Trade Actions and U.S. Steel Manufacturing

Trade Actions and U.S. Steel Manufacturing

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June 7, 2018
Trade Actions and U.S. Steel Manufacturing
On March 8, 2018, President Trump signed a proclamation
and galvanized sheet that can then be turned into finished
imposing a duty of 25% on foreign-made steel beginning on
steel products. Semifinished steel products, such as slabs,
March 23. The President acted under Section 232 of the
accounted for about one-fifth of U.S. steel imports in 2017.
Trade Expansion Act (19 U.S.C. §1862, as amended), a
U.S. Demand for Steel Products
decades-old law that allows restrictions, such as tariffs or
quotas, on imports that have been found to harm the
Steel is a supplier industry to four main industrial end-use
national security of the United States.
sectors—construction, automotive, energy, and
Steel Tariff and Quotas
appliances—accounting for more than 80% of combined
domestic demand in 2016. The defense industry represented
Since March 23, 2018, U.S. Customs and Border Protection
another 3% of demand in 2016, according to the American
has been collecting duties on steel imports from China,
Iron and Steel Institute (AISI), an industry trade group.
India, Japan, Russia, Turkey, and Vietnam, among others.
The price of steel produced in the United States tends to be
However, several major steel suppliers were initially
higher than that of comparable steel produced in other
exempted pending negotiations on alternative measures.
countries. Over the past five years, the benchmark hot-
South Korea and Brazil, the third- and fifth-largest
rolled coil price—a proxy for the price of steel used in
suppliers of U.S. steel imports by value, as well as
everything from bridges to microwaves—has been higher
Argentina, accepted annual quotas in place of the 25%
than prices of steel from China and Europe delivered in the
tariff. Australia, a tiny steel supplier to the United States, is
United States.
permanently exempted from the tariff without any quota
limits. On June 1, 2018, the remaining temporary
A report by the Department of Commerce supporting the
exemptions expired, extending the tariff to other key
Section 232 measures argues that for the nation’s steel
sources of steel imports, including Canada, Mexico,
industry to sustain adequate profitability, support continued
Germany, and Italy.
capital investment, and boost domestic production, steel
U.S. Steel Manufacturing Basics
producers should operate at a capacity utilization rate of
80% or greater. U.S. steel mills have rarely operated above
In 2017, domestic production of raw steel totaled 82 million
80% of capacity since 2008, and have often operated below
metric tons, down from 92 million metric tons in 2008,
that level since 1981 (Figure 1).
according to the United States Geological Survey (USGS).
Figure 1. Iron and Steel Products Capacity Utilization
U.S. steel production peaked in 1973 at 137 million metric
tons, and the United States was the world’s top producer.
Steelmaking technology has changed significantly over the
intervening years. Large integrated steel mills—once the
chief producers of steel in the United States—have been
declining in importance. By 2017, about a third of
domestically produced raw steel was made in integrated
steel mills, which use ovens to turn coal into coke and then
combine the coke with iron ore to produce pig iron in blast
furnaces. The pig iron is then melted in a basic oxygen
furnace to produce steel.

As the integrated steel sector has consolidated, many mills
Source: Federal Reserve Board.
have closed. Last year, three companies operated integrated
Steel Industry Jobs and Wages
steel mills at nine U.S. locations, according to USGS,
producing about 26 million metric tons of raw steel.
In 2017, domestic steel producers directly employed
Integrated mills have lost considerable market share to
139,900 workers, accounting for 1.1% of the nation’s 12.4
minimills, which use electric arc furnaces to melt raw
million factory jobs. Over the last decade, U.S. steel
materials (primarily iron and steel scrap) to produce the
manufacturers have shed 13,000 jobs, and the U.S.
majority of steel in the United States. The minimill sector
government forecasts steel industry employment will drop
has lower capital and energy costs, and it operates with a
to 125,300 jobs by 2026.
largely nonunion workforce. In 2017, 54 companies
Workers in iron and steel mill manufacturing earned an
operated minimills in the United States, producing nearly
average wage of $78,900 in 2016; the average wage for all
56 million metric tons of raw steel.
manufacturing workers was $64,900. High unionization is a
Domestic steel production also includes slab converters.
factor that affects industry wages, with close to a quarter of
the nation’s steel workers covered by union contra
These manufacturers do not make raw steel, but purchase
cts in
steel slabs and use them to produce hot-rolled, cold-rolled,
2017; for all factory workers, union membership was 10%.
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Trade Actions and U.S. Steel Manufacturing
Even a significant increase in domestic production of steel
lower than during the 1960s and 1970s, partly because other
is unlikely to result in a sizable number of additional steel
materials, such as aluminum, have replaced steel in many
factory jobs. One reason is that many U.S. steel mills are
uses, and partly because of increased imports of products
highly automated, reducing the need for a large steelmaking
containing steel, such as appliances and hand tools.
workforce. According to the Bureau of Labor Statistics,
Figure 2. U.S. Steel Consumption
labor productivity in steelmaking has nearly tripled since
1987 and has risen 15% over the past decade.
Global Steel Production
In 2017, global production of steel reached a record 1.69
billion metric tons, up roughly 20% from 2010. China
produces close to 50% of the world’s raw steel, depressing
world steel prices and profits of individual companies. The
United States ranked fourth globally in raw steel production
in 2017, accounting for 4.8% of worldwide output. Foreign
shipments of steel mill products to the United States totaled
34.6 million metric tons, meeting approximately one-third

