Trump Tariffs Help Sink US Steel: Investigating a Trump "Big Win"

Mish

US Steel wanted Trump to put tariffs on Chinese steel imports. The company is not at all pleased with the results.

Big Win!

Investigating the Big Win

Bloomberg reports Trump's Tariff Twist Cost U.S. Steel $5.5 Billion.

President Donald Trump’s tariffs on foreign steel have sped the decline of some of the U.S. mills he vowed to help.

Exuberance over the levies dramatically boosted U.S. output just as the global economy was cooling, undercutting demand. That dropped prices, creating a stark divide between companies like Nucor Corp., that use cheaper-to-run electric-arc furnaces to recycle scrap into steel products, and those including U.S. Steel Corp., with more costly legacy blast furnaces.

Since Trump announced the tariffs 16 months ago, U.S. Steel has lost almost 70% of its market value, or $5.5 billion, and idled two American furnaces in mid-June that couldn’t be run profitably at the lowest prices since 2016. Meanwhile, Nucor, down around 20%, has touted $2.5 billion in expansion projects.

Last July, Trump stood on a makeshift stage at a U.S. Steel mill in Granite City, Illinois, and beamed as workers cheered the tariffs. At that point, the company had already restarted one of two blast furnaces at Granite City, and vowed the second would soon be brought online.

“Workers are back on the job, and we’re once again pouring new American steel into the spine of our country,” Trump said during the hour-long program. “U.S. Steel is back.”

“Less efficient capacity should go away, but there is no guarantee that it permanently goes away,” Bank of America’s Tanners said. “It probably doesn’t go down without a fight.”

Dumping Nonsense

The US Steel debacle shows just how ludicrous the "China is dumping steel" meme really is.

The irony is US Steel corp. cannot even compete with the tariffs that it wanted.

Meanwhile chalk up another tariff "win" for the president.

Mike "Mish" Shedlock

Comments (50)
No. 1-17
Ted R
Ted R

I have to admit his tariff's haven't helped American industry much. Or even at all.

Sechel
Sechel

Tariffs usually never do help. An exception might be for young industries that don't have economies of scale but even then its questionable. Thinking about Whirlpool that got similar relief. They just raised prices and gave their CEO a fat bonus. Company will not undertake any action to improve competitiveness. The tariffs are simply a tax , collected by the company in the form of higher prices.

Anyone who thought the tariffs would help was guided more by Trump's tweeting than by an understanding of basic economics. Anyone who has opened up a Mankiw economics text as an undergrad should have told you that.

That our President who has a Wharton degree advocated otherwise brings to question whether he attended school. We should all demand proof he attended K-5th grade even.

JonSellers
JonSellers

Blast furnaces: the grand symbol of the utter incompetence of American executive management.

Je'Ri
Je'Ri

The continuing sales pitch that the tariffs are not a tax on the American people is mind-boggling. I particularly love the tariffs "on Mexico" to force the border control issue; in a sane world, the Trump administration would be taxing remittances, many of which are being sent by illegals to families back home; that would make Mexico and other source-countries pay.

numike
numike

Americans Shocked to Find their Rights Literally Vanish at U.S. Airports The number of people detained, their phones and laptops searched without warrants, is exploding. Why? https://www.theamericanconservative.com/articles/americans-rights-are-literally-vanishing-at-the-airport/

thimk
thimk

@gflop , not sure if it is TDS, but protecting a business via tariffs that doesn't invest in its own plant, property and equipment to remain competitive is not smart.

Webej
Webej

WIn WIn WIn. If China starts to export more steel because Americans aren't making it, they will have to pay more to subsidize the steel dumping. Because they have to remain competitive, they have to subsidize even more to compensate the tariffs. So you see, having China dump more subsidized steel is actually a tricky way to make them lose big time, and if they are losing, we are winning. All we have to figure out now is how we can stop them from using our piggy bank instead of their own. Maybe closing down the Fed and (our ability to monetize our military expenditures) would really give it to them. We could still have a military if we force them to pay for it from their piggy-bank, otherwise Huawei is out for good. So there.

Carl_R
Carl_R

Well, the tariff is having the intended effect. Per the article, Nucor is expanding. Forget US Steel. I don't think anything can save them.

Sechel
Sechel

Life has come full circle for US steelmakers. U.S. Steel Corporation announced the curtailment of two blast furnaces last month. Ironically, the announcement came on the same day that President Trump started his 2020 campaign. During his 2016 campaign, President Trump’s key platform was protecting steel jobs. U.S. Steel Corporation restarted two blast furnaces at its Granite City facility last year. President Trump visited the facility after the announcement.

gflop
gflop

@thimk and @Carl_R ... US Steel has been whining about unfair trade and the need for tariffs at least since the Kennedy / LBJ presidencies (maybe before that).

