The most important lessons from Trump’s failure to revive the US steel sector

On March 23, 2018, former US President Donald Trump imposed 25% tariffs on steel imported from Canada, Mexico and the European Union, assuring Americans that the aim of these measures is to curb “unfair” foreign competition and revive the faltering steel industry in the United States. He created thousands of high-paying jobs, and 5 months later, Trump wrote on Twitter, “The tariffs have had a tremendous positive impact on our steel industry.”

In a report published by “Foreign Affairs Magazine” ( Foreign Affairs ) American, says the authors of Steele and Benjamin Della Rocca, if those fees have not achieved the goals that talked about Trump, but formed a huge burden on the American supplier of steel companies, and the cost of annual losses estimated at $ 3 billion . Read also The dollar rises to new highs amid a bet on an American recovery To face the competition from China, Cecilia Rouse: America must invest heavily in order to remain the largest global economy President of the US Central Bank: Cyber ​​crime is a major threat to the global economy How has the United States contributed to China’s GDP growth?

Steel prices in the United States decreased by 14% compared to what they were before the imposition of customs duties, and during that period, employment rates in steel factories did not exceed half the general rate in the private sector, and the shares of American steel companies decreased by 20%.

By the time of the presidential elections in November last year, steel prices were 12% lower than they were before the imposition of customs duties, employment in steel mills decreased by 4.2%, and the share prices of American steel companies lost 28% of their value.

In fact, these tariffs imposed a heavy cost on the entire American manufacturing sector and put American companies that use steel in a real dilemma in terms of competition in global markets, and currently only 80 thousand Americans work in steel production companies, compared to 4 million workers in companies that use steel, Including companies making cars, aircraft, machinery, and metals.

Failure factors

The authors believe that there are 3 main factors that made these measures fail to achieve their stated goal of protecting the American steel industry, and they are:

• What is the response of the countries affected by the imposition of duties – such as Canada and Mexico – to Trump’s measures to reduce their imports of American minerals.
• Trump’s trade war with China and other countries has hurt American manufacturers due to rising supply costs and reduced demand for exports, which in turn led to a decline in domestic sales of American steel.
• Steel manufacturing in the United States remained less efficient and in quality than other advanced economies such as Austria.

Promising indications

The two authors confirm that the chances of the US steel industry to recover have risen dramatically since Trump’s defeat in the presidential election late last year.

Between November 2, 2020 and April 30, 2021, steel stocks rose by 87%, surpassing pre-tariff levels.

The employment rate in steel factories increased by 1.4% by last February, despite the decline in the overall rate in the private sector by 1%, and this recovery is partly due to a number of factors, including the decline in steel supplies coming from the Chinese province of “Hebei”, namely A steel-producing region has been hit hard by the epidemic.

However, Biden’s victory undoubtedly played a major role in this recovery, and the new US president pledged to spend $ 2 trillion on modernizing the steel infrastructure, and Trump made similar promises during his 2016 election campaign, but he did nothing after taking office.

With the Democrats now controlling the White House and both chambers of Congress, investments in infrastructure seem almost certain, and Republicans have proposed allocating $ 568 billion in this regard.

An executive at a US steel company said last December, “The infrastructure bill will be very beneficial for the industry.”

According to the authors, Biden’s handling of the health crisis – in terms of vaccine production and distribution, and financial support for affected families and small businesses – was much better than Trump’s response.

Although Trump expected the economy to collapse if Biden won the elections, what happened is exactly the opposite, as the US economy rebounded in light of optimistic expectations about the end of the epidemic and the reduction of its economic damage.

With Biden in the White House, there is real hope that global trade tensions will ease, and during his election campaign, Biden was cautious in discussing the fate of Trump’s fees, but after taking office he moved towards canceling tariffs imposed on the European Union and the United Kingdom.

These decisions, which ease trade tension with US allies, will revive the US manufacturing sector, which in turn means higher US steel sales.

The most important lessons

The steel industry in the United States still faces great challenges, as the employment rate has decreased since Trump took office in early 2017, and is likely to continue to decline with increased automation, but the solution to this dilemma is not by imposing tariffs and exhausting the manufacturing sector as Trump did.

A more appropriate course for the Biden administration, rather than antagonizing the allies, is to expand aid and rehabilitate workers who have lost their jobs under commercial adjustment assistance programs, innovation law, and workforce opportunities.

According to the authors, the most important lesson that can be drawn from the failure of trade policy during Trump’s presidency, which experts have repeated since the “Smoot-Hawley” tariffs disaster in the 1930s, is that trade wars are not the most appropriate and cheapest solution, as tariffs on steel failed in The revival of the US steel industry has caused higher costs and reduced export opportunities for US manufacturers.

Even as the economic war with China continues, the restoration of trade relations with allies and the looming signs of growth through investment in infrastructure are a source of optimism for the recovery of the steel sector in the United States.