of U.S. steel demand. Canada is the largest source of U.S.
Source: U.S. Geological Survey.
steel imports. Other major exporters of steel to the United
Note: Data for 2017 are estimated.
States are Mexico, the European Union, and South Korea.
Steel-consuming manufacturers, including the auto
The normal U.S. import duty rate on steel products is zero.
industry, appliance makers, the construction sector, and
However, the United States has imposed numerous levies
energy producers, are concerned that the steel tariff could
on foreign steel products after finding that imports were
adversely affect them, which could lead to a decline in their
harming the U.S. industry and were unfairly subsidized by
revenues and profits depending on how long the steel tariff
foreign governments or were sold below cost in the U.S.
remains in place. For any given product, it is hard to predict
market. More than a fifth of the antidumping and
whether domestic producers will absorb the cost of more
countervailing duty orders currently in place affect imports
expensive steel, pass the cost on in the form of higher prices
from China. In cases where steel imports already are subject
to consumers, or do some of both.
to antidumping or countervailing duties, the new tariffs are
The steel tariffs and quotas could cause industrial
imposed in addition.
consumers of steel to manufacture more of their goods
Potential Implications
abroad to take advantage of cheaper foreign steel. If that
occurs, it may prove difficult for U.S.-based steelmakers to
If the United States ultimately excludes a sizable number of
achieve the higher capacity utilization the Department of
major trading partners or steel products from the trade
Commerce seeks.
actions, the tariff will likely have a modest effect on the
overall level of imports and hence little impact on domestic
It is also possible that the trade tariffs and quotas, combined
production and prices. The Section 232 trade action allows
with ongoing challenges affecting the steel industry, could
U.S. companies to petition the Department of Commerce to
reduce the incentive for domestic manufacturers to
exclude specific imported steel products from the tariffs.
undertake major investments in new capacity. According to
The department is reportedly reviewing upwards of 8,000
the U.S. Census Bureau, investment by the U.S. steel
steel product exclusion requests; it has yet to issue any
industry in plants and equipment totaled $2.7 billion in
determinations. U.S. companies have raised concerns about
2016 compared to $7.1 billion in 2013.
the burdensome nature of the exemption process.
The U.S. steel tariff is unlikely to fully insulate domestic
On the other hand, domestic steel producers could benefit if
steelmakers from the effects of excess global capacity,
prices rise as a result of the steel tariff or because trading
which the Organization for Economic Cooperation and
partners limit steel exports to the United States to avoid
Development (OECD) says exceeds 700 million metric
U.S. duties. Two domestic steel manufacturers have already
tons. About half the world’s steelmaking capacity is now in
restarted, or announced plans to restart, idled blast furnaces,
China, and even though little Chinese steel is imported into
partly attributing their decision to anticipated increased
the United States, Chinese exports weigh on steel prices
demand for U.S.-made steel.
around the world.
Conversely, the steel tariff could negatively affect some
Related CRS Products
U.S. steelmakers if sales of U.S.-made steel products to the
world slow down. Exports accounted for 13% of U.S. raw
CRS In Focus IF10667, Section 232 of the Trade Expansion Act
steel production in 2017.
of 1962, by Rachel F. Fefer and Vivian C. Jones
One continuing challenge for U.S. steelmakers is that
domestic demand for steel is generally stagnant. Since

2010, the United States has consumed about 96 million
metric tons of steel annually, on average. This is
Michaela D. Platzer, Specialist in Industrial Organization
significantly less than in the 2000-2009 period, marked by
and Business
two recessions, and slightly below the average from 1990 to
IF10902
1999 (see Figure 2). Steel consumption per person is far

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Trade Actions and U.S. Steel Manufacturing

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https://crsreports.congress.gov | IF10902 · VERSION 2 · NEW