US Steel complained about evil British steel makers getting government subsidies. UK government went bankrupt, got an IMF bailout, Thatcher privatized many money losing companies including steel. US Steel "successfully" avoided modernizing their furnaces.

At that point (late 1960s to middle 70s), China was still under Mao, and Deng Xiopeng hadn't implemented any of the reforms that turned China into an industrial power. Trump was probably in high school. Neither China nor Trump were involved. US Steel already had a problem.

Next the evil Japanese started winning against US Steel. US Steel complained to Carter (maybe?) and definitely Reagan about the need for tariffs. Ninjas, sumu wrestlers, all sorts of excuses... The Japanese simply had more efficient furnaces.

Next, the South Koreans built steel plants that were more efficient still. US Steel complained again / more, we need tariffs, blah blah blah. Never upgraded their own facilities.

And now the Chinese have "cheated" by building more efficient steel plants. Same drill from US Steel. It has nothing to do with China or Trump. Tariffs aren't really the issue either. Its the antiquated steel mills of US Steel.

Trump is a negotiator and knows he needs allies to get his ideas pushed into law. He knows US Steel's excuses, he used lots of steel to make his ugly buildings. He knows the tariff thing is stupid. But Trump also knows he can leverage the issue to get more important trade initiatives passed. Seems like a practical solution to me. Negotiate by demanding something crazy, and then "settle" for what you really want. Its definitely not how Washington DC has handled things in recent decades, but then DC has been hopelessly ineffective for decades.

I think Mish knows all this, but his Trump Derangement Syndrome often gets in his way :)

Matt3
Matt3

Mish, Is free trade a religion that everything else is supposed to bow to? How would you protect vital industries? Are you ok with buying from the cheapest source if the source is trashing the environment and enslaving workers? If not, what methods would you employ to change this? Drop the environmental protections in the US? Attempt to enslave US workers? US Steel can't compete with Nucor. Steel prices have declined as the auto industry has. They are a big steel user.

Maximus_Minimus
Maximus_Minimus

Yes. Trump's tariffs are killing US Steel, that has a big steel mill in Slovakia. Trump's tariffs redirected the dumping, and the problems to the European mills. Reality hurts.

Runner Dan
Runner Dan

“President Donald Trump’s tariffs on foreign steel have sped the decline of some of the U.S. mills he vowed to help. Exuberance over the levies dramatically boosted U.S. output just as the global economy was cooling, undercutting demand. That dropped prices, creating a stark divide between companies like Nucor Corp., that use cheaper-to-run electric-arc furnaces to recycle scrap into steel products, and those including U.S. Steel Corp., with more costly legacy blast furnaces.”

Love the slant: “Trump’s tariffs actually hurt the US steel mills. Now, there is a world-wide slowdown in steel consumption and even the most efficient offshore mills are feeling the pinch, but that is all Trump’s fault! Oh, and US Steel runs crappy, outdated mills, but that’s Trump’s fault too!”

Carl_R
Carl_R

Clearly US Steel is too inefficient to benefit from a 25% tariff. Perhaps a 50% tariff would do it? Maybe 100%?

What is missing from this article is information regarding all the US Manufacturers who use steel. What economics tells you will happen when you impose a 25% steel tariff is:

  1. Steel prices rise, mostly likely about 20%, as much as the steel makers think they can get, while still having a price advantage.
  2. Manufacturers who use steel in the US will buy more American Steel, resulting in a temporary boost to sales.
  3. Manufacturers who use steel in the US find themselves at a 20% cost disadvantage to manufactures of the same products who make their product overseas, and who can use cheaper foreign steel without a tariff.
  4. American manufacturers who use steel either move production out of the US, or see a huge drop in sales, or are forced to eat the extra cost, limiting their profitability and ability to invest.
  5. American manufacturers who use steel use less and less steel as their sales drop

It would appear that this is what happened. US Steel saw a big jump in demand, but it has vanished, presumably due to less manufacturing being done in the US that uses steel. You could raise the tariffs, and it would be more of the same, until eventually there are no manufacturers in the US who use steel.

Casual_Observer
Casual_Observer

Trump seems to be a case of two negative numbers multiplying to become a positive. But that only works so long in economics. GDP numbers are now below 2% again. It will be an interesting summer and fall to say the least.

Realist
Realist

Trump believes he can pick the winning industries. So far he has gone out of his way to promote steel, coal, farmers, Harley Davidson etc.

The results so far have been nothing but hardship for his self-anointed “winners”. Steel mills closing, coal companies going out of business, farmers going bankrupt, Harley moving production to India…

It appears the last thing any business would want is Trump’s support.

Harbour
Harbour

The tariffs are just about trying to cage the Chinese Dragon - too little too late.


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