are five times more productive than their more numerous counterparts of the early 1980s.
The issue today is how to preserve those gains in a global steel market characterized by excess capacity, much of it in China’s state-run industry. President Trump’s answer, seemingly, is last week’s executive order calling for the Commerce Department to study the impact of steel imports on national security; nine months hence, when the study is done, he might have the option, under a previously obscure 1962 federal statute, of imposing tariffs.
Perhaps the study will note the irony that it is being conducted after a year in which steel imports to the United States actually fell, compared with 2015. It might also observe that U.S. factories are still running well below full capacity, so they might have room to ramp up military-related production in a crisis. Of the top 10 steel exporters to the United States , half are nations with which the United States has mutual defense agreements. Two of the top five are Canada and Mexico, our partners in the North American Free Trade Agreement; it is not clear how they could legally be hit with tariffs, even on ostensible national-security grounds. As it happens, the American Iron and Steel Institute’s position is that the United States should “strengthen North American steel and manufacturing supply chains” — that is, trade more across its northern and southern borders.
As for China, which still provides only about 2 percent of all U.S. steel imports, its excess capacity does indeed depress global prices, which harms U.S. producers indirectly. However, China has reduced capacity significantly in recent years and has plans to do more of the same. This is in response to China’s economic self-interest, as well as pressure from the United States and Europe, in the form of denying Beijing a coveted upgrade to full market-economy status at the World Trade Organization.
Continuing that more targeted policy from the Obama administration, in coalition with allies, would be smarter than an “America First” approach based on widely applied tariffs or the implied threat thereof. However, Commerce Secretary Wilbur Ross said that the forthcoming study would be aimed not just at China but “a wide range of countries,” which would seem to be a formula for losing friends and influence. For both producers and consumers of American steel, the only victory in a trade war would be of the Pyrrhic variety.