President Trump has imposed stiff penalties on imports of foreign steel. Longtime steel executive Joe Epstein has this Perspective on current conditions in the steel market and whether Trump’s tariff will work.
In the late 1950s, as part of his “Great Leap Forward” to convert post-war China to an industrial economy, Mao Zedong ordered communities to set up backyard kilns and rapidly increase steel production. The results were disastrous. The country turned out millions of tons of substandard steel.
Today, China – already the world’s largest producer of steel – is taking another great leap forward by doubling its steel production and creating a further glut on the world market.
And herein lies the main problem.
Currently, the U.S. has assessed China with anti-dumping penalties limiting their ability to sell to the U.S. With excess supply, China has found many ways to circumvent these penalties and penetrate the US market. For example, many of our foreign trading partners like South Korea and Vietnam buy low-cost steel from China and make products like pipe and tubing for export to the US.
Many American steel merchants have been able to take advantage of these low prices. But many downstream fabricators are unable to compete with lower prices from abroad and have had to close their doors, leaving only foreign sources available to fill the supply chain.
On March 1, Trump announced a sweeping 25% tariff on all foreign steel and 10% on aluminum, although he has yet to offer any real clarity about how long the tariffs should be in place and which countries they would affect. This desire for wholesale changes in US steel trade policy has met with increasing resistance from the US business community, members of his own party, and valuable trading & military partners like Mexico, Canada, South Korea and our NATO allies.
In my view, these tariffs will do little to strengthen the economy and, in my opinion, the multitude of businesses they would harm would be greater than the steel mills they would help, and they would likely cost more jobs than they would create.
This sort of slapdash, spur-of-the-moment trade policy also brings high risk of a massive global trade war, a war no one can win.
With a Perspective, this is Joe Epstein.
Joe Epstein has more than 50 years of experience in the steel business and currently runs a steel trading company in San Francisco.