In a recent Pennsylvania rally, President Trump said that the US steel industry was “thriving” under his presidency.
Before the cheering mass of supporters, he elaborated, “Our steel mills are fired up and blazing bright. The assembly lines are roaring.”
He added that steel had been dead until he implemented his signature economic move: a 25 percent tariff. He then said, “Those steel mills — U.S. Steel and all of them, all of them — they’re expanding all over the place. We hadn’t had — we didn’t have a new mill built in 30 years.”
Notwithstanding the boasts, the American equity markets seem to believe otherwise. U.S. Steel Corp. and Nucor had lost 37.6 percent and 4.5 percent of their market value when he made those statements. On the brighter side this year, AK Steel has been slightly better off and is up 1.8 percent year-to-date. However, last year its stock lost an enormous 60 percent of its market value. Nucor and U.S. Steel closed deep in the red last year. Steel stocks’ dismal market prices suggest that market mavens don’t believe the US steel industry is “thriving.”
There is no question that competition from less expensive steel imports has rattled the U.S. steel industry in recent years. A higher level of imports took a toll on national steel production as well. While the steel industry wasn’t “dead” as Trump claimed, it certainly needed something.
Tariffs brought an initial sense of jubilation to the steel industry. U.S. steel production rose in tonnage last year while imports tapered down. Nucor and Steel Dynamics announced several new projects, while U.S. Steel restarted two blast furnaces. And although Trump said no new mills were built in the last 30 years, that simply isn’t true. According to Fortune Magazine, there have been six new plants started within the last 15 years, and one of the bright new companies, Steel Dynamics, opened two new furnaces.
Subsequent to imposition of the tariff protections, U.S. steel companies opened their coffers to expansion. U.S. Steel initially doubled its planned production. However, almost inexplicably, the stock fell after the announcement, and all the steel stocks fell to their 52-week lows.
U.S. Steel announced the closure of two blast furnaces in June, ironically the same day Trump launched his 2020 campaign. While steel stocks gained traction in May and June, they then dropped again, and U.S. Steel made a new 52-week low in July.
On the aluminum side, investors who thought the tariffs would help U.S. aluminum producers began to voice grave reservations, and the CEO of Alcoa Corp. said they actually had hurt. His company’s stock fell 13.3 percent to a seven-month low in the first week of August, enough to pace all the decliners listed on the New York Stock Exchange. The selloff turned out to be the second biggest in the past nine years.
The biggest decline during that time was the 13.5 percent tumble in April of last year, after the U.S. extended the deadline for dealing with Russia-based aluminum giant United Co. Rusal, which is controlled by Oleg Deripaska, who was sanctioned for his involvement in U.S. elections meddling. For investors who thought the tariff on aluminum imports was supposed to be a benefit, Alcoa Chief Executive Roy Harvey explained on a post-earnings conference call with analysts why it’s actually the opposite.
“Even if all U.S.-curtailed capacity was back online and producing metal, the U.S. would still need to import the vast majority of its required primary aluminum, with approximately 60 percent from Canada, which is key to the North American supply chain,” Harvey said. “Canada is an important source of metal for U.S. aluminum producers.” Alcoa operates three smelters in Canada, which export into the U.S. Starting in June, Harvey said that he expected a $12 million to $14 million negative monthly impact.”
Anxiety was ameliorated in May when it was announced that tariffs on Canadian and Mexican metals would be lifted, even though there had been no substantive change in what the president had earlier announced to be an economic threat from Canadian and Mexican imports.
What this administration has not done is to use the enforcement of anti-dumping legislation currently on the books to punish and prevent the unfair advantage of foreign country subsidies of aluminum and steel. Instead, it has pursued broad and immediate tariffs with self-serving political announcements that the US metal industries are “thriving” when, in fact, they have been staggering.
Don Tortorice is a former attorney and professor at the Law School of the College of William and Mary.