Steel tariffs bad for Ohio, expert says

Jerrod Mogan
Wed, 21 Mar 2018 02:26:32 +0000
Campus, National, News, Online Exclusive, Politics, Web, infrastructure spending, ohio state, ohio steel, Ohio Steel Council, ohio steel industry, osu, steel tariff, supply side economics, Trump infrastructure plan, Trump steel tariff

A U.S. Steel plant in Gary, Indiana. U.S. Steel said it will reopening a blast furnace in Granite City, recalling 500 workers, after President Donald Trump announced a 25 percent tariff on steel imports. Credit: Courtesy of TNS

Ohio is the nation’s second-largest producer of steel, but the state has still been bleeding jobs from the industry. Can President Donald Trump’s tariff on imported steel help reverse the trend?

The 25-percent steel tariff, as well as a 10 percent tariff on aluminum imports, was signed by Trump on March 8 as an act his administration said could protect domestic production from unfair trade practices.

There is no doubt Ohio’s steel producers could use some relief. That relief is expected to come on Friday when the tariff on steel imports goes into effect, giving domestic producers a competitive advantage in the market.

John Willoughby, executive director of the Ohio Steel Council, said the tariff will put an end to unfair trade practices and hopefully directly benefit some Ohio communities.

“If the announcements that have been made concerning restarting idled steel production come to fruition; steel employment, steel processing and steel-connected communities should all benefit,” he said in an email.

However, industries that rely on steel production vastly outnumber steel producers in Ohio. A benefit to steel producers can still be a detriment to the state if it is harmful to steel consumers.

That’s what Ned Hill, an Ohio State professor in public administration and city and regional planning, expects to happen.

“[The tariffs] are going to result in price increases to the users of steel,” Hill said. “The importance of steel is it’s deep in the supply chain, and the products people buy are in other industries.”

Hill said the competitive advantage given to domestic steel producers will do little to create steel-working jobs and comes at a cost to much larger Ohio industries that use steel in the manufacturing of their products.

“There are only 7,400 [to 7,700] steel workers in the state of Ohio,” he said, “and Honda by itself employs 14,000 people. The auto industry dwarfs it. The appliance industry dwarfs it.”

The price of steel is roughly $200 per ton more expensive in the United States than in Europe, Hill said. Tariffs will help reduce that margin, but the added expense will be paid by consumers.

“Each time that 25 percent gets passed on, it gets marked up,” Hill said. “The end result is the price of a vehicle will go up.”

He said other Ohio industries — especially agriculture — that don’t rely on steel or aluminum also would be harmed if a trade war erupts.

Brazil is the second-largest exporter of steel into the U.S. and is one of the country’s main agricultural competitors. Because of this, countries might be tempted to trade more frequently with Brazil in retaliation to a tariff, Hill explained.

“If the U.S. throws up a tariff wall against one particular country that buys a lot of soybeans and corn from the United States, and they start picking up soybeans and corn from Brazil or Argentina, again the agricultural sector will get hurt and that will hurt us all,” he said. “So, this is just pretty dumb.”

Hill said the exemptions given to Canada and Mexico were a display of “sanity in the middle of making up the rules as we go along,” but also will make strategic and diplomatic allies question why they were not exempted.

Even countries that export insignificant amounts of steel to the U.S. reacted strongly to the tariffs, Hill said.

“I was just on a radio show in Britain this afternoon where they bounced off the walls, and they supply less than 1 percent of U.S. steel,” he said.

The employment losses in Ohio’s steel industry, which at one point employed nearly 14,000 people in Northeast Ohio alone,were not caused by unfair trade practices, Hill said.

“Steel demand now in the United States is lower than it was in the ‘60s,” he said.

Many makers of products that once relied on steel — like automobiles and home appliances — have turned to cheaper and more durable alternatives like plastic, Hill said. Regarding construction, he said an example of how builders turned to cheaper alternatives can be seen in the new apartments being built around Ohio State.

“The trusses are all composite wood. In the old days that’d have steel. So, what’s happened is a bunch of glued-together woodchips are as strong as a steel high beam,” he said.

Midwestern producers have also suffered because much demand for steel has moved to the South, Hill said.

“Steel is heavy to ship. So therefore, new steel mills which are closer to where the construction activities are taking place are gaining market shares,” he said.

The last time steel tariffs were imposed by the United States was 2002 by George W. Bush’s administration. Hill said it’s difficult to know what effect they had because they were implemented during a recession, but noted employment dropped and plants closed.

Much like the current tariffs, those in 2002 were designed to protect the steel industry from unfair trade practices, Hill said, but the problems producers faced were homegrown.

“It was blamed on dumping when really there was too much supply and not enough demand,” he said.

Historically, the best way to help domestic steel producers without disrupting other industries has been investing in infrastructure, Hill said. Similar investments today would be a much wiser approach than tariffs, he said.

To that end, Trump announced an infrastructure plan in February, calling for $1.5 trillion to be invested, including $200 billion in federal funds.

“There’s no question that the steel industry would’ve had a more positive effect if a major infrastructure build took place,” Hill said, “and you wouldn’t have had any of the threatened blowback from trade retaliation